Earnings Preview: Will Alibaba prove its mettle in Q1?

Alibaba (BABA) is scheduled to report its first quarter results for fiscal 2019 on Thursday before the bell. The e-commerce giant’s stock has already slipped more than 9% in the past three months due to the ongoing trade war between the US and China. Amidst this backdrop, investors are going to turn their attention towards management on how they are going to tackle this issue and their impending views about the performance of the company.

For the first quarter, analysts expect the e-commerce giant to report revenues of $11.76 billion and earnings of $1.22 per share. Alibaba has been reporting strong growth in sales consecutively for the past two years. Even though the macro factors and online spending in China remain buoyant, which would act as tailwinds for the firm, concerns about the impact on margins due to the looming tariff war remains a worry for investors.

The company’s fourth quarter results topped estimates on both the top and bottom line aided by growth in its core commerce business which brings in lion’s share of revenues. Alibaba also saw its cloud computing and digital business recording solid growth. Revenue in the fourth quarter surged 61% to $9.87 billion while adjusted earnings jumped 32% to $0.91 per share.

Alibaba has been investing in start-ups to complement its service offerings and look for synergies through acquisitions. This strategy has been working for the e-commerce giant to take on its local and global rivals.

Earlier this month, Alibaba partnered with Kroger (KR) to sell organic products to its customers using its Tmall platform. This deal is expected to be a win-win for both the companies as there is growing demand for organic products in the second-largest economy. It’s worth noting that on August 8 Walmart (WMT) has joined hands with JD.com (JD) and invested $500 million in Dada-JD Daojia, an online grocery delivery firm of JD.com.

On the food delivery services business, Alibaba is mulling to combine its Ele.me and Koubei apps, which worth about $25 million. Ele.me is a food delivery app bought by the e-commerce giant this year. Koubei is a food and lifestyle app backed by Alibaba started in 2013. If the merger is done, it could raise funding for the combined entity from Softbank as reported by Reuters. Alibaba has been facing tough competition from Meituan-Dianping, which is backed by Tencent.

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As part of its new retail strategy, last month the e-commerce firm invested $2.23 billion for a 10% stake in Focus Media, which has an offline presence across 300 cities in China. This would help Alibaba to deepen its presence on the offline advertising space in addition to its dominance on the digital front. Early in August, Starbucks (SBUX) inked a partnership with Alibaba which would help the former to deliver its beverages across China using the e-commerce firm’s online and offline properties.

Alibaba has been following the footsteps of its rival Amazon (AMZN) when it comes to cloud services offering. The cloud division doubled its revenues last quarter to $699 million. Even though the current contribution from cloud services to the top line is less, it’s expected to have solid growth in the impending years. In addition, cloud services business is forecasted to bring in better margins compared to its commerce segment which would yield lesser margins.

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Analysts expect the company to announce the outcome of the results from its partnership of Youku, the streaming platform of Alibaba, which joined hands with China Central Television (CCTV) for streaming the soccer world cup in Russia. The streaming partnership is expected to help the company’s top line for the first quarter.

The stock price of the company has been marginally up above 3% in 2018.

Infographic: Alibaba Q4 2018 Earnings Results