Earnings preview: Not many reasons to hate Alibaba

Chinese retail giant Alibaba (BABA) has had a tough run this year, with the stock tumbling 35% from its high on June 5. But not much of this fall is to be credited to the company, which is performing relatively well. Perhaps the company’s biggest disadvantage is that it is based in China, a country that President Donald Trump despises.

The stock’s steady growth since the beginning of 2016 was halted when Trump announced a series of trade sanctions on Chinese goods and companies. Alibaba, like most other Chinese peers, has not been able to recover since then.

The macroeconomic factors aside, Alibaba has surprised investors with staggering growth in the core retail as well as cloud computing services. Shareholders did receive a jolt during the prior quarter earnings when it reported a 41% decline in EPS. However, this was primarily due to one-off stock-compensation charges, besides a range of investments and acquisitions.

As Alibaba reports second-quarter results before the market opens on Friday, investors will be looking at whether Alibaba’s bottom line actually rebounds. Analysts, on an average, expect earnings to be $1.09 per share on a revenue of $12.69 billion, up 53% year-over-year. If it happens, it will be the ninth consecutive 50+% revenue growth achieved by the e-commerce giant.

As usual, the core commerce segment will be driven by Taobao and Tmall, while the cloud segment is projected to continue its above 90% growth rate. During the prior sequential quarter, Alibaba’s cloud segment grew 93%, faster than Microsoft’s Azure.

Also look out for the monthly active users as the company has previously stated that higher user engagement often translates to higher consumer spending. During the first quarter, monthly active users grew 17 million to touch 634 million.

Alibaba gets a new no-nonsense chief as Jack Ma looks to retire

Also during the first quarter, margins were pretty squeezed by acquisitions and investments – Alibaba had purchased a 33% stake in Ant Financial and had also bought food delivery platform Ele.me for $9.5 billion. This is apart from a $2 billion investment in e-commerce platform Lazada.

While these investments may not be immediately accretive to earnings, it hints at the Chinese major’s long-term objectives.

Listen to publicly listed companies’ earnings conference calls along with the edited closed caption text