Alibaba earnings: Following the recovery of COVID-19, US-China is still tense

Although geopolitical tensions seem, Alibaba Group Holding Ltd. to be in a good place as China continues its economic recovery from COVID-19.

Alibaba reported fiscal revenue in the first quarter Thursday morning.

Alibaba BABA,
+ 0.40%
already saw volume growth equal to pre-pandemic levels when it last hit investors in mid-May, and it likely received a further boost from its “6.18” mid-year trading event in June. The value of 6.18 orders settled through Alipay on Alibaba’s Tmall Global market was up 43% from a year earlier, according to a company blog post after the event.

With that momentum, Alibaba’s volume growth in June was probably ahead of what it was in the December quarter, according to Oppenheimer analyst Jason Helfstein, but the key will be how that translates into revenue. Alibaba “is still focused on helping buyers recover COVID-19, and revenue is likely to grow more slowly than [gross-merchandise volume], ”He wrote.

Read: Alibaba adds more digital features for B2B customers as COVID-19 increases demand for online connections

Looking above the big shopping event, analysts seem encouraged by optimistic Chinese government data on online sales of physical goods in June, although they will be looking for comment on more recent trends, given that July statistics showed a slight increase in growth, to 24.5 % of 25.2%.

Another issue to look at will be the company’s view on weakening relations between the US and China, particularly in the realm of technology. The White House has recently taken a tougher line on Chinese apps, with President Trump issuing executive orders giving Chinese company ByteDance 90 days to kill them of assets related to its popular TikTok service and visit Tencent Holdings Ltd.’s 700 to close,
popular WeChat messaging app in the US

The Trump administration also wants stricter auditing standards for Chinese companies listing their shares on U.S. stock exchanges. Alibaba Chief Financial Officer Maggie Wu said in a May call from the company that Alibaba’s financial statements “will be prepared in accordance with US GAAP” accounting standards and that the company “will endeavor to comply with any legislation aimed at is to protect transparency for investors who buy securities on US stock exchanges. “

For more: A story of two $ 2 billion Chinese IPOs leading in very different directions

What to expect

Income: Analysts surveyed by FactSet expect that Alibaba generated RMB 148 billion, roughly $ 21.37 billion, in revenue for the June quarter, up from RMB 114.9 billion a year earlier.

Earnings: FactSet’s ConsS requires RMB 13.82 in adjusted earnings per share, up from RMB 12.55 a year earlier.

Action movement: Alibaba shares have fallen on the day of the company’s last three earnings reports, but shares have risen 22% so far this year. The KraneShares CSI China Internet ETF KWEB,
is up 41% at that time than the S&P 500 SPX,
+ 0.18%
has increased by about 5%.

Something else to look at

“Given the clear recovery in Chinese consumer spending, coupled with signs of sustainability in e-commerce growth, we believe Alibaba remains well positioned to accelerate growth over the year’s balance sheet,” Baird analyst Colin Sebastian wrote in a note from July 16 to clients.

Sebastian sees room for Alibaba to overcome rumors in the June quarter due to “the pace of detail recovery and impressive disaster in cloud adoption.” He estimates the stock is better than a $ 275 price tag, and he’s excited about the company’s cloud lane given higher interest in digital services amid the COVID-19 crisis.

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RBC Capital Markets analyst Mark Mahaney is also encouraged by Alibaba’s potential in the cloud, which he said is a “huge $ 30 billion to $ 40 billion market opportunity for the company”, although he expects competition in this business is intensified.

“For FQ1, we expect that cloud will grow 58% year-over-year to 12.3 billion RMB in revenue, largely in line with Street, although we believe that Tencent’s step-up in the segment’s path to profitability in the medium term will temper, ”he wrote. Mahaney has an outperform rating and a $ 235 price target on the front.

Oppenheimer Helfstein said it was “difficult to mitigate the effects of strained relations with the US / China”, but that Alibaba “remains well positioned”, in his opinion. Helfstein is encouraged by data from Chinese governments indicating that online sales are becoming a larger share of total consumption, a trend he considers sustainable, seen new buyers seem to be opening up to the convenience of e-commerce while existing buyers expand the categories in which they make purchases.

Helfstein has an outperform rating and $ 290 price target on the shares.