Alibaba reports its latest earnings on Friday before the market open, and investors will be looking for signs of a recovery in Chinese e-commerce.
The Chinese retail giant warned in mid-February that the coronavirus, which was spreading in China at the time, would damage its March quarter results. On Friday, Alibaba management will give a fuller picture of the pandemic's impact on its sales and operations. Year to date, Alibaba (BABA) - Get Alibaba Group Holding Ltd. Sponsored ADR Report shares have fallen 4%.
Analysts polled by FactSet are expecting earnings of 85 cents per share on sales of $15.1 billion for the March quarter.
1. E-Commerce Recovery
By the time Alibaba reported its December quarter results, the coronavirus was already wreaking havoc on both supply and demand for goods in China. Management cautioned at the time that Alibaba's overall revenue growth would be negatively impacted in fiscal Q4, with potential negative growth for its retail marketplace and local services.
Alibaba will also give commentary on what it's seen so far in April and May. In a recent note, analysts at CCB International wrote that Chinese e-commerce is "well on its way" to a recovery, writing that it could fully recover by the end of the fiscal first half. Officials in China have enacted a few policies to help this along, such as offering subsidized online coupons.
2. Cloud Expansion
Alibaba is China's largest online retailer, and also has a growing footprint in advertising, cloud services, entertainment and other lines of business. Expect Alibaba management to highlight its progress in cloud computing, which has seen an overall boost alongside remote work and stay-at-home procedures. The company announced plans in April to spend RMB200 billion, or about $28 billion, on its cloud unit over the next three years. Those investments will likely deepen the segment's losses in the near term, but offer the promise of longer-term gains. Alibaba captured 46% of Chinese cloud infrastructure spending in Q4, and is looking to extend its leadership position.
3. Alibaba's Ecosystem
In recent years, Alibaba bulls have pointed to the potential of Alibaba's expansive ecosystem of services and logistics, which span everything from entertainment and local services to fintech division Ant Financial. Alibaba's March quarter result could give investors a look at the resiliency of Alibaba's ecosystem, and the potential for greater cross-pollination between Alibaba core commerce and its array of other services.
Management will also likely offer commentary on its ongoing project of expanding sales into smaller cities in China. Looking ahead to fiscal 2021, CCB International analysts expect Alibaba to leverage its emerging C2M (consumer to manufacturer) platform, as well as Juhuasuan and Ele.me, "to penetrate lower-tier cities while focusing on user engagement through live streaming and promotions."