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Alibaba: Q2 2022 Earnings Preview

Written by Larince Zhang

The Alibaba Group, founded in 1999 by Jack Ma, is best known as China’s largest e-commerce company (market cap over $190B), which includes online platforms such as Taobao (C2C), Alibaba.com (B2B) and Tmall (B2C) providing all kinds of e-commerce services to cater for online shopping needs. The company has also expanded its businesses internationally through AliExpress and Lazada. The company is scheduled to release its Q2 2022 earnings result on 17th November (Thursday), pre-market open.

Fig.1: Alibaba’s Reported Sales and EPS versus Analyst Forecast. Source: CNN Business

In the previous quarter, Alibaba reported sales at $205.6B and EPS at $11.73, both above consensus estimates. However, this was also the first ever revenue growth of the company, which has remained flat historically, dragged by major country-wide lockdown, strict regulatory policy and the overall sluggish Chinese economy.

Fig.2: Alibaba’s Revenue Distribution. Source: Statista

The local commerce retail sector made up most of Alibaba’s revenue. However, the division was down -1% compared to the same period last year, led by a -10% fall in customer management revenue (CMR).  Last week, the Chinese government announced relaxing some of its Covid restrictions, though it does not mean “relaxing prevention and control, let alone opening up”. Thus, how much positive impact such a move would bring to businesses and the overall economy remains to be seen.

On the other hand, the outlook for its discounting platform (Taobao Deals) and grocery and fresh food service (Taocaicai) remains unclear as the company is still struggling in finding a balance in cost optimization and cost control – this could be one of the subjects that market participants focus on in the coming quarters. In addition, cloud computing revenue growth experienced a slowdown compared to the same period last year and the March quarter (y/y), hurt by the government’s crackdown on sectors using Alibaba’s products and loss of major customers. Last month, Xi Jinping secured his third term as leader of China. This may not be good news for the tech firms as the government led by Xi has previously tightened the screws on the local technology industry.

Consensus estimates for sales in the coming quarter are for them to remain flat, at $208.5B. During the same period last year, the company reported sales at $200.7B. On the other hand, EPS is expected to hit $11.74, basically unchanged from the previous quarter. In Q2 2021, it was $11.20. Alibaba stocks was ranked #4 (Sell) by Zacks.

Fig.3: Alibaba’s GMV on Singles Day. Source: Statista

The world’s biggest annual shopping event – China’s Singles Day – officially ended last week. However, the Alibaba Group for the first time ever opted not to disclose the final sales, saying only “results were in line with last year”.  While some analysts hold an optimistic view that the sales could hit a historical 1 trillion yuan (about $140B), there are some who project a gloomier outlook for sales growth (probably $76B to $78B), due to uncertain macroeconomic environment, declining consumer confidence, stringent government regulation of the tech and live-streaming industries. Last year, Alibaba’s adjusted GMV growth rose 8.5%, the lowest ever, following a 26% leap in 2020.

Technical Analysis:

The #Alibaba (BABA) share price gapped up to its high at $72.65 on last Friday, following news of the Chinese government relaxing some Covid measures. The momentum was brief, as its share price closed lower at $70.58, which was just slightly above the low estimates of analysts ($70.12). $74 (FR 23.6% extended from July 2022 high to October 2022 low) serves as the nearest resistance, followed by $80 and $84 (FR 38.2%). On the contrary, if price breaks below the low estimates of analysts, the next support to focus on will be $65, then the low of the year at $58.

About the author

Larince Zhang

Larince entered the world of live market analysis and trading in 2013. Her passion ranges from foreign exchange to commodities, indices and futures as well as stocks. Having a Bachelor Degree majoring in Banking and Finance, she strives to make full use of her learned knowledge together with practical trading to achieve a more comprehensive market analysis.

Through years of trading experience, she believes “Simple is Best”, as the market is driven by human activity. It is human psychology that one should opt to improve on instead of mere technical or fundamental analysis. She believes in three core elements to a mature trading approach – scrupulous trading mindset, well-planned strategies and strict money management.