Alibaba’s share price rebound faces test as quarterly earnings release draws closer

  • Alibaba’s shares have rebounded 13 per cent after falling to a record low in January
  • The e-commerce giant may have posted its slowest quarterly revenue growth on record, according to analysts’ consensus estimate

Alibaba Group Holding faces another major test after its shares overcame a roller-coaster ride sparked by speculation about a stake disposal by a big shareholder.

While the stock held up last week after SoftBank Group clarified that the registration of Alibaba’s new American depositary receipts was not meant for divestment, whether it has already bottomed out will largely hinge on the quarterly result due on February 24.

Alibaba’s shares have rebounded 13 per cent in Hong Kong after hitting a record low on January 27. The rough ride last week sent the stock’s 30-day volatility to an all-time high since its listing in the city in November 2019. The stock rose 0.2 per cent to HK$122.40 on Friday.

The earnings will be closely scrutinised by traders who are keen to reset the method of determining the value of Chinese technology stocks after Beijing’s unprecedented regulatory crackdown crimps earnings growth and shrinks valuations. Alibaba, the owner of this newspaper, will be the first major Chinese tech player to release earnings for the quarter ending December, while others such as Tencent Holdings and Meituan are due to release results in March.

“The key question now is whether the technology stocks are cheap enough,” said Wang Chen, a partner at Xufunds Investment in Shanghai. “But that will be on a selective basis. We remain positive on the companies operating platforms that offer daily necessities, such as food and clothing.”

Alibaba’s revenue last quarter probably increased 11 per cent from a year earlier, the slowest pace on record, according to the consensus estimate of analysts compiled by Bloomberg. Net income based on the US accounting standard may have slumped 60 per cent to 31.9 billion yuan (US$5 billion), its fourth consecutive quarterly earnings contraction since the regulatory storm began.

Growth in its core e-commerce operation probably remained flat due to the flare-up in Covid-19 infections in China since November and increased financial aid to merchants that were grappling with weaker consumer spending, while its new investments have yet to generate any profit, according to Deutsche Bank.

“Looking beyond, we anticipate the negative factors mentioned above to continue to weigh on the top line in subsequent quarters,” said Leo Chiang, a Hong Kong-based analyst at the German bank.

Shanghai-based brokerage Shenwan Hongyuan Group expects Alibaba to post single-digit growth in gross merchandise value, a key gauge of business sentiment, in the October to December period, as consumers began to tighten their purse strings amid an economic slowdown, weighing heavily on online shopping across the nation.

Alibaba’s shares almost halved last year, adding to the loss of more than US$1 trillion in the market capitalisation of Chinese tech stocks trading in Hong Kong and the US, as Beijing started to check the sprawling expansion of the sector.

While a number of investment banks including Credit Suisse have turned bullish on Chinese stocks, citing attractive valuations, shares of most of the tech titans remain in the doldrums.

The e-commerce behemoth is now valued at 18.4 times earnings after recovering from a record low of 16.6, Bloomberg data showed. Still, the current multiple is 60 per cent below its five-year historical average of 45 times.

A contraction in valuation probably means that the most of the regulatory risk has been priced in and corporate earnings are likely to be the main driver for the share price going forward. This pattern took hold in November when Alibaba announced the result for the quarter ending September.

The quarterly earnings, which trailed analysts’ estimated by 78 per cent, spurred a fresh bout of sell-offs that sent the stock plunging by 30 per cent in less than two weeks. Profit for the quarter slumped 87 per cent, as the e-commerce behemoth stepped up investments to fend off intensified competition from rivals.

The latest earnings projections for other tech giants are not heartening either. Tencent may report a 47 per cent drop in quarterly revenue, while Meituan may post a loss of 7.12 billion yuan based on the US accounting standard, according to Bloomberg data.

“The market will react negatively if Alibaba’s result is a miss or disappointing,” said Dai Ming, a fund manager at Huichen Asset in Shanghai. “The stock price will be mainly driven by earnings now.”

Author: Zhang Shidong, SCMP

You might also like