Alibaba Group (BABA) is scheduled to report results of its fourth fiscal quarter of FY21 before the U.S. market opens on Thursday, May 13, and will hold a conference call to discuss the financial results at 7:30 a.m. ET the same day. What to watch for:
1. "VERY HEALTHY": On February 2, the Chinese e-commerce giant reported better than expected third quarter earnings and revenue, with CEO Daniel Zhang stating that Alibaba had "another very healthy quarter" thanks to the "rapid recovery of China's economy."
The next day, Mizuho analyst James Lee raised the firm's price target on Alibaba to $285 from $270 and kept a Buy rating on the shares. The company's December quarter results were modestly better than expectations due to strong demand from Double 11 promotions, Lee told investors. However, margins will likely be under pressure due to increased investments in community-buying model, local delivery for non-food categories, and retail stores in lower-tier markets, added Lee at that time.
More recently, Stifel analyst Scott Devitt lowered the firm's price target on Alibaba to $290 from $305 and kept a Buy rating on the shares ahead of the company's fiscal Q4 report. While he kept his current quarter revenue growth estimate of 59% year-over-year unchanged, Devitt cut his EBITDA margin estimate to 17.5% and updated his model for the expected impact of recording the SAMR anti-monopoly fine of $2.8B in the March quarter. Though he admits the "near-term catalyst path is underwhelming and sentiment remains challenging," Devitt sees regulatory and investment cycle concerns providing a prolonged opportunity for longer-term investors, he added.
2. SAMR FINE: On April 10, Alibaba Group announced that it has received the Administrative Penalty Decision issued by the State Administration for Market Regulation of the People's Republic of China. The penalty amounted to $2.75B for the company abusing its dominant position over rivals and merchants on its e-commerce platforms. "Alibaba accepts the penalty with sincerity and will ensure its compliance with determination. To serve its responsibility to society, Alibaba will operate in accordance with the law with utmost diligence, continue to strengthen its compliance systems and build on growth through innovation," the company said in a statement.
Afterward, Citi analyst Alicia Yap said she viewed the announcement of a $2.8B fine by China as indication of the closure of a four-month antitrust investigation on Alibaba. While the penalty seemed bigger than previously expected, it is "reasonable" considering China's comments indicating it was looking into the business practices between 2015 and 2019, Yap told investors. The conclusion of investigation and Alibaba's decision to waive its right to appeal, or hold a public hearing, suggest that the company wanted to move forward to rebuilding business operation, said the analyst. Yap said at that time that she believed the news "could help lift the overhang that has weighed on share price performance the last few months." Mizuho's Lee similarly said that the antitrust fine removed an "overhang" on shares of Alibaba.
3. LOWER BARRIERS: On April 16, Alibaba Group announced a new set of measures it said will "benefit merchants and sellers on its online marketplaces, Tmall and Taobao, reducing costs and providing comprehensive support to lower entry barriers for those looking to join the platforms." Alibaba Group Chairman and CEO Daniel Zhang said in a call with investors this week that "ongoing technological improvements and upgrades have enabled the company to expand its portfolio of sophisticated services, offering them for free or at lower costs than before to merchants and partners," the company stated. Alibaba has said it will invest more in merchants' training and optimize their back-end workstations to improve operational efficiency. "In addition, the company has earmarked billions of RMB in additional annual spending to support merchants in the coming years," Alibaba said.
Keywords: earnings, earnings watch, Q4,China, Ant Group, SAMR