What to Expect from Alibaba (BABA) Earnings as U.S.-China Trade War Escalates

Alibaba BABA stock has lagged slightly behind the broader e-commerce industry in 2019. Despite some of its recent struggles over the last two years, Alibaba’s growth prospects remain relatively strong as it expands its cloud computing reach similar to its U.S. counterpart Amazon AMZN.

The Chinese e-commerce power has clearly been impacted by the prolonged trade war between the U.S. and China, both in terms of real growth and overall investor fear.

<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="Trade War Update &amp; Q2 Earnings Season Overview ” data-reactid=”13″>Trade War Update & Q2 Earnings Season Overview

The S&P 500 got off to a rough start in August as the broader market fell as the trade war ramped up yet again. President Trump said the U.S. would impose 10% tariffs, starting on September 1, on roughly $300 billion in Chinese goods that aren’t currently subject to tariffs.

The President went on to call China a “currency manipulation.” Beijing then said that Chinese companies will suspend purchases of U.S. agricultural products. At this point, there doesn’t seem to be a clear end in sight to the U.S.-China trade battle. And this uncertainty will hover over the global economy and companies like Alibaba until some resolution is reached.

Meanwhile, 428 S&P 500 members had reported their Q2 financial results through Wednesday morning, with overall earnings up +0.9% on +5.1% higher revenues, with 75.5% beating EPS estimates and 57.0% beating revenue estimates (also read: A Stable Earnings Picture).

<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="What’s Going on with Alibaba ” data-reactid=”17″>What’s Going on with Alibaba

Alibaba operates the two largest e-commerce platforms in China. Alibaba’s core digital commerce business, highlighted by Taobao and Tmall, accounted for roughly 85% of the company’s quarterly revenue in Q4 fiscal 2019. As we mentioned, Alibaba has beefed up its cloud computing business in order to try to compete with the likes of Microsoft MSFT and Google GOOGL. This unit accounted for 8% of total sales last quarter after it climbed 76% from the prior-year period.

On top of retail and cloud, BABA has expanded its digital media and entertainment businesses. This includes deals with Disney DIS and others that helped the division account for nearly 6% of Q4 revenue. Plus, Alibaba’s annual active consumers on its Chinese retail marketplaces climbed by 102 million over the past year to reach 654 million. Mobile monthly active users touched 721 million, up 104 million over March 2018.

Despite the trade war and a slowing Chinese economy, BABA surpassed our estimates last quarter on both the top and bottom lines. Investors should also note that Alibaba and Salesforce CRM in late July announced a partnership. “Alibaba will become the exclusive provider of Salesforce to customers in mainland China, Hong Kong, Macau, and Taiwan, and Salesforce will become the exclusive enterprise CRM product suite sold by Alibaba,” Salesforce wrote.

Despite Alibaba’s growth and diversification, BABA shares are up just 1% over the last two years, which falls far behind its industry’s 18% climb. Alibaba stock has outpaced the e-commerce market during the past 12 months, but it is still down 10%. At $159.10, shares of BABA closed up 1% in regular trading Wednesday to rest roughly 19% below their 52-week high of $195.72 a share.

<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="Q1 Outlook &amp; Beyond” data-reactid=”31″>Q1 Outlook & Beyond

Moving on, our current Zacks Consensus Estimates call for Alibaba’s revenue to climb 35.5% to reach $16.57 billion. Investors should note that Alibaba reports its metrics in Chinese RMB and then offers a comparable U.S. dollar equivalent for the “convenience of the reader.” With that said, the company’s revenue jumped 51% in Q4 fiscal 2019.  

Read More