What to Expect From Alibaba Group Holding Ltd Stock Earnings
Alibaba Group Holding Ltd (NYSE:BABA) recently turned 18 years old. Yet the company still seems like a plucky startup. As of this writing, for the year so far, Alibaba has logged a sizzling return of 110% bringing the BABA stock price up to $184.89.
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But on Thursday, we’ll get more details on how things are progressing, as the company will disclose its quarterly numbers.
So here’s what the Street is looking for. Earnings are expected to hit $1.03 per share, up 30% on a year-over-year basis, and revenues are forecasted to reach $7.85 billion, up an impressive 52%. These numbers are essentially on par with the outlook from BABA’s management.
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The quarter also saw some notable announcements, such as the following:
BABA acquired EJoy, a top gaming company in China. This is a move against rivals like Tencent Holdings Ltd (OTCMKTS:TCEHY) and NetEase Inc (ADR) (NASDAQ:NTES), which are the dominant players in the category.
Over the next three years, BABA plans to invest up to $15 billion in R&D. The focus will be on “both foundational and disruptive technology research including data intelligence, Internet of Things (IoT), fintech, quantum computing and human-machine interaction.”
BABA set forth its ambitious program for bolstering its logistics platform, which will involve a company called Cainiao Smart Logistics Network Limited. This will also involve spending up to $15 billion over the next three years.
BABA entered an agreement with the Ministry of Economy of Mexico to help Mexican small and medium-sized businesses sell to the Chinese market.
The Growth Drivers for BABA Stock
The rise of BABA stock should be no surprise. The company is the dominant player in the Chinese e-commerce market with 454 million active buyers.
And yes, the growth is likely to continue for some time. By 2021, e-commerce spending in China is expected to jumped from $470 billion this year to $839.54 billion.
But when it comes to BABA stock, the story is more than just about e-commerce. During the past few years, the company has leveraged its user base into other important categories like video (with the Youku acquisition), cloud computing and even entertainment. There have also been savvy investments in operators like Weibo Corp (ADR) (NASDAQ:WB) and Momo Inc (ADR) (NASDAQ:MOMO).
Interestingly enough, in a shareholder letter from Jack Ma, the executive chairman of BABA, he called the opportunity the “Alibaba economy.” The focus is primarily on the long term, with the bold forecast that by 2036, the company’s digital platform will “support commerce activity with a combined transaction value that will rank as the world’s fifth-largest economy.”
Bottom Line on BABA Stock
Now this is not to imply that BABA stock is not without its risks. Let’s face it, the Chinese market is heavily controlled by the government. In fact, during the summer, the authorities had a crackdown on some of the social networks because of political speech.
Besides, BABA does face more competition. One of its fiercest rivals is JD.Com Inc (ADR) (NASDAQ:JD), which has been gaining traction. But Tencent could be a major problem too, as it controls massive digital platforms like WeChat.
However, perhaps the biggest risk for BABA stock is that the investor sentiment is almost giddy. For the most part, investors are looking for a solid beat.
True, over the past couple years, BABA has done fairly well on earnings. But then again, there have been misses too. So with the upcoming earnings report, it’s probably best to wait on the sidelines and see what happens. Even a slight miss could knock down the stock.
Tom Taulli is the author of High-Profit IPO Strategies, All About Commodities and All About Short Selling. Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.
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