Should you buy Alibaba stock before earnings release

Chinese e-commerce giant Alibaba will release its fourth quarter 2021 tax results later this week. What to expect from the company’s quarterly report and should you buy the stock before the results are released.

Alibaba would release its fourth quarter 2021 tax results for the quarter ended in March on Thursday before the US markets open. Analysts polled by TIKR expect the company’s revenue to grow 74.1% to $ 27.9 billion in the quarter. While the expected revenue growth is impressive, it should be read together with the lukewarm growth of the corresponding quarter in 2020.

Alibaba profit estimates

Alibaba’s revenue had grown only about 18% year-on-year in the first quarter of 2020, as the COVID-19 pandemic hit the Chinese market in that quarter. This was Alibaba’s weakest revenue growth rate since its IPO in 2016 during the biggest IPO of all time. Analysts expect Alibaba’s adjusted EPS to rise 42% year-on-year to $ 1.83 in the March quarter.

Notably, Alibaba is growing at a faster rate than Amazon. However, it has significantly underperformed Amazon over the past year. Additionally, as e-commerce businesses have skyrocketed, Alibaba’s stock has only grown by around 15% from last year. The anomaly could be attributed to China’s crackdown on its tech giants, especially Alibaba.

China fines Alibaba-backed company

In the most recent salvo, China’s State Administration for Market Regulation (SAMR) fined Zuoyebang, an online education company backed by Alibaba, 2.5 million yuan. A similar fine was imposed on Yuanfudao, backed by Tencent. The companies have been fined for misleading claims and false opinions. Both accepted the sanctions and agreed to resolve the issues cited by the regulator.

China fined Alibaba hefty

China last month fined Alibaba $ 2.8 billion in the antitrust investigation. The company has been accused of using its market dominance to pressure traders to choose a platform. A merchant selling on Alibaba was not authorized to sell on other platforms.

SAMR called the practice anti-competitive and said it “undermines the activities of traders on the platforms and the legitimate rights and interests of consumers”.

China’s antitrust investigation

The fine is 4% of Alibaba’s 2019 revenue, and the company is expected to file a self-compliance report with SAMR for three years. Meanwhile, the company accepted the verdict. “Alibaba would not have achieved our growth without strong government regulation and service, and the critical oversight, tolerance and support of all of our constituents has been crucial to our development,” the company said. But then, companies in the communist country have few options when charged by regulators.

In fact, Alibaba’s problems with Chinese regulators started when its co-founder Jack Ma criticized them. Ma called China’s banks “pawn shops” in a speech. He also said, “As the Chinese like to say, if you borrow 100,000 yuan from the bank, you are a little afraid; if you borrow a million yuan, you and the bank are a little nervous; but if you take out a billion yuan loan, you are not at all afraid, the bank is. Ma also disappeared for weeks amid a crackdown from Chinese regulators.

Ant Financial IPO

China has also blocked the IPO of Ant Financial, backed by Alibaba. The IPO attracted offers worth more than $ 3 trillion and was to be listed in Shanghai and Hong Kong. The company has failed in US markets amid new regulations that could lead to the delisting of foreign companies in the United States if they do not comply with the regulations. While the regulations are neutral to the country, you don’t have to be a financial expert to understand that they specifically target China.

Earlier this year, reports suggested that China was on the verge of clearing Ant Financial’s IPO. However, there has been no movement forward for the IPO so far.

What to look for in Alibaba’s earnings call?

Alibaba’s cloud operations turned positive EBITDA in the previous quarter and it would be interesting to see how much performance improves in the quarter. Additionally, the company could face questions over China’s crackdown and the timing of Ant Financial’s IPO.

Alibaba target price

Alibaba has a median target price of $ 319.72 according to estimates compiled by CNN Business. This implies an upside potential of 42% over the next 12 months. The lowest target stock price of $ 265.11 is a 17.6% premium while the highest target price of $ 393.45 is almost 75% higher than the current stock price .

Of the 56 analysts covering Alibaba shares, only one has a conservation rating, while the remaining 55 rate it as a buy or higher. None of the analysts have a sell rating.

Analysts seem bullish on the stock given its strong growth and lukewarm valuations. The stock is trading at an NTM multiple PE (next 12 months) of 21x. The multiples have averaged 27.5x over the past five years.

That said, given China’s continued crackdown on tech stocks, Alibaba shares are trading at depressed valuations. If the company manages to sort out the issues with regulators, it could deliver good returns to investors.

There are several ways to trade and invest in Chinese companies. Some brokers allow you to trade stocks from the Chinese market. Since Alibaba trades in the US markets, you can buy it with any of the best online stock brokers

You can also invest in Chinese market indices through binary options. There is a list of some of the best binary options brokers.