What to expect from Alibaba’s Q3 earnings results?

Chinese e-commerce giant Alibaba Group (NYSE: BABA) is slated to reports its Q3 results before the bell on January 30. The company is expected to report its third-quarter results amidst slowing Chinese economy and the ongoing trade war between the US and China, which makes life tougher for firms like Alibaba and its Chinese-based peers.

Alibaba Group shares jump on robust Q3 revenue growth in all segments

Last quarter, the company trimmed down its sales outlook for fiscal 2019 to a range of 375 billion yuan to 383 billion yuan from earlier projected 400 billion yuan citing weak macros. Investors would be keeping a close eye on the management’s comments on the outlook. It would be interesting to see whether the retail giant is maintaining the 2019 sales guidance or not considering the slowness in the Chinese economy.

For the third quarter, analysts expect revenues to jump 48% touching $17.7 billion and adjusted EPS is forecasted to increase around 10% to $1.68 over last year. In the second quarter, the company saw its sales grew 54% to $12.4 billion while adjusted earnings improved 12% to $1.40 per share. The solid revenue growth in Q2 fell short of street estimates. However, earnings topped consensus aided by a solid performance from its core commerce division.

What to watch?

It’s no brainer that Alibaba’s core commerce division brings in more than 80% of revenues to the firm primarily from China. With the Chinese economy facing a slowdown, whether the retail giant would be able to continue its stellar growth rate from this division would be tracked by the market.

Cloud segment seems to be the show stealer last quarter when it reported a 90% jump in revenues. Thanks to increasing adoption of cloud solutions from its customers, revenue growth trend is expected to continue in the near future. As the company is expanding its cloud-based offerings and expanding its presence, subscribers are expected to increase which would bring in more revenues. Strong growth from the cloud division would be helpful for Alibaba to reduce its dependency on top line contribution from the commerce segment.

Alibaba has been diversifying its business and investing in other emerging sectors, which have been categorized into Digital Media and Innovation segments. Both the divisions saw above 20% growth rate last quarter. As the investments mature and with increasing adoption from its customers, revenue growth is expected to increase from both the segments.

Related: Alibaba gains after Q2 earnings beat

It’s worth noting that Q3 results will include the much-touted Singles Day numbers. The annual sales affair in November saw a 27% jump in sales with gross merchandise value (GMV) touching $30.8 billion. Even though GMV surpassed 2017 sales numbers, it saw a 12% dip in sales growth compared to 2017. This is no mean feat considering the sluggish economic growth in China and trade tensions between the US and China.

With Jack Ma planning to step down as Chairman from September 2019, analysts would be expecting more insights from the management on the future course of action for Alibaba and its strategies. Ma will be replaced by the current CEO Daniel Zhang for the top job.

Alibaba’s stock has taken a beating in the last 12 months dipping 24% amidst the brewing trade wars between the US and China. The stock touched a new 52-week low on December touching $129.77. However, the stock recovered about 14% in 2019.

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