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The coronavirus outbreak could cloud over Alibaba Group Holding Ltd.’s earnings call later this week as investors seek to understand how the virus is impacting e-commerce spending in China as well as logistics and supply chains.
The Chinese e-commerce giant has already laid out some of the measures it’s taking to help facilitate retail in the midst of the outbreak, including lowering or waiving some platform fees. Still, the key issue is how the various disruptions are expected to impact the company’s financials in the current quarter and beyond.
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Raymond James analyst Aaron Kessler recently wrote that an “extended outbreak” could mean constrained logistics abilities for e-commerce companies in general, especially with the Hubei province locked down. In addition, he said that companies like Alibaba BABA, -0.35% could face possible manufacturing and delivery labor shortages since the break for Lunar New Year was extended.
“We would look for an update on the impact on e-commerce shopping activity,” he continued.
Alibaba’s fiscal third-quarter report comes before the opening bell on Thursday.
What to expect
Earnings: Analysts surveyed by FactSet expect that Alibaba earned 15.83 Renminbi a share for the December quarter, or $2.27, up from RMB12.19, or $1.82, in the year-earlier quarter.
Revenue: The FactSet consensus calls for RMB158.28 billion in fiscal third-quarter revenue, or $22.66 billion. A year ago, the company posted RMB117.28 billion or $17.47 billion, in sales.
Stock movement: Alibaba’s U.S.-listed shares have gained following five the company’s past 10 earnings reports, and they’re up 29% over the past 12 months. The KraneShares CSI China Internet ETF KWEB, +0.74% has added 19% in that time. Of the 56 analysts tracked by FactSet who cover Alibaba’s shares, 54 have buy ratings and two have hold ratings.
What else to watch for
While investors will be eagerly looking to gauge the impact of the coronavirus on e-commerce spending, they already have some indications about what the environment was like in Alibaba’s December quarter.
Instinet analyst Jialong Shi flagged data from China’s National Bureau of Statistics that indicated e-commerce sales in the country grew 18% on a year-over-year basis during December, which marked a slight slowdown from November. He calculates that China’s e-commerce sales also slowed in the fourth quarter generally when compared with the third quarter, perhaps due to a warmer winter that meant more sluggish sales growth in apparel.
As for Alibaba specifically, he kept a buy rating but wrote: “We expect the combined CM (customer management) and commission revenue to grow 22% in 3QFY20F, vs the consensus forecast of 23%. The gap likely lies in our lower commission revenue growth forecast of 19% vs the Street’s 22%, as we believe Alibaba likely subsidized its customers and merchants during the Double 11 promotion, leading to a wider gap in growth of commission revenue and Tmall’s physical goods GMV from 2 percentage points in 2QFY20 to our estimated 5 percentage points in 3QFY20.”
Alibaba’s investment spending is always an area of focus for Wall Street as the company continues to spend on emerging areas of the business, including its “new retail” concept that merges the offline and online shopping experiences. The company has signaled that it would be reinvesting profits into areas like logistics and globalization during the second half of the fiscal year.
“We would look for more color on key areas of investment and the pace of investment (we do not believe Alibaba was signaling a big change in pace of spend),” wrote Raymond James’ Kessler.
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He’ll also be watching for commentary on sales and marketing expenses and the company’s strategies for driving more effective spending in this area. Kessler has a strong buy rating on the stock.
