- Analysts estimate adjusted EPS of RMB 12.11 ($1.90) vs. RMB 17.97 in Q2 FY 2021.
- Annual active consumers in China are expected to rise YOY.
- Revenue is expected to rise at its slowest pace in five quarters amid a regulatory crackdown on the tech industry by Chinese authorities.
Alibaba Group Holding Ltd. (BABA), China's e-commerce giant, has posted dramatic profit and revenue growth over the past few years. But now, that growth is threatened by a sweeping crackdown of the Chinese tech sector by regulators in Beijing. Alibaba already has been hit with billions of dollars in fines for antitrust violations, and many investors worry that continued crackdowns could constrain the company's long-term growth.
Investors will be focusing on how Beijing's new regulations have affected, and will affect, Alibaba's financial performance when the company reports earnings on Nov. 18, 2021 for Q2 FY 2022. The company's 2021 fiscal year (FY) ended in March, which means it is currently in its 2022 fiscal year. Analysts expect adjusted EPS to decline for the first time in at least four years, despite robust revenue growth. 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.
Shares of Alibaba have dramatically underperformed the broader market over the past year. The stock briefly outperformed between mid-November 2020 and about mid-December 2020, then it started to lag the market. Its underperformance gap has widened dramatically since mid-February 2021. The stock has rebounded slightly since early October. Alibaba's shares have provided a total return of -34.8% over the past year, well below the S&P 500's total return of 29.6%.
Alibaba Earnings History
Alibaba reported mixed financial results for Q1 FY 2022. Adjusted EPS beat analysts' expectations, rising 12.1% compared to the year-ago quarter to match the previous quarter's pace of growth. Revenue, however, missed estimates, rising 33.8% year over year (YOY). It was the slowest pace of revenue growth since the second quarter of FY 2021. Alibaba announced that it was increasing its share repurchase program from $10 billion to $15 billion due to its confidence in its long-term growth prospects. The stock buyback program is the largest in the company's history.
In Q4 FY 2021, Alibaba missed its earnings estimate but beat on revenue. Adjusted EPS rose 12.1% compared to the year-ago quarter, its slowest pace since the final quarter of FY 2020. Revenue rose 63.9% YOY, its fastest pace in at least the past 15 quarters. Alibaba posted its first net loss as a publicly-traded company during the quarter due to an RMB 18.2 billion antitrust fine levied by China's State Administration for Market Regulation. China's antitrust regulator determined in its investigation that Alibaba punished certain merchants who sold goods on both Alibaba's platform and on those of rival companies.
Analysts expect mixed results for Q2 FY 2022. Adjusted EPS is forecast to fall 32.6% compared to the year ago quarter, which would be the first decline in at least 17 quarters. Revenue is expected to grow 32.7% YOY, marking the slowest pace of growth since Q2 FY 2021. For full-year FY 2022, analysts are currently forecasting adjusted EPS to fall 9.6%, which would be the first decline in at least five years. Revenue is expected to rise 26.0%, which would be the slowest pace of growth in at least five years.
|Alibaba Key Stats|
|Estimate for Q2 FY 2022||Q2 FY 2021||Q2 FY 2020|
|Adjusted Earnings Per Share (RMB)||12.11||17.97||13.10|
|Revenue (RMB, billions)||205.7||155.1||119.0|
|Annual Active Consumers in China (millions)||846.6||757.0||693.0|
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. However, growth reaccelerated slightly to a pace of 11.6% YOY in Q1 FY 2022 compared to the year-ago quarter. Analysts expect growth in annual active consumers in China to rise 11.8% YOY in Q2 FY 2022, slightly faster than in the previous quarter. That would be the fastest pace of growth since the second quarter of FY 2020.