Alibaba Earnings Preview—Can BABA Ride With the Bulls?
Alibaba Earnings Preview—Can BABA Ride With the Bulls?
By:Mike Butler
Alibaba is expected to report earnings per share of $1.42 on $30.42 billion in revenue
Alibaba will report earnings before the market opens on May 14.
The Chinese company had spotty earnings results recently, missing on half of the earnings-per-share (EPS) estimates over the past four quarters.
BABA's EPS estimate is almost 50% lower than in the previous quarter.
Alibaba (BABA) had a rocky end to 2023, dropping from over $100 per share to the 2024 opening print of $76.05. BABA reached a recent low of $66.63, but the stock has since rallied to $80 per share.
Alibaba is facing a tough competitive landscape this year, with economic issues sustaining and companies like PDD Holdings (PDD) offering an alternative e-commerce solution. It will be interesting to see if the reduced EPS estimate is a big sign of worry or a lay-up for BABA to exceed.
Looking at the implied volatility of the options market, we can see the market expects a move of +/- $5.20 for next week, which is surprisingly low given the volatility of BABA stock recently. This makes up just over 5% of the stock price, which puts it on the lower end of expected moves for earnings in general.
Looking further, we can see an expected move of +/- $9.14 through July, and +/- $17.61 through December, so the market is still expecting some real volatility in Alibaba through the end of the year.
Alibaba executives seem upbeat
Alibaba CEO Eddie Wu expressed positive sentiment in a press release issued in February: "We delivered a solid quarter as we are executing our focused strategies across the organization. Our top priority is to reignite the growth of our core businesses, e-commerce and cloud computing. We will step up investment to improve users’ core experiences to drive growth in Taobao and Tmall Group and strengthen market leadership in the coming year. We will also focus our resources on developing public cloud products and sustaining the strong growth momentum in international commerce business"
The same press release included this statement from CFO Toby Xu, about Alibaba's share repurchase program: "Our board of directors approved an increase of U.S. $25 billion to our share repurchase program, demonstrating our confidence in the outlook of our business and cash flow. Our consistent share repurchase has also reduced outstanding share count while achieving EPS and cash flow per share accretion."
Bullish on BABA for earnings
If you're bullish on Alibaba for earnings, you likely believe the company will blow through reduced earnings expectations and have more positive sentiment around plans for the rest of the year. The stock buyback program implies the company is bullish on itself, which may explain the bounce from lows realized earlier this year.
Bearish on BABA for earnings
If you're bearish on Alibaba for earnings, you may believe the reduced earnings estimates will be missed, which can't be a positive sign for the company. The mounting competitive landscape may push investors and traders off the product, which could send the stock lower on a weak earnings call.
Tune in to Options Trading Concepts Live on Monday, May 13 at 11 a.m. Central Time for a deeper look at earnings strategies with options trades for BABA stock.
Mike Butler, tastylive director of market intelligence, has been in the markets and trading for a decade. He appears on Options Trading Concepts Live, airing Monday-Friday. @tradermikeyb
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