Alibaba Group Holding Ltd (NYSE: BABA) will release its fiscal Q2 2022 earnings Thursday, November 4, 2021, before the market opens.
What to look for
In the quarter ended, the company adopted various changes required by Chinese regulators. Some of the changes included divesting most of its holdings, sharing content with rivals, and committing $15.4 billion to the common prosperity fund. In addition, the Chinese Communist Party announced various measures that impacted the company, and when Alibaba released its Q2 results, the impact of the measures would play out. In the first quarter, most of the measures were soft factors, and financial was not attached to them, but when the company releases its Q2 2022 results, these factors will have materialized and impact earnings.
Earnings: Stockearning’s Estimated EPS for fiscal Q2 2022 is expected to better Q1 2022’s EPS of $2.57 as the economy recovers from COVID-19. Historical EPS performance shows that the company has topped estimates in ten (83%) of the last 12 quarters and missed only twice (16%). For the full year, the company anticipated earnings of $9.3 per share. In fiscal Q2 2021, the company missed estimates of $1.65 and reported EPS of $1.32.
Revenue: In Q1 2022, revenue was up 33.8% YoY to RMB205.7 billion despite missing estimates. For the current quarter under review, the company expects to better Q1's revenue thanks to solid momentum in the retail business across China.
Stock Movement: Since the last earnings release, BABA stock has been DOWN 16%. The share price has been DOWN 16 times over the past 28 quarters following the earnings release. So, the historical price reaction suggests a 57% probability of the share price going DOWN after the company releases earnings. According to the Stockearning algorithm, the predicted stock move on the first day is 3%, while the predicted move on the seventh day is 6%.
What analysts are saying
KeyBanc analyst Hans Chung lowered the target price of the company’s stock from $250 to $200 and maintained a “Buy” rating on the stock. The analyst anticipates lower CMR on sluggish GMV growth for the current quarter under review because of weaker than expected macro conditions.
Also, Raymond James analyst Aaron Kessler downgraded the stock from “Strong Buy” to “Buy” and lowered the target price on the stock from $300 to $240. Although Kessler is remaining positive on the stock in the long term and thinks the stock's valuation is attractive, he feels that shares recovery could take long considering the recent eCommerce growth decline combined with a regulatory crackdown in China. Kessler said that even though some of these issues are transitory, they are weighing in consumer retail growth in the near term, and there is growing uncertainty in terms of recovery.
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