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Alibaba’s Earnings Preview: What Investors Can Expect

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Alibaba (NYSE:BABA) will likely report its results for the fourth quarter of 2020, which ended in March, before the US stock market opens on Friday.

Alibaba is China’s top e-commerce company. Last week, JD.com (NASDAQ:JD) reported strong earnings results for the March quarter. Notably, JD’s earnings results were lifted by the spike in online shopping amid COVID-19. Amazon (NASDAQ:AMZN) saw a similar surge in the demand for online shopping. Currently, the company has been expanding its capacity to cope with higher demand.

In addition to its core e-commerce operation, Alibaba has ventured into cloud computing and hardware. The company seeks to diversify its revenue sources. Alibaba’s hardware products include smart speakers under the Tmall Genie brand.

Here are three things investors need to know before Alibaba’s earnings report.

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Alibaba’s earnings expectations

While discussing Alibaba’s earnings results for the December 2019 quarter, executives warned of a possible drop in e-commerce revenue in the March quarter due to the coronavirus pandemic. While the pandemic boosted online shopping, it impacted product manufacturing and delivery. Therefore, Alibaba executives feared that supply chain disruption could result in revenue loss.

Wall Street expects Alibaba’s upcoming earnings report to return $15.3 billion in revenue. The adjusted EPS will likely be $0.87. A year ago, the company delivered revenue of $13.9 billion, which increased 51% year-over-year and beat the consensus estimate at $13.3 billion. The company posted an adjusted EPS of $1.28, which beat the consensus estimate at $0.96.

Alibaba doubles down on cloud and hardware

Alibaba’s earnings report will arrive at a time when the company has stepped up its efforts in the cloud and hardware businesses. The company will spend $28 billion over the next three years to expand its cloud computing business. Although Alibaba dominates in China with 46.4% cloud market share, it trails Amazon, Microsoft, and Google on the global stage. The global cloud market is on track to exceed $354 billion in annual revenue opportunity for Alibaba in three years.

In hardware, Alibaba plans to invest $1.4 billion in its Tmall Genie smart speaker business. The global smart speaker market is on course to hit $23.3 billion by 2025 from $4.4 billion in 2017.

Alibaba counts on its cloud and hardware investments to boost its future earnings.

Tighter regulations for Chinese companies

Finally, Alibaba’s earnings report is set to land following the passage of a US Senate legislation. The legislation seeks to tighten regulations on Chinese companies. The Senate bill seeks to ban trading in shares of rogue Chinese companies. Alibaba stock fell after the bill passed.

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