The Alibaba Cycle: What To Expect From Earnings

Shares of Alibaba Group Holding Ltd BABA were up on Wednesday, in anticipation of the announcement of the company’s fourth quarter financial results after the bell.

According to Estimize, experts expect to see a 10 percent year-over-year EPS growth rate, while the crowd anticipates an 18 percent increase.

In the fourth quarter of 2014, the company retrieved earnings of $0.38 per share on revenue of $1.931 billion; in the last reported quarter, $0.81 per share on revenue of $4.219 billion.

For the fourth quarter of 2015, the Street models consensus earnings of $0.42 per share on revenue of $2.694 billion, while the crowd projects earnings of $0.45 per share on revenue of $2.807 billion.

The current estimates imply substantial year-over-year growth, not only in earnings, but in revenue. However, they also mean a huge decline from last quarter’s results.

The chart shows how Alibaba’s actual earnings have compared to estimates over the past couple of years, and how the estimates for the current quarter compare to past results. Alibaba’s earnings are almost cyclical, in the sense that the first and third quarter tend to be strong, while the second and fourth are weak.

It is also possible to see how consensus estimates have evolved over time.

Both experts and the crowd have been becoming less and less constructive on the Chinese Internet company’s results since the beginning of the year.

What Analysts Say

Tipranks, which ranks more than 6,500 analysts based on their success rate, tracks 17 Alibaba analysts. They all rate the stock a Buy. For its part, FactSet polled 39 experts: 34 rate Alibaba at Buy, three, at Hold and two, at Overweight.

In a recent report, MKM Partners analysts said “the confluence of a major lock-up expiration, a monetization back-step and reports of fraudulent activity by some merchants have elevated investor concern. An earnings miss is widely expected, in our view. We believe all are transitory issues and see significant upside as they cycle through."