Investors who are looking for a potential breakout candidate for the next 12 to 18 months, which is also a strong play on the recovering Chinese economy, should now consider Alibaba (BABA).
The e-commerce and tech giant is set to report fourth-quarter fiscal 2019 earnings results before the opening bell Wednesday. Concerns about renewed trade tensions between the U.S. and China have spooked investors away from Alibaba as well as other Chinese names. At its current price of $170, BABA stock is still some 20% below its consensus price target of $207. And this makes Alibaba, which owns some 55% share of the Chinese e-commerce space, a compelling opportunity.
What’s more, not only is Alibaba rapidly expanding into numerous lucrative markets beyond consumer products, the company’s cloud division as well as its recent investments in the realm of Artificial Intelligence, Machine Learning and Internet of Things, suggests there is still plenty to be excited about. Wednesday’s earnings results and BABA’s guidance will reveal how much confidence the management has in these initiatives and how much faith investors should put into Alibaba stock.
In the three months that ended March, Wall Street expects the online retailer to earn 98 cents per share on revenue of $13.42 billion. This compares to the year-ago quarter when earnings came to 83 cent per share on revenue of $8.92 billion. For the full year, earnings are projected to rise 13.7% year over year to $5.39 per share, while full-year revenue of $54.97 billion would rise 52.4% year over year.
It remains to be seen when trade tensions between the U.S. and China will be resolved. But on Wednesday Alibaba must convince the Street that it has the means to overcome concerns about tariffs and a slowing Chinese economy while boosting its long-term potential as the new retail ecosystem matures. Analysts will also focus on the company’s growth segments, namely Core Commerce its largest segment, which grew at a 40% year-over-year growth in the year-ago quarter.
The company benefited from an increase in annual active buyers, which reached 699 million in the third quarter. Investors will want to see if these growth trends can continue. Elsewhere, the company’s Cloud business, which a year ago soared 84%, will be a key focus area. While the cloud is still a relatively small revenue driver for the company, compared with Amazon (AMZN) and Microsoft (MSFT), Alibaba management remains confident about the long-term trends of the business.
Analysts will also focus on the extent to which the company can diversify its business. Digital media and entertainment, which has posted double-digit growth, as well as Innovation initiatives, will be closely- watched. Areas such as BABA’s digital payments platform, AliPay should be strong contributors during the quarter. And at around $170 per share, with the prospect of reaching $200, BABA stock looks like a solid play ahead of Wednesday’s results.