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What to Expect from Alibaba's (BABA) Quarterly Earnings

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Shares of Alibaba (BABA - Free Report) surged 6.3% during regular trading hours Thursday in a sign that investors might expect big things from the Chinese e-commerce powerhouse’s quarterly financial results Friday. With that said, shares of BABA have fallen over 16% in the last six months with some worried about its Amazon-(AMZN - Free Report) like spending, among other things.

Alibaba Overview

Alibaba is coming off a quarter that saw its revenues skyrocket 61% to reach $12.23 billion. The company, which operates three core digital commerce platforms, has pushed deeper into cloud computing in an effort to compete against Microsoft (MSFT - Free Report) , IBM (IBM - Free Report) , Google (GOOGL - Free Report) , and Amazon.

Alibaba is still, however, an online seller first, with e-commerce accounting for roughly 85% of revenues last period. With that said, many investors now fear that the ongoing trade war between the world's two largest economies, coupled with the fact that China’s economic expansion recently hit its weakest pace since the financial crisis, will really hurt Alibaba.

And let’s not forget that Jack Ma announced in September his plan to retire soon. Add all of this on top of Alibaba spending, and it seems that BABA stock could be in trouble. But let’s see if a turn around could be in store based on our latest quarterly projections.

 

Projections

Alibaba’s quarterly revenues are projected to soar 52.7% to hit $12.65 billion, based on our current Zacks Consensus Estimate. Meanwhile, BABA’s adjusted quarterly earnings are projected to sink by roughly 13.2% to reach $1.12 per share. Yet, we still need to know how likely it is that Alibaba tops our quarterly earnings estimate since that could impact how BABA trades in the near-term.

Luckily, we can turn to our exclusive Earnings ESP figure to help us find out. Zacks Earnings ESP (Expected Surprise Prediction) compares the Most Accurate Estimate to the Zacks Consensus Estimate for the quarter. The Most Accurate Estimate is a version of the Zacks Consensus whose definition is related to change.

This is done because, generally speaking, when an analyst posts an estimate right before an earnings release, it means that they have fresh information which could potentially be more accurate than what analysts thought about a company two or three months ago.

A positive Earnings ESP paired with a Zacks Rank #3 (Hold) or better ranking helps us feel confident about the potential for an earnings beat. In fact, our 10-year backtest has revealed that this methodology has accurately produced a positive surprise 70% of the time.

Alibaba is currently a Zacks Rank #3 (Hold) and sports an earnings ESP of -3.28%. Unfortunately, this means our model is inconclusive. But it is worth noting that BABA has missed our quarterly earnings estimates in four out of the last six quarters, including the trailing three periods. 

Alibaba is scheduled to release its September quarter financial results before the market opens on Friday.

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