Alibaba: Third Quarter 2022 Earnings Preview

Alibaba Group, China’s largest e-commerce company (with a market capitalisation of over US$270 billion) founded by Jack Ma in 1999, offers a variety of e-commerce services to meet online shopping needs through its online platforms Taobao (C2C), Alibaba (B2B) and Tmall (B2C). The company has also expanded its international presence through global AliExpress and Lazada. The company is scheduled to report its third quarter 2022 results before the market opens on Thursday, 23 February.

Figure 1: Alibaba’s revenue distribution for the third quarter of 2022. Source: Statista

Domestic commercial retail generated the most revenue for the company. In Q3 2022, 66% of revenue came from Chinese commercial retail, while 5% came from international commercial retail.

Figure 2: Alibaba reported sales and earnings per share vs. analysts’ forecasts. Source: CNN Business

Overall, Alibaba’s reported sales for the first half of 2022 were flat (Q1 – $205.6 billion, Q2 – $207.2 billion), dragged down by a massive state embargo, strict regulatory policies and the overall downturn in the Chinese economy. In the upcoming earnings report, market participants are optimistic as the Chinese government eases its zero Covid policy, and they expect the company to report sales of $245.9 billion, up over 18% YoY and 1.36% QoQ.

On the other hand, EPS was recorded at $11.73 and $12.92 in the first and second quarters respectively. The general expectation for EPS in the next quarter is $16.59, up more than 28% from the previous quarter, but down slightly by -1.66% from the same quarter last year.

Looking ahead, China’s official approval of Ant Group’s capital expansion plan (from RMB8 billion to RMB18.5 billion) is being interpreted by the public as a sign that the government is showing signs of easing the regulatory environment. This move could also be beneficial for other local technology stocks. In addition, the launch of the first blockchain node service in Q1 2023 may continue to improve AliCloud’s competitiveness in the market. In the last quarter, AliCloud’s revenue grew by 4% compared to the same quarter in 2021. Its Non-Internet Industry (NII) customers grew by 20% year-on-year and accounted for 58% of its total cloud revenue. This shows that AliCloud is expected to grow steadily despite having only a small market share (only 5%).

Technical Analysis:

#Alibaba (BABA.s) soared in January this year after a series of positive news releases, hitting a yearly high of $121.15, its highest level since July 2022. The company’s shares have since fallen into a technical correction and are currently trading 23.6% below FR at $106.25. The nearest support level is at $97 (38.2% FR). A successful break above this level could encourage more selling pressure to the 100-day SMA, which intersects FR 50.0% at $89.60. On the other hand, if earnings results are in line with or above market expectations, a rally to resistance at $106.25 and then to the $119.70$121.20 area is likely.

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Larince Zhang

Market Analysis

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