Alibaba Earnings Preview: Why Analysts Are Excited
Alibaba Group Holding Ltd (NYSE: BABA) on Tuesday is scheduled to report its first-ever quarterly report as a public company before the markets open.
Analysts are expecting the Chinese e-commerce giant to earn $0.45 per share on revenues of $2.64 billion.
Shares of Alibaba were trading higher by more nearly 4 percent Monday as investors are anticipating a strong earnings report. With a market cap of about $250 billion, the company is one of the most valuable tech companies in the world.
Alibaba will signal to the investment community if its massive valuation is justified, overvalued or perhaps undervalued.
So far, analyst sentiment is heavily skewed toward the positive. Following the end of Alibaba's lock-up period, 14 out of 15 investment banks involved with the company's IPO initiated coverage with a bullish rating. The lone Neutral rating came from analysts at Goldman Sachs.
Alibaba Isn't Amazon
Investors who point out Amazon.com, Inc.'s unprofitable fourth quarter results despite strong revenue growth as a reason to maintain a cautious view may be mistaken.
"China and the US' internet sectors are in different phases of growth and industry development, meaning valuation comparisons between them are of limited or no relevance," Citigroup's Thomas Chong wrote in a note when he initiated Alibaba with a Buy rating and $118 price target on October 29.
With that said, investors will need to see concrete signs of further growth in the quarter along with sustainable growth plans.
Alibaba had 279 million annual active buyers prior to the quarter, up from 231 million the company had when it initiated its IPO process. The company attracts 188 million monthly visitors on mobile devices. As many Chinese consumers are buying mobile devices for the first time ever, investors might interested to see how Alibaba has grown in mobile and its plans to sustain growth over the years to come.
Investors will also pay attention to the company's mergers and acquisition plans. As an e-commerce giant, the company is able to operate at a 71 percent gross margin. It is unclear if recent news reports involving an investment in Lions Gate Entertainment Corp. will yield similar impressive gross margins and how investors will respond to these kind of deals.
With shares rallying into its quarterly report, investors for the time being are showing their approval of Alibaba's Jack Ma's ability to deliver growth for years to come.
Latest Ratings for BABA
|Sep 2016||Deutsche Bank||Maintains||Buy|
|Sep 2016||Daiwa Capital||Maintains||Buy|
|Aug 2016||JP Morgan||Assumes||Overweight|
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