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Alibaba (BABA) Gears Up for Q4 Earnings: What's in Store?

Alibaba Group Holding Limited BABA is set to report fourth-quarter fiscal 2020 results on May 22. In the last reported quarter, the China e-commerce giant delivered a positive earnings surprise of 16%.

The surprise history has been impressive in Alibaba’s case. The company surpassed estimates in all the trailing four quarters, with average positive surprise of 19.5%.

Strength in Core E-Commerce Business

Given innovation in data technology, widespread application of big data, and increasing validation for Taobao and Tmall portals, its top line is expected to have expanded in the quarter to be reported.

The company has been making continuous efforts to add value to consumers and sellers through the consumer segment, product enrichment, as well as platform innovations. This strategy is expected to have expanded the customer base and strengthened top-line growth.

Alibaba Group Holding Limited Price and EPS Surprise

 

Growing Cloud Momentum

Currently, cloud computing is emerging as a key technology to fight the battle against coronavirus. This technology is seeing higher usage globally as it allows data interoperability in a scalable, cost-efficient way by data collection, processing, analyzing and sharing across platforms.

In the to-be-reported quarter, revenues from the cloud segment are expected to have increased from a year ago, backed by growth in the number of paying customers and higher-than-usual spending by them, reflecting increased usage of services.

Strong Mobile Growth

The company’s Mobile Monthly Active Users improved sequentially in the fiscal third quarter, a trend that most likely continued in the fiscal fourth quarter. This is because of increased adoption of mobile devices by consumers as the primary method of accessing Alibaba’s platforms. 

It has been building the online marketing inventory on both mobile and PC, as well as recording higher monetization rates. These factors are likely to have boosted Alibaba’s profits.

Expanding Digital Media and Entertainment

The company has been making efforts to strengthen foothold in digital media and entertainment. The growing unit includes its video-streaming platform Youku and music-streaming service Xiami.

During the quarter, the company announced that its subsidiary, Alibaba Pictures has acquired a majority stake in Yinhekuyu Media for about $57 million. The deal is expected to have expanded Alibaba’s user base and positively impacted top-line growth in the quarter.

Overhangs Remain

It has been spending heavily in new areas of core online retail business, including supermarkets, stores, new artificial intelligence, digital entertainment and cloud computing businesses. The increased expenses might reflect on Alibaba’s fiscal fourth-quarter results.

However, COVID-19 impacts and China's slowing economy are expected to have hurt sales in the quarter to be reported. Also, other political worries might have weighed on the company's domestic and international growth.

Moreover, increasing competition from companies like Amazon.com Inc. and Jd.com, among others, as well as deceleration of growth in the e-commerce market — both domestically and internationally — might have impacted its earnings in the soon-to-be-reported quarter.

What Our Model Says

Our proven model predicts an earnings beat for Alibaba this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of an earnings beat. That is the case here as you will see below.

Earnings ESP: The company has an Earnings ESP of +4.89%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Currently, Alibabahas a Zacks Rank #2.

Other Stocks That Warrant a Look

Here are a few other stocks worth considering, as our model shows that these too have the right combination of elements to deliver an earnings beat in the upcoming releases.

NVIDIA Corporation NVDA has an Earnings ESP of +0.15% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Shopify Inc. SHOP has an Earnings ESP of +33.18% and a Zacks Rank #2.

CrowdStrike Holdings Inc. CRWD has an Earnings ESP of +3.57% and holds a Zacks Rank of 2.

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NVIDIA Corporation (NVDA): Free Stock Analysis Report
 
Alibaba Group Holding Limited (BABA): Free Stock Analysis Report
 
Shopify Inc. (SHOP): Free Stock Analysis Report
 
CrowdStrike Holdings Inc. (CRWD): Free Stock Analysis Report
 
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