Alibaba Earnings Preview: Will Alibaba's E-commerce and Cloud Business See A Turnaround In Q4?

Chinese e-commerce and cloud behemoth $Alibaba(BABA)$   is set to report its Q4 FY24 results on May 14th. The report is expected to show only modest growth for the quarter, amid headwinds in the domestic e-commerce market and the company's cloud business seeing slow growth. 

Consensus Estimates

- The company is projected to achieve a revenue of 219.83 billion CNY, representing a year-over-year increase of 5.59%.

- Earnings per share are expected to be 5.41 CNY, down 39.89% from the year-ago quarter.

Taobao & Tmall Group and cloud business seeing slow growth

Over Q3 FY’24, revenue from the company’s Taobao and Tmall online marketplaces rose just 2% year-over-year. Things could get a bit better over Q4 FY’24, as retail sales in China over the quarter rose 4.7% year-over-year, as consumer spending during the Spring Festival holidays surged. However, Alibaba is seeing mounting competition in the e-commerce space with PDD, the owner of discount e-commerce platforms Pinduoduo and Temu gaining share as Chinese consumers become more value-conscious due to a weak economy.

Alibaba’s cloud business has also seen a slowdown, with cloud intelligence group revenue rising just 3% to 28.066 billion CNY in the previous quarter, partly due to the U.S. restrictions on the export of advanced semiconductor chips hurting its business.

The losses of International Commerce and Cainiao are expected to widen

According to JPMorgan analysts, Alibaba expects widening losses from international commerce and Cainiao, but still sees international ecommerce and Cainiao's revenue growth rate to remain in healthy double digits for at least two years. JPMorgan predicts the growth rate of customer management revenue to accelerate in the March quarter vs. the December quarter due to increasing ecommerce online penetration and a slowdown of market share loss.

Alibaba unveils latest version of large language model amid robust AI demand

On Thursday, Alibaba Cloud announced the release of the latest version of its large language model, which has already seen more than 90,000 deployments by companies.

Alibaba Cloud said the latest version of its Tongyi Qianwen model, Qwen2.5, has "remarkable advancements in reasoning, code comprehension, and textual understanding compared to its predecessor Qwen2.0."

The latest Qwen model fares better than OpenAI’s GPT-4 model in language and creation capabilities, but fell short in other categories like knowledge, reasoning and math, according to a March analysis by large language model evaluation platform OpenCompass.

Alibaba Group steps up stock buy-back

During the quarter ended March 31, 2024, Alibaba repurchased a total of 524 million ordinary shares (equivalent of 65 million ADSs) for a total of US$4.8 billion, marking the most aggressive buy-back since 2021.

$Alibaba(BABA)$   had earlier upsized its programme by US$25 billion, expanding its dry powder to US$31.9 billion through March 2027 after the latest spending.

"Alibaba's decision signals confidence in the company’s future prospects and demonstrate management’s belief in the underlying value of Alibaba’s shares,” said Stephen Innes, managing partner of SPI Asset Management.

But whether the move will give a long-term boost to the share price depends on various factors, including broader market conditions, investor sentiment towards Chinese stocks and Alibaba’s ability to execute its growth strategies effectively, he added.

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