What To Expect When Alibaba Reports Its Q2 Results

Alibaba Group Holding Ltd - ADR BABA shares are trading at their lowest level since late 2018, stung by a challenging regulatory environment and softening macroeconomic conditions. These twin factors have led several sell-side analysts to temper their expectations for the Chinese e-commerce giant.

The Alibaba Analysts: Needham analyst Vincent Yu maintained a Buy rating and a $330 price target for Alibaba shares.

Mizuho Securities analyst James Lee maintained a Buy rating and reduced the price target from $280 to $245.

The Alibaba Theses:

Valuation Is Attractive, Needham Says: Chinese macroenvironment is taking a hit from the recent Zhengzhou flood to the resurgence of COVID-19 cases in some key provinces such as Jiangsu, Needham analyst Yu said in a note.

Chinese National Bureau of Statistics data showed China's year-over-year retail sales growth decelerated from 12.1% in June to 2.5% in August and online retail sales growth fell from 13.9% to 6.1%, the analyst noted.

Among categories, the biggest hit has been on discretionary consumption, including apparel and home appliances, which are Alibaba's key categories, he added.

Accordingly, Needham lowered its China commerce revenue estimates by 7% on headwinds from the macroeconomic climate. Customer management revenue and commission revenue are expected to grow 6% each compared to last year, the firm added.

However, Alibaba's overseas business is expected to see strong growth in GMV and users, considering the healthy developments in Lazada, Aliexpress and Trendyol, Yu said.

Continued strategic investments in Taobao Deals and grocery shopping, the analyst said, are weighing on margins. The user traffic sharing efforts between tech giants is bearing some fruit as some Alibaba apps are connected to Tencent Holdings ADR TCEHY's Wechat Pay in September, he added.

Needham said it finds Alibaba's stock as attractive at current levels.

Related Link: Why These 2 Alibaba Analysts Expect Muted Near-Term, Positive Long-Term Prospects

Negative Consumer Sentiment to Hurt Alibaba: CMR and commission revenue growth is tracking well below the consensus estimate of 13% due to negative consumer sentiment from the impact of the services industry in regional lockdowns and uncertainties, Mizuho analyst Lee said.

September quarter core EBITA is tracking approximately 10% below expectations, he added.

The logistics business Cainiao, the analyst said, is also tracking behind the consensus estimate of 50% year-over-year revenue growth.

Other key business segments such as Ele.me, the food delivery business and International retail and wholesale business, and Cloud appear to be on track, Lee said.

"Heading into DecQ, we expect the CMR and commission revenue growth consensus of 15% YoY to be aggressive, and we estimate that 7.5% YoY growth is more reasonable," the analyst said. The growth rate would likely be higher than the September quarter due to seasonal promotions, he added.

Alibaba Price Action: At last check Monday morning, Alibaba shares were down 3.33% to $139.33.

Related Link: Alibaba Opens Up Walled Garden To Allow Rival Tencent's Payment System In Some Apps

Photo: Courtesy Alibaba