Alibaba Stock Should Hold Up as Earnings Demonstrate Improving Conditions

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Friday, May 22 marks a significant day for holders of Alibaba (NYSE:BABA) stock. That’s the day when the Chinese e-commerce giant is scheduled to report its fiscal fourth-quarter earnings data.

Alibaba Stock Should Hold Up as Earnings Demonstrate Improving Conditions

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Alibaba posted solid numbers during the company’s previous earnings report. However, CEO Daniel Zhang warned investors of the negative impact of the spread of the novel coronavirus. That warning caused the price of Alibaba stock to dip.

Three months have passed since that time, and the investing community is well aware of the coronavirus’ fiscal impact. Indeed, muted expectations might prove to be a setup for an earnings blowout. But even if the expectations aren’t low, Alibaba’s strengths ought to shine on earnings day and shareholders might enjoy a windfall.

Improving Conditions in China

The coronavirus’s impact-and-recovery cycle didn’t necessarily happen faster in China than it did in America. However, it did start earlier, and therefore it seems to have resolved sooner.

That’s potentially good news for Alibaba today. It’s certainly possible that a second wave of infections could happen, but for now at least, the economic crisis in China may have subsided somewhat.

According to the National Bureau of Statistics of China, China saw a number of economic improvements in April. For instance, the total sales of retail goods in China declined in April, but that decline “narrowed by 8.3 percentage points compared with that in March.”

Moreover, the outlook in April looked particularly bright for China’s e-commerce sector:

“The national online retail sales in the first four months reached 3,069.8 billion yuan, up by 1.7 percent year on year, while that in the first quarter dropped by 0.8 percent. Of the total, the online retail sales of physical goods grew by 8.6 percent.”

In other words, not only did Chinese e-commerce activity improve relative to itself, but its share of total physical-goods sales grew substantially in April.

This suggests that not only is life showing sings of returning to normal, but Chinese shoppers are really warming up to online purchases. That might not be good news for brick-and-mortar stores, but it’s great for Alibaba. And, it could be reflected in the soon-to-be-released earnings data.

Investing in the Cloud

China’s improving conditions, along with the consumer tilt towards online shopping, undoubtedly makes it easier to enter into Alibaba’s earnings day with confidence.

Raymond James analyst Aaron Kessler likely had China’s economic recovery in mind when he said, “Based on the data, we have increased confidence in our June quarter Alibaba estimates … We reiterate our strong buy rating on Alibaba stock.

Perhaps Kessler also considered Alibaba’s salient strengths during the coronavirus crisis. For one thing, Alibaba doesn’t have to worry about physical stores being closed down due to stay-at-home mandates.

Not only that, but Alibaba has investments in the cloud, a segment that shouldn’t be greatly negatively impacted by social distancing; 7% of Alibaba’s revenues come from the company’s cloud business, so that could help the company shine on earnings day.

Alibaba stockholders should be encouraged that the company remains heavily focused on the digital economy. That’s a savvy business approach in this day and age.

To that end, Alibaba announced that the company plans to invest 200 billion yuan in cloud computing over the next three years. That’s the equivalent of around $28.26 billion, a mammoth investment.

Soon enough, Alibaba might not only be China’s e-commerce leader, but could also be a cloud king as well.

The Takeaway on Alibaba Stock

Alibaba’s recent commitment to invest massively in the cloud probably won’t affect the company’s upcoming earnings report. But the company’s current cloud stake could be a factor.

That, along with the company’s huge e-commerce presence, should catalyze a positive surprise. And, it might give a nice boost to Alibaba stock.

David Moadel has provided compelling content – and crossed the occasional line – on behalf of Crush the Street, Market Realist, TalkMarkets, Finom Group, Benzinga, and (of course) InvestorPlace.com. He also serves as the chief analyst and market researcher for Portfolio Wealth Global and hosts the popular financial YouTube channel Looking at the Markets. As of this writing, David Moadel did not hold a position in any of the aforementioned securities.

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