Key Takeaways

  • Analysts estimate adjusted EPS of RMB14.42 ($2.23) vs. RMB14.82 in Q1 FY 2021.
  • Annual active consumers in China are expected to rise YOY.
  • Revenue is expected to rise amid the Chinese government's crackdown on big tech.

Alibaba Group Holding Ltd. (BABA) has not gone unscathed by the broad selloff in Chinese technology stocks. The sector shed hundreds of billions of dollars in market value in July amid a campaign by the Chinese government to rein in the power and influence of the country's tech giants. As part of the big tech crackdown, Alibaba was slapped with a fine worth $2.8 billion earlier this year for abusing its dominance over rivals and vendors on its e-commerce platforms.

Investors will get a chance to focus on Alibaba's recent financial performance when it reports its Q1 FY 2022 earnings on August 3, 2021—the company's fiscal year (FY) ends in March. Analysts expect adjusted EPS to decline for the first time in at least four years, despite revenue rising at a robust pace. Note that Alibaba shares referred to throughout this story represent Nasdaq-listed American depositary shares (ADS) with the ticker BABA.

Investors will also be focusing on Alibaba's annual active consumers in China, also called "active buyers." This key metric gauges the number of users making purchases on the company's platform. Analysts expect annual active consumers in China to rise at the fastest pace since the second quarter of FY 2020.

Alibaba's shares have dramatically lagged the broader market over the past year. The stock had been outperforming following the release of the company's Q1 FY 2021 report in late August 2020. Then, about a week after issuing its earnings report for Q2, the shares began to slide and the underperformance gap has gradually widened ever since. Shares of Alibaba have provided a total return of -22.8%, well below the S&P 500's total return of 35.4%.

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

Alibaba Earnings History

The stock received a slight boost after Alibaba reported earnings for Q4 FY 2021. While adjusted EPS missed consensus estimates, the company's revenue came in above expectations. Revenue expanded 63.9% compared to the year-ago quarter, marking its fastest rise since at least Q2 FY 2018. Adjusted EPS, meanwhile, rose 12.1% year over year (YOY), its slowest pace since the final quarter of FY 2020.

During the quarter, Alibaba was required to pay an anti-monopoly fine of RMB18.2 billion, equivalent to $2.8 billion, levied by China's State Administration for Market Regulation. The fine resulted in Alibaba's first net loss since becoming a publicly-traded company.

In Q3 FY 2021, both adjusted EPS and revenue beat analyst forecasts. Adjusted EPS rose 21.1% YOY, slowing from the previous quarter's pace of 37.2%, while revenue grew 36.9% compared to the year-ago quarter, rising at its fastest pace since Q3 FY 2020. Alibaba also achieved profitability for the first time in its cloud computing business, which continued to expand its market leadership and exhibited strong growth during the quarter.

Analysts are expecting mixed results in Q1 FY 2022. Adjusted EPS is forecast to decline 2.7%, representing the first drop in at least 16 quarters, while revenue is expected to rise 36.2%—a robust pace that would, nevertheless, still mark a dramatic deceleration from the previous quarter.

For full-year FY 2022, analysts are expecting adjusted EPS to fall 5.1%, which would represent the first decline in at least five years. Revenue, meanwhile, is forecast to expand 29.3%, which would be the slowest pace in at least five years.

Alibaba Key Stats
  Estimate Q1 2022 (FY) Q1 2021 (FY) Q1 2020 (FY)
Adjusted Earnings Per Share (RMB) 14.42 14.82 12.55
Revenue (RMB, billions) 209.4 153.8 114.9
Annual Active Consumers in China (millions) 830.0 742.0 674.0

Source: Visible Alpha

The Key Metric

As mentioned, investors will also focus on Alibaba's annual active consumers in China. This key metric tracks the total number of user accounts that placed at least one confirmed order through Alibaba's China retail marketplaces in the last 12 months. The metric ignores whether or not the transaction was actually 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 is able to generate advertising revenue from those merchants. More active consumers also means more people exposed to Alibaba's cloud and entertainment businesses, which are key areas of future growth.

Alibaba's annual active consumers in China have risen considerably over the past several years, though growth has been gradually slowing. In Q1 FY 2019, annual active consumers in China rose 23.6% YOY to 576.0 million. Growth then slowed to 17.0% by Q1 FY 2020 and to 10.1% by Q1 FY 2021. 

The pace of growth continued to decelerate in Q2, but then accelerated in Q3 and again in Q4 to a pace of 11.7%. For Q1 FY 2022, analysts expect the company's annual active consumers in China to rise 11.9% YOY to 830.0 million, which would be the fastest pace of growth since Q2 FY 2020.