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What to Expect from Alibaba (BABA) Earnings Amid Chinese Economic Slowdown

Benjamin Rains

Alibaba BABA stock has climbed over 15% since Christmas along with much of the market, driven by giants like Facebook FB and Google GOOGL. Despite its recent climb, investors have grown nervous about companies with exposure to China’s slowing economy. This means Wall Street will be laser-focused on the Chinese e-commerce powerhouse when Alibaba reports its quarterly financial results on Wednesday, January 30.

Overview

Alibaba in November cut its full-year revenue forecast, citing increased worries about the slowing Chinese economy. The e-commerce giant’s fears were seemingly confirmed after reports this week said that China’s economy grew by 6.6% in 2018. This marked the country’s slowest pace since 1990 as the trade war with the U.S. continues.

Earlier this month, Apple AAPL sent shockwaves through Wall Street when it lowered its quarterly guidance on the back of subdued Chinese sales. Now investors are waiting on the likes of Starbucks SBUX, Nike NKE, and many other companies with a large amount of business in China to report their quarterly results in order to see what impact a slowdown in the world’s second-largest economy might have.

With that said, Alibaba runs China’s two largest e-commerce platforms, Taobao and Tmall, and its sales often serve as a kind of barometer for China’s consumer economy. Last quarter, BABA’s commerce business accounted for 85% of its overall revenues.

Alibaba has also pushed further into cloud computing in an effort to compete against Microsoft MSFT, IBM IBM, Google, and its U.S. counterpart Amazon AMZN. BABA’s cloud revenues soared 90% last quarter. Plus, Alibaba has expanded its digital media and entertainment business in the age of Netflix NFLX.

Quarterly Outlook

Alibaba is coming off a September quarter that saw its overall revenues surge 54% to hit $12.398 billion, which marked a sequential downturn from the June quarter’s 61% top-line expansion.

Looking ahead, our current Zacks Consensus Estimate calls for Alibaba’s quarterly revenues to jump 35.2% from the year-ago period’s $12.76 billion to reach $17.26 billion. Clearly, this would mark a significant downturn compared to the trailing two quarters. Plus, Alibaba’s revenues soared 56% in the December period of last year.

Alibaba’s full-year revenues are projected to jump 43.6% to reach $55.04 billion. This would also mark a slowdown from fiscal 2018’s 58% year-over-year expansion. Therefore, it seems that the Chinese economic slowdown is in full effect as consumers spend less money on the country’s most popular online marketplace.

Moving onto the bottom end of the income statement, BABA’s adjusted quarterly earnings are projected to pop 0.61% to reach $1.64 per share. Meanwhile, the firm’s full fiscal year earnings are expected to dip 1.15%. The company is still firmly in its growth phase, which means earnings don’t matter as much for many investors.

Bottom Line

Alibaba stock slipped 3.10% during regular trading hours Thursday to hit $152.15 a share, which marked a roughly 28% downturn from its 52-week high of $211.70.

Alibaba is a Zacks Rank #4 (Sell) at the moment based, in large part, on the negative earnings estimate revision activity for the firm’s upcoming fiscal year. With that said, BABA has seen some positivity within the last 30 days as well.

In the end, investors likely won’t be pleased to see a major top-line slowdown is expected from Alibaba amid a slowing Chinese economy. The e-commerce firm’s quarterly estimates also help solidify a potentially worrying sign for our interconnected global markets.

Alibaba is scheduled to release its December quarter financial results on Wednesday, January 30. Make sure to come back to Zacks for a complete breakdown of the firm’s actual quarterly earnings results.

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