Alibaba Q2 Earnings Preview

Investors could be keen to put a couple of pretty disappointing quarters behind them and focus on the coming shopping season.

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Ahead of the pack?

Alibaba hasn't been immune from this year's tech slump. But, on top of that, it was further impacted by increased regulatory security, the absence of Jack Ma, and then covid lockdowns in China. Alibaba lives off of the supply chain, and with long delays for shipping from China to major customer markets, there hasn't been much reason for optimism.

But the September quarter is when sales start to pick up ahead of the holidays, including the infamous ‘singles day’ on November 11th - and there might be pent-up demand. That could give investors reason to focus on guidance to get the company’s sense about its consumers given all the headwinds.

Getting profits back on track

Not all is expected to be smooth sailing; the regulatory requirements imposed by China have led to a significant reduction in profit margin, which fell to 16% compared to 27% prior. Improving profitability in an inflationary environment is likely to prove a challenge for retailers.

Additionally, Jack Ma is finally going to give up control of Ant Group. While that might impact possible synergies (monopoly pricing), it could see regulators give the company some breathing room.

Over 70% of the company's revenue comes from China, where consumer demand has been weak. Still, analysts expect earnings to improve over the prior quarter from $7.95 to $10.70 per share. Meanwhile, sales are expected to be pretty much flat, forecast at $203.9B compared to $204.1B prior, reflecting an expectation that the company will have had some success in controlling its expenses.

BABA now below 50SMA

Alibaba’s share price has recently confirmed a double top at 120 as the 200-day average formed resistance there. The CCI divergence that printed while the pattern was taking form has sent the stock well below its 50-day average at 103.

A bearish engulfing candlestick on the daily chart hints at an attempt to 82 where a double bottom could sustain the sideways market. Below there 73 is near-term support.

A bounce at the broken bearish trendline (or above) could turn to a bullish reversal, with the break of 120 potentially taking the shares up to 138.

Source: Spreadex trading platform

Key takeaways

Alibaba has had a tumultuous year and it's all due to a variety of factors. But sales are always higher in September and investors may want to focus on simple earnings guidance.

On one hand, Jack Ma is going to give up control of Ant Group, which might impact the company's bottom line but on the other hand, it could also get regulators to provide it with some more breathing room.

Alibaba's revenue is expected to fall due to declining consumer demand, but earnings will still increase to $10.70 per share. If the company shows some success in controlling its expenses, that could set it up well for better Q3 sales.