Alibaba Q1 preview: What should investors look out for?
Here are three investment themes worth considering ahead of Alibaba's Q1 FY2021 earnings.
When will Alibaba report its Q1 FY2021 results?
Chinese online retail group Alibaba Group Holding (NYSE: BABA) is scheduled to report results for the first quarter of fiscal 2021 before the US market opens on Thursday 20 August 2020.
Below, we highlight three key considerations that investors should pay attention to ahead of Alibaba’s upcoming earnings report.
Alibaba stock is up 23% since July
Alibaba’s share price has rallied as much as 23% since the start of July, with share price hitting an all-time peak of US$269.40 on 09 July 2020.
That price record was set the day after Reuters had reported that Alibaba’s financial services subsidiary, Ant Group, was preparing for an initial public offering on the Hong Kong stock exchange later this year.
Following the report, Alibaba’s share price shot up nearly 14%.
Since then, the online retail giant’s stock price has experienced more ebbs and flows, with the latest rally (which began on Monday 17 August 2020) taking place despite US President Donald Trump’s threats to clamp down more Chinese companies, including Alibaba.
Based on Monday’s closing price US$259.92, the Alibaba US stock has a trailing price-to-earnings ratio of 31.98x, which is below its five-year average of 37.05.
Finally, IG's market analysis shows that 'sells' form 51% of all trades on the Alibaba Group Holding Ltd (All Sessions) counter so far this week.
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Analysts predict 12% upside for BABA share price
Across the board, Alibaba currently has an average rating of ’buy’ from 62 out of 63 brokers and a 12-month share price target of US$287.14, based on data compiled by Bloomberg.
The price target represents an upside of roughly 11.8% from the last traded price of US$259.92.
From a technical perspective, IG Asia strategist Pan Jingyi wrote that BABA’s share price has been consolidating between US$240 and US$266 since early July, largely in line with an uptrend first established in May 2020.
She noted that while a US$266 resistance appears difficult for BABA to overcome, a potential breakout near a recent price apex (represented by an ascending triangle pattern) still looks likely.
‘Some bearish divergence had been noted on the MACD (moving average convergence-divergence), but prices remain positioned for a breakout, one to watch. A dip past the uptrend support may, however, suggest that prices will continue consolidating in the near-term,’ Pan added.
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On a fundamental basis, Agricultural Bank of China International’s Steve Chow stated that Alibaba’s American depository shares are worth buying for a target price of US$310, citing the group’s ongoing business transformation into a ‘technology enabler’ and strong revenue outlook for the next three years.
Alibaba’s sales expected to spike up 29% in Q1
Brokers polled by Bloomberg have given a mean adjusted non-GAAP earnings per share (EPS) estimate of 13.822 Chinese yuan (US$2) per share against expected revenues of 148.137 billion Chinese yuan (US$21.4 billion) for the internet group’s Q1.
The projected revenue represents a 29% year-on-year increase from the same quarter a year ago.
Bloomberg Intelligence analysts say that the projected sales growth is an indication that Alibaba’s June quarter sales ‘may have fully recovered from the ill-effects of China's coronavirus lockdown’.
For shareholders and prospective investors alike, it is probably also worth noting that the company surpassed Bloomberg consensus revenue projections in its last five reporting quarters.
Revenue for the latest quarter (Q4 2020) came in nearly 7% higher at 114.31 billion yuan (US$16.5 billion), versus an estimate of 107.04 billion yuan (US$15.46 billion) – the largest surplus since Q4 2017.
On the other hand, non-GAAP EPS surpassed estimates for six consecutive quarters, including 9.20 yuan (US$1.33) in Q4 2020 – a 53.42% upside from projections – the largest surplus on record.
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