Alibaba Group Holding Ltd (NYSE:BABA) is set to report its Q1 2018 earnings on August 17. Can BABA stock edge closer to the $200 mark?
Chinese e-Commerce giant Alibaba Group Holding Ltd (NYSE:BABA) is scheduled to report its June quarter earning on Thursday, August 17, before the market opens. There are increased expectations from the Chinese company to deliver a strong performance in the latest earnings. At its investor day event, the management stated that they expect to see a heavy 45%-49% revenue growth this year. The company expects to reach a whopping $1 trillion dollar in gross merchandise volume by 2020. In spite of the company's massive size, the company never fails to amaze with its impressive growth. Trading action at the BABA counter has not seen much action in the lead up to the earnings announcement, except for the last trading session, which saw Alibaba stock trade climb nearly 2%. In fact, the stock was trending downwards momentarily after hitting an all time high of $158.84 on August 7. Alibaba stock has shot up like Chinese crackers this year, gaining over 76% in the year-to-date, outperforming the Nasdaq Composite (INDEX:COMPX) by a factor of more than 4. After the remarkable guidance, the question now is, will Alibaba Group trump Wall Street estimates? Is BABA stock setting up for a strong post earnings rally?
Alibaba Q1 2018 Earnings Wall Street Estimates
The current Wall Street consensus expects the Jack Ma founded company to report non-GAAP earnings of 93 cents a share, up from an EPS of 74 cents in Q1 2017, a 25.67% YoY growth. On the top line front, Wall street analysts expect the company to report revenue of $7.15 billion, good for a 47.8% year-over-year growth. The company's full year sales growth last year had topped Wall Street estimates by 10 percentage points. As per the management guidance, Alibaba's revenue in FY 2018 is expected to come in at $34.3 billion, while analysts were expecting $31.42 billion. This guidance puts the Chinese giant on course for its biggest annual growth since its IPO in 2014. In the March quarter, the company had seen its biggest rise in quarterly revenues since going public.
Alibaba Earnings History And Earnings Whisper
Alibaba has a decent record of beating Wall Street estimates, having beaten consensus earnings estimates in 5 of the last 8 quarters and meeting the estimates in one-quarter. The company has beaten the top line estimates of Wall Street in 7 of the last 8 quarters. Looking at the more recent earnings history, the company has delivered an average earnings surprise of 10.8% over the last 4 quarters. The Chinese e-Commerce giant has a record of beating revenue estimates, delivering tremendous double digit revenue growth.
The strong earnings history and its better than expected guidance implies that Alibaba could be in for yet another strong earnings release. The case for an earnings beat is also supported by the current Alibaba Q1 2018 earnings whisper number, which is currently at $0.96, implying an 3 cent beat.
Investors Should Also Watch
In the latest earnings, investors should also watch out for the company's cloud computing performance which has been seeing a triple digit growth. Cloud computing could be soon profitable, as the segment's adjusted EBITDA margin is heading out of the negative zone and is very close to turning positive. Cloud computing growth was largely driven by an increase in paying customers, who grew by 70% from 513,000 customers in the March quarter last year to 874,000 in March quarter of 2017. This number of paying customers will continue to expand given the huge demand for internet infrastructure across China and South-East Asia.
Driven by expanding middle-class and rising incomes, eCommerce growth will remain the key growth driver for Alibaba. Keep an eye on Alibaba's payments business progress, as the payments business in Asia is hotting up with its competitors Tencent and Baidu making aggressive moves lately. Apart from this, an update on the company's investment in new entities would be keenly awaited.
Playing Alibaba Stock Through Q1 Earnings
We believe that BABA stock is a solid long term buy, given that the company is also seeing impressive growth in the cloud/payments businesses and increasing its footprint in the AI industry, all of which are expected to grow over the next few years. However, as a word of caution, considering the recent massive gains in Alibaba share price, profit booking following the earnings call cannot be ruled out amidst increasing international tension with North Korea. Hence, an earnings beat might not necessarily guarantee an uptrend in BABA's stock price. Therefore, long term investors looking to buy BABA stock should buy a partial stake in the lead-up to the earnings, and look to add more Alibaba shares in case of any post-earnings dip. The Amazon of China is likely to keep surprising Wall Street with its growth in over a dozen business units and looks good for adding more business units.
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