What To Look For When Alibaba Reports Q2 Earnings

Stifel’s Scott Devitt expects Alibaba Group Holding Ltd BABA to report its revenue and adjusted EBITDA slightly above the consensus expectations when the company reports its Q2 2017 results on Wednesday.

Devitt maintained a Buy rating on the company, with a price target of $125.

Expectations Of A Beat

“We expect continued strength in the core commerce and cloud businesses to drive top-line growth and narrowing losses in the digital media business to partially offset some margin contraction from ongoing investments,” the analyst mentioned.

Devitt believes investors are likely to be focused on customer engagement and user monetization across the core commerce platform, given that Alibaba doesn't provide GMV on a quarterly basis.

“We continue to support management’s long-term vision and believe that current investments will strengthen Alibaba’s position in both the global eCommerce and digital media ecosystems,” the analyst went on to say.

The company was able to meaningfully beat the EPS expectations in the previous quarter, while expectations for Q2 have been lowered by a penny over the past month.

What Q2 Would Look Like

Devitt believes margin contraction has been slowing and estimates Q2 revenue at $5.17 billion, representing 54.9 percent growth and above the consensus forecast of $5 billion.

China commerce revenue growth is expected at 42 percent year-on-year, driven by China online retail sales growth of 29.9 percent, according to reports by the National Bureau of Statistics of China.

According to a report on Yahoo Finance, Alibaba is expected to have benefited from the stabilizing economic growth in China, while retail sales are likely to have received a 10-11 percent boost over the last three months.

Cloud revenue growth momentum is likely to have continued, despite difficult compares.