Can E-Commerce Giant Alibaba Defy the China Slump?

Chinese stocks took a beating in 2018, but mainland companies are looking to bounce back this year despite a slowing economy and an ongoing trade war with the U.S.

Few stocks are as closely watched for clues as to what’s next for China as the world’s biggest e-commerce player, giant Alibaba Group Holding Ltd. It will announce its third quarter 2018 financial results (quarter ending December 31, 2018) on January 30, before the market opens. The company had already lowered its revenue guidance for the fiscal year ending March 30, 2019, by 4-6 percent when it released its Q2 financial results.

Yet many analysts are still bullish on Alibaba and have maintained their buy ratings. The share price has bounced back over 15 percent since the beginning of the year.

Seasonality will play a significant role in Alibaba’s earnings release for the quarter thanks to November’s Singles’ Day, which has become the largest global sales day by revenue after eclipsing the U.S. shopping holiday Black Friday. This past November 11, sales on the platform reached $30.8 billion, an increase of 27 percent from the $25.4 billion in sales from 2017. But while that record was impressive, that growth rate actually slowed from the previous year’s 39 percent.

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Should investors be worried that the incredible revenue growth of China’s e-commerce behemoth is slowing down — even as it reaches new heights?

U.S.-based market research firm eMarketer forecasts that China’s total retail sales will increase 7.5 percent year-on-year to $5.6 trillion in 2019, finally surpassing total retail sales in the U.S. for the first time. The firm also predicts that Alibaba will see an almost 20 percent year-on-year increase in sales in 2019, though its market share in China should shrink to 53 percent.

With that in mind, according to Yahoo! Finance’s 29 surveyed analysts, Alibaba is forecast to report $17.7 billion in revenue and per-share earnings of $1.68, an increase of 38.3 percent and 19.2 percent year-on-year, respectively. Again, very strong, but the previous year’s per-share earnings increase was much larger: 33 percent. According to Nasdaq, 16 firms rate Alibaba a strong buy, with a consensus target price of $201.

The company could fare better than its peers. That’s because Alibaba already has a top market position and immense diversification, even more so as it seeks to grow its cloud business. On January 25th, Alibaba executive Joe Tsai brushed off economic concerns and reiterated the company’s commitment to investing in new business ventures.

Nevertheless, Alibaba may look to unload some of the ventures it has backed over the years in an effort to expand its cash holdings or further develop its more profitable affiliated companies. On January 24th, the company announced that home improvement chain Easyhome’s new retail segment, in which Alibaba owns a 15-percent stake, was sold to Chinese state-backed listed retail conglomerate Wuhan Zhongshang Commercial Group Co. Ltd. for $5.65 billion, according to Reuters. Alibaba will continue to hold shares in the company after it becomes listed, but investors should expect more sales like this from the retail giant over the coming months.

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E-Commerce, Earnings Brief