Key Takeaways

  • Analysts predict adjusted EPS of 11.66 (RMB) vs. 9.20 (RMB) in Q4 FY 2020.
  • Annual active consumer growth is expected to continue to slow on both a YOY and sequential basis.
  • Revenue growth sharply accelerated YOY and sequentially amid both the pandemic and the rebounding Chinese economy.

Alibaba Group Holding Ltd. (BABA), the China-based e-commerce company, has experienced massive growth due to both strong consumer activity during the COVID-19 pandemic and the economic rebound in China. The company has become such a powerful economic force that Alibaba has faced increasing pressure from Chinese regulators over antitrust concerns. In April, Alibaba was fined $2.8 billion by Chinese authorities following an investigation.

Investors will watch how Alibaba is navigating these forces when the company reports earnings on May 13, 2021 for Q4 FY 2021. Alibaba's fiscal year (FY) ends in March. Analysts expect the company to report healthy adjusted earnings per share (EPS) growth and significant revenue gains year-over-year (YOY). Note that Alibaba shares referred to throughout this story represent Nasdaq-listed American depositary shares (ADS) with the ticker BABA.

Investors will also focus on Alibaba's annual active consumers in China, also called "active buyers." This key metric is a measure of the number of users making purchases on its platform. Analysts expect annual active consumers to grow, but at the slowest pace in at least 14 quarters.

Alibaba's stock has had a turbulent year. After trading roughly in line with the market in early 2020, Alibaba shares broke away in July, outpacing the S&P 500 until December. Alibaba shares then plunged below the market in late December, and have mostly underperformed since then except for briefly trading in line with the market from mid-January to mid-February. All told, Alibaba has significantly underperformed the broader market, with 1-year trailing total returns of 14.7% as compared with 46.9% for the S&P 500.

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

Alibaba Earnings History

Alibaba's turbulent stock performance belies the company's earnings history, which has seen at least four years of quarterly YOY growth. Still, the company's quarterly adjusted EPS growth has ranged considerably, from 1.2% in Q1 FY 2019 to 64.7% in Q1 FY 2018. Adjusted EPS performance during the pandemic has tended toward the middle of this range. Now, analysts expect adjusted EPS growth of 26.7% YOY for Q4 FY 2021 to 11.66 RMB (about $1.82). That's far ahead of 7.4% YOY growth for Q4 FY 2020, but below Q2 FY 2021 growth of 37.2%.

The company's revenue growth has been steadier. For all of its FY 2017, FY 2018, and most of FY 2019, Alibaba posted YOY quarterly revenue gains in the 50-60% range. That slowed to 30s and 40s for most of FY 2020 and FY 2021, save for an outlier of 22.3% growth in Q4 FY 2020. Consensus estimates suggest that the company will increase its quarterly revenue by 57.4% in Q4 FY 2021.

Alibaba Key Stats
  Estimate for Q4 FY 2021 Q4 FY 2020 Q4 FY 2019
Adjusted Earnings Per Share (RMB) 11.66 (about $1.82) 9.20 8.57
Revenue (RMB, billions) 179.9 114.3 93.5
Annual Active Consumers in China (millions) 791.4 726.0 654.0

Source: Visible Alpha

The Key Metric

As mentioned, investors also will 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. But more active consumers also means more people exposed to Alibaba's cloud and entertainment businesses, key areas of future growth.

Alibaba's annual active customers have risen over at least the past 15 quarters, but at a decelerating pace. After percentage growth in the low-20s from Q4 FY 2018 through Q3 FY 2019, the pace of growth has gradually slowed. In the first three quarters of FY 2021, annual active customers have grown by 10.1% or less. Analysts expect that the company will report YOY growth in this area of 9.0% in Q4 FY 2021, the slowest pace since Q1 FY 2018. .