Alibaba COVID-fueled slowdown to be expected, U.S. listing may be new battleground
Alibaba Group (BABA) is scheduled to report results of its fourth fiscal quarter of FY20 before the market open on Friday, May 22, with a conference call scheduled for 7:30 am ET. What to watch for:
1. DECELERATION 'NOT NEW NEWS': On February 13, the Chinese e-commerce giant reported better than expected quarterly earnings and revenue, while warning that its overall revenue growth rate will be negatively impacted in the March quarter due to the coronavirus outbreak. At that time, Baird analyst Colin Sebastian said that despite concerns over the coronavirus, which management noted is having a significant negative impact on near-term operations, Alibaba remains very well positioned for medium and long-term growth. He maintains an Outperform rating on the shares as he believes Alibaba is well positioned for a "fast recovery" by leveraging its commerce platform, logistics and delivery network, and increasing physical retail presence.
More recently, BofA Securities analyst Eddie Leung said he expects revenue growth to decelerate to 19% year-over-year due to impact of the COVID-19 outbreak on its retail e-commerce, media and cloud businesses. However, this deceleration is "not new news" and should be anticipated by the market. Alibaba has been emphasizing its capability in social and content commerce and its ecosystem for brands to attract new users and grow their business, noted Leung, who said a complexity in operation could become an entry barrier for
competitors and support his Buy rating.
2. READ-THROUGH FROM PEER REPORT: After JD.com (JD) recently reported "robust" Q1 results and Q2 guidance, Barclays analyst Gregory Zhao said he viewed its strong numbers as "boding well" for both Alibaba and Pinduoduo (PDD), which will also report on Friday. In discussing JD.com, Zhao added that China's e-commerce space is "still quite competitive," given that Alibaba and Pinduoduo are "expanding aggressively."
3. SENATE BILL ABOUT U.S. LISTINGS: On Wednesday, the U.S. Senate passed a bill sponsored by Louisiana Republican John Kennedy, called the "Holding Foreign Companies Accountable Act," that would require companies to certify that “they are not owned or controlled by a foreign government.” The legislation, if it moves forward to become law, could ban Chinese companies from listing U.S. exchanges or raising money from American investors without adhering to regulatory and audit standards set by the United States. Following reports of the bill's passage, shares of Alibaba and several of its Chinese big tech peers moved lower.