Alibaba Group Holding Ltd Earnings Preview

Alibaba is set to release its next earnings report on Thursday before opening bell, and the consensus is looking for RMB4.53 per share in adjusted earnings on RMB36 billion in revenue.

Alibaba stock price target boosted ahead of earnings

In a note dated May 16, MKM Partners analyst Rob Sanderson increased his price target for Alibaba stock from $130 to $155 per share. He noted that multiple data sources, including sets from government, third parties, and peers, and anecdotes from other participants in the industry all point to “very healthy consumption trends and online share gains within Chinese retail.” He believes the company continued to use big data to boost the relevance of ads, thus improving click-through rates, although he still feels that the process is in the early stages.

He increased his Commerce revenue estimate for stronger growth in gross merchandise volume, better monetization and improved performance from international retail. He also raised his Digital Media revenue estimate due to a “healthy” ad market and strong retail.

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What to expect from Alibaba’s segments

Deutsche Bank analyst Alan Hellawell trimmed his price target for Alibaba stock by $4 to $144 ahead of Thursday’s earnings report due to higher tax expectations, although he maintained his Buy rating. He expects the company’s China retail revenue to grow 37% year over year to RMB25.1 billion due to tailwinds in the industry and growth in ads.

He expects cloud revenues to jump 108% year over year to RMB2.2 billion, although he believes the segment will still post a small loss. He noted that AliCloud cut its prices again as it focuses on expanding its leadership in the market but added that he expects cloud margins to improve gradually over the next few quarters.

He also expects digital entertainment losses to be about the same as they were in the last quarter.

What else to watch in Alibaba’s earnings

Given that this week’s earnings release is the company’s fourth fiscal quarter report, Morgan Stanley analyst Grace Chen expects the fiscal 2018 guidance to be especially important. She’s looking for a 33% year over year increase in fiscal 2018 sales, while the consensus is only calling for a 32% increase.

She also noted that the company upgraded its Taobao app this month to enhance the monetization. The last important update was early last year when the company added social and entertainment functions to drive higher traffic and engagement, resulting in boosts for its ad business. This year’s upgrade to the Taobao app was focused on personalized services and content such as live broadcasts and short videos.

Shares of Alibaba slumped by as much as 2.43% to $121.01 during regular trading hours on Wednesday.