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Key Takeaways

  • Analysts estimate adjusted EPS of RMB 6.11 ($0.92) vs. RMB 10.31 in Q4 FY 2021.
  • Revenue is expected to rise, but at a markedly slower pace compared to recent quarters.
  • Alibaba’s growth is decelerating sharply amid the Chinese government’s tech crackdown and its Covid Zero policy.

Alibaba Group Holding Ltd. (BABA), China’s giant e-commerce and cloud computing company, has seen its earnings and revenue performance weaken significantly over the past year. That deterioration is expected to continue, at least in the short term. Alibaba is being hurt by the economic fallout of China’s Covid Zero policy, and by Beijing’s broad crackdown on big tech companies. These developments have set back Alibaba’s ambition to reach Amazon-like success in China.

Investors will be watching to see if Alibaba is able to prevent a further deterioration of its financial performance when it reports earnings on May 26, 2022 for Q4 FY 2022. Alibaba’s 2022 fiscal year (FY) ended on March 31, 2022. Analysts expect the company’s adjusted earnings per share (EPS) to decline as revenue grows at a modest pace. Note that Alibaba shares referred to throughout this story represent NYSE-listed American depositary shares (ADS) with the ticker “BABA”.

Investors will also be considering the effects of China’s Covid Zero policy on Alibaba’s results. The country’s industrial output and consumer spending recently fell to their worst levels since the start of the pandemic.

Shares of Alibaba have underperformed the broader market over the past year. The stock had brief spurts of outperformance between late May 2021 and early July 2021. But since beginning to lag the market in early July, the stock’s underperformance gap has gradually widened. Alibaba’s shares have provided a total return of -60.8% over the past year, well below the S&P 500’s total return of -5.3%.

Source: TradingView.

Alibaba Earnings History

Alibaba reported Q3 FY 2022 earnings that beat analysts’ expectations. Adjusted EPS fell 23.4% compared to the year-ago quarter, marking the second straight quarter of declining earnings. Revenue grew 9.7% year over year (YOY), the slowest pace in at least 13 quarters. The company highlighted that its global annual active consumers grew to approximately 1.3 billion during the quarter.

In Q2 FY 2022, Alibaba’s earnings and revenue missed consensus estimates. Adjusted EPS fell 37.7% YOY, the first decline in at least three years. Revenue expanded 29.4% compared to the year-ago quarter, continuing a deceleration trend that began in the previous quarter. The company highlighted the growth in revenue generated by its cloud computing segment, which was up 33% YOY.

Analysts expect Alibaba’s financial performance to continue weakening in Q4 FY 2022. Adjusted EPS is expected to fall 40.7% YOY, marking the third straight quarter of declining earnings. Revenue is expected to grow 6.5% YOY, which would be the slowest pace in at least three and a half years. For full-year FY 2022, analysts expect adjusted EPS to fall 22.1%, which would be the first decline in at least seven years. Annual revenue is expected to rise 18.4%, the slowest pace in at least seven years.

Alibaba Key Stats
 Estimate for Q4 FY 2022 Q4 FY 2021Q4 FY 2020
Adjusted Earnings Per Share (RMB)6.1110.319.20
Revenue (RMB, billions)199.5187.4114.3

Source: Visible Alpha

As mentioned above, investors will be assessing how China’s policy of completely eradicating the virus is impacting Alibaba’s financial results. Alibaba is heavily dependent on China, the world’s second-largest economy, for its earnings and revenue growth. The restrictions are cutting into consumer spending and industrial production. In April, China’s industrial output unexpectedly fell 2.9%. Retail sales declined as much as 11.1%, which was far weaker than the projected fall of 6.6%. Major cities such as Shanghai have spent several weeks in lockdown. Alibaba’s performance is closely tied to consumer spending for things like apparel and cosmetics, which has fallen dramatically amid China’s zero-tolerance Covid policy.

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