Earnings Preview: Will Alibaba’s turnaround efforts reflect in Q1 report?

The quarterly results of Alibaba Group Holding Limited (NYSE: BABA) have not been very impressive in the recent past, with the company delivering lackluster revenue and earnings performance. The market will be keeping a close watch on the e-commerce giant’s upcoming earnings, looking for updates on the management’s revival program focused on streamlining the core businesses and tapping into cloud and AI-led opportunities. Analysts forecast a mixed outcome – a decline in net income and a modest increase in revenues.

The China-based tech firm’s stock suffered big losses over the past four years, with the value declining multi-fold since peaking in October 2020 on the New York Stock Exchange. BABA’s performance improved this year, maintaining a modest uptrend in the first half despite high fluctuations. Experts are quite bullish on the stock’s future performance, anticipating the price to go beyond the $100 mark in the 12-month period.

Mixed Q1 in Cards

On average, analysts following Alibaba forecast earnings of $2.12 per ADS for the first quarter of 2025 on revenues of $34.75 billion. In the comparable quarter of fiscal 2024, the company reported revenues of $32.2 billion and earnings per ADS of $2.38. The Q1 report is scheduled for release on Thursday, August 15, at 6:30 am ET.

As the business enters the new fiscal year, the rapidly growing cloud business remains a focus area, with the leadership expecting the segment to return to double-digit growth by the second half of fiscal 2025. Interestingly, the company’s AI-related revenue grew in triple digits in the most recent quarter, a trend the management expects to continue this year.

Good and Bad

Being a business hit hard by the Chinese government’s crackdown on technology firms, the ongoing regulatory scrutiny is a concern for Alibaba. In the domestic market, the company’s margins often come under pressure from stiff competition as it is crucial to keep prices low to win customers. Meanwhile, Alibaba is working to drive a turnaround, through measures like leadership change, and investing in non-core areas. The company had lost some market share to rivals like JD.com and Pinduoduo in the past, but the recent uptick in customer engagement shows it is regaining market share.

Alibaba’s CEO Eddie Wu said at the Q4 earnings call, “Our investments in driving price competitiveness and elevating the user experience have received positive consumer feedback. We’ve seen tangible results in progress, strong growth in quarterly buyers, and purchase frequency that has driven robust double-digit growth in GMV, reflecting a continued improvement in consumption and user trust. At the same time, we continue to enhance member benefits and service experience with 88VIP membership members growing by double digits year over year to surpass 35 million.”

GMV Gains

In the final three months of fiscal 2024, Alibaba’s revenues increased 7% year-on-year to $30.7 billion, with key operating segments performing well. The Chinese and international commerce businesses generated double-digit growth in gross merchant volume during the quarter. Meanwhile, fourth-quarter adjusted earnings decreased 5% to $1.40 per ADS, continuing the recent trend. Unadjusted net income was $453 million or $0.18 per ADS, down 86% from the fourth quarter of 2023.

Shares of Alibaba stayed slightly above the long-term average last week, and they maintained the uptrend on Monday. The stock opened just below $80 and traded up 1% in the afternoon.