Reuters San Francisco
ALIBABA Group’s first full quarterly report card to Wall Street investors today will be scrutinised by the hopeful seeking validation for lofty stock price targets and studied by the few sceptics searching for inauspicious signs.
Coming off Alibaba’s record-breaking $25 billion (R275 billion) initial public offering in September, the company’s shares have remained 45 percent above their debut price. Just about every brokerage has rated the e-commerce giant a buy, taking comfort in the group’s dominant position in a $450bn Chinese market.
Investors have been all too eager to overlook a structure that critics say allows its management extraordinary decision-making power, potentially to the detriment of shareholders. They have also mostly withheld judgement on how advertising spending and sales commission fees, where Alibaba makes the lion’s share of its money, are being affected in a slowing Chinese economy.
Instead, their focus is on Alibaba’s profit margins, among the fattest in the global e-commerce industry and far outstripping those of loss-making Amazon. Reflecting the positive sentiment, the firm’s forward price-to-earnings ratio is pegged at more than 45.
“The stock is now trading at a pretty high multiple, and in order to justify that, they need to show really strong results out of the gate,” said Wedbush Securities’ Gil Luria.
While major shareholder Yahoo has included basic figures such as Alibaba’s revenue and earnings a share every quarter, today marks the Chinese company’s first full-fledged results release.
Net profit is expected at $1.17bn in the quarter to September, according to a Thomson Reuters SmartEstimate poll of 21 analysts. Fully reported earnings a share are forecast to be at 36c, based on a poll of 25 analysts.
Wall Street will keep its eye peeled for any sign that runaway growth is waning. While Alibaba can depend on its still-growing home market for years to come, expanding internationally will be difficult given its marginal presence in foreign markets, which now yield just about 9 percent of overall sales, analysts say.
Alibaba, which operates China’s largest internet shopping destination Taobao and retail site Tmall.com, is nearly unknown to most Americans but is ubiquitous in China. The Chinese e-commerce company, founded by former schoolteacher Jack Ma in his apartment in 1999, has designs of expanding beyond its commerce roots.