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Alibaba's (BABA) Q1 Earnings Coming Up: Should You Hold or Sell?
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Alibaba Group Holding Limited (BABA - Free Report) is scheduled to report first-quarter fiscal 2025 results on Aug 15.
For the fiscal first quarter, the Zacks Consensus Estimate for revenues is pegged at $34.95 billion, suggesting an 8.2% rise from the year-ago quarter’s reported figure.
The Zacks Consensus Estimate for earnings is pinned at $2.20 per share, indicating a fall of 8.3% from the prior-year quarter’s reported figure. The figure has moved 1.8% south over the past 30 days.
Image Source: Zacks Investment Research
Alibaba has a mixed earnings surprise history. In the last reported quarter, the company delivered an earnings surprise of 12.9%. Its earnings beat the Zacks Consensus Estimate in three of the trailing four quarters and missed the same once, the average surprise being 8.49%.
Image Source: Zacks Investment Research
Earnings Whispers
Our proven model does not conclusively predict an earnings beat for Alibaba this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of an earnings beat. This is not the case here. You can uncover the best stocks to buy or sell before they are reported with our Earnings ESP Filter.
BABA has an Earnings ESP of +11.82% and carries a Zacks Rank #4 (Sell) at present.
Alibaba’s solid momentum in its international commerce retail business is likely to have aided the performance of International Digital Commerce Group.
Strength in AliExpress, Trendyol and Alibaba.com is expected to have benefited the overseas e-commerce business significantly. Growing investments in key markets are anticipated to have improved the brand recognition of AliExpress and Trendyol.
The integration of AI and other advanced technologies into the company’s e-commerce platform to improve cross-platform product listing, product details, multilingual search and targeted recommendations is expected to have contributed well.
The company’s growing relationships with small and medium-sized enterprises (SMEs) on the back of AI integration are likely to have benefited its international commerce business. The solid uptake of AI Business Assistant is anticipated to have been a plus.
The introduction of Alibaba Guaranteed, which is a platform that simplifies B2B cross-border trade for SMEs by offering supply-chain reliability, is expected to have driven the company’s momentum among various global SMEs globally.
The launch of an affordable logistics solution, namely Logistics Marketplace, for SMEs in the United States is likely to have been a plus.
In addition to the international business, improving China commerce retail business on the back of strength in Taobao and Tmall Group is expected to have aided Alibaba’s fiscal first-quarter performance.
The company’s increasing investments in driving price competitiveness and elevating the user experience are likely to have boosted customer engagement on the Taobao and Tmall platforms.
In the fiscal first quarter, Taobao and Tmall Group entered a partnership with the China-based short video platform Douyin to launch the "Star Cube Plan" by integrating Alibaba-affiliated digital marketing platform Alimama and Douyin's digital marketing tool Xingtu.
The Star Cube Plan, which is meant to help domestic merchants on the Taobao and Tmall platforms to convert Douyin users into active customers, is expected to have boosted traffic on the Taobao and Tmall platforms.
However, macroeconomic headwinds prevailing in China are expected to have impacted the company’s domestic e-commerce business negatively.
Sluggish consumer discretionary spending is likely to have been a negative for the business in the quarter under review.
Apart from e-commerce, strong momentum across domestic consumer logistics services and cross-border fulfillment solutions is expected to have benefited the Cainiao Smart Logistics Network segment in the quarter under review.
The company’s robust cloud segment is expected to have sustained its momentum in the to-be-reported quarter, with strength among customers in the financial services, education, electric power and automobile industries.
In April 2024, Alibaba Cloud slashed prices for international customers from the United States to Singapore by up to 59%. As a result, there is an average reduction of 23% across five categories — compute, storage, network, database and big data products — for customers using Alibaba's data centers out of mainland China.
This price-cut strategy is expected to have bolstered Alibaba Cloud’s global reach.
However, growth of Alibaba in the global cloud market has been significantly hindered due to rising competition from the leading cloud players, namely Amazon (AMZN - Free Report) , Microsoft and Alphabet’s Google. This is anticipated to have continued hurting Alibaba Cloud’s prospects in the fiscal first quarter.
Price Performance & Valuation
Alibaba’s shares have gained 3.2% on a year-to-date basis, underperforming the industry, the Zacks Retail-Wholesale sector and the S&P 500 index’s rise of 6.5%, 5.7% and 11.7%, respectively.
Meanwhile, BABA has outperformed its peers JD.com (JD - Free Report) and PDD Holdings (PDD - Free Report) , which have lost 10.4% and 5.7% year to date, respectively.
Year-to-Date Price Performance
Image Source: Zacks Investment Research
Now, let us look at the value that Alibaba offers to its investors at current levels.
Currently, BABA is trading at a discount with a forward 12-month P/S of 1.4X compared with the industry’s 1.75X.
Image Source: Zacks Investment Research
Investment Thesis
Although Alibaba's cheap valuation presents a good investment opportunity, its Growth Score of D is hard to ignore, given the uncertainties surrounding its prospects.
The company’s expanding international commerce business, along with growing traction in its domestic e-commerce business, is a major positive. Its strategic investments and a deepening focus on the innovation of products and services with the power of AI present room for growth.
However, macroeconomic challenges, including high interest rates and inflationary pressures, act as major headwinds.
Weak market conditions and declining export volume in China are weighing heavily on China-based e-commerce companies.
Escalating tensions between the United States and China are also concerning. Although this geo-political technological war is not directly related to the e-commerce industry, its residual effect does not bode well for Alibaba and other similar companies.
These factors are making the near-term prospects of Alibaba foggy.
Against this backdrop, selling the BABA stock now appears to be a prudent move.
Image: Bigstock
Alibaba's (BABA) Q1 Earnings Coming Up: Should You Hold or Sell?
Alibaba Group Holding Limited (BABA - Free Report) is scheduled to report first-quarter fiscal 2025 results on Aug 15.
For the fiscal first quarter, the Zacks Consensus Estimate for revenues is pegged at $34.95 billion, suggesting an 8.2% rise from the year-ago quarter’s reported figure.
The Zacks Consensus Estimate for earnings is pinned at $2.20 per share, indicating a fall of 8.3% from the prior-year quarter’s reported figure. The figure has moved 1.8% south over the past 30 days.
Image Source: Zacks Investment Research
Alibaba has a mixed earnings surprise history. In the last reported quarter, the company delivered an earnings surprise of 12.9%. Its earnings beat the Zacks Consensus Estimate in three of the trailing four quarters and missed the same once, the average surprise being 8.49%.
Image Source: Zacks Investment Research
Earnings Whispers
Our proven model does not conclusively predict an earnings beat for Alibaba this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of an earnings beat. This is not the case here. You can uncover the best stocks to buy or sell before they are reported with our Earnings ESP Filter.
BABA has an Earnings ESP of +11.82% and carries a Zacks Rank #4 (Sell) at present.
You can see the complete list of today’s Zacks #1 Rank stocks here.
Factors to Focus on Ahead of Q1 Results
Alibaba’s solid momentum in its international commerce retail business is likely to have aided the performance of International Digital Commerce Group.
Strength in AliExpress, Trendyol and Alibaba.com is expected to have benefited the overseas e-commerce business significantly. Growing investments in key markets are anticipated to have improved the brand recognition of AliExpress and Trendyol.
The integration of AI and other advanced technologies into the company’s e-commerce platform to improve cross-platform product listing, product details, multilingual search and targeted recommendations is expected to have contributed well.
The company’s growing relationships with small and medium-sized enterprises (SMEs) on the back of AI integration are likely to have benefited its international commerce business. The solid uptake of AI Business Assistant is anticipated to have been a plus.
The introduction of Alibaba Guaranteed, which is a platform that simplifies B2B cross-border trade for SMEs by offering supply-chain reliability, is expected to have driven the company’s momentum among various global SMEs globally.
The launch of an affordable logistics solution, namely Logistics Marketplace, for SMEs in the United States is likely to have been a plus.
In addition to the international business, improving China commerce retail business on the back of strength in Taobao and Tmall Group is expected to have aided Alibaba’s fiscal first-quarter performance.
The company’s increasing investments in driving price competitiveness and elevating the user experience are likely to have boosted customer engagement on the Taobao and Tmall platforms.
In the fiscal first quarter, Taobao and Tmall Group entered a partnership with the China-based short video platform Douyin to launch the "Star Cube Plan" by integrating Alibaba-affiliated digital marketing platform Alimama and Douyin's digital marketing tool Xingtu.
The Star Cube Plan, which is meant to help domestic merchants on the Taobao and Tmall platforms to convert Douyin users into active customers, is expected to have boosted traffic on the Taobao and Tmall platforms.
However, macroeconomic headwinds prevailing in China are expected to have impacted the company’s domestic e-commerce business negatively.
Sluggish consumer discretionary spending is likely to have been a negative for the business in the quarter under review.
Apart from e-commerce, strong momentum across domestic consumer logistics services and cross-border fulfillment solutions is expected to have benefited the Cainiao Smart Logistics Network segment in the quarter under review.
The company’s robust cloud segment is expected to have sustained its momentum in the to-be-reported quarter, with strength among customers in the financial services, education, electric power and automobile industries.
In April 2024, Alibaba Cloud slashed prices for international customers from the United States to Singapore by up to 59%. As a result, there is an average reduction of 23% across five categories — compute, storage, network, database and big data products — for customers using Alibaba's data centers out of mainland China.
This price-cut strategy is expected to have bolstered Alibaba Cloud’s global reach.
However, growth of Alibaba in the global cloud market has been significantly hindered due to rising competition from the leading cloud players, namely Amazon (AMZN - Free Report) , Microsoft and Alphabet’s Google. This is anticipated to have continued hurting Alibaba Cloud’s prospects in the fiscal first quarter.
Price Performance & Valuation
Alibaba’s shares have gained 3.2% on a year-to-date basis, underperforming the industry, the Zacks Retail-Wholesale sector and the S&P 500 index’s rise of 6.5%, 5.7% and 11.7%, respectively.
Meanwhile, BABA has outperformed its peers JD.com (JD - Free Report) and PDD Holdings (PDD - Free Report) , which have lost 10.4% and 5.7% year to date, respectively.
Year-to-Date Price Performance
Image Source: Zacks Investment Research
Now, let us look at the value that Alibaba offers to its investors at current levels.
Currently, BABA is trading at a discount with a forward 12-month P/S of 1.4X compared with the industry’s 1.75X.
Image Source: Zacks Investment Research
Investment Thesis
Although Alibaba's cheap valuation presents a good investment opportunity, its Growth Score of D is hard to ignore, given the uncertainties surrounding its prospects.
The company’s expanding international commerce business, along with growing traction in its domestic e-commerce business, is a major positive. Its strategic investments and a deepening focus on the innovation of products and services with the power of AI present room for growth.
However, macroeconomic challenges, including high interest rates and inflationary pressures, act as major headwinds.
Weak market conditions and declining export volume in China are weighing heavily on China-based e-commerce companies.
Escalating tensions between the United States and China are also concerning. Although this geo-political technological war is not directly related to the e-commerce industry, its residual effect does not bode well for Alibaba and other similar companies.
These factors are making the near-term prospects of Alibaba foggy.
Against this backdrop, selling the BABA stock now appears to be a prudent move.
Stay on top of upcoming earnings announcements with the Zacks Earnings Calendar.