Nasdaq Golden Dragon and FANG Index tech giant Alibaba earnings preview

[MongiIG]

Alibaba results likely to show drop in earnings but short- to medium-term price trends are reversing.

Source: Bloomberg

 

Indices Shares Alibaba Group China United States Moving average

 Shaun Murison | Senior Market Analyst, Johannesburg | Publication date: Tuesday 26 July 2022 

When are the Alibaba results expected?

Alibaba Group Holding Ltd (All Sessions) is set to release first quarter (end June) results for the fiscal year 2022 (Q1 2022) on the 4th of August 2022.

What is ‘The Street’s’ expectation for the Q1 2022 results?

‘The Street’ expectations for the upcoming results are as follows:

- Revenue of ¥203.806 billion (-0.94% year on year)

- Earnings per share (EPS) of ¥10.40 (-37.35% year on year)

The Chinese e-commerce and technology giant is likely to have seen logistical constraints impacting operations over the reporting quarter. The region’s zero-tolerance policy towards the pandemic has seen hard lockdowns in place for two of the three months in the June reporting quarter.

Alibaba has had to endure regulatory uncertainty pertinent in the Chinese tech sector. This is likely to have inhibited business for the group who have in turn guided future job losses in lieu.

The company also finds itself under judicial inquiry of its cloud services after police data was breached, providing some further future risk to earnings.

Recent developments

Alibaba is currently listed on the New York Stock Exchange (NYSE) with a secondary listing on the Hang Seng Index and is looking to apply for a dual primary listing on both these exchanges.

The move is aimed at capitalising on new listing rules in Hong Kong and achieving a broader Asian investment base. The move would also provide some protection against ongoing accounting disputes between the US and China which have the potential to see Chinese companies losing their US public offerings should they go awry.

How to trade Alibaba into the results

Source: Refinitiv

 

Refinitiv data shows a consensus of 46 analyst ratings at ‘buy’ for Alibaba Group. A mean of estimates suggests a long-term price target of $159.10 (ADR) for the company. The current share price trades at a 58% discount to this assumed long-term fair value (as of the 25th of July 2022).

Source: IG

 

IG sentiment data shows that 98% of clients with open positions on the share (as of the 25th of July 2022) expect the price to rise over the near-term, while 2% of these clients expect the price to fall.

Alibaba Group (US listed ADR) – technical view

Source: ProRealTime

 

The long-term downtrend for Alibaba has been broken with the price having briefly crossed above the 200-day simple moving average (SMA), illustrated by the blue line.

In the short- to medium-term we have seen the 20-day SMA (red line) trading above the 50-day SMA (green line). The stochastic is also suggesting the price ia oversold at present.

Our short to medium expectation is for a rebound from oversold territory in line with the short- to medium-term bias, with gap resistance at 120.70 the initial upside target. A break above this level (confirmed with a close) would see 130.20 as a further target from the move.

Traders who are long might consider using a close below trendline support at 86.00 as a stop-loss indication for the trade.

In summary

- Alibaba is set to release Q1 2022 results on the 4th of August 2022

- Q2 2022 results are expected to show a year-on-year decline in both revenue and earnings per share

- A long-term broker consensus suggests the share is currently a ‘buy’, with a longer-term price target of $159.10 (US ADR)

- IG clients with open positions on the share are predominantly long

- The longer-term downtrend has been broken, while the short- to medium-term trends are considered up for Alibaba

- Alibaba is also oversold at current levels, according to the stochastic oscillator