Alibaba Group Holding Limited (BA)(BA) is set to report third-quarter fiscal 2021 results on Feb 2. In the last reported quarter, the China e-commerce giant delivered an earnings surprise of 29.9%.
The surprise history has been impressive in Alibaba’s case. The company surpassed estimates in all the trailing four quarters, with an average of 25.01%.
E-commerce Growth Drives Business
Given innovation in data technology, widespread application of big data, and increasing validation for Taobao and Tmall portals, its top line is expected to have expanded in the quarter to be reported.
The company has been making continuous efforts to add value to consumers and sellers through the consumer segment, product enrichment, as well as platform innovations. This strategy is expected to have expanded the customer base and strengthened top-line growth.
Alibaba Group Holding Limited price and EPS Surprise
Alibaba Group Holding Limited price-eps-surprise | Alibaba Group Holding Limited Quote
Growing Cloud Momentum
Cloud computing has been emerging as a key technology to fight the battle against the coronavirus pandemic. This technology has been witnessing higher usage globally as it allows data interoperability in a scalable, cost-efficient way by data collection, processing, analyzing and sharing across platforms.
In the to-be-reported quarter, revenues from the cloud segment are expected to have increased from a year ago, backed by growth in the number of paying customers and higher-than-usual spending by them, reflecting increased usage of services.
Strong Mobile Growth
The company’s Mobile Monthly Active Users improved sequentially in fiscal second-quarter 2021, a trend that most likely continued in the fiscal third quarter. This is because of increased adoption of mobile devices by consumers as the primary method of accessing Alibaba’s platforms.
It has been building the online marketing inventory on both mobile and PC, as well as recording higher monetization rates. These factors are likely to have boosted Alibaba’s profits.
Overhangs Remain
It has been spending heavily in new areas of core online retail business, including supermarkets, stores, new artificial intelligence, digital entertainment and cloud computing businesses. The increased expenses might reflect on Alibaba’s fiscal third-quarter results.
Also, political worries might have weighed on the company’s domestic and international growth.
Moreover, increasing competition from companies like Amazon.com Inc. AMZN and JD.com JD, among others, as well as deceleration of growth in the e-commerce market — both domestically and internationally — might have impacted its earnings in the soon-to-be-reported quarter.
What Our Model Says
Our proven model does not conclusively predict an earnings beat for Alibaba this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of an earnings beat. That is not the case here as you will see below.
Earnings ESP: The company has an Earnings ESP of +0.02%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Zacks Rank: Currently, Alibaba has a Zacks Rank #4 (Sell).
Stock to Consider
Here’s a stock that you may want to consider, as our model shows that it has the right combination of elements to deliver an earnings beat in the to-be-reported quarter.
Microchip Technology Incorporated MCHP has an Earnings ESP of +1.14% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.
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