Earnings season may be winding down, but one of China's most prolific growth stocks has yet to step up with its latest financial results. Alibaba Group (BABA +2.61%) will announce its fiscal second-quarter results before the U.S. market opens for trading on Thursday morning. A lot is riding on the report.
The e-commerce giant has been a disappointment to investors after initially surging in the early months of the COVID-19 crisis. The stock is trading lower for the third year in a row, bucking the trend of many high-octane growth stocks that have bounced back in 2023. Shares of Alibaba have plummeted 74% since peaking in fall 2020. A strong quarterly report on Thursday can get the struggling stock back on track.
NYSE: BABA
Key Data Points
Alibaba needs more than just a beat
Expectations are modest for this week's telltale report. Analysts see $30.77 billion in revenue for the fiscal quarter ending in September, a mere 6% year-over-year increase.
It's not the brisk pace that investors enjoyed when Alibaba was a market darling. The Chinese market bellwether rolled off at least 10 straight fiscal years of double-digit revenue growth before proving mortal last year. Revenue climbed just 2% for all of fiscal 2023 as China's economy slowed and consumers grew more cautious in their spending.
Alibaba did snap a streak of six consecutive quarters of single-digit top-line moves three months ago, but the fiscal first quarter's 14% jump in revenue appears to be short-lived. There are nearly two dozen major analysts putting out revenue forecasts, and all of them are bracing for a return to single-digit revenue growth in this week's report. The range is wide -- from as low as 1% to as high as 9% -- but all of those roads suggest that the year-over-year gains will dip sequentially on Thursday.
Image source: Getty Images.
The news should be better on the other end of Alibaba's income statement. Wall Street pros see earnings rising 10% to hit $2.11 a share. It may not seem like a lot, but history has been kind on that front, despite the sluggish stock chart. It has consistently landed ahead of analyst profit targets, including double-digit percentage beats in five previous reports.
| Quarter | EPS Estimate | EPS Actual | Surprise |
|---|---|---|---|
| Q4 2022 | $1.09 | $1.18 | 8% |
| Q1 2023 | $1.44 | $1.62 | 13% |
| Q2 2023 | $1.73 | $1.92 | 11% |
| Q3 2023 | $2.36 | $2.79 | 18% |
| Q4 2023 | $1.32 | $1.50 | 14% |
| Q1 2024 | $1.99 | $2.38 | 20% |
Data source: Yahoo! Finance.
The gap between Alibaba's profitability and market expectations has been widening for the most part, and that's encouraging. Reality has been more rosy than the bottom-line recovery that analysts have been modeling. A beat isn't enough. Investors have seen the stock sink through this long run of positive bottom-line surprises. Investors want to see revenue growth accelerating again, even if it's not likely to happen this time around.
Alibaba could impress the market with positive developments. It already announced earlier this week that sales volume on Singles' Day -- the Chinese shopping holiday that takes place on Nov. 11 -- improved over the prior year's results.
It could also rally investors with some fresh news on plans to unlock the value of its shares. Alibaba restructured its operations into six distinct business units this fiscal year, paving the way for spin-offs or possibly even asset sales to refresh market interest in the stock.
The market may not be rewarding its shareholders, but Alibaba remains one of the world's top e-commerce stocks. It's an innovator with a wide assortment of businesses. It trades at a reasonable earnings multiple that gets even cheaper on an enterprise value basis, given its strong net-cash position.
Alibaba will have the market attention on Thursday morning to spur the shares higher. It has a lot to prove.
