Shares of Alibaba (BABA - Get Report) are expected to continue riding their nearly 40% year-to-date run up to $121.40 when the company releases its 2016 fourth quarter and full-year financial results before the market opens on Thursday.
The Chinese e-commerce giant is expected to report earnings of 66 cents per share on revenue of $5.21 billion, according to analysts surveyed by FactSet. The Amazon.com (AMZN - Get Report) competitor has a history of beating on earnings, with the trailing four quarters topping estimates.
The stock typically reacts strongly to earnings, whether that's up or down, and it isn't always dependent on earnings and revenue. Most investors are also looking for a guidance beat. "It's a tough call as to how the stock will react, but I think it will be positive," Tigress Financial Partners CIO Ivan Feinseth said.
The company is set up for a winning quarter because the business trends are in its favor and the performance drivers are in its favor, according to Feinseth. Nowhere is this more clear than in fellow Chinese e-commerce giant JD.com's (JD - Get Report) positive results from the past quarter. JD.com reported a 41% year-over-year growth in revenue to $11.05 billion.
For the previous quarter, Alibaba reported revenue growth of 54% year-over-year to nearly $7.7 billion. The e-commerce company is in good shape to continue this growth considering the National Bureau of Statistics said retail sales were up 24% year-over-year in China for the month of April, although this was a deceleration from the 33% year-over-year growth in March.
While the company's e-commerce business continues to be the main driver of revenue growth, the company is also pushing its cloud business. For the previous quarter, revenue from cloud computing increased 115% year-over-year to $254 million. However, it's still behind Amazon (AMZN - Get Report) , Microsoft (MSFT - Get Report) and Alphabet's (GOOGL - Get Report) Google in this sector, Feinseth said. "They're not doing as well as the other players, but its a high margin business and it's a growing business so they need to match them," he noted. Similarly, CFRA Research analyst S. Kessler released a note last week saying he though Alibaba's cloud business was a "strong opportunity."
Gross margins for the company narrowed considerably in 2015 and 2016 and that trend will most likely continue this year, with a bottoming in 2018 and 2019 as Alibaba cuts prices and gains market share, Kessler claimed. "EBITDA margins have weakened over the last few years, reflecting substantial investments to expand into new areas and drive growth, but we see them bottoming in FY 18," he explained.
Investors will be looking for the obvious revenue growth, user growth and margin increases in the financial report Thursday morning, but they'll also be looking at the broader picture, such as how the company plans to continue its global expansion. Earlier this month, Alibaba signed a Memorandum of Understanding (MOU) with Argentina. The MOU focuses on two areas: wine and fresh foods. Under the conditions of the partnership, Alibaba's e-commerce platforms are being declared official channels by Argentina, which happens to be the fifth-largest producer of agricultural products worldwide. "The global adoption has been positive so far," Feinseth said.
Kessler noted the company's significant investments toward expanding its business globally in his note. Alibaba is currently "poised" to gain market share domestically and to expand into new areas globally, he said.
Another issue investors are looking for Alibaba to address is the problem of counterfeit items being sold on its website. In January, Alibaba said that it had formed a coalition that would use big data to help rid its site of counterfeiters. "The most powerful weapon against counterfeiting today is data and analytics, and the only way we can win this war is to unite," Chief Platform Governance Officer of Alibaba Group Jessie Zheng said in a statement.
The fake goods market hit $1.7 trillion in 2015, according to the International Anti-Counterfeiting Coalition. That's hard to crack down on for a site like Alibaba, which sells 14.5 billion items a year, vs. Amazon's 5 billion, USA Today reported. In the year ended in this past August, Alibaba claims that it took down 180,000 third-party stores that were promoting fake goods.