What To Expect From Alibaba's Earnings? Here's What Goldman Sachs Is Watching

With the China internet sector up 15% year-to-date (or KraneShares Trust KraneShares CSI China Internet ETF KWEB +30% from late-January lows), Goldman Sachs analyst Ronald Keung highlighted the critical numbers in focus heading in the Tencent Holding Ltd TCEHY and Alibaba Group Holding Limited BABA prints and the investor debates as the companies kick off the results. 

The analyst noted first-quarter bottom line (with different earnings set up where he expects +15% year-on-year operating profit growth for Tencent and -8% group EBITA decline yoy at Alibaba, yet mostly priced-in) forward-looking commentaries around second-quarter top-line growth across Tencent’s games re-acceleration and Alibaba’s eCommerce fightback and international & cloud as growth drivers, and any updates to shareholder return policies as the next key share price drivers.  

While the analyst expects only mid-single-digit first-quarter group revenue growth Y/Y at both Tencent and Alibaba, for Tencent, he noted recent intense Tencent games March-April double-digit grossing growth trends could bring clear visibility of Tencent’s second-quarter games revenue growth re-acceleration. 

Meanwhile, alongside healthy advertising growth driven by Video Accounts, stable fintech and continued recovery in cloud revenue could contribute to Keung’s expectations of healthy 20%+ profit growth for the first quarter and fiscal 2024. 

For Alibaba, Keung noted recent better-than-expected China total parcel volumes that tracked at >20% growth in April and +30% yoy over the Labor Day holidays and noted Alibaba management’s revamped fightback strategy in eCommerce continues to gain traction, with Taobao-Tmall returning to faster-than-national retail sales growth rate in recent months.  

The analyst noted that GMV growth will eventually translate to a re-acceleration of Alibaba’s CMR growth, albeit more back-end skewed towards the second half of 2024. 

Keung noted room for multiple valuation improvements from the current valuation, more than offsetting his and the street’s expectations. Keung remained Buy-rated on Tencent and Alibaba. 

Price Action: BABA shares traded higher by 5.56% at $84.49 at the last check Monday.

Also Read: Alibaba Backs China’s AI Startups with Cloud Credits, Eyeing Leadership in Global AI Race

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