To The Moon

$Alibaba(BABA)$

Earning Expectation

Alibaba's upcoming fiscal Q3 2024 earnings have sparked anticipation, particularly as analysts forecast mixed results influenced by both strengths and challenges in its business segments. Despite headwinds in China's macroeconomic environment and slowing e-commerce growth, Alibaba’s strong foothold in the cloud computing market and its expansion into AI-driven solutions are seen as potential positives for revenue.

Q3 2024 earnings release could bring positive surprises, particularly given recent favorable developments in its core business and external environment. Analysts expect Alibaba to report earnings of around $2.67 per share on revenue of $36.7 billion, representing a modest revenue increase year-over-year.

Wall Street projects a slight revenue increase to about $36.17 billion, up from $34.82 billion in the same quarter last year, but earnings per share are expected to be flat or slightly down from the previous year due to economic uncertainties affecting consumer demand in China.

Analyst Response

Analysts have tempered their price targets, with firms like Loop Capital and Bernstein adjusting them downward in response to these ongoing economic challenges. While macro uncertainties loom, many analysts remain bullish on Alibaba's long-term prospects due to its diversification into AI and cloud services, with a consensus "Buy" rating on the stock and an average target price implying significant upside potential. Investors will be closely watching for any surprises, especially from Alibaba’s cloud division, which could impact sentiment and potentially move its stock post-earnings release

Macro Uncertainties

Alibaba’s stock in November 2024 reflects investor uncertainty amid persistent macroeconomic pressures. A challenging Chinese economic environment, coupled with regulatory scrutiny and intensified competition from companies like Pinduoduo and ByteDance, has tempered Alibaba's market performance. Alibaba has also halted planned IPOs for its logistics and cloud divisions due to unfavorable market conditions and U.S. chip export restrictions, which further cloud its short-term outlook. Despite these setbacks, Alibaba has committed to a substantial $35 billion share buyback program, which aims to bolster shareholder confidence and signal potential long-term recovery.

Meanwhile, Alibaba's recent Q3 fiscal results displayed modest gains in core segments, with e-commerce and cloud computing seeing slight growth, though profitability continues to lag. Analysts largely see potential for recovery due to Alibaba’s restructuring into six units, aiming for flexibility and potentially greater shareholder value through spin-offs over time. Nevertheless, the ongoing U.S.-China trade tensions and regulatory headwinds make near-term gains uncertain, keeping investors cautious but hopeful for a long-term turnaround based on Alibaba’s strategic moves to adapt to evolving market challenges​.

Business Challenges

For the first time since 2009, Alibaba’s “Singles’ Day” (Double 11) shopping festival, which takes place every November 11, faced several challenges in 2024 due to intensifying competition and macroeconomic uncertainties in China. This year, Alibaba launched its event with extensive discounts and subsidies, aiming to energize consumer spending amid a generally slowing economy. The e-commerce giant, alongside rivals like JD.com and Douyin, began the promotions earlier than previous years, with Alibaba investing billions in marketing and consumer incentives to attract a broad range of shoppers and vendors. This approach reflects Alibaba's efforts to regain market share against fast-growing competitors like Pinduoduo, which have eaten into Alibaba's dominance over recent years.

Despite these efforts, Alibaba’s Double 11 sales may still be impacted by the current consumer sentiment and economic headwinds in China, as consumers are more cautious about discretionary spending. Moreover, Alibaba recently settled a class-action lawsuit for $433.5 million over claims related to exclusivity practices, which could weigh on investor sentiment and highlight ongoing regulatory pressures. In combination, these factors create a complex landscape for Alibaba, as the company seeks to revitalize growth and maintain its leadership in China’s e-commerce market.

For Alibaba and its investors, this year's Double 11 event is seen as both a potential boost and a test of its adaptability amid regulatory, economic, and competitive challenges.

The Positive !!!

Alibaba has been benefiting from an easing of regulatory pressures in China, following several years of stringent crackdowns by the government on big tech firms, particularly in the e-commerce sector. The Chinese government has shifted focus toward stimulating economic growth rather than maintaining the same level of oversight on tech giants, which had previously resulted in fines, restructurings, and restrictions on Alibaba's business operations. This reduction in regulatory scrutiny is helping Alibaba regain market confidence and invest in growth opportunities, particularly in AI and cloud computing, areas where the company is positioning itself for long-term expansion.

The relaxation of the regulatory environment has been a key factor behind the recent recovery in Alibaba’s stock price and its more optimistic outlook for future growth. The company is increasingly able to leverage its strengths in cloud services, which have become a significant revenue source, while also capitalizing on its robust e-commerce platform and the rise of AI technologies to enhance its offerings.

Despite the easing of regulations, Alibaba remains vigilant about ongoing competition from other e-commerce platforms and global geopolitical concerns, which still present risks to its market position​

Conclusion

Investors are hopeful that Alibaba’s renewed focus on AI and cloud computing could drive further revenue diversification and long-term growth. Additionally, a recent easing of regulatory pressures in China might support Alibaba's expansion plans and restore investor confidence, allowing the company to leverage its dominant e-commerce platform and cloud services​