Earnings

Will continuing growth in the cloud boost Alibaba’s share price?

Despite the broad market downturn in March, Alibaba Group’s [BABA] share price is up 2.4% on the Nasdaq so far this year after closing at $217.20 on 19 May.

The Chinese tech giant has taken an active role in combatting COVID-19, which has helped share price growth, as has its core businesses in e-commerce and cloud computing. 

The share price has a 50-day moving average of $201.39, representing a 14.2% increase from its March low of $176.34.

 

 

What should share price investors and traders look out for ahead of Alibaba’s earnings release for the fourth quarter and fiscal year ended March on Friday (22 May)? 

 

Strong past performance

Alibaba’s third-quarter results were released on in mid-February, before the full extent of how the coronavirus outbreak would impact businesses around the world had been revealed. 

At the time, the company reported a solid third-quarter performance. It beat both earnings and revenue estimates, with earnings of RMB19.55 per American deposit share (ADS) surpassing Zacks Equity Research estimates by 16%.

It reported revenues of RMB161.5bn thanks to growth in its commercial retail and cloud computing businesses, which beat the research firm’s consensus estimate of $22.68bn. 

RMB161.5bn

Alibaba's reported Q3 revenue

  

While the company did not provide any guidance for the upcoming quarter, CEO Daniel Zhang pointed to rapid growth and noted that the company’s “cloud computing services for the first time generated revenue of over RMB10 billion in a single quarter”.

Despite the lack of an outlook for the fourth quarter, it’s worth noting that the company has surpassed Wall Street estimates in the past four quarters and has an average earnings surprise of 19.5%, according to Zacks Equity Research.

 

Market Cap$589.418bn
PE ratio (TTM)63.02
EPS (TTM)3.50
Quarterly Revenue Growth (YoY)37.70%

Alibaba share price vitals, Yahoo Finance, 20 May 2020

 

Core commerce and the cloud

With China’s retail sales down 15.8% year-on-year in the first quarter of 2020, according to the China Ministry of Commerce, Alibaba is likely to see a dip in its commerce revenue for the recent quarter.

However, the commerce giant’s Taobao Live marketplace is pegged to have seen an increase in sales in the first few months of the year due to the waiving of all service fees in early February.

15.8%

YoY decline of China's Q1 retail sales

  

“As a result, the number of merchants utilising Taobao Live for the first time surged 719% in February, compared to January,” the company said in a business update on 30 March.

Meanwhile, the stay-at-home economy has put technology in focus on the business stage and cloud computing is emerging as key to that.

As the data intelligence backbone of the group, Alibaba Cloud has been offering its services to medical personal around the world since 19 March in a bid to help fight against the pandemic.

One of the services that have proved to be successful is the company’s DingTalk platform, which is used by 120 million students across China for their live-streamed online courses. DingTalk has been adapted to create an International Medical Expert Communication Platform for medical workers and institutions all over the world. 

Considering that Alibaba Cloud brought in a record RMB10bn of revenue in the third quarter, it is likely that it could achieve a better than expected performance in the upcoming earnings announcement.

“The aspects of Alibaba that deal with physical goods will be impacted by Covid-19, without a doubt. But Alibaba also has services that will thrive because of the virus. Alibaba Cloud is evolving to become what AWS is to Amazon [AMZN] or Azure to Microsoft [MSFT]: a big driver of profits,” From Growth to Value, writing on Seeking Alpha, recently concluded.

The stock has an average buy rating among 56 analysts polled by MarketWatch.

“The aspects of Alibaba that deal with physical goods will be impacted by Covid-19, without a doubt. But Alibaba also has services that will thrive because of the virus. Alibaba Cloud is evolving to become what AWS is to Amazon or Azure to Microsoft: a big driver of profits” - From Growth to Value, writing on Seeking Alpha

 

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