Earnings Outlook: Alibaba earnings: Cloud, B2B provide ‘insulation’ amid economic concerns

As fears about economic growth and geopolitical tensions continue to weigh on China stocks, Alibaba Group Holding Ltd. has a few insurance policies.

With economic issues still in flux, Alibaba BABA, +3.37%  may be in for a “long” few months ahead, according to independent technology analyst Beth Kindig, but the company’s cloud-computing and business-to-business (B2B) ventures give Alibaba some “insulation from trade-war issues.”

Both areas will be in focus Thursday when New York listed Alibaba reports fiscal first-quarter results ahead of the opening bell. The company recently announced the global expansion of its Alibaba.com commercial platform, which now lets suppliers in the U.S. connect with business partners worldwide. The platform previously focused on connecting Chinese suppliers with global buyers.

Read: This Alibaba business could be its next big moneymaker

It remains to be seen whether there will be meaningful uptake of the product in the U.S., but the expansion shows that Alibaba is making B2B commerce a priority. The company points to U.S. government statistics estimating that the global B2B market is worth $23.9 trillion, six times greater than the worldwide business-to-consumer market. Alibaba also has B2B efforts focused on China.

See also: Alibaba, Office Depot announce partnership aimed at small-business opportunities

Kindig sees areas like B2B and cloud computing continuing to post strong growth regardless of the consumer-spending landscape. Look for another big quarter for the Alibaba Cloud business in the upcoming earnings report, with RBC Capital Markets analyst Zachary Schwartzman modeling a 76% revenue increase.

What to expect

Earnings: Analysts surveyed by FactSet expect that Alibaba earned 10.32 Renminbi a share for the June quarter, or $1.46, up from 8.04 RMB, or $1.17 a share, in the year-earlier period.

Revenue: The FactSet consensus calls for 111.8 billion RMB in June-quarter revenue, up from 80.92 RMB a year prior.

Stock movement: Alibaba shares have gained following six of the company’s last 10 earnings reports. The stock has risen 16% so far this year, as the S&P 500 SPX, +1.59%  has climbed 15%, but it’s off 11% over the past three months. Of the 51 analysts tracked by FactSet who cover Alibaba’s stock, 50 have buy ratings and one rates it a hold. The average price target is $213.99, 35% above current levels.

What else to watch for

A key item to watch for in Alibaba’s report will be its line for customer-management revenue, which mostly includes T-Mall and Taobao advertising revenue.

“While a faster acceleration in Customer Management growth would be a distinct positive for the stock, management said on the last earnings call that expanded monetization tests should no longer be expected in future periods, as the company is focusing on volume in its expansion into Tier 3 and lower cities,” wrote RBC’s Schwartzman in a note to clients.

Schwartzman also expects a bit of margin contraction stemming from Alibaba’s continued investments in things like logistics and its New Retail online/offline initiatives. He rates the stock at outperform with a $210 target price.

Loop Capital’s Rob Sanderson pointed to “somewhat better” second-quarter retail data from the Chinese government, suggesting some acceleration in the growth of online sales of physical goods. He rates Alibaba’s stock a buy with a $250 target.

Jefferies analyst Thomas Chong is interested in Alibaba’s New Retail efforts and its success in “digitalizing the offline retail sector.” He sees the New Retail and Ele.me food delivery businesses becoming greater contributors to overall revenue in the coming years.

Chong has a buy rating and $216 target on the shares.

Alibaba is set to post earnings a few days after JD.com Inc. JD, +12.74%  delivered a better-than-expected report showing revenue acceleration, gross margin expansion, and an upbeat forecast for the rest of the year.

Filed in: Top News Tags: 

You might like:

The Conversation: Phase 1 of U.S.-China talks was hard — and the next part will be even harder The Conversation: Phase 1 of U.S.-China talks was hard — and the next part will be even harder
The Ratings Game: Broadcom stock declines as wireless chip stance confuses some analysts The Ratings Game: Broadcom stock declines as wireless chip stance confuses some analysts
Agent Scott Boras will make more money next year than almost every MLB player Agent Scott Boras will make more money next year than almost every MLB player
Bond Report: Treasury yields slide as announcement of U.S. – China trade deal disappoints Bond Report: Treasury yields slide as announcement of U.S. – China trade deal disappoints
Amarin stock heads toward highest prices in more than a decade after new Vascepa FDA approval Amarin stock heads toward highest prices in more than a decade after new Vascepa FDA approval
Personal Finance Daily: When is it NOT cool to re-gift your unwanted swag and the lack of paid family leave is ‘breaking families’ backs’ Personal Finance Daily: When is it NOT cool to re-gift your unwanted swag and the lack of paid family leave is ‘breaking families’ backs’
Trump Today: Trump announces phase-one China trade deal and scraps Dec. 15 tariffs Trump Today: Trump announces phase-one China trade deal and scraps Dec. 15 tariffs
Bond Report: Treasury yields slide after as announcement of U.S. – China trade deal disappoints Bond Report: Treasury yields slide after as announcement of U.S. – China trade deal disappoints
© 2019 Stock Investors News. All rights reserved. XHTML / CSS Valid.