The article is written by Tina Teng & Kelvin Wong, Markets Analysts, CMC Markets APAC & Canada
Volatile movement due to regulatory and de-listing threats
Alibaba’s shares plunged over 30% from its recent high on 7 July due to the regulatory crackdown on its fintech unit Ant Group after a broad-based rally seen in the China stock market earlier since late April. The recent news of Alibaba’s plans to move its current NYSE primary listing to Hong Kong and the US delisting threat has also sent jitters to the largest Chinese tech company. Alibaba will report its second quarter earning result at 7:30 pm on 4 August, Hong Kong local time. China’s Covid-lockdowns may have hurt the company’s growth, but the guidance could be rosy towards the end of the year.
Alibaba had the slowest annual growth of 10% in the final quarter of 2021, followed by 9% in the first quarter. The pace of slowing down might have accelerated, with most analysts forecasting of 0 or even a negative revenue growth in the second quarter due to China’s covid-lockdowns. Despite CEO Daniel Zhang’s positive outlook for May, a sharp decline in demands could be seen in both online purchasing and its Client Management (CMR) income.
According to China Merchants Securities Co. Ltd, the revenue estimate is 205,540 million Yuan, -0.1% YoY; earnings per share are forecasted at US$1.6, -37% year-on-year. The active customer number is expected to increase above 1 billion, but it reflects a slowdown in growth on a quarterly basis. It is worth noting that its domestic E-commerce active users have grown to above 1 billion annually in the first quarter, which is a milestone for the company, with the worldwide numbers reaching 1.31 billion during the same period. Despite severe competition with rivals, such as JD.com and Pinduoduo, Alibaba’s active users are predominately leading the marketplace.
Another matrix to value the company is its cloud computing business, which has taken the fourth largest market share position globally behind Amazon AWS, Microsoft Azura, and Google Cloud. The income growth is expected to slow down marginally to 10% annually versus a 12% jump in the first quarter.
However, the business could have hit a bottom in the second quarter and could provide a brighter outlook for the second half of the year on the back of China’s recovery from Covid-lockdowns, stimulus measures taken by the Chinese government, and signs of loosening regulatory policy by Beijing, which could be the potential catalysts to boost its share price.
Technical analysis – Alibaba is still trapped within a consolidation rangeSource: CMC Markets as of 1 Aug 2022 (Click to enlarge the chart)
Since its 8 July 2022 high of 125.84, the Alibaba share price (BABA, listed on the NYSE) has tumbled by close to -30% to its recent 1 August 2022 low of 88.00, making it the worst performing China Big Tech, other than Tencent.
The recent drop of BABA is now approaching the lower limit of a five-month range configuration at 81.50. In addition, the daily RSI oscillator is coming close to its oversold reading which may lead to a minor bounce scenario for its price actions.
Based on an integrated technical analysis standpoint, the price actions of BABA are likely to oscillate within a sideway range between 124.10 and 81.50. Only a clearance with a daily close above 124.10 is likely to reinforce another leg of potential corrective rebound towards the next resistance zone of 158.30/177.90.
On the flip side, a break with a daily close below 81.50 opens up scope for another impulsive down move sequence to test its current all-time low level of 57.20 in the first step.