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Earnings Outlook: Alibaba earnings to come amid macro pressures on Chinese e-commerce

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As Alibaba Group Holding Ltd. works through a flurry of challenges, it will once again look to restore investor confidence in its long-term vision when it reports earnings Thursday.

The Chinese e-commerce giant cut its full-year forecast in November amid heightened competition and macroeconomic pressures, and analysts seem cautious heading into the company’s fiscal third-quarter report Thursday morning. Pandemic-related restrictions and macro concerns likely impacted the company’s commerce business during the holiday quarter, and Alibaba
BABA,
-2.38%

is still expected to be spending up on more emerging areas such as international expansion and logistics, which could weigh on margins.

In Alibaba’s view, the various investments position it to capitalize on new opportunities amid “near-term challenges” to its China commerce business. The company is looking to continue winning over consumers in lower-tier Chinese cities and sees logistics as a key differentiator across its business.

“We believe offense is the best defense,” Deputy Chief Financial Officer Toby Xu said at the company’s investor day late last year.

While the investments could give Alibaba better positioning over a longer horizon, the company must contend with some more immediate issues that may manifest in the upcoming results. Baird analyst Colin Sebastian noted that general data from China’s National Bureau of Statistics showed online sales of physical goods slowed in November and December, which prompted him to pull down his revenue estimates for the latest quarter.

Stifel’s Scott Devitt added that the data suggested “slower than previously modeled revenue stemming from slower growth in discretionary categories.”

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Outside of Alibaba’s core e-commerce business, analysts saw potential risks to other parts of the company. For one, pandemic-related restrictions could have impacted Alibaba’s New Retail business, according to Baird’s Sebastian. This business seeks to merge elements of offline and online commerce.

Sebastian further noted that he expects slower growth for the company’s cloud business since lockdowns could have impacted business-development matters.

Additionally, Mizuho’s James Lee pointed to regulatory pressure on China’s internet sector as one reason why he expects 20% revenue growth for Alibaba’s cloud business. That’s below the 24.9% growth implied by the FactSet consensus.

What to expect

Revenue: Analysts tracked by FactSet expect Alibaba to report RMB246.3 billion in total revenue, up from RMB221.1 billion a year earlier.

Earnings: The FactSet consensus calls for RMB15.93 in adjusted earnings per share, down from RMB22.03 a year prior.

Stock movement: Alibaba’s U.S.-listed shares have declined in the session immediately following each of the company’s last nine earnings reports. The shares have come down 56% over the past 12 months as the S&P 500
SPX,
-1.59%

has risen about 10% and as the KraneShares CSI China Internet ETF
KWEB,
-1.00%

has lost 65%.

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