Alibaba's earnings: spending for a future beyond e-commerce

Alibaba Group Holding Ltd. dominates online shopping in China, but the company has bigger plans in mind.

The Chinese e-commerce giant is aggressively investing as it seeks to profit from multiple aspects of retailing, including food delivery and physical stores. These are part of Alibaba

BABA, + 0.46%

Initiatives "new sales", which aim to unite online and offline commerce.

"We believe that Alibaba is years ahead of any competitor in pushing ahead with digital commerce," said MKM Partners analyst Rob Sanderson, who evaluates the purchase of shares with a target price of $ 280. "As a result it is Alibaba's foray into digitizing offline business (new retail), which we think is still further ahead and can multiply the addressable market of Alibaba."

Do not miss: Alibaba fighting with Amazon, JD. com in Southeast Asia

Alibaba's investments have weighed on recent results, and the question is whether investors will show patience while the company plays the long game. The company should report the results on Thursday before the market opens and probably the management will provide some comments on spending and investment progress.

If last quarter results and subsequent stock performance are indicative, Wall Street seems willing to settle for less in the short term if it means more opportunities a few years later. Stifel's Scott Devitt commented on Alibaba's March earnings that the company's margins were disappointing due to investment spending, but Alibaba's shares gained after the report.

"We remain comfortable with the lowest long-term margin profile as it will enable the company to generate a higher level of long-term absolute profit and should lead to greater efficiencies in the entire Alibaba ecosystem" , wrote Devitt. Rate a share purchase with a price target of $ 256.

When the earnings report is published, look for information on the recently announced Alibaba partnership with Starbucks Inc.

SBUX, + 0.98%

which aims to strengthen its Hema supermarkets and consolidate Ele.me, a food delivery startup that the company has recently acquired. Consolidation ended after analysts had expected.

Here's what to watch out for when Alibaba reports first quarter fiscal results.

What to Expect

Earnings: Analysts interviewed by FactSet expect that Alibaba earned $ 1.21 per share in the quarter at the end of June, compared to $ 1.17 in the previous year. According to Estimize, which provides crowdsourcing projections from hedge funds, academics and others, the average estimate requires $ 1.39.

Revenue: FactSet's consent requires revenue of $ 11.8 billion for the June quarter, compared to $ 7.4 billion a year ago. Estimated $ 12.6 billion revenue projects.

Equity Movement: Alibaba shares have gained after six of the company's last 10 earnings reports. They have fallen by 13% in the last three months, compared to a 4% increase in the S & P 500 index

SPX, + 0.33%

.

Analysts are uniformly optimistic about Alibaba. Of the 39 analysts monitored by FactSet that cover the warehouse, all 39 consider it a purchase. The average price target is $ 234.62, 36% above current levels

What's next

The tariff concerns have pressed Alibaba's shares in recent months and analysts probably they will use the Alibaba earnings call to ask executives about the impact of trade on the impact of tensions on company performance and on overall e-commerce spending in China.

Stifel's Devitt recently revealed retail data below expectations in China for July, which were released by the government on August 14th. will not affect the results for the quarter to be reported, which ended in June, but the trend will certainly be in first place.

"Despite the Chinese government's efforts to increase lending in the last month, it appears that US tariffs are having a greater impact on the retail landscape than we had anticipated previously," wrote Devitt. He is optimistic about Alibaba and explores JD.com in the long term, but warns of "short-term volatility since there are still obstacles to trade and negative sentiment"

Do not miss: here are all the ways in which the new rates are going to hit your wallet

The Alibaba cloud business is another important issue for investors and analysts and the company has made some recent moves in this space. Autonomic Partners, a company owned by Ford Motor Co.

F, + 0.42%

recently announced a partnership with Alibaba Cloud centered on connected cars. The executives could be urged to discuss this further during Alibaba's request for earnings.

Interesting will also be the discussion on the improvements that Alibaba is making to its cloud infrastructure and the expected benefits.

"While AliCloud is likely to remain in the short-term investment mode, we believe that the acceleration of revenue by customer trends suggests a migration to value-added services and database services that can improve adjusted margins based on at the time ", wrote RJ of Morningstar. Hottovy, who calls Alibaba's shares undervalued.

See also: Microsoft has hit the Amazon cloud domain in 2017, says Gartner

Another theme to watch out for is the World Cup, which is the analyst Jefferies, Karen Chan, would have warned could have made a significant impact on Alibaba's content spending during the quarter and may have achieved gains. Rate a share buy with a price target of $ 242.

Shyam Patil of Susquehanna Financial Group, however, sees the company's partnership in the World Cup as a potential lead for the quarter. He listed the World Cup as one of the reasons Alibaba could generate upward profits, along with the commission's outperformance and traction in the "new retail".

Patil will also look for comments on the logistical efforts of Alibaba and Cainiao's international expansion. It has a positive rating and a price target of $ 305 on shares.

Do you want news about Asia delivered to your inbox? Sign up for the free DailyWatch newsletter from MarketWatch. Sign up here.

Source link