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Alibaba’s fundamentals overshadowed by government actions ahead of earnings


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Alibaba continues to enjoy strong revenue and customer growth, but the decline in its stock price reflects a bleaker outlook thanks to the actions of the Chinese government.

AlibabaSource: Bloomberg
 
 Chris Beauchamp | Chief Market Analyst, London | Publication date: Tuesday 27 July 2021 

 

When is Alibaba’s earnings date?

Alibaba reports earnings on 3 August, covering its fiscal first quarter (Q1).

Alibaba earnings – what to expect

Alibaba is expected to report revenue of $32 billion, with earnings per share of $2.24.

Alibaba continues to enjoy excellent growth, achieving one billion customers in the 2021 financial year (FY2021), with the vast majority of these based in China. Profit margins and revenues have risen at a steady pace in every year since 2013, at 10% and 23% respectively.

However, for Chinese tech shares such as Alibaba, the main concern is no longer business performance, but the attitude of the Chinese government instead. The cancellation of the Ant Financial initial public offering (IPO) and the current clampdown on tutoring stocks points towards a much more restrictive approach to the private sector.

As many could have predicted, the culture clash between free market capitalism and the controlling instincts of the Chinese Communist Party has begun anew, with the Party determined to rein in the perceived excesses of the free market.

This is a situation unfamiliar to many investors, unused to the impact of government interference on most companies except in relatively isolated circumstances, and accounts for the underperformance of Chinese shares, with Alibaba no exception.

Find out more on how to buy, sell, and short Alibaba shares

Alibaba broker ratings

A total of 17 analysts currently rate Alibaba as a ‘strong buy’, with 30 more at ‘buy’. Three analysts have a ‘hold’ rating, and only one ‘sell’.

Alibaba stock – technical analysis

The direction in Alibaba stock is clear for the time being. Rallies have been regularly sold, with the latest bounce in late June running into the 100-day simple moving average (SMA), currently 22,225.

With the macro outlook so unfavourable the stock continues to reflect investor caution, so it looks like further declines are on the cards as the price targets 18,000 and lower.

 

Alibaba chartSource: ProRealTime

A solid business, but outlook continues to darken

Alibaba has plenty to commend it from a fundamental perspective, but with Beijing adopting an activist position the stock continues to decline.

Investors might argue that this means Alibaba is becoming a bargain, but traders will want to see a turnaround in the price, which is unlikely to happen unless the Chinese government reduces its interventions.

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