Report Thursday 13 May for the opening
Expected Revenue: $ 27.83 billion,
EPS: $ 1.79
When Chinese e-commerce giant Alibaba (NYSE 🙂 reports its fourth-quarter fiscal profit on Thursday, investors will be happy to hear how the company sees its business grow following the Asian nation's crackdown on its antitrust practices.
Chinese regulators last month imposed a record $ 2.8 billion fine on Alibaba for abusing its dominance over rivals and merchants on its e-commerce platforms. As part of the sanction, regulators demanded that Alibaba conduct a comprehensive review of its operations and submit a “self-assessment compliance report” within the next three years. The fine of 18.2 billion yuan ($ 2.8 billion USD) is equal to 4% of the company's annual domestic sales in 2019.
However, the outcome of the six-month investigation against the Jack Ma-founded e-commerce empire was less serious than many had feared. During the investigation, Alibaba's shares came under severe selling pressure, which has since lost about 30% of their value. The company's US-traded stock closed at $ 219.53 yesterday.
Alibaba Weekly Chart.
But that bearish spell continues even as business executives try to put things in the rearview mirror and focus on post-pandemic recovery. One reason for this lukewarm response from investors is that the fine was accompanied by a list of "rectifications" in some of its business practices, such as curtailing the practice of forcing merchants to choose between Alibaba or a competing platform.
Lina Choi, a senior vice president at Moody & # 39; s Investors Service, said last month in a note:
"The required corrective actions are likely to limit Alibaba's revenue growth as further expansion in market share will be limited. Investments to retain merchants and upgrade products and services will also reduce profit margins."
These measures, if implemented, could weigh on Alibaba's margins, especially when the company faces resurgent rivals such as JD.com (NASDAQ 🙂 and Pinduoduo (NASDAQ :). Morgan Stanley estimated that Alibaba's community group procurement activities, a popular way to sell groceries online, would suffer losses through the fiscal year ending March 2025. Mergers and acquisitions are also likely to receive more attention in the future.
Despite the uncertainties arising from China's antitrust measures, Alibaba remains the dominant platform in the world's second-largest economy. In 2020, Alibaba's active user base grew by 10% to 779 million users. That growth space is likely to continue in the post-pandemic environment as China's economic recovery gains momentum, aided by its massive consumer market.
In addition to its core e-commerce business, Alibaba & # 39; s cloud computing business is rapidly expanding. It becomes profitable for the first time in the. The unit is currently the leader in China, with a market share of 40%.
Bottom Line
The Chinese e-commerce giant has avoided the worst outcome of the regime's antitrust measures: the breakup. Still, investors are unwilling to bet big on the giant's future, especially when it is necessary to end the many monopolistic practices that could erode the platform's future growth potential. This week's earnings may provide some clarity on how the company sees its outlook improving.
