Stock of the day 11/08/2015 – Alibaba Group Holding Ltd

The stock may not even be a year old yet, by Alibaba has become no stranger to the pressures of earnings season since it debuted last September.

The company announces its Q1 2016 results on Wednesday.

Since it surged to its all-time high of $119.96 back in the middle of last November, Alibaba hasn’t been able to recapture the magic that surrounded its first few months of trading, where its fiscal second quarter results and Single’s Day buzz made it the must have stock. From that peak Alibaba had slipped to $104.23 by the start of 2015, before facing its first big test of the year with its third quarter earnings release at the end of January.


(Source: IT-Finance.com 11/08/2015)

Like its mega-stock brethren Google, Apple et al., Alibaba’s quarterly reports carry with them the burden of incredibly high expectations, expectations that the e-commerce company fell afoul of in its third quarter. Despite seeing a 40% increase in revenue to $4.22 billion, this was below the $4.42 billion forecast; and whilst earnings per share were $0.81 against the $0.74 predicted, alongside a 45% year-on-year jump in annual active buyers, that revenue miss dulled investors’ appetite for Alibaba, pushing the stock 9% lower to $89.78.

Between its third and fourth quarter results Alibaba couldn’t gain much traction, slipping below its original September opening price to hit a then-low of $77.78 on May 5th. However, its Q4 figures two days later changed this somewhat, lifting the stock back to $85.97 as the company reported a 45% increase in revenue to $2.81 billion against $2.72 billion expected. Combine this with the appointment of a new CEO in the form of Daniel Zhang, one of the key figures behind Single’s Day’s runaway success, and investors were full of renewed good will towards Alibaba.

This positivity carried through the rest of May, with the stock seeing a 4 month high of $95.06 in the process. However, Alibaba soon resumed the kind of steady decline it had seen across February, March and April. After a dismal June the stock soon touched a fresh all-time low of $76.22 in the first week of July due to general fears over the state of the Chinese economy. It rebounded slighted as the month went on, at one point hitting $85, but by the beginning of August had slipped back to $78.

Since then it has hovered below the $80 mark for most of the month, before finally crossing it on Monday following news that Alibaba will invest $4.6 billion in the bricks and mortar Chinese company Suning, with plans to link the former’s online services to boost the latter’s offline presence. Investors were clearly impressed by (sort of) diversification, lifting Alibaba to a current trading price of $80.50 (IT-Finance.com, 11/08/2015).

In terms of its fiscal first quarter report, investors should look out for news on Alibaba’s cloud capabilities, a recently announced $1 billion investment for the company that many analysts believe is Alibaba’s attempt to ape Amazon’s increasingly successful AWS. Figures-wise, Alibaba is expected to post a 30% year-on-year increase in revenue to $3.38 billion alongside a 44% jump in earnings per share to $0.58; net profit, however, is expected to tumble 58% to $842 million.

Alibaba Group currently has a consensus rating of ‘Buy’ with an average target price of $106.53.