Buy Alibaba Stock Before Earnings as Long-Term Investment?

Benjamin Rains
·4-min read

Alibaba BABA stock has outclimbed its U.S. counterpart Amazon AMZN over the last six months. The company is also coming off a strong quarter and the Chinese economy has started to return to growth. With this in mind, let’s see if investors should consider buying Alibaba stock ahead of its upcoming quarterly earnings release that’s due out on Thursday, November 5.

Alibaba reportedly controls two-thirds of China’s e-commerce market through Taobao and Tmall. The company’s ability to expand its reach in the world’s most populated country, alongside the likes of JD.com JD, could help it grow for years to come. And it’s worth remembering that China’s middle class could hit 550 million by 2022, according to McKinsey. This number alone is far larger than the entire U.S. population of around 330 million.

Last quarter, BABA’s annual active consumers hit 742 million, with its mobile MAUs up 28 million sequentially to 874 million. This helped Alibaba’s sales pop 30% and its adjusted earnings climbed 18% to top estimates.

Alibaba, like Amazon, has a digital media unit and an ever-expanding cloud computing segment. The company’s cloud unit surged 59% last quarter to account for nearly 10% of total sales, with its media space up 9%. Investors should note that China is one of the only countries where Netflix NFLX doesn’t operate.

More recently, the company announced on October 18 that it would spend $3.6 billion to take a controlling stake of Sun Art Retail Group, which is China’s largest big-box retailer and Walmart’s WMT biggest competitor in the world’s second largest economy.

BABA also stands to benefit from Ant Group’s record-breaking IPO. The technology and financial-services giant, run by Jack Ma, owns widely popular mobile-payments platform Alipay that competes alongside Tencent’s TCEHY WeChat Pay. Alibaba holds a 33% stake in the fintech firm that’s set to expand as part of China’s booming digital payments economy.

 

 

 

 

 

 

 

 

 

 

 

 

With this in mind, BABA stock has jumped 55% in the past six months, against Amazon’s 35%. And the gap has grown wider over the last three months, with BABA up 20% vs. AMZN’s -4% decline. This is part of a larger run that’s seen Alibaba climb 260% in the past five years and it currently hovers around 5% off its highs. And the company’s valuation is hardly stretched considering where it has traded over the last several years.

Moving on, Zacks estimates call for Alibaba’s adjusted Q2 EPS to climb 13% on 38% higher sales, with FY21’s EPS set to climb 23% on 36% stronger revenue. The company is then projected to follow up this growth with another 27% expansion on both the top and bottom lines in fiscal 2022.

Alibaba’s positive longer-term earnings revisions help it earn a Zacks Rank #2 (Buy) at the moment and it has topped our earnings estimates by an average of 22% over the trailing four periods. All that said, investors might want to consider Alibaba as a longer-term play on the growing Chinese economy.

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