Alibaba Focus on December Sales and Lockdowns

After China posted better than expected Q4 and web analytics showed increased traffic for Alibaba websites, the question is if it could capitalise on the situation.

Did BABA Capitalise on December Holiday Sales?

Over 70% of Alibaba's revenue comes from the domestic Chinese market, so the lockdowns significantly impacted the company in the third quarter of last year. The lifting of the restrictions announced in early December could have helped prevent a loss of sales as Alibaba tends to do much better in the fourth quarter because of the holidays.

The company has been trying to diversify into other areas, with the one grabbing the most attention being the development of a rival to the now Microsoft product ChatGPT. Earnings would be a good opportunity to announce advances in AI or provide guidance for when it might be launched. It's being developed under the same division that manages Alibaba's expanding cloud business, taking on rivals like Amazon's AWS. During the lockdown slump, cloud has proven to be a reliable source of growing income. But with many other cloud companies facing headwinds, investors are likely looking at this division closely.

Lockdown Impact and Ma's Departure from Ant Group

There have been a couple of significant events for Alibaba after the quarter's close, including founder Jack Ma confirming relinquishing control of Ant Group. Subsequently, Chinese regulators announced they wouldn't pursue an investigation into the company. That came too late to affect the quarterly results but could be addressed in the guidance portion of the earnings release.

Alibaba is expected to report earnings of $16.59 per American Depository Share, which would be slightly lower than what was reported in the prior year's shopping season. However, the range among analysts is vast this time, given uncertainties about how much the lockdowns affected the company. Revenue is expected to align with the prior year at $245.9B.

BABA in Potential H&S

Alibaba's share price resembles an incomplete head-and-shoulders pattern, heading towards the right shoulder near $75. Recent price action off the lows at $58 shows an impulse to $125, comprised of corrections. The retracement to $100 could be a flag pattern, invalidating the H&S and triggering an upward spiral above the assumed neckline. Sliding below $95 and then $85 would increase the chance of an H&S formation.

Source: Spreadex

Key Takeaways

Alibaba's earnings are expected to fall slightly lower than the prior year's shopping season, but revenue to align with the preceding year. Alibaba relies heavily on the domestic Chinese market, so lifting lockdown restrictions in December could have prevented a loss of sales, particularly during the holiday season. The company has been diversifying into other areas, such as developing a rival to Microsoft's ChatGPT and expanding its cloud business. Some more clarity could be provided in the guidance portion of the earnings release and impact on the stock's price.