Alibaba Q1 preview: where next for Alibaba shares?

Alibaba and other Chinese stocks have lost ground as Beijing cracks down on some of its largest and most successful businesses, but can Alibaba’s quarterly results reverse the trend? We explain what to expect and look at how Alibaba shares could react.

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When will Alibaba release Q1 results?

Alibaba will release first quarter results covering the three months to the end of June before the US markets open on Tuesday August 3.

Alibaba Q1 earnings preview: what to expect from the results

Alibaba will be hoping to revive confidence when it releases quarterly results. Despite being well positioned to capitalise on the dramatic digital shift brought about by the pandemic, appetite among investors for Alibaba and other Chinese stocks has waned this year as Beijing tightens its grip on some of the country’s largest companies.

Alibaba was an early target for the Chinese government. Its founder Jack Ma headbutted with officials and an antitrust investigation was launched into Alibaba last year. Then Ant Group, the financial services heavyweight that was founded by Ma and still partly-owned by Alibaba, saw its plans to complete the world’s largest-ever IPO dashed as officials moved the regulatory goalposts just days before it was set to be launched. Ant Group is still thought to be eyeing an IPO eventually, although questions remain about how the changes will impact its valuation, with officials pushing for the company to adopt capital requirements and come under tighter scrutiny.  

Meanwhile, Alibaba was hit by a record $2.8 billion fine earlier this year for breaking anti-monopoly rules, which also forced the company to change the way it does business.

But it isn’t just Alibaba and Ant Group in the crosshairs. The latest fears surrounding Chinese stocks spawned from the ride-hailing app Didi, whose celebrations after listing in the US were cut short by the announcement that its app had to be removed from digital stores whilst the cyberspace regulator conducts a widespread review of the industry and how firms handle data. That falls very much in Alibaba’s wheelhouse. The crackdown has not been limited to internet stocks either, with China’s huge private education sector taking a hit after news that for-profit organisations will no longer be able to tutor core subjects in an effort to reduce the cost of raising a family and encourage more families to have children.

This has hit shares of Chinese companies listed in the US as investors fear getting caught up in a whirlwind of changes that are coming. Alibaba shares have shed more than 15% in value since the start of 2021, Tencent is down over 17%, Nio over 16%, Baidu has fallen over 35% and Pinduoduo trades some 36% lower than the start of the year.

That, in turn, has now prompted US regulators into action as they scramble to find a way to protect US investors.

Investors want clarity, but are unlikely to get much when the results are released. Alibaba’s chairman and chief executive Daniel Zhang released a letter to shareholders just last week that avoided directly responding to the ongoing situation in China, instead opting to highlight that internet platform companies are new developments and that it is still learning how to be ‘more thoughtful about the responsibilities’ Alibaba has following that record fine issued earlier this year.

Notably, brokers believe the sell-off in Alibaba shares this year could be overdone and remain extremely bullish on its prospects. The 51 brokers covering the stock currently have an average Buy rating on the stock with a target price of $285.74 – implying there is some 46% potential upside from the current share price.

As for the earnings, analysts are expecting revenue of RMB209,386 million in the first quarter compared to RMB153,751 million the year before. The net profit attributable to shareholders is anticipated to fall to RMB29,072 million from RMB47,591 million, with earnings per American depositary share (ADS) following lower to RMB9.81 from RMB17.36 the year before.

Active consumers for Alibaba’s wide ecosystem of services will also be closely-watched after it breached the 1 billion mark in the last financial year, and mobile active users which grew by 79 million in the last financial year to 925 million. Analysts believe the lower year-on-year profits in the quarter will spawn from lower earnings from its core commerce segment as it spends more on growing its user base and on rebates to its merchants.

Those losses, coupled with more from its digital media and entertainment businesses and its other activities spanning everything from mapping to food delivery, are expected to offset the continued progress being delivered from its cloud-computing division, which was the only other segment of the business to prove profitable last year.

Watch for any developments to guidance. Alibaba said it is targeting over RMB930 billion in annual revenue in the current financial year compared to the RMB717 billion delivered in the recently-ended year.

Where next for the Alibaba share price?

Alibaba share price rose steeply across the pandemic hitting an all time high of $314 mid-October 2020. Since then, the price has tumbled sharply hitting a year-to-date low of $179 last week. The price has managed to pick up slightly since then but the daily chart remains bearish. 

The Alibaba share price trades below its 200 & 50 dma and below its descending trendline dating back to mid-October. The RSI is supportive of further losses whilst it remains above oversold territory. 

Immediate support can be seen at $190, Friday’s low ahead of $179 the year to date low. Beyond here the 2020 low of $170 could come into play. 

On the flipside, resistance can be seen at $200 key psychological level ahead of $211 the 50 dma. A break above this level could see the descending trendline tested at $220. It would take a move above $230 the June high for bulls to gain traction. 

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