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Alibaba’s Fiscal 1Q18 Earnings Preview

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Navigating competition

Alibaba (BABA) plans to report its fiscal 1Q18[1. fiscal 1Q18 ended June 2017] earnings in August. This report is closely watched, considering that the company missed its earnings expectations in its fiscal 4Q17 report released in May.

In the upcoming earnings report, investors will be looking to see how Alibaba is navigating competition in its various business segments. Besides its core e-commerce operation—where it competes with JD.com (JD), Amazon, and eBay (EBAY)—Alibaba also operates in the digital media and cloud computing businesses.

In the cloud computing space, Alibaba is vying for market share against Amazon and Microsoft (MSFT). In digital media, Alibaba is battling it out against Netflix (NFLX). It also has a digital video business modeled along the lines of Alphabet’s (GOOGL) YouTube.

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Clean earnings track record

Alibaba had had a clean earnings track record except for fiscal 4Q17 when it missed its consensus EPS (earnings per share) estimate. Alibaba posted EPS of $0.63, slightly lower than its consensus estimate EPS of $0.65.

As for the top line, Alibaba has topped its consensus estimates in the last four quarters. The chart above depicts the trend line of Alibaba’s quarterly EPS and revenues for the last four quarters.

Impact of heavy investment

Besides competition, the series of recent investments that Alibaba has made could drive up its costs and weigh on its fiscal 1Q18 earnings. Alibaba’s investments are geared toward driving future growth and opening new revenue sources beyond its core commerce operation.

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