The Chines e-commerce giant, Alibaba, is to report its second-quarter earnings for the fiscal year 2023 before the US markets open later today. The company’s shares rebounded 365% from its October low but are still down 75% from the October high in 2021 due to the macro headwinds and Beijing’s regulatory crackdown on Chinese tech companies. In the upcoming earnings report, it's mainstream business, e-commerce sales will be on close watch, along with its growing cloud business.
An improvement in revenue growth is expected
Alibaba beat earnings expectations in its Q1 FY23, with a flat revenue growth year on year, and a 29% decline in its earnings per American depositary share. According to Bloomberg analysts, in the September quarter, the company’s revenue is expected to be at 209 billion Yuan ($29.69billion), or a 3.95% growth year on year. Its earnings per share are expected to be at 11.225 Yuan ($1.29) or a 2.2% growth year on year.
China’s Covid-lockdowns had a major negative impact on the company’s sales apart from Beijing’s regulatory overhaul on Chinese tech companies in the prior quarter. In the June quarter, Alibaba’s domestic e-commerce sales declined by 1% from a year ago due to a fall in its customer management revenue (CMR). Since mid-June when major Chinese cities came out of restricted lockdowns, e-commerce sales were seen signs of recovery, though China’s renewed covid curbs in October may have had a similar impact on its sales. Alibaba’s domestic active users exceeded 1 billion in FY22, representing the largest market share, paving the foundation for its sales growth. Evidence could be seen in its sales for the first 10 months, which rose 7.2%, higher than a 6.2% growth reported in January. However, Alibaba did not disclose its single-day sales this year for the first time in history, but the number could have reached $84 billion according to Tradingplatforms.com, which may be slightly up from last year’s sales of $76.1 billion. Alibaba said this year’s gross merchandise volume (GMV) was “in line with last year’s GMV performance despite macro challenges and Covid-related impact.”
A slowdown in the growth of the cloud business
The year-on-year growth in Alibaba’s cloud business has slowed to 9% in the June quarter from a 12% growth in the prior quarter, but it still accounts for the largest market share in China. The division was hit by Beijing’s crackdown on the online education industry, which caused a major customer loss. The signs of relaxed regulatory scrutiny of the Chinese government could improve the division’s growth outlook.
Technical analysis
Directional bias - bullish
Alibaba (ADR)’s shares price had a major bullish breakout of its descending trendline, confluence with the 50-day moving average resistance of 76.57. MACD indicates that the upside momentum stays strong, suggesting that its share price could hit a further long target of above 86 if earnings results beat expectations.
On the flip side, weaker-than-expected earnings reports could press the shares down and test the near-term support of 71. A breakdown below this level may take the shares back to their October low of 58.
Disclaimer: CMC Markets is an execution-only service provider. The material (whether or not it states any opinions) is for general information purposes only, and does not take into account your personal circumstances or objectives. Nothing in this material is (or should be considered to be) financial, investment or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by CMC Markets or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although we are not specifically prevented from dealing before providing this material, we do not seek to take advantage of the material prior to its dissemination.
