Investors Eagerly Await Alibaba’s Results
E-Commerce Giant to Make First Public Earnings Statement on Tuesday
Alibaba will report quarterly earnings on Tuesday for the first time since its record $25 billion debut on the New York Stock Exchange. Scrutiny will be intense: Alibaba’s share price has already risen 45% since the initial public offering, giving it a market value of $243 billion as of Friday, bigger than Facebook Inc. ’s.
Investors and analysts say they are looking for strong profit and revenue growth in the three months through September—estimates average around 45%—as well as guidance that suggests the good performance will continue, despite a multitude of challenges.
Market watchers are looking for signs that Alibaba is making more money through smartphone applications as it strives to extend its shopping sites to the increasing number of Chinese going online via mobile devices. They are also hoping for more clarity on Alibaba’s business strategy, including acquisitions and overseas operations. Longer-term, they are watching the progress of Alibaba’s expansion through its Alipay affiliate into financial services. Alibaba Executive Chairman Jack Ma last week said he was considering a tie-up in payments with Apple Inc.
“Every investor will be looking at the results very closely,” said Tony Chu, a Hong Kong-based portfolio manager at RS Investments, which bought Alibaba shares in the IPO. Mr. Chu said he hopes to see strong results, upbeat guidance and more transparency.
“As a public company, Alibaba needs to disclose more, and talk to investors more,” he said.
Many analysts are enthusiastic about Alibaba’s prospects.
“We estimate well over half of the Chinese population will be shopping on Alibaba’s platforms in 10 years,” Jefferies analyst Cynthia Meng wrote in a report last week, as the brokerage added Alibaba to its coverage list. Ms. Meng set Alibaba’s price target at $118 for the next 12 months—20% higher than its $98.60 close on Friday—saying there is plenty of room for growth as e-commerce expands into smaller cities and rural areas in China, helped by improving wireless infrastructure and affordable smartphones. The brokerage expects Alibaba’s annual revenue growth to average 36% over the next three years.
One area of interest will be performance at the online marketplaces Taobao and Tmall, Alibaba’s top revenue generators, which make money in different ways. Taobao, which hosts millions of small merchants, charges those vendors for services like advertising. Tmall, an online shopping mall that hosts major global brands such as Apple, Nike and Burberry, takes a cut from each transaction. Analysts expect Tmall to make larger contributions to Alibaba’s earnings growth in coming years, saying the company’s efforts to attract more high-end brands will be key to its success.
Another investor focus will be Alibaba’s profit margin, which is higher than those of most of its industry peers, but which has declined since last year as the company spends to expand services through smartphones and tablets.
A shift in e-commerce business to mobile phones is also weighing on profit, since merchants are paying Alibaba less for advertising over handsets than via PCs, the company says.
In the quarter through June, Alibaba’s operating margin fell to 43.4% from 50.3% a year earlier.
Investors and analysts will also be on the alert for an indication of how Alibaba is faring in its rivalry with Tencent Holdings Ltd. , another Chinese Internet giant that is strong in mobile offerings.
They will also be looking for hints on what is happening at financial affiliate Zhejiang Ant Small & Micro Financial Services Group, also known as Ant Financial, which owns the Alipay payment business that processes most of the transactions on Alibaba’s shopping sites and serves as a platform for financial services.
Although it is Mr. Ma, not Alibaba, who has a stake in Ant Financial, the affiliate generates revenue for Alibaba and its success is important to the company’s future.