The Chinese tech giants kick start the earnings reports this week, with Alibaba reporting its first-quarter performance on 13 May tentatively based on data from Bloomberg. The e-commerce giant’s shares quartered since October 2022, due to the regulatory crackdowns, global headwinds, and recent China Covid-lockdowns. Despite all the negatives, the diversified business model, and an ongoing share buyback plan could provide some optimism to the beaten-up Alibaba stocks.
Slowing revenue growth of the e-Commerce
Alibaba reported the slowest revenue growth of 10% in the final quarter, due to softening domestic spending. It is expected the e-Commerce revenue may continue to be negatively affected by the domestic Covid restrictions, and the global supply-chain disruptions caused by the Ukraine war.
In the structure of Alibaba’s earnings reports, the domestic commerce revenue accounts for 71% vs. the international Rev. of 7% in its final quarter, in which Alibaba’s Client Management Revenue (CMR) becomes a key metric that has a major impact on its e-commerce income, accounting for 41% of the total revenue. The downside risks are that CMR income may see a further slowdown in growth due to competition from rivals, such as JD.com and Pinduoduo. However, some analysts expect its newly developed segments, including Taote, and Taocaicai could help the e-commerce giant to grow its annual number of domestic active users to 1 billion by the end of FY 2022. According to Nasdaq, Alibaba’s EPS is expected at US$0.67 for the first quarter, or a 53% drop annually.
Cloud computing is also a highlight in its earnings report. Alibaba Cloud accounts for 5% of the global market shares, following Amazon AWS, Microsoft Azura, and Google Cloud. In its prior final quarter’s report, the Alibaba cloud contributed 8% of the total revenue, or a 20% growth year on year, down from 30% yearly growth from the third quarter. While its services primarily focus on non-English-speaking users, Alibaba has started growing its English-speaking clients in western countries. However, the cloud business’ growth may see further slowing down due to severe competition from Tencent, Huawei, and China Telecom.
Regulatory issues vs. undervalued share price
The ongoing regulatory crackdowns by Beijing are the major negative factors for Alibaba. Further, the potential risk of US-delisting also weighs on the stocks’ price. With ongoing China’s Covid-lockdowns, weak second-quarter guidance is expected. However, most sell-side brokerage analysts still issue a “buy rating” due to a highly undervalued share price. Alibaba increased its share buyback amount to US$25 billion in March, which could continue to provide support for its stocks.
Technical analysis - No clear signs of major bottoming reversal for Alibaba(Click to see the enlarged picture) (Click to see the enlarged chart) Source: CMC Markets & TradingView as of 10 May 2022
Since its 27 October 2020 all-time of 319.28, the share price of Alibaba ADR (BABA) has been evolving within a major downtrend channel with the upper boundary of the channel now acting as a significant resistance at 102.70. It has plummeted by -77% to print a recent intraday low of 73.28 on 15 March 2022.
Downside momentum remains intact as per indicated by its weekly RSI oscillator as it has not flashed any clear bullish divergence signal at its oversold region at this juncture versus a prior bullish divergence signal seen during the period of 21 October 2018 to 16 December 2018 where the price actions of BABA staged a magnificent recovery thereafter.
In addition, its adjusted combined weightage average momentum score of -1.61 is the weakest among the major China Big Tech platform/gaming firms based on data as of 10 May 2022.
If the key medium-term pivotal resistance of 102.70 is not surpassed to the upside, the share price of BABA may face further downside to retest its current all-time low of 57.30 printed on 29 September 2015 which confluences with the median line of the major descending channel and a cluster of Fibonacci extension levels. A break below 57.30 may unleash a further drop towards the next support zone at 36.35/33.70.
On the other hand, a daily close above 102.70 negates the bearish tone for a multi-month tactical corrective rebound to target the 130.15/138.45 resistance zone (former swing low areas of 28 October/22 December 2018 & 23.6% Fibonacci retracement of the entire down move from 27 October 2020 high to 15 March 2022 low).