Shares of Alibaba BABA have climbed over 7% in the last month as the Chinese e-commerce firm prepares to release its September quarter earnings results on Friday, November 1. Alibaba stock has been volatile over the past two years. Nonetheless, Alibaba’s growth prospects remain strong as it moves further into its post-Jack Ma era.
Alibaba operates the two largest e-commerce platforms in China, Taobao and Tmall. The firm’s core commerce business accounts for roughly 90% of total company sales, which jumped 42% last quarter. Investors should note that Alibaba reports its metrics in Chinese RMB and then offers a comparable U.S. dollar equivalent for the “convenience of the reader.” Therefore, some of our percentages and estimates will be different based on currency fluctuations.
Last quarter, Alibaba’s annual active consumers on its retail marketplaces reached 674 million, up 20 million from Q4 2019 and 98 million from the year-ago period. Plus, mobile MAUs on its China retail marketplaces climbed by 121 million from the year-ago period to reach 755 million.
Alibaba reportedly controls roughly two-thirds of e-commerce market share in China. Yet, the firm, much like its U.S. counterpart Amazon AMZN, has expanded its logistics business in order to grow outside of markets such as Beijing and Shanghai.
The Hangzhou, China-based firm has ramped up its efforts to reach consumers beyond major markets that have become highly saturated as it competes alongside rivals like JD.com JD. In fact, Alibaba said last quarter that 70% of its new customers live in less-developed areas.
Along with e-commerce, Alibaba has expanded its cloud computing business. The unit surged 66% last quarter to account for 7% of total quarterly revenue.
Meanwhile, Executive Vice President Joseph Tsai has discussed recently how Alibaba plans to benefit from the transition to 5G. Along with e-commerce and cloud computing, BABA runs a digital media and entertainment unit that accounted for 5% of sales in the June quarter and could become more important in the Netflix NFLX era.
As we mentioned at the outset, Alibaba has been volatile over the past two years, down around 1.5%. This falls behind the Electronic Commerce Market’s—which includes everyone from eBay EBAY to Groupon GRPN—11% average climb.
Despite the disappointment over the last two years, Alibaba stock is up 76% during the past 36 months. And BABA stock closed regular trading Monday at $178.68 per share, down approximately 9% from its 52-week highs.
Meanwhile, BABA stock is trading at 26.2X forward 12-month Zacks Consensus Earnings estimates. This marks a significant discount against its industry’s 36.6X average, AMZN’s 57.3X, and JD’s 32.5X. Alibaba has also traded as high as 50X over the last three years, with a 34.3X median.
BABA is also trading at 5.1X forward 12-months Zacks sales projections, which comes in well below its three-year median of 8X. Therefore, we can say that the stock’s valuation picture appears attractive, even though it is boosted somewhat by its sideways stock price movement.
Outlook & Earnings Trends
Looking ahead, Alibaba’s quarterly (Q2 fiscal 2020) revenue is projected to jump 34.9% to reach $16.72 billion, based on our current Zacks Consensus Estimates. The company’s full-year fiscal 2020 revenue is then projected to climb nearly 33%, with 2021’s sales expected to climb 32.2% higher than our current-year estimate.
Alibaba’s adjusted quarterly earnings are expected to climb 10.7% from the prior-year quarter to hit $1.55 per share. Alibaba’s full-year fiscal 2020 EPS figure is expected to pop 24.5% with 2021 projected to come in 25% stronger.
Alibaba’s earnings estimate revision activity has been mixed recently to help it earn a Zacks Rank #3 (Hold) at the moment. BABA does earn an “A” grade for Growth in our Style Scores system and rests in an industry that sits in the top 21% of our 255 Zacks industries.
Alibaba also operates a quickly expanding e-commerce business in a country with a growing middle-class population and looks poised to reach more of China’s roughly 1.42 billion people. BABA is set to report its quarterly financial results on Friday, November 1, ahead of its highly-anticipated Singles' Day shopping discounts.
Interested investors should perhaps wait to see how Wall Street reacts to Alibaba’s upcoming earnings release even though its stock sits at a discount. Make sure to pay close attention to any U.S.-China trade-related updates and further details about its Salesforce CRM partnership.
Alibaba joins a group of tech standouts, including Apple AAPL, Facebook FB, and Google GOOGL, all set to report their quarterly results this week.
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