Alibaba Q1 earnings preview: Cloud, core commerce to drive growth

Chinese e-commerce firm Alibaba Group (NYSE: BABA) has been thriving on the strength of its cloud business and the rapidly growing core commerce segment. When the internet behemoth reports its first-quarter results Thursday before the opening bell, the market will be looking for revenues of $15.81 billion, which represents a 36% year-over-year increase. Earnings are predicted to grow 26% to $1.46 per share. The bottom-line exceeded the forecast in three of the four trailing quarters.

As usual, the June-quarter outcome will depend on the performance of Core Commerce, the main business segment that accounts for about 85% of the revenue. This time, the topline might get a modest boost from the English-language portal launched on e-tail platform Tmall Global, giving international customers access to the Chinese retail market.

With an increasing number of customers taking the smartphone route to access the Alibaba platform, there will be a spike in mobile transactions. Solid sales, combined with improved monetization rates, will translate into higher earnings on an annual basis. Also, the fast-emerging cloud segment will benefit from the rapid adoption of cloud service.

Related: Alibaba reports Q1 earnings and sales beat

However, the overall growth could be restricted by the US-China trade war. Like in the past, the heavy spending on innovation will likely eat into margins this time too. In addition to digital offerings and artificial intelligence, Alibaba has been investing in store-infrastructure also.

Related: Alibaba Q4 2019 Earnings Conference Call Transcript

During the first quarter, the company filed for listing on the Hong Kong Stock Exchange, with plans to raise about $20 billion in the third quarter. The offering, touted as the biggest in Hong Kong since 2010, is expected to help the company to meet its long-term capital requirements.

Alibaba’s earnings and revenues surged about 50% each in the fourth quarter to $14 billion and $1.28 per share respectively and exceeded the estimates. The growth reflects strong contribution from the cloud and data technology business. The number of mobile monthly active users was 721 million at the end of the June quarter, up from 617 million a year earlier.

Also read: Walmart to thrive on e-commerce, global expansion in Q2

Last month, eBay (EBAY) said that a further increase in the number of active buyers pushed up its second-quarter adjusted earnings to $0.68 per share. There was a 2% growth in revenues to $2.7 billion. Meanwhile, Amazon (AMZN) reported double-digit growth in second-quarter revenues to $63.4 billion. As a result, earnings rose 3% to $3.1 billion.

After making strong gains following the upbeat fourth-quarter results, Alibaba’s shares retreated in the following weeks, before regaining strength in early June. Currently, the stock is trading at the levels seen around two years ago. It has gained 16% so far this year.

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