Alibaba: Own It, Don't Play Earnings

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Alibaba: Own It, Don't Play Earnings

Seeking Alpha05-14

Alibaba's stock rallied 5.7% on Monday ahead of its highly anticipated March quarter earnings release, with analysts expecting $30.42 billion in revenue and $1.42 in EPS.The earnings release will ...

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King19
·05-14
😂 I suspect seekingalpha has multiple analyst writing Baba... some days it wrote damn solid good things about baba, case in point, some days it wrote baba till worthless ie over priced even at $74... not to say it's $85 now... so perhaps they should indicate who Are they to have ownership of the article instead of using seekingalpha as a whole... as it has done some serious damage to it's reputation
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neo26000
·05-14
Totally agree. If anyone wants to play the earnings, a roulette wheel on black or red gives better odds.
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The release will be the company’s first since Hong Kong stocks began trending upward last month. Analysts are expecting $30.42 billion in revenue, up 0.03%, and $1.42 in EPS, down 9%.In addition to revealing key facts about Alibaba’s business, the release will contain some crucial information about how China’s economic rebound is playing out. We already know that exports and imports are picking up, and that GDP growth is about on target. Alibaba’s release will be the first indication as to how these macro trends influenced consumer habits in the first quarter.Alibaba’s release will also contain some important operational data. For example, it will probably shed some light on the company’s efforts in generative AI. We already know that the company’s Tongyi Qianwen chatbot is helping a billion Chinese users with customer service, today’s release might include details on the chatbot’s technical capabilities.Another interesting segment to watch will be the cloud. Cloud computing has been a huge growth driver for Western tech companies, but BABA’s cloud growth has been sluggish ever since 2021. Unlike retail sales, there is no macroeconomic data released that directly pertains to cloud computing, so BABA’s cloud segment results will be the first we’ll hear about the state of the Chinese cloud market in some months.When I last covered BABA, I rated the stock a buy, on the grounds that it had just launched a large buyback and remained cheap, as it was during most of my prior coverage. I still think that Alibaba stock is a buy for long-term investors, but because its earnings come out today, I have to state that short-term traders should approach cautiously.Generally speaking, I would counsel investors not to “bet on” Alibaba’s upcoming earnings release, whether long or short. BABA is a great business, but Chinese stocks do not always respond to earnings in the ways you would expect. Although today’s earnings expectations are fairly muted, and a revenue beat appears likely, BABA does not consistently rise when it surpasses earnings expectations. It, like most Chinese stocks, seems to trade mainly based on macro rather than earnings results these days. Accordingly, I do not find BABA suitable for short-term traders. In this article, I will explore both my overall bullish thesis on BABA and my belief that “playing” the stock’s earnings is a bad idea.Alibaba - Why Playing Earnings Often Doesn’t WorkAccording to Seeking Alpha Quant, Alibaba beat estimates in three out of the previous four quarters. Yet, if we look at the dates on which those earnings were released, we see that BABA stock mostly didn’t trade well on them. The dates were:February 7 - December quarter earnings - down 9.5% on a small miss.November 16 - September quarter earnings - down 1.9% on a beat.August 10 - June quarter earnings - down 3.5% on a beat.May 18 - March quarter earnings - down 1.8% on a beat.Put simply, there doesn’t appear to have been much correlation between Alibaba’s stock price and its one-day earnings performance in the trailing 12-month period. It was a similar story with PDD Holdings’ last earnings release–it was a beat, but the stock fell anyway. In the meantime, news of China’s $139 billion fiscal stimulus apparently triggered the rally in Chinese ADRs that was observed yesterday. Basically, it looks like Alibaba and similar stocks are trading on macro more so than earnings performance. Therefore, expecting BABA stock to react in any predictable way to today’s release is an unwarranted assumption.What I Expect From Alibaba’s Earnings ReleaseHaving established why “playing BABA’s earnings” isn’t a great short-term trade idea, I can now begin to establish my bullish case. I covered the valuation extensively in past articles, so in this one I will focus more closely on the company’s competitive position and AI capabilities.I expect Alibaba to do the following today:Beat on revenue. The expected revenue growth is about 0%, while China’s online retail sales grew 12.7% in March. The RMB did decline some 7% against the USD in the 12 months ended in March, but if BABA’s revenue growth is similar to that of its sector, it should still grow its USD revenue by 4% or 5%.Earnings about in-line with expectations. Alibaba has been affected by some adverse non-cash non-recurring expenses lately. For example, a measurement change made a negative earnings impact last quarter.A decline in free cash flow (“FCF”). Alibaba’s FCF declined last quarter, the reasons given for this (timing of tax payments and working capital changes) will likely still be impacting the March quarter results. So, a decrease in FCF is likely.With these points out of the way, I can get into my first major bullish point: Alibaba’s strong competitive position.Alibaba - Competitive AdvantageOne thing that Alibaba has going for it is the fact that it enjoys a strong competitive position. It does face competition, but it’s usually either #1 or #2 in its markets. Here's a quick review of Alibaba’s business by segment, along with some comments on the previous quarter’s performance:Taobao and Tmall group. This is the Chinese equivalent of AliExpress. If you aren’t familiar with AliExpress, it’s similar to TEMU. BABA’s Taobao/Tmall segment did negligible growth last quarter. It mainly sells products directly to Chinese consumers. It’s Alibaba’s largest segment, but it isn’t growing much.International commerce. This segment grew 47% last quarter, and the “international commerce retail” subset grew 66%.This includes both wholesale (i.e., selling to other businesses), as well as B2C apps like AliExpress and Lazada.Cainiao. This group develops technologies (e.g., robots) to fulfill orders faster than would otherwise be possible. This segment grew 25% last quarter.The cloud. A cloud service similar to Amazon Web Services, it lets companies build apps and host them in the cloud. Alibaba is the dominant player in Chinese cloud services, with a 39% market share.As you can see, Alibaba has several strong, growing business segments. That’s enough to make it interesting, but it isn’t the reason I mentioned them. I highlighted them mainly because they show the company’s strong competitive position. Alibaba is #1 in Chinese e-commerce by earnings, and #1 in the cloud by revenue. It has $86 billion in balance sheet cash to invest into improving these segments should the company find competitors to be a threat. For example, BABA recently slashed its cloud computing prices to drum up more business. With its $86 billion cash hoard, the company can afford to run the segment at a loss for a while in order to increase its market share. It’s not so easy for a company with less resources to do the same.It’s common for people to argue that BABA’s competitive position is deteriorating, citing PDD Holdings (PDD) and its incredible global growth story. It’s true that Alibaba’s competitive position has weakened somewhat because of PDD and others like JD.com (JD). However, when people say things like “PDD and JD are giving Alibaba fierce competition,” they’re mainly talking about in China, and in the U.S.’s business-to-consumer (B2C) market. Those companies don’t compete with other Alibaba segments such as the Cloud, and international commerce wholesale, home to the famous Alibaba.com platform that has supplied so many U.S. dropshippers over the years.In fact, in its international commerce wholesale business, Alibaba has basically no large competitors. JD doesn’t do international wholesale, while the competitors that Alibaba does face are small in size. So, Alibaba has a real, hard-to-penetrate moat in international commerce. In international markets, it usually only competes with one or two other competitors; for example, Temu in the United States retail and Sea Limited (SE) in Southeast Asia. Broadly speaking, Alibaba’s competitive position is quite strong.AI CapabilitiesAnother reason why I remain bullish on Alibaba is because of its AI capabilities. More specifically, the way the company is using these capabilities. Alibaba is already using AI in ways that have the ability to drive revenue and/or reduce costs–the same can’t be said for other companies.The main way Alibaba is using AI is in building customer service chatbots. Customers on Taobao and Tmall often have questions about products, and traditionally these questions were answered by employees. With the Tongyi Qianwen chatbot, Alibaba is now automating that entire process, which should reduce headcount needs.Second, Alibaba is licensing Tongyi Qianwen to other companies. The company recently reported that over 90,000 clients were using Tongyi, which is 5,000 more than Baidu (BIDU) reported for Ernie Bot. The way clients access Tongyi is through Alibaba Cloud, a paid service, so the chatbot could potentially be driving new revenue already (it depends on how many clients signed up to get their own Tongyi chatbot vs how many were already Alibaba Cloud subscribers).Alibaba’s AI deployments have a lot of potential to drive revenue. The news about the 90,000 corporate clients came out after the end of the first quarter, but it’s possible that some impact will be felt in today’s release. If that’s the case, then Alibaba could perform well after the release comes out. Nevertheless, I reiterate my original message: buying BABA as a short term “earnings play” isn’t a great idea. The stock doesn't show a strong tendency to react to earnings releases in a predictable way.The Bottom LineAlibaba had $10.4 in FCF per share in the trailing 12-month period. If you assume 0% growth and discount that at 10.6% (the 10 treasury yield plus a 6% risk premium), you get a $98 fair value estimate, which is 16% upside to today's price. Yet, as I showed in previous paragraphs, the company actually does have multiple growth catalysts, such as favorable Chinese macro data and Tongyi Qianwen's 90,000 corporate users. These catalysts should translate to good earnings performance eventually. Therefore, on a long-term basis, BABA stock appears to be a good buy.","kind":null,"is_publish_news":true,"is_publish_highlight":true,"is_publish_live":null,"is_publish_wemedia":null,"editions":null,"column":"","sentiment":"","news_tag":"","news_rank":0,"symbols":[],"gpt_button":0},"commentList":[{"id":305788656062528,"gmtCreate":1715680497895,"gmtModify":1715758775114,"author":{"id":"4088135301967120","authorId":"4088135301967120","name":"King19","avatar":"https://static.laohu8.com/default-avatar.jpg","vip":1,"crmLevel":6,"crmLevelSwitch":0},"htmlText":"😂 I suspect seekingalpha has multiple analyst writing Baba... some days it wrote damn solid good things about baba, case in point, some days it wrote baba till worthless ie over priced even at $74... not to say it's $85 now... so perhaps they should indicate who Are they to have ownership of the article instead of using seekingalpha as a whole... as it has done some serious damage to it's reputation&nbsp;","listText":"😂 I suspect seekingalpha has multiple analyst writing Baba... some days it wrote damn solid good things about baba, case in point, some days it wrote baba till worthless ie over priced even at $74... not to say it's $85 now... so perhaps they should indicate who Are they to have ownership of the article instead of using seekingalpha as a whole... as it has done some serious damage to it's reputation&nbsp;","text":"😂 I suspect seekingalpha has multiple analyst writing Baba... some days it wrote damn solid good things about baba, case in point, some days it wrote baba till worthless ie over priced even at $74... not to say it's $85 now... so perhaps they should indicate who Are they to have ownership of the article instead of using seekingalpha as a whole... as it has done some serious damage to it's reputation","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":0,"commentSize":0,"repostSize":0,"link":"https://ttm.financial/post/305788656062528","repostId":2435807531,"repostType":2,"repost":{"id":"2435807531","pubTimestamp":1715679000,"share":"https://www.laohu8.com/m/news/2435807531?lang=&edition=full","pubTime":"2024-05-14 17:30","market":"us","language":"en","title":"Alibaba: Own It, Don't Play Earnings","url":"https://stock-news.laohu8.com/highlight/detail?id=2435807531","media":"Seeking Alpha","summary":"Alibaba's stock rallied 5.7% on Monday ahead of its highly anticipated March quarter earnings release, with analysts expecting $30.42 billion in revenue and $1.42 in EPS.The earnings release will prov","content":"<html><head></head><body><ul style=\"\"><li><p>Alibaba&#39;s stock rallied 5.7% on Monday ahead of its highly anticipated March quarter earnings release, with analysts expecting $30.42 billion in revenue and $1.42 in EPS.</p></li><li><p>The earnings release will provide insights into China&#39;s economic rebound and Alibaba&#39;s efforts in generative AI and cloud computing.</p></li><li><p>Alibaba today trades at low multiples despite having multiple bullish catalysts, such as rapid growth in AliExpress and wide adoption of the company&#39;s Tongyi Qianwen chatbot in China.</p></li><li><p>For these reasons, I consider BABA a buy and remain long.</p></li><li><p>However, attempting to &#34;play&#34; the stock&#39;s earnings is a bad idea because BABA does not usually react to earnings in the expected way.</p></li></ul><p class=\"t-img-caption\"><img src=\"https://community-static.tradeup.com/news/84b6aeab08dc480ef3a214462aadfcfd\" title=\"Alibaba company logo on office building\" tg-width=\"750\" tg-height=\"500\"/><span>Alibaba company logo on office building</span></p><p><strong>Alibaba Group Holding</strong> (NYSE:BABA) rallied 5.7% on Monday and another 1% in premarket trading Tuesday, ahead of today’s highly anticipated earnings release. The release will be the company’s first since Hong Kong stocks began trending upward last month. Analysts are expecting $30.42 billion in revenue, up 0.03%, and $1.42 in EPS, down 9%.</p><p>In addition to revealing key facts about Alibaba’s business, the release will contain some crucial information about how China’s economic rebound is playing out. We already know that exports and imports are picking up, and that GDP growth is about on target. Alibaba’s release will be the first indication as to how these macro trends influenced consumer habits in the first quarter.</p><p>Alibaba’s release will also contain some important operational data. For example, it will probably shed some light on the company’s efforts in generative AI. We already know that the company’s <em>Tongyi Qianwen</em> chatbot is helping a billion Chinese users with customer service, today’s release might include details on the chatbot’s technical capabilities.</p><p>Another interesting segment to watch will be the cloud. Cloud computing has been a huge growth driver for Western tech companies, but BABA’s cloud growth has been sluggish ever since 2021. Unlike retail sales, there is no macroeconomic data released that directly pertains to cloud computing, so BABA’s cloud segment results will be the first we’ll hear about the state of the Chinese cloud market in some months.</p><p>When I last covered BABA, I rated the stock a buy, on the grounds that it had just launched a large buyback and remained cheap, as it was during most of my prior coverage. I still think that Alibaba stock is a buy for long-term investors, but because its earnings come out today, I have to state that short-term traders should approach cautiously.</p><p>Generally speaking, I would counsel investors not to “bet on” Alibaba’s upcoming earnings release, whether long or short. BABA is a great business, but Chinese stocks do not always respond to earnings in the ways you would expect. Although today’s earnings expectations are fairly muted, and a revenue beat appears likely, BABA does not consistently rise when it surpasses earnings expectations. It, like most Chinese stocks, seems to trade mainly based on macro rather than earnings results these days. Accordingly, I do not find BABA suitable for short-term traders. In this article, I will explore both my overall bullish thesis on BABA and my belief that <em>“playing”</em> the stock’s earnings is a bad idea.</p><h2 id=\"id_4056450391\">Alibaba - Why Playing Earnings Often Doesn’t Work</h2><p>According to Seeking Alpha Quant, Alibaba beat estimates in three out of the previous four quarters. Yet, if we look at the dates on which those earnings were released, we see that BABA stock mostly didn’t trade well on them. The dates were:</p><ul style=\"\"><li><p>February 7 - December quarter earnings - down 9.5% on a small miss.</p></li><li><p>November 16 - September quarter earnings - down 1.9% on a beat.</p></li><li><p>August 10 - June quarter earnings - down 3.5% on a beat.</p></li><li><p>May 18 - March quarter earnings - down 1.8% on a beat.</p></li></ul><p>Put simply, there doesn’t appear to have been much correlation between Alibaba’s stock price and its one-day earnings performance in the trailing 12-month period. It was a similar story with PDD Holdings’ last earnings release–it was a beat, but the stock fell anyway. In the meantime, news of China’s $139 billion fiscal stimulus apparently triggered the rally in Chinese ADRs that was observed yesterday. Basically, it looks like Alibaba and similar stocks are trading on macro more so than earnings performance. Therefore, expecting BABA stock to react in any predictable way to today’s release is an unwarranted assumption.</p><h2 id=\"id_2636839858\">What I Expect From Alibaba’s Earnings Release</h2><p>Having established why “playing BABA’s earnings” isn’t a great short-term trade idea, I can now begin to establish my bullish case. I covered the valuation extensively in past articles, so in this one I will focus more closely on the company’s competitive position and AI capabilities.</p><p>I expect Alibaba to do the following today:</p><ul style=\"\"><li><p><strong>Beat on revenue.</strong> The expected revenue growth is about 0%, while China’s online retail sales grew 12.7% in March. The RMB did decline some 7% against the USD in the 12 months ended in March, but if BABA’s revenue growth is similar to that of its sector, it should still grow its USD revenue by 4% or 5%.</p></li><li><p><strong>Earnings about in-line with expectations.</strong> Alibaba has been affected by some adverse non-cash non-recurring expenses lately. For example, a measurement change made a negative earnings impact last quarter.</p></li><li><p><strong>A decline in free cash flow (“FCF”).</strong> Alibaba’s FCF declined last quarter, the reasons given for this <em>(timing of tax payments and working capital changes)</em> will likely still be impacting the March quarter results. So, a decrease in FCF is likely.</p></li></ul><p>With these points out of the way, I can get into my first major bullish point: Alibaba’s strong competitive position.</p><h2 id=\"id_3311163730\">Alibaba - Competitive Advantage</h2><p>One thing that Alibaba has going for it is the fact that it enjoys a strong competitive position. It does face competition, but it’s usually either #1 or #2 in its markets. Here&#39;s a quick review of Alibaba’s business by segment, along with some comments on the previous quarter’s performance:</p><ul style=\"\"><li><p><strong>Taobao and Tmall group.</strong> This is the Chinese equivalent of AliExpress. If you aren’t familiar with AliExpress, it’s similar to TEMU. BABA’s Taobao/Tmall segment did negligible growth last quarter. It mainly sells products directly to Chinese consumers. It’s Alibaba’s largest segment, but it isn’t growing much.</p></li><li><p><strong>International commerce.</strong> This segment grew 47% last quarter, and the “international commerce retail” subset grew 66%.</p><ul style=\"\"><li><p>This includes both wholesale (i.e., selling to other businesses), as well as B2C apps like AliExpress and Lazada.</p></li></ul></li><li><p><strong>Cainiao.</strong> This group develops technologies (e.g., robots) to fulfill orders faster than would otherwise be possible. This segment grew 25% last quarter.</p></li><li><p><strong>The cloud.</strong> A cloud service similar to Amazon Web Services, it lets companies build apps and host them in the cloud. Alibaba is the dominant player in Chinese cloud services, with a 39% market share.</p></li></ul><p>As you can see, Alibaba has several strong, growing business segments. That’s enough to make it interesting, but it isn’t the reason I mentioned them. I highlighted them mainly because they show the company’s strong competitive position. Alibaba is #1 in Chinese e-commerce by earnings, and #1 in the cloud by revenue. It has $86 billion in balance sheet cash to invest into improving these segments should the company find competitors to be a threat. For example, BABA recently slashed its cloud computing prices to drum up more business. With its $86 billion cash hoard, the company can afford to run the segment at a loss for a while in order to increase its market share. It’s not so easy for a company with less resources to do the same.</p><p>It’s common for people to argue that BABA’s competitive position is deteriorating, citing <strong>PDD Holdings</strong> (PDD) and its incredible global growth story. It’s true that Alibaba’s competitive position has weakened somewhat because of PDD and others like JD.com (JD). However, when people say things like “PDD and JD are giving Alibaba fierce competition,” they’re mainly talking about in China, and in the U.S.’s business-to-consumer (B2C) market. Those companies don’t compete with other Alibaba segments such as the Cloud, and international commerce wholesale, home to the famous Alibaba.com platform that has supplied so many U.S. dropshippers over the years.</p><p>In fact, in its international commerce wholesale business, Alibaba has basically no large competitors. JD doesn’t do international wholesale, while the competitors that Alibaba does face are small in size. So, Alibaba has a real, hard-to-penetrate moat in international commerce. In international markets, it usually only competes with one or two other competitors; for example, Temu in the United States retail and <strong>Sea Limited</strong> (SE) in Southeast Asia. Broadly speaking, Alibaba’s competitive position is quite strong.</p><h2 id=\"id_1627976306\">AI Capabilities</h2><p>Another reason why I remain bullish on Alibaba is because of its AI capabilities. More specifically, the way the company is using these capabilities. Alibaba is already using AI in ways that have the ability to drive revenue and/or reduce costs–the same can’t be said for other companies.</p><p>The main way Alibaba is using AI is in building customer service chatbots. Customers on Taobao and Tmall often have questions about products, and traditionally these questions were answered by employees. With the Tongyi Qianwen chatbot, Alibaba is now automating that entire process, which should reduce headcount needs.</p><p>Second, Alibaba is licensing Tongyi Qianwen to other companies. The company recently reported that over 90,000 clients were using Tongyi, which is 5,000 more than <strong>Baidu</strong> (BIDU) reported for Ernie Bot. The way clients access Tongyi is through Alibaba Cloud, a paid service, so the chatbot could potentially be driving new revenue already <em>(it depends on how many clients signed up to get their own Tongyi chatbot vs how many were already Alibaba Cloud subscribers).</em></p><p>Alibaba’s AI deployments have a lot of potential to drive revenue. The news about the 90,000 corporate clients came out after the end of the first quarter, but it’s possible that some impact will be felt in today’s release. If that’s the case, then Alibaba could perform well after the release comes out. Nevertheless, I reiterate my original message: buying BABA as a short term “earnings play” isn’t a great idea. The stock doesn&#39;t show a strong tendency to react to earnings releases in a predictable way.</p><h2 id=\"id_3326496451\">The Bottom Line</h2><p>Alibaba had $10.4 in FCF per share in the trailing 12-month period. If you assume 0% growth and discount that at 10.6% (the 10 treasury yield plus a 6% risk premium), you get a $98 fair value estimate, which is 16% upside to today&#39;s price. Yet, as I showed in previous paragraphs, the company actually does have multiple growth catalysts, such as favorable Chinese macro data and Tongyi Qianwen&#39;s 90,000 corporate users. These catalysts should translate to good earnings performance eventually. Therefore, on a long-term basis, BABA stock appears to be a good buy.</p></body></html>","source":"seekingalpha","collect":0,"html":"<!DOCTYPE html>\n<html>\n<head>\n<meta http-equiv=\"Content-Type\" content=\"text/html; charset=utf-8\" />\n<meta name=\"viewport\" content=\"width=device-width,initial-scale=1.0,minimum-scale=1.0,maximum-scale=1.0,user-scalable=no\"/>\n<meta name=\"format-detection\" content=\"telephone=no,email=no,address=no\" />\n<title>Alibaba: Own It, Don't Play Earnings</title>\n<style type=\"text/css\">\na,abbr,acronym,address,applet,article,aside,audio,b,big,blockquote,body,canvas,caption,center,cite,code,dd,del,details,dfn,div,dl,dt,\nem,embed,fieldset,figcaption,figure,footer,form,h1,h2,h3,h4,h5,h6,header,hgroup,html,i,iframe,img,ins,kbd,label,legend,li,mark,menu,nav,\nobject,ol,output,p,pre,q,ruby,s,samp,section,small,span,strike,strong,sub,summary,sup,table,tbody,td,tfoot,th,thead,time,tr,tt,u,ul,var,video{ font:inherit;margin:0;padding:0;vertical-align:baseline;border:0 }\nbody{ font-size:16px; line-height:1.5; color:#999; background:transparent; }\n.wrapper{ overflow:hidden;word-break:break-all;padding:10px; }\nh1,h2{ font-weight:normal; line-height:1.35; margin-bottom:.6em; }\nh3,h4,h5,h6{ line-height:1.35; margin-bottom:1em; }\nh1{ font-size:24px; }\nh2{ font-size:20px; }\nh3{ font-size:18px; }\nh4{ font-size:16px; }\nh5{ font-size:14px; }\nh6{ font-size:12px; }\np,ul,ol,blockquote,dl,table{ margin:1.2em 0; }\nul,ol{ margin-left:2em; }\nul{ list-style:disc; }\nol{ list-style:decimal; }\nli,li p{ margin:10px 0;}\nimg{ max-width:100%;display:block;margin:0 auto 1em; }\nblockquote{ color:#B5B2B1; border-left:3px solid #aaa; padding:1em; }\nstrong,b{font-weight:bold;}\nem,i{font-style:italic;}\ntable{ width:100%;border-collapse:collapse;border-spacing:1px;margin:1em 0;font-size:.9em; }\nth,td{ padding:5px;text-align:left;border:1px solid #aaa; }\nth{ font-weight:bold;background:#5d5d5d; }\n.symbol-link{font-weight:bold;}\n/* header{ border-bottom:1px solid #494756; } */\n.title{ margin:0 0 8px;line-height:1.3;color:#ddd; }\n.meta {color:#5e5c6d;font-size:13px;margin:0 0 .5em; }\na{text-decoration:none; color:#2a4b87;}\n.meta .head { display: inline-block; overflow: hidden}\n.head .h-thumb { width: 30px; height: 30px; margin: 0; padding: 0; border-radius: 50%; float: left;}\n.head .h-content { margin: 0; padding: 0 0 0 9px; float: left;}\n.head .h-name {font-size: 13px; color: #eee; margin: 0;}\n.head .h-time {font-size: 11px; color: #7E829C; margin: 0;line-height: 11px;}\n.small {font-size: 12.5px; display: inline-block; transform: scale(0.9); -webkit-transform: scale(0.9); transform-origin: left; -webkit-transform-origin: left;}\n.smaller {font-size: 12.5px; display: inline-block; transform: scale(0.8); -webkit-transform: scale(0.8); transform-origin: left; -webkit-transform-origin: left;}\n.bt-text {font-size: 12px;margin: 1.5em 0 0 0}\n.bt-text p {margin: 0}\n</style>\n</head>\n<body>\n<div class=\"wrapper\">\n<header>\n<h2 class=\"title\">\nAlibaba: Own It, Don't Play Earnings\n</h2>\n\n<h4 class=\"meta\">\n\n\n2024-05-14 17:30 GMT+8&nbsp;&nbsp;&nbsp;<a href=https://seekingalpha.com/article/4692930-alibaba-own-it-dont-play-earnings-baba-stock><strong>Seeking Alpha</strong></a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\n<p>Alibaba's stock rallied 5.7% on Monday ahead of its highly anticipated March quarter earnings release, with analysts expecting $30.42 billion in revenue and $1.42 in EPS.The earnings release will ...</p>\n\n<a href=\"https://seekingalpha.com/article/4692930-alibaba-own-it-dont-play-earnings-baba-stock\">Web Link</a>\n\n</div>\n\n\n</article>\n</div>\n</body>\n</html>\n","type":0,"thumbnail":"","relate_stocks":{"09988":"阿里巴巴-SW","BABA":"阿里巴巴"},"source_url":"https://seekingalpha.com/article/4692930-alibaba-own-it-dont-play-earnings-baba-stock","is_english":true,"share_image_url":"https://static.laohu8.com/5a36db9d73b4222bc376d24ccc48c8a4","article_id":"2435807531","content_text":"Alibaba's stock rallied 5.7% on Monday ahead of its highly anticipated March quarter earnings release, with analysts expecting $30.42 billion in revenue and $1.42 in EPS.The earnings release will provide insights into China's economic rebound and Alibaba's efforts in generative AI and cloud computing.Alibaba today trades at low multiples despite having multiple bullish catalysts, such as rapid growth in AliExpress and wide adoption of the company's Tongyi Qianwen chatbot in China.For these reasons, I consider BABA a buy and remain long.However, attempting to \"play\" the stock's earnings is a bad idea because BABA does not usually react to earnings in the expected way.Alibaba company logo on office buildingAlibaba Group Holding (NYSE:BABA) rallied 5.7% on Monday and another 1% in premarket trading Tuesday, ahead of today’s highly anticipated earnings release. The release will be the company’s first since Hong Kong stocks began trending upward last month. Analysts are expecting $30.42 billion in revenue, up 0.03%, and $1.42 in EPS, down 9%.In addition to revealing key facts about Alibaba’s business, the release will contain some crucial information about how China’s economic rebound is playing out. We already know that exports and imports are picking up, and that GDP growth is about on target. Alibaba’s release will be the first indication as to how these macro trends influenced consumer habits in the first quarter.Alibaba’s release will also contain some important operational data. For example, it will probably shed some light on the company’s efforts in generative AI. We already know that the company’s Tongyi Qianwen chatbot is helping a billion Chinese users with customer service, today’s release might include details on the chatbot’s technical capabilities.Another interesting segment to watch will be the cloud. Cloud computing has been a huge growth driver for Western tech companies, but BABA’s cloud growth has been sluggish ever since 2021. Unlike retail sales, there is no macroeconomic data released that directly pertains to cloud computing, so BABA’s cloud segment results will be the first we’ll hear about the state of the Chinese cloud market in some months.When I last covered BABA, I rated the stock a buy, on the grounds that it had just launched a large buyback and remained cheap, as it was during most of my prior coverage. I still think that Alibaba stock is a buy for long-term investors, but because its earnings come out today, I have to state that short-term traders should approach cautiously.Generally speaking, I would counsel investors not to “bet on” Alibaba’s upcoming earnings release, whether long or short. BABA is a great business, but Chinese stocks do not always respond to earnings in the ways you would expect. Although today’s earnings expectations are fairly muted, and a revenue beat appears likely, BABA does not consistently rise when it surpasses earnings expectations. It, like most Chinese stocks, seems to trade mainly based on macro rather than earnings results these days. Accordingly, I do not find BABA suitable for short-term traders. In this article, I will explore both my overall bullish thesis on BABA and my belief that “playing” the stock’s earnings is a bad idea.Alibaba - Why Playing Earnings Often Doesn’t WorkAccording to Seeking Alpha Quant, Alibaba beat estimates in three out of the previous four quarters. Yet, if we look at the dates on which those earnings were released, we see that BABA stock mostly didn’t trade well on them. The dates were:February 7 - December quarter earnings - down 9.5% on a small miss.November 16 - September quarter earnings - down 1.9% on a beat.August 10 - June quarter earnings - down 3.5% on a beat.May 18 - March quarter earnings - down 1.8% on a beat.Put simply, there doesn’t appear to have been much correlation between Alibaba’s stock price and its one-day earnings performance in the trailing 12-month period. It was a similar story with PDD Holdings’ last earnings release–it was a beat, but the stock fell anyway. In the meantime, news of China’s $139 billion fiscal stimulus apparently triggered the rally in Chinese ADRs that was observed yesterday. Basically, it looks like Alibaba and similar stocks are trading on macro more so than earnings performance. Therefore, expecting BABA stock to react in any predictable way to today’s release is an unwarranted assumption.What I Expect From Alibaba’s Earnings ReleaseHaving established why “playing BABA’s earnings” isn’t a great short-term trade idea, I can now begin to establish my bullish case. I covered the valuation extensively in past articles, so in this one I will focus more closely on the company’s competitive position and AI capabilities.I expect Alibaba to do the following today:Beat on revenue. The expected revenue growth is about 0%, while China’s online retail sales grew 12.7% in March. The RMB did decline some 7% against the USD in the 12 months ended in March, but if BABA’s revenue growth is similar to that of its sector, it should still grow its USD revenue by 4% or 5%.Earnings about in-line with expectations. Alibaba has been affected by some adverse non-cash non-recurring expenses lately. For example, a measurement change made a negative earnings impact last quarter.A decline in free cash flow (“FCF”). Alibaba’s FCF declined last quarter, the reasons given for this (timing of tax payments and working capital changes) will likely still be impacting the March quarter results. So, a decrease in FCF is likely.With these points out of the way, I can get into my first major bullish point: Alibaba’s strong competitive position.Alibaba - Competitive AdvantageOne thing that Alibaba has going for it is the fact that it enjoys a strong competitive position. It does face competition, but it’s usually either #1 or #2 in its markets. Here's a quick review of Alibaba’s business by segment, along with some comments on the previous quarter’s performance:Taobao and Tmall group. This is the Chinese equivalent of AliExpress. If you aren’t familiar with AliExpress, it’s similar to TEMU. BABA’s Taobao/Tmall segment did negligible growth last quarter. It mainly sells products directly to Chinese consumers. It’s Alibaba’s largest segment, but it isn’t growing much.International commerce. This segment grew 47% last quarter, and the “international commerce retail” subset grew 66%.This includes both wholesale (i.e., selling to other businesses), as well as B2C apps like AliExpress and Lazada.Cainiao. This group develops technologies (e.g., robots) to fulfill orders faster than would otherwise be possible. This segment grew 25% last quarter.The cloud. A cloud service similar to Amazon Web Services, it lets companies build apps and host them in the cloud. Alibaba is the dominant player in Chinese cloud services, with a 39% market share.As you can see, Alibaba has several strong, growing business segments. That’s enough to make it interesting, but it isn’t the reason I mentioned them. I highlighted them mainly because they show the company’s strong competitive position. Alibaba is #1 in Chinese e-commerce by earnings, and #1 in the cloud by revenue. It has $86 billion in balance sheet cash to invest into improving these segments should the company find competitors to be a threat. For example, BABA recently slashed its cloud computing prices to drum up more business. With its $86 billion cash hoard, the company can afford to run the segment at a loss for a while in order to increase its market share. It’s not so easy for a company with less resources to do the same.It’s common for people to argue that BABA’s competitive position is deteriorating, citing PDD Holdings (PDD) and its incredible global growth story. It’s true that Alibaba’s competitive position has weakened somewhat because of PDD and others like JD.com (JD). However, when people say things like “PDD and JD are giving Alibaba fierce competition,” they’re mainly talking about in China, and in the U.S.’s business-to-consumer (B2C) market. Those companies don’t compete with other Alibaba segments such as the Cloud, and international commerce wholesale, home to the famous Alibaba.com platform that has supplied so many U.S. dropshippers over the years.In fact, in its international commerce wholesale business, Alibaba has basically no large competitors. JD doesn’t do international wholesale, while the competitors that Alibaba does face are small in size. So, Alibaba has a real, hard-to-penetrate moat in international commerce. In international markets, it usually only competes with one or two other competitors; for example, Temu in the United States retail and Sea Limited (SE) in Southeast Asia. Broadly speaking, Alibaba’s competitive position is quite strong.AI CapabilitiesAnother reason why I remain bullish on Alibaba is because of its AI capabilities. More specifically, the way the company is using these capabilities. Alibaba is already using AI in ways that have the ability to drive revenue and/or reduce costs–the same can’t be said for other companies.The main way Alibaba is using AI is in building customer service chatbots. Customers on Taobao and Tmall often have questions about products, and traditionally these questions were answered by employees. With the Tongyi Qianwen chatbot, Alibaba is now automating that entire process, which should reduce headcount needs.Second, Alibaba is licensing Tongyi Qianwen to other companies. The company recently reported that over 90,000 clients were using Tongyi, which is 5,000 more than Baidu (BIDU) reported for Ernie Bot. The way clients access Tongyi is through Alibaba Cloud, a paid service, so the chatbot could potentially be driving new revenue already (it depends on how many clients signed up to get their own Tongyi chatbot vs how many were already Alibaba Cloud subscribers).Alibaba’s AI deployments have a lot of potential to drive revenue. The news about the 90,000 corporate clients came out after the end of the first quarter, but it’s possible that some impact will be felt in today’s release. If that’s the case, then Alibaba could perform well after the release comes out. Nevertheless, I reiterate my original message: buying BABA as a short term “earnings play” isn’t a great idea. The stock doesn't show a strong tendency to react to earnings releases in a predictable way.The Bottom LineAlibaba had $10.4 in FCF per share in the trailing 12-month period. If you assume 0% growth and discount that at 10.6% (the 10 treasury yield plus a 6% risk premium), you get a $98 fair value estimate, which is 16% upside to today's price. Yet, as I showed in previous paragraphs, the company actually does have multiple growth catalysts, such as favorable Chinese macro data and Tongyi Qianwen's 90,000 corporate users. These catalysts should translate to good earnings performance eventually. Therefore, on a long-term basis, BABA stock appears to be a good buy.","news_type":1},"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"langContent":"EN"},{"id":305785860038928,"gmtCreate":1715679911365,"gmtModify":1715680321763,"author":{"id":"4131703342800552","authorId":"4131703342800552","name":"neo26000","avatar":"https://community-static.tradeup.com/news/af53ce85df53718f6c2d268fdf544d17","vip":1,"hat":"https://static.tigerbbs.com/4c5ceab71416b120bab4604c0754b52a","crmLevel":9,"crmLevelSwitch":1},"htmlText":"Totally agree. If anyone wants to play the earnings, a roulette wheel on black or red gives better odds.","listText":"Totally agree. If anyone wants to play the earnings, a roulette wheel on black or red gives better odds.","text":"Totally agree. If anyone wants to play the earnings, a roulette wheel on black or red gives better odds.","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":0,"commentSize":0,"repostSize":0,"link":"https://ttm.financial/post/305785860038928","repostId":2435807531,"repostType":2,"repost":{"id":"2435807531","pubTimestamp":1715679000,"share":"https://www.laohu8.com/m/news/2435807531?lang=&edition=full","pubTime":"2024-05-14 17:30","market":"us","language":"en","title":"Alibaba: Own It, Don't Play Earnings","url":"https://stock-news.laohu8.com/highlight/detail?id=2435807531","media":"Seeking Alpha","summary":"Alibaba's stock rallied 5.7% on Monday ahead of its highly anticipated March quarter earnings release, with analysts expecting $30.42 billion in revenue and $1.42 in EPS.The earnings release will prov","content":"<html><head></head><body><ul style=\"\"><li><p>Alibaba&#39;s stock rallied 5.7% on Monday ahead of its highly anticipated March quarter earnings release, with analysts expecting $30.42 billion in revenue and $1.42 in EPS.</p></li><li><p>The earnings release will provide insights into China&#39;s economic rebound and Alibaba&#39;s efforts in generative AI and cloud computing.</p></li><li><p>Alibaba today trades at low multiples despite having multiple bullish catalysts, such as rapid growth in AliExpress and wide adoption of the company&#39;s Tongyi Qianwen chatbot in China.</p></li><li><p>For these reasons, I consider BABA a buy and remain long.</p></li><li><p>However, attempting to &#34;play&#34; the stock&#39;s earnings is a bad idea because BABA does not usually react to earnings in the expected way.</p></li></ul><p class=\"t-img-caption\"><img src=\"https://community-static.tradeup.com/news/84b6aeab08dc480ef3a214462aadfcfd\" title=\"Alibaba company logo on office building\" tg-width=\"750\" tg-height=\"500\"/><span>Alibaba company logo on office building</span></p><p><strong>Alibaba Group Holding</strong> (NYSE:BABA) rallied 5.7% on Monday and another 1% in premarket trading Tuesday, ahead of today’s highly anticipated earnings release. The release will be the company’s first since Hong Kong stocks began trending upward last month. Analysts are expecting $30.42 billion in revenue, up 0.03%, and $1.42 in EPS, down 9%.</p><p>In addition to revealing key facts about Alibaba’s business, the release will contain some crucial information about how China’s economic rebound is playing out. We already know that exports and imports are picking up, and that GDP growth is about on target. Alibaba’s release will be the first indication as to how these macro trends influenced consumer habits in the first quarter.</p><p>Alibaba’s release will also contain some important operational data. For example, it will probably shed some light on the company’s efforts in generative AI. We already know that the company’s <em>Tongyi Qianwen</em> chatbot is helping a billion Chinese users with customer service, today’s release might include details on the chatbot’s technical capabilities.</p><p>Another interesting segment to watch will be the cloud. Cloud computing has been a huge growth driver for Western tech companies, but BABA’s cloud growth has been sluggish ever since 2021. Unlike retail sales, there is no macroeconomic data released that directly pertains to cloud computing, so BABA’s cloud segment results will be the first we’ll hear about the state of the Chinese cloud market in some months.</p><p>When I last covered BABA, I rated the stock a buy, on the grounds that it had just launched a large buyback and remained cheap, as it was during most of my prior coverage. I still think that Alibaba stock is a buy for long-term investors, but because its earnings come out today, I have to state that short-term traders should approach cautiously.</p><p>Generally speaking, I would counsel investors not to “bet on” Alibaba’s upcoming earnings release, whether long or short. BABA is a great business, but Chinese stocks do not always respond to earnings in the ways you would expect. Although today’s earnings expectations are fairly muted, and a revenue beat appears likely, BABA does not consistently rise when it surpasses earnings expectations. It, like most Chinese stocks, seems to trade mainly based on macro rather than earnings results these days. Accordingly, I do not find BABA suitable for short-term traders. In this article, I will explore both my overall bullish thesis on BABA and my belief that <em>“playing”</em> the stock’s earnings is a bad idea.</p><h2 id=\"id_4056450391\">Alibaba - Why Playing Earnings Often Doesn’t Work</h2><p>According to Seeking Alpha Quant, Alibaba beat estimates in three out of the previous four quarters. Yet, if we look at the dates on which those earnings were released, we see that BABA stock mostly didn’t trade well on them. The dates were:</p><ul style=\"\"><li><p>February 7 - December quarter earnings - down 9.5% on a small miss.</p></li><li><p>November 16 - September quarter earnings - down 1.9% on a beat.</p></li><li><p>August 10 - June quarter earnings - down 3.5% on a beat.</p></li><li><p>May 18 - March quarter earnings - down 1.8% on a beat.</p></li></ul><p>Put simply, there doesn’t appear to have been much correlation between Alibaba’s stock price and its one-day earnings performance in the trailing 12-month period. It was a similar story with PDD Holdings’ last earnings release–it was a beat, but the stock fell anyway. In the meantime, news of China’s $139 billion fiscal stimulus apparently triggered the rally in Chinese ADRs that was observed yesterday. Basically, it looks like Alibaba and similar stocks are trading on macro more so than earnings performance. Therefore, expecting BABA stock to react in any predictable way to today’s release is an unwarranted assumption.</p><h2 id=\"id_2636839858\">What I Expect From Alibaba’s Earnings Release</h2><p>Having established why “playing BABA’s earnings” isn’t a great short-term trade idea, I can now begin to establish my bullish case. I covered the valuation extensively in past articles, so in this one I will focus more closely on the company’s competitive position and AI capabilities.</p><p>I expect Alibaba to do the following today:</p><ul style=\"\"><li><p><strong>Beat on revenue.</strong> The expected revenue growth is about 0%, while China’s online retail sales grew 12.7% in March. The RMB did decline some 7% against the USD in the 12 months ended in March, but if BABA’s revenue growth is similar to that of its sector, it should still grow its USD revenue by 4% or 5%.</p></li><li><p><strong>Earnings about in-line with expectations.</strong> Alibaba has been affected by some adverse non-cash non-recurring expenses lately. For example, a measurement change made a negative earnings impact last quarter.</p></li><li><p><strong>A decline in free cash flow (“FCF”).</strong> Alibaba’s FCF declined last quarter, the reasons given for this <em>(timing of tax payments and working capital changes)</em> will likely still be impacting the March quarter results. So, a decrease in FCF is likely.</p></li></ul><p>With these points out of the way, I can get into my first major bullish point: Alibaba’s strong competitive position.</p><h2 id=\"id_3311163730\">Alibaba - Competitive Advantage</h2><p>One thing that Alibaba has going for it is the fact that it enjoys a strong competitive position. It does face competition, but it’s usually either #1 or #2 in its markets. Here&#39;s a quick review of Alibaba’s business by segment, along with some comments on the previous quarter’s performance:</p><ul style=\"\"><li><p><strong>Taobao and Tmall group.</strong> This is the Chinese equivalent of AliExpress. If you aren’t familiar with AliExpress, it’s similar to TEMU. BABA’s Taobao/Tmall segment did negligible growth last quarter. It mainly sells products directly to Chinese consumers. It’s Alibaba’s largest segment, but it isn’t growing much.</p></li><li><p><strong>International commerce.</strong> This segment grew 47% last quarter, and the “international commerce retail” subset grew 66%.</p><ul style=\"\"><li><p>This includes both wholesale (i.e., selling to other businesses), as well as B2C apps like AliExpress and Lazada.</p></li></ul></li><li><p><strong>Cainiao.</strong> This group develops technologies (e.g., robots) to fulfill orders faster than would otherwise be possible. This segment grew 25% last quarter.</p></li><li><p><strong>The cloud.</strong> A cloud service similar to Amazon Web Services, it lets companies build apps and host them in the cloud. Alibaba is the dominant player in Chinese cloud services, with a 39% market share.</p></li></ul><p>As you can see, Alibaba has several strong, growing business segments. That’s enough to make it interesting, but it isn’t the reason I mentioned them. I highlighted them mainly because they show the company’s strong competitive position. Alibaba is #1 in Chinese e-commerce by earnings, and #1 in the cloud by revenue. It has $86 billion in balance sheet cash to invest into improving these segments should the company find competitors to be a threat. For example, BABA recently slashed its cloud computing prices to drum up more business. With its $86 billion cash hoard, the company can afford to run the segment at a loss for a while in order to increase its market share. It’s not so easy for a company with less resources to do the same.</p><p>It’s common for people to argue that BABA’s competitive position is deteriorating, citing <strong>PDD Holdings</strong> (PDD) and its incredible global growth story. It’s true that Alibaba’s competitive position has weakened somewhat because of PDD and others like JD.com (JD). However, when people say things like “PDD and JD are giving Alibaba fierce competition,” they’re mainly talking about in China, and in the U.S.’s business-to-consumer (B2C) market. Those companies don’t compete with other Alibaba segments such as the Cloud, and international commerce wholesale, home to the famous Alibaba.com platform that has supplied so many U.S. dropshippers over the years.</p><p>In fact, in its international commerce wholesale business, Alibaba has basically no large competitors. JD doesn’t do international wholesale, while the competitors that Alibaba does face are small in size. So, Alibaba has a real, hard-to-penetrate moat in international commerce. In international markets, it usually only competes with one or two other competitors; for example, Temu in the United States retail and <strong>Sea Limited</strong> (SE) in Southeast Asia. Broadly speaking, Alibaba’s competitive position is quite strong.</p><h2 id=\"id_1627976306\">AI Capabilities</h2><p>Another reason why I remain bullish on Alibaba is because of its AI capabilities. More specifically, the way the company is using these capabilities. Alibaba is already using AI in ways that have the ability to drive revenue and/or reduce costs–the same can’t be said for other companies.</p><p>The main way Alibaba is using AI is in building customer service chatbots. Customers on Taobao and Tmall often have questions about products, and traditionally these questions were answered by employees. With the Tongyi Qianwen chatbot, Alibaba is now automating that entire process, which should reduce headcount needs.</p><p>Second, Alibaba is licensing Tongyi Qianwen to other companies. The company recently reported that over 90,000 clients were using Tongyi, which is 5,000 more than <strong>Baidu</strong> (BIDU) reported for Ernie Bot. The way clients access Tongyi is through Alibaba Cloud, a paid service, so the chatbot could potentially be driving new revenue already <em>(it depends on how many clients signed up to get their own Tongyi chatbot vs how many were already Alibaba Cloud subscribers).</em></p><p>Alibaba’s AI deployments have a lot of potential to drive revenue. The news about the 90,000 corporate clients came out after the end of the first quarter, but it’s possible that some impact will be felt in today’s release. If that’s the case, then Alibaba could perform well after the release comes out. Nevertheless, I reiterate my original message: buying BABA as a short term “earnings play” isn’t a great idea. The stock doesn&#39;t show a strong tendency to react to earnings releases in a predictable way.</p><h2 id=\"id_3326496451\">The Bottom Line</h2><p>Alibaba had $10.4 in FCF per share in the trailing 12-month period. If you assume 0% growth and discount that at 10.6% (the 10 treasury yield plus a 6% risk premium), you get a $98 fair value estimate, which is 16% upside to today&#39;s price. Yet, as I showed in previous paragraphs, the company actually does have multiple growth catalysts, such as favorable Chinese macro data and Tongyi Qianwen&#39;s 90,000 corporate users. These catalysts should translate to good earnings performance eventually. Therefore, on a long-term basis, BABA stock appears to be a good buy.</p></body></html>","source":"seekingalpha","collect":0,"html":"<!DOCTYPE html>\n<html>\n<head>\n<meta http-equiv=\"Content-Type\" content=\"text/html; charset=utf-8\" />\n<meta name=\"viewport\" content=\"width=device-width,initial-scale=1.0,minimum-scale=1.0,maximum-scale=1.0,user-scalable=no\"/>\n<meta name=\"format-detection\" content=\"telephone=no,email=no,address=no\" />\n<title>Alibaba: Own It, Don't Play Earnings</title>\n<style type=\"text/css\">\na,abbr,acronym,address,applet,article,aside,audio,b,big,blockquote,body,canvas,caption,center,cite,code,dd,del,details,dfn,div,dl,dt,\nem,embed,fieldset,figcaption,figure,footer,form,h1,h2,h3,h4,h5,h6,header,hgroup,html,i,iframe,img,ins,kbd,label,legend,li,mark,menu,nav,\nobject,ol,output,p,pre,q,ruby,s,samp,section,small,span,strike,strong,sub,summary,sup,table,tbody,td,tfoot,th,thead,time,tr,tt,u,ul,var,video{ font:inherit;margin:0;padding:0;vertical-align:baseline;border:0 }\nbody{ font-size:16px; line-height:1.5; color:#999; background:transparent; }\n.wrapper{ overflow:hidden;word-break:break-all;padding:10px; }\nh1,h2{ font-weight:normal; line-height:1.35; margin-bottom:.6em; }\nh3,h4,h5,h6{ line-height:1.35; margin-bottom:1em; }\nh1{ font-size:24px; }\nh2{ font-size:20px; }\nh3{ font-size:18px; }\nh4{ font-size:16px; }\nh5{ font-size:14px; }\nh6{ font-size:12px; }\np,ul,ol,blockquote,dl,table{ margin:1.2em 0; }\nul,ol{ margin-left:2em; }\nul{ list-style:disc; }\nol{ list-style:decimal; }\nli,li p{ margin:10px 0;}\nimg{ max-width:100%;display:block;margin:0 auto 1em; }\nblockquote{ color:#B5B2B1; border-left:3px solid #aaa; padding:1em; }\nstrong,b{font-weight:bold;}\nem,i{font-style:italic;}\ntable{ width:100%;border-collapse:collapse;border-spacing:1px;margin:1em 0;font-size:.9em; }\nth,td{ padding:5px;text-align:left;border:1px solid #aaa; }\nth{ font-weight:bold;background:#5d5d5d; }\n.symbol-link{font-weight:bold;}\n/* header{ border-bottom:1px solid #494756; } */\n.title{ margin:0 0 8px;line-height:1.3;color:#ddd; }\n.meta {color:#5e5c6d;font-size:13px;margin:0 0 .5em; }\na{text-decoration:none; color:#2a4b87;}\n.meta .head { display: inline-block; overflow: hidden}\n.head .h-thumb { width: 30px; height: 30px; margin: 0; padding: 0; border-radius: 50%; float: left;}\n.head .h-content { margin: 0; padding: 0 0 0 9px; float: left;}\n.head .h-name {font-size: 13px; color: #eee; margin: 0;}\n.head .h-time {font-size: 11px; color: #7E829C; margin: 0;line-height: 11px;}\n.small {font-size: 12.5px; display: inline-block; transform: scale(0.9); -webkit-transform: scale(0.9); transform-origin: left; -webkit-transform-origin: left;}\n.smaller {font-size: 12.5px; display: inline-block; transform: scale(0.8); -webkit-transform: scale(0.8); transform-origin: left; -webkit-transform-origin: left;}\n.bt-text {font-size: 12px;margin: 1.5em 0 0 0}\n.bt-text p {margin: 0}\n</style>\n</head>\n<body>\n<div class=\"wrapper\">\n<header>\n<h2 class=\"title\">\nAlibaba: Own It, Don't Play Earnings\n</h2>\n\n<h4 class=\"meta\">\n\n\n2024-05-14 17:30 GMT+8&nbsp;&nbsp;&nbsp;<a href=https://seekingalpha.com/article/4692930-alibaba-own-it-dont-play-earnings-baba-stock><strong>Seeking Alpha</strong></a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\n<p>Alibaba's stock rallied 5.7% on Monday ahead of its highly anticipated March quarter earnings release, with analysts expecting $30.42 billion in revenue and $1.42 in EPS.The earnings release will ...</p>\n\n<a href=\"https://seekingalpha.com/article/4692930-alibaba-own-it-dont-play-earnings-baba-stock\">Web Link</a>\n\n</div>\n\n\n</article>\n</div>\n</body>\n</html>\n","type":0,"thumbnail":"","relate_stocks":{"09988":"阿里巴巴-SW","BABA":"阿里巴巴"},"source_url":"https://seekingalpha.com/article/4692930-alibaba-own-it-dont-play-earnings-baba-stock","is_english":true,"share_image_url":"https://static.laohu8.com/5a36db9d73b4222bc376d24ccc48c8a4","article_id":"2435807531","content_text":"Alibaba's stock rallied 5.7% on Monday ahead of its highly anticipated March quarter earnings release, with analysts expecting $30.42 billion in revenue and $1.42 in EPS.The earnings release will provide insights into China's economic rebound and Alibaba's efforts in generative AI and cloud computing.Alibaba today trades at low multiples despite having multiple bullish catalysts, such as rapid growth in AliExpress and wide adoption of the company's Tongyi Qianwen chatbot in China.For these reasons, I consider BABA a buy and remain long.However, attempting to \"play\" the stock's earnings is a bad idea because BABA does not usually react to earnings in the expected way.Alibaba company logo on office buildingAlibaba Group Holding (NYSE:BABA) rallied 5.7% on Monday and another 1% in premarket trading Tuesday, ahead of today’s highly anticipated earnings release. The release will be the company’s first since Hong Kong stocks began trending upward last month. Analysts are expecting $30.42 billion in revenue, up 0.03%, and $1.42 in EPS, down 9%.In addition to revealing key facts about Alibaba’s business, the release will contain some crucial information about how China’s economic rebound is playing out. We already know that exports and imports are picking up, and that GDP growth is about on target. Alibaba’s release will be the first indication as to how these macro trends influenced consumer habits in the first quarter.Alibaba’s release will also contain some important operational data. For example, it will probably shed some light on the company’s efforts in generative AI. We already know that the company’s Tongyi Qianwen chatbot is helping a billion Chinese users with customer service, today’s release might include details on the chatbot’s technical capabilities.Another interesting segment to watch will be the cloud. Cloud computing has been a huge growth driver for Western tech companies, but BABA’s cloud growth has been sluggish ever since 2021. Unlike retail sales, there is no macroeconomic data released that directly pertains to cloud computing, so BABA’s cloud segment results will be the first we’ll hear about the state of the Chinese cloud market in some months.When I last covered BABA, I rated the stock a buy, on the grounds that it had just launched a large buyback and remained cheap, as it was during most of my prior coverage. I still think that Alibaba stock is a buy for long-term investors, but because its earnings come out today, I have to state that short-term traders should approach cautiously.Generally speaking, I would counsel investors not to “bet on” Alibaba’s upcoming earnings release, whether long or short. BABA is a great business, but Chinese stocks do not always respond to earnings in the ways you would expect. Although today’s earnings expectations are fairly muted, and a revenue beat appears likely, BABA does not consistently rise when it surpasses earnings expectations. It, like most Chinese stocks, seems to trade mainly based on macro rather than earnings results these days. Accordingly, I do not find BABA suitable for short-term traders. In this article, I will explore both my overall bullish thesis on BABA and my belief that “playing” the stock’s earnings is a bad idea.Alibaba - Why Playing Earnings Often Doesn’t WorkAccording to Seeking Alpha Quant, Alibaba beat estimates in three out of the previous four quarters. Yet, if we look at the dates on which those earnings were released, we see that BABA stock mostly didn’t trade well on them. The dates were:February 7 - December quarter earnings - down 9.5% on a small miss.November 16 - September quarter earnings - down 1.9% on a beat.August 10 - June quarter earnings - down 3.5% on a beat.May 18 - March quarter earnings - down 1.8% on a beat.Put simply, there doesn’t appear to have been much correlation between Alibaba’s stock price and its one-day earnings performance in the trailing 12-month period. It was a similar story with PDD Holdings’ last earnings release–it was a beat, but the stock fell anyway. In the meantime, news of China’s $139 billion fiscal stimulus apparently triggered the rally in Chinese ADRs that was observed yesterday. Basically, it looks like Alibaba and similar stocks are trading on macro more so than earnings performance. Therefore, expecting BABA stock to react in any predictable way to today’s release is an unwarranted assumption.What I Expect From Alibaba’s Earnings ReleaseHaving established why “playing BABA’s earnings” isn’t a great short-term trade idea, I can now begin to establish my bullish case. I covered the valuation extensively in past articles, so in this one I will focus more closely on the company’s competitive position and AI capabilities.I expect Alibaba to do the following today:Beat on revenue. The expected revenue growth is about 0%, while China’s online retail sales grew 12.7% in March. The RMB did decline some 7% against the USD in the 12 months ended in March, but if BABA’s revenue growth is similar to that of its sector, it should still grow its USD revenue by 4% or 5%.Earnings about in-line with expectations. Alibaba has been affected by some adverse non-cash non-recurring expenses lately. For example, a measurement change made a negative earnings impact last quarter.A decline in free cash flow (“FCF”). Alibaba’s FCF declined last quarter, the reasons given for this (timing of tax payments and working capital changes) will likely still be impacting the March quarter results. So, a decrease in FCF is likely.With these points out of the way, I can get into my first major bullish point: Alibaba’s strong competitive position.Alibaba - Competitive AdvantageOne thing that Alibaba has going for it is the fact that it enjoys a strong competitive position. It does face competition, but it’s usually either #1 or #2 in its markets. Here's a quick review of Alibaba’s business by segment, along with some comments on the previous quarter’s performance:Taobao and Tmall group. This is the Chinese equivalent of AliExpress. If you aren’t familiar with AliExpress, it’s similar to TEMU. BABA’s Taobao/Tmall segment did negligible growth last quarter. It mainly sells products directly to Chinese consumers. It’s Alibaba’s largest segment, but it isn’t growing much.International commerce. This segment grew 47% last quarter, and the “international commerce retail” subset grew 66%.This includes both wholesale (i.e., selling to other businesses), as well as B2C apps like AliExpress and Lazada.Cainiao. This group develops technologies (e.g., robots) to fulfill orders faster than would otherwise be possible. This segment grew 25% last quarter.The cloud. A cloud service similar to Amazon Web Services, it lets companies build apps and host them in the cloud. Alibaba is the dominant player in Chinese cloud services, with a 39% market share.As you can see, Alibaba has several strong, growing business segments. That’s enough to make it interesting, but it isn’t the reason I mentioned them. I highlighted them mainly because they show the company’s strong competitive position. Alibaba is #1 in Chinese e-commerce by earnings, and #1 in the cloud by revenue. It has $86 billion in balance sheet cash to invest into improving these segments should the company find competitors to be a threat. For example, BABA recently slashed its cloud computing prices to drum up more business. With its $86 billion cash hoard, the company can afford to run the segment at a loss for a while in order to increase its market share. It’s not so easy for a company with less resources to do the same.It’s common for people to argue that BABA’s competitive position is deteriorating, citing PDD Holdings (PDD) and its incredible global growth story. It’s true that Alibaba’s competitive position has weakened somewhat because of PDD and others like JD.com (JD). However, when people say things like “PDD and JD are giving Alibaba fierce competition,” they’re mainly talking about in China, and in the U.S.’s business-to-consumer (B2C) market. Those companies don’t compete with other Alibaba segments such as the Cloud, and international commerce wholesale, home to the famous Alibaba.com platform that has supplied so many U.S. dropshippers over the years.In fact, in its international commerce wholesale business, Alibaba has basically no large competitors. JD doesn’t do international wholesale, while the competitors that Alibaba does face are small in size. So, Alibaba has a real, hard-to-penetrate moat in international commerce. In international markets, it usually only competes with one or two other competitors; for example, Temu in the United States retail and Sea Limited (SE) in Southeast Asia. Broadly speaking, Alibaba’s competitive position is quite strong.AI CapabilitiesAnother reason why I remain bullish on Alibaba is because of its AI capabilities. More specifically, the way the company is using these capabilities. Alibaba is already using AI in ways that have the ability to drive revenue and/or reduce costs–the same can’t be said for other companies.The main way Alibaba is using AI is in building customer service chatbots. Customers on Taobao and Tmall often have questions about products, and traditionally these questions were answered by employees. With the Tongyi Qianwen chatbot, Alibaba is now automating that entire process, which should reduce headcount needs.Second, Alibaba is licensing Tongyi Qianwen to other companies. The company recently reported that over 90,000 clients were using Tongyi, which is 5,000 more than Baidu (BIDU) reported for Ernie Bot. The way clients access Tongyi is through Alibaba Cloud, a paid service, so the chatbot could potentially be driving new revenue already (it depends on how many clients signed up to get their own Tongyi chatbot vs how many were already Alibaba Cloud subscribers).Alibaba’s AI deployments have a lot of potential to drive revenue. The news about the 90,000 corporate clients came out after the end of the first quarter, but it’s possible that some impact will be felt in today’s release. If that’s the case, then Alibaba could perform well after the release comes out. Nevertheless, I reiterate my original message: buying BABA as a short term “earnings play” isn’t a great idea. The stock doesn't show a strong tendency to react to earnings releases in a predictable way.The Bottom LineAlibaba had $10.4 in FCF per share in the trailing 12-month period. If you assume 0% growth and discount that at 10.6% (the 10 treasury yield plus a 6% risk premium), you get a $98 fair value estimate, which is 16% upside to today's price. Yet, as I showed in previous paragraphs, the company actually does have multiple growth catalysts, such as favorable Chinese macro data and Tongyi Qianwen's 90,000 corporate users. These catalysts should translate to good earnings performance eventually. Therefore, on a long-term basis, BABA stock appears to be a good buy.","news_type":1},"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"langContent":"EN"}],"hasMoreComments":true,"newsSizeData":{"likeSize":17,"commentSize":2,"repostSize":2,"favoriteSize":0,"likeStatus":false,"favoriteStatus":false}}