Alibaba Earnings Preview

Lockdowns might be good for online retailers, but a lack of consumer demand in China and tough comparables might prove challenging for Alibaba's earnings this time around.

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A worsening outlook

The majority of analysts still rate Alibaba just ahead of earnings. This is despite forecasting a significant drop in quarterly earnings to $7.16 from $16.87 in the last quarter. And last quarter, earnings missed forecasts. Revenues are also expected to drop substantially to just under $200B from $243B in the last quarter. One of the chief drivers of this is that just over 70% of Alibaba's sales are in China.

While in other countries heavy lockdowns translated to more online shopping, this did not appear to be the case in China. From TipRanks data, total visitors to the site during the last quarter, continuing a move seen since November of last year. The presumption is that with fewer people visiting the site, there would be less shopping. Consumer trends in China have been on the downside.

What metrics could move the stock?

The recent rise in the yuan could impact the nominal value of the revenue and profit figure since the stock is priced in dollars. Recently, Alibaba increased the size of its buyback program, and the amount remaining could be pivotal for the resilience of the stock. The original plan called for buying back $25B in shares during the year. 

Another source of revenue that could beat the trend is Alibaba's shift towards cloud computing. Competitors have seen growing demand and solid growth in this sector in the last quarter. With revenue in this segment priced in dollars, it could offer some offset from merchandise sales in China. Additionally, traders will likely be looking at an estimate for the potential cost of the Ukraine conflict on the company's sales.

BABA trend intact

The price action of the BABA stock has been distinctly bearish since the record highs of $319.28 on October 27, 2020. In an evident bear market, bullish attempts have so far been rejected. The most recent trial on March 23rd was denied at the 100-day average, however, there was a higher swing low following the event. 

Combined with a lower swing high prices have formed a structure amidst decreasing volatility, which subsequently hints at a breakout. Since the stochastic indicates the fast K is biased downward and somewhat trendless at 40%, it also suggests there is potential for further bearishness. 

The previous low at $73 becomes interim support. Below there, traders can use the oversold zone of the stochastic indicator to identify a bottom. In case the breakout is to the upside, BABA will have to overcome the $109-$138 range to achieve a full trend reversal.

Key takeaways

Alibaba's predicted earnings drop is due to its reliance on the Chinese market and the decreasing number of visitors to its site. However, analysts rate Alibaba as a buy. BABA’s recent buyback program could help the firm against a yuan-driven revenue while its incursion into cloud computing could offset some of the sales in China.