Alibaba (NYSE:BABA) may be the biggest online retailer in the world's most populous country, but even it's not immune from a slowing economy in its core market. In fact, Alibaba announced in November that it was lowering its fiscal-year revenue forecast to account for macroeconomic uncertainties.
With that in mind, here's what to expect from the e-commerce giant's fiscal third-quarter earnings report, expected out Jan. 30.
A slowdown in Alibaba's earnings and revenue is coming
The fiscal third quarter is an important one for Alibaba because it includes its annual Singles Day sales extravaganza, which takes place on Nov. 11. It's the largest single day of sales for the company, and revenues have grown significantly every year. In 2018, the event again set a new record for gross merchandise value (GMV) -- $30.8 billion -- and sales grew 27% year over year. But that was much weaker growth than the previous year's 39%.
In fact, the 2018 event delivered the slowest growth rate in the decade that the company has been promoting Singles Day.
That same month, Alibaba lowered its revenue guidance by 4% to 6% in yuan terms for the fiscal year that ends March 30. Management noted that the revision was due to macroeconomic conditions in China, including the trade war with the United States, and the fact that the Chinese economy grew last quarter at its slowest pace since 2009.
Matters aren't looking better in the new year. Alibaba President Michael Evans seemed to be warning investors to temper their expectations for his company as he talked about the slowing China economy at the National Retail Federation's annual conference on Jan. 14. "As a $13 trillion economy, it would be quite unusual if it could continue to grow at 7% or 8%," Evans said.
Alibaba is expected to report revenue of $17.7 billion and earnings of $1.68 per share, based on the average estimate of 29 analysts polled by Yahoo! Finance. This estimate would represent a 38.3% year-over-year increase in revenue and 19.2% growth in earnings. That's a significant deceleration from the fiscal Q3 2017, when it reported 56% year-over-year growth in revenue and 33% growth in earnings.
Revenue growth below 40% would be a dramatic outlier for Alibaba, which has delivered a stunning eight straight quarters of revenue growth over 50%. Even in fiscal Q2, when the economic headwinds first intensified, it managed to grow revenue by 54% to $12.4 billion. However, that result still fell short of estimates.
But while Alibaba's revenue isn't expected to increase quite so dramatically this quarter, 38% growth would still be nothing to scoff at, especially amid today's less-than-ideal macroeconomic conditions.
Will this storm pass?
There are two positive areas investors should focus on when Alibaba delivers a report that's unlikely to follow the company's historic pattern of blowing estimates out of the water.
First, Alibaba management encouraged investors last quarter by reminding them that the company has made it through two other global economic downturns in its 19-year history. It can make it through a third one.
Second, its fundamentals are still great overall. Last quarter's 54% revenue growth is nothing to be ashamed of. And its net income rose 13%, topping analysts' estimates.
This period of slowing economic growth in China will pass. And if revenue growth of 38% is what it ends up reporting during a hard time, then I look forward to seeing what it will accomplish when the macroeconomic environment there is healthy once again.