Checking in On The Chinese Economy When Alibaba Reports Earnings Tomorrow

Among the major Chinese Internet and ecommerce companies reporting earnings this week, one of the largest by market cap is getting ready to report tomorrow. Alibaba Group Holding Ltd BABA will release its fiscal fourth-quarter results before market open on Thursday May, 18.

In recent news, The Financial Times reported that the initial public offering of BABA’s finance arm, Ant Financial, has been pushed back until late next year or the first half of 2019. Quoting bankers, the paper said that the longer timeframe is due to the “need to secure regulatory approval and to focus on building the business”. In its last funding round in April 2016, Ant Financial was valued at $60 billion.

For its fiscal fourth quarter, Alibaba is expected to report earnings of $0.68 per share, up from $0.60 in the same period a year ago, on revenue of $5.2 billion, according to consensus third-party analyst estimates. Last quarter, revenue grew 54% year-over-year and the company raised its 2017 fiscal year revenue guidance from 48% to 53% year-over-year growth.

The stock started the year at about $88 and recently hit an all-time high of $124.34 in trading yesterday, just under a 40% increase year-to-date. It’s pulled back slightly at the start of trading today, but still remains close to that high.

Looking at options activity, traders have priced in about a 4.5% potential move in either direction for the stock, according to the Market Maker Move indicator on the thinkorswim platform. In short-term options trading at the May 19 monthly expiration, calls had heavy volume at the 125 strike price and puts had higher volume at the 115 and 120 strikes. As of Wednesday morning, the implied volatility sits at the 63rd percentile.  

Note: Call options represent the right, but not the obligation, to buy the underlying security at a predetermined price over a set period of time. Put options represent the right, but not the obligation, to sell the underlying security at a predetermined price over a set period of time. 

Cloud Computing at Alibaba

Like Amazon.com, Inc. AMZN, BABA also generates revenue by providing cloud computing services. In last quarter’s earnings press release, the company wrote “Alibaba Cloud expanded its global footprint with new data center launches in Japan, Germany, the Middle East and Australia during the quarter”, and that this international expansion is intended to “provide customers worldwide with greater access to its diverse offerings, including elastic computing, data storage and cloud security services”. At the end of the last quarter, the company reported its cloud division had 765,000 paying customers and generated $254 million for the quarter.