What Happened

On Feb. 13, Alibaba reported significantly higher-than-expected earnings, as well as higher-than-expected sales. Despite this, its stock was slightly down as of this writing. This is likely due to worries about the impact that the coronavirus will have on the company. Alibaba's CEO, Daniel Zhang, described the virus as a "black swan" event in the company's earnings call, and that it presented "near-term challenges" for the company. In addition, possibly hinting at more internal problems, Alibaba reported lower-than-expected annual active customers this quarter. While one quarter can easily be an anomaly, if this continues it could indicate growth problems for the online retail behemoth.

(Below is Investopedia's original earnings preview, published 2-4-20)

What to Look For

Alibaba Group Holdings Ltd. (BABA), the giant online retailer often called the Amazon.com of China, has seen its shares dramatically outpace both its U.S. counterpart and the broader market over the past year. That performance has been bolstered by robust earnings results over the past few quarters. When Alibaba reports its latest earnings on February 13, 2020 for Q3 2020 fiscal year (FY), investors will focus on a key metric, "annual active consumers" across Alibaba's online properties. Analysts currently estimate active consumers will rise year-over-year (YOY), along with earnings and revenue.

Over the past 12 months, Alibaba's stock has provided investors with a total return of over 28% compared to the S&P 500's total return of more than 19%.

One Year Total Return for S&P 500 and Alibaba
Source: TradingView.

Alibaba's diluted earnings per share (EPS) rose 246.8% YOY to $3.85 during Q2 of the company's 2020 FY, the three-month period that ended September 30, 2019. That marked the largest YOY EPS increase in at least the past two years, though it was largely caused by a significant one-time gain due to the receipt of the equity interest in Ant Financial. Revenue grew by 39.8% compared to the same quarter a year ago. However, that YOY growth rate was the slowest in at least 9 quarters. Revenue growth, for example, was a high as 60.5% in Q4 2018.

A week following the Q2 earnings report, Alibaba's shares were up 5.7% and would continue to trend higher for the rest of the calendar year. The company's shares made an even more spectacular jump following its Q1 2020 FY earnings report. In the five days following the results, Alibaba's shares shot up 10.0% on diluted EPS growth of 135.4% and revenue growth of 42.0% compared to the year-ago quarter.  However, much of the gain in the company's stock was quickly lost throughout the following week.

While analysts are expecting diluted EPS and revenue to both rise for the upcoming quarter, the growth rate, is forecast to slow to 18.6% YOY, extremely low considering revenue is forecast to rise by 35.8% compared to the same period a year ago.

Alibaba Key Metrics
  Estimate for Q3 2020 (FY) Actual for Q3 2019 (FY) Actual for Q3 2018 (FY)
Earnings Per Share ($) 2.18 1.84 1.41
Revenue ($B) 22.8 17.1 12.8
Annual Active Consumers (M) 718.7 636.0 515.0

Source: Visible Alpha; Alibaba Investor Relations (Note: Q3 2020 revenue estimate based on current exchange rate as of Feb. 4, 2020).

As mentioned above, investors will also be focused on Alibaba's annual active consumers, a metric that refers to the number of user accounts having had one or more confirmed orders on the relevant platforms sometime during the previous 12 months, regardless of whether or not the transaction was settled. Retaining and attracting active consumers is important to Alibaba's business model, which in large part consists of selling marketing services to the merchants that sell their wares on the company's online platforms. The more active consumers Alibaba attracts, the more the company will be able to generate advertising revenue from those merchants.

For Q2 2020 FY, Alibaba reported a 15.3% YOY rise to a total of 693.0 million annual active consumers on its China retail marketplaces. It marked the third consecutive quarter of slowing YOY growth. The deceleration in growth is expected to continue when the company reports earnings near the end of next week. Analysts are forecasting growth of 13.0% for Q3 2020 FY, which would bring the total number of annual active consumers up to 718.7 million. If Alibaba can keep that pace of growth up, it would be on pace to reach its goal of 1 billion annual active consumers for its entire China consumer business by the end of FY 2024.