What’s the forecast for Alibaba following ‘upbeat’ results?
Analysts say the tech giant could see sales and profit growth rates recover to pre-pandemic levels in the coming quarters, despite US delisting concerns.
The price of Chinese e-commerce and technology group Alibaba Group Holding's US-listed securities (NYSE: BABA) rose slightly after its Q1 financial results were announced on Thursday 20 August 2020.
Alibaba’s American depository shares (ADS) eventually finished the day roughly 0.43% up at US$257.90 per share, based on live IG estimates.
Meanwhile, the results appeared to have more impact on the company’s Hong Kong listing, with shares rallying 2.9% on Friday morning (21 August 2020).
Highlights from Alibaba’s Q1 report
Here are some things that stood out in Alibaba’s first quarter 2021 earnings for the three months ended 30 June 2020:
- Revenue was 153.8 billion Chinese yuan (US$21.8 billion), an increase of 34% year-over-year.
- Annual active consumers on our China retail marketplaces reached 742 million, an increase of 16 million from the 12-month period ended March 31, 2020.
- Mobile monthly active users on China retail marketplaces reached 874 million in June 2020, an increase of 28 million over March 2020.
- Income from operations was 34.7 billion Chinese yuan (US$4.9 billion), an increase of 42% year-over-year.
- Net income attributable to ordinary shareholders was 47.6 billion Chinese yuan (US$6.7 billion), and net income was 46.4 billion yuan (US$6.6 billion)
- Diluted earnings per ADS was 17.36 yuan (US$2.46) and non-GAAP diluted earnings per ADS was 14.82 yuan (US$2.10), an increase of 18% year-over-year.
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What do these results mean for Alibaba’s stock outlook?
June quarter revenue at US$21.8 billion surpassed Bloomberg analyst estimates of US$21.4 billion, even if only slightly (2%).
Adjusted non-GAAP earnings per ADS at 14.82 yuan (US$2.10) also exceeded projections of 13.8 yuan by a larger margin of 7.45%.
Most impressive is the firm’s earnings per ADS on an industry standard accounting (GAAP) basis, which came in at 17.36 yuan (US$2.46), smashing Bloomberg predictions by 89%.
In light of these higher earnings, Bloomberg Intelligence analysts posit that Alibaba may deliver robust sales and profit growth in the coming quarters at a pace similar to pre-pandemic levels, given that its domestic commerce and cloud-computing businesses appear to have fully recovered.
CMB International analyst Sophie Huang maintained her earlier price target of US$299.5 and rating of ‘buy’ following the report.
She cited the ‘upbeat’ performance as well as BABA’s potential in ‘capturing online consumption recovery and long term benefit from structural opportunities’ as key reasons for her bullish price outlook.
But with Chinese American Despository Receipts (ADRs) possibly facing delisting on US stock exchanges by the end of the next calendar year, investors would be wise to explore Alibaba's Hong Kong securities as well.
As of 21 August 2020, Alibaba’s American shares have received an average 12-month price target of US$294.03 alongside a ‘buy’ rating from 64 analysts polled by Bloomberg.
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