Alibaba earnings preview: a legacy company facing the inflection point

Alibaba Earnings Date

Alibaba Group Holding Ltd (All Sessions) will report its unaudited financial results for the fourth quarter before the US market opens on Thursday, February 23, 2023.

Alibaba Earnings Expectation

The consensus EPS forecast for the quarter is $1.89, higher than the $1.5 reported in the previous quarter but remains 14% lower than the same quarter in 2021. The group’s revenue is anticipated to shrink 6% year-over-year to $35.85 billion.

Alibaba Earnings Key Watch

• A growth engine has lost its steam?

Alibaba used to impress its shareholders with a convincing track record of growth. Its five-year annualized earnings growth rate is up to 15%. However, since early 2022, the Chinese tech giant’s earnings have been declining for three straight quarters due to the subdued revenue growth.

As shown in the most recent earnings, Alibaba’s core sector, China commerce which grew by double-digit before 2021, had dropped for two consecutive quarters. Unfortunately, the downtrend is anticipated to continue in to-be-reported quarter. One strong indication is that Alibaba didn't release specific gross sales volume for its proudly-created Singles Day sales as it did before, only indicating that the trading volume was comparable to the previous year, a sharp slowdown from a 26% growth in 2020.

• Fading regulatory risk?

Alibaba’s regulatory nightmare started in late 2020 when the Chinese government stopped the IPO process of an affiliate company of Alibaba Group, Ant Group, which would have been the biggest IPO in history. Since then, Alibaba’s stock prices plunged by 15% within a month and 50% a year later.

There is a wishful prospect that the tech giant should have shrugged off the regulatory fear since its legacy founder Jack Ma had given up control of the business. However, this wasn’t enough to appease Beijing. On 4 January 2023, a Chinese state investment division acquired 1% stake in an Alibaba subsidiary and another tech giant Tencent to extend its influence from imposing hefty fines to being directly involved in business operations. In light of this, it’s certainly not safe to claim that the regulatory risk has become part of history for the tech giants. In fact, there’s a growing potential that those “transitory risks” could become “non-transitory" .

• AI race

Alibaba Group confirmed on February 8th that the company was developing a ChatGPT-styled tool that had entered the internal testing phase. Alibaba's US-listed shares rose 3.2% after the news. While it's too early to know how quickly the age of AI will dawn for users everywhere or who will be the leading player in that space, it's still encouraging to the shareholders that Alibaba is up to pace on generative AI developments. This next-generation opportunity, if works, will help the beleaguered e-commerce giant to expand its legacy as a leading tech player in China and potentially the world.

Alibaba Share Price

After rising 89% from November 2022, Alibaba’s stock price peaked at around $120 in January. However, a retreat occurred in February is sending the price back to its 50-day MA, which sits around $103 at the moment. A break below would paint a double-top shape in the weekly chart, exposing downside risks toward the 20 and 50-week MA. On the flip side, the price must conquer the descending trendline in the daily chart to rechallenge the 20-day MA above the $110 region.

Alibaba Daily Chart

Alibaba Weekly Chart

Alibaba Earnings Summary

• Alibaba is struggling to preserve its growth momentum
• The regulatory risks associated with China’s tech giants remain in place
• Alibaba’s AI developments could open the door to the next-generation opportunity