Analysts appear bearish on Chinese multinational conglomerate Alibaba’s (BABA) bottom-line performance ahead of the company’s second-quarter results, scheduled for November 25, before the opening bell.
The consensus EPS Estimate is $0.81, representing a 62.3% year-on-year fall, while the revenue is expected to grow 1.5% year-on-year to $34.22 billion.
Seeking Alpha analyst Deep Value Investing downgraded the company to Buy from Strong Buy, expecting Q2 EPS to miss estimates due to its heavy investments in e-commerce.
“Alibaba missed EPS expectations in the last two quarters, as the heavy investment in Taobao Instant Commerce and quick commerce has driven double-digit EBITDA declines. I haven’t seen any signs that suggest a slowdown in this business, which is disappointing, as I would rather see the company investing in the cloud business rather than in the lower-margin e-commerce segment,” the analyst said.
Analyst KM Capital also expressed similar views, saying that Alibaba’s stretched valuation and a trend of missing EPS guidance have given way to its pessimism. Additionally, China’s declining GDP growth and macroeconomic uncertainties present a solid headwind to the company’s e-commerce business.
Over the last 2 years, BABA has missed EPS estimates 4 times and lagged behind revenue estimates 5 times.
The analyst believes that the stock’s value has advanced only due to hype around AI. However, AI’s rapid revenue growth has failed to convert into consistent EPS growth, they noted.
Over the last 3 months, EPS estimates have seen 1 upward revision and 13 downward. Revenue estimates have seen 3 upward revisions and 11 downward. Going by this trend, analysts believe he e-commerce giant is highly likely to miss Q2 earnings consensus.
However, analyst JR Research is an outlier and is highly bullish on Alibaba’s AI positioning.
“BABA’s AI-driven initiatives and cloud intelligence revival underpin margin recovery and position the company as one of the foremost leaders in China’s AI industry,” it said
According to recent reports, Alibaba’s Qwen, an AI app rivalling OpenAI’s ChatGPT, surpassed 10 million downloads within a week of its relaunch, fuelling investors’ optimism. The stock climbed 4.72% to $160.15 on Monday morning. On a YTD basis, it has advanced nearly 89%.