Alibaba Group Holding Limited BABA is scheduled to report third-quarter fiscal 2025 results on Feb. 20.
For the fiscal third quarter, the Zacks Consensus Estimate for revenues is pegged at $38.19 billion, suggesting a 4.14% rise from the year-ago quarter’s reported figure.
The Zacks Consensus Estimate for earnings is pinned at $3.08 per share, indicating an increase of 15.36% from the prior-year quarter’s reported figure. The figure has remained unchanged over the past 30 days.
Find the latest EPS estimates and surprises on Zacks Earnings Calendar.
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Alibaba has a mixed earnings surprise history. In the last reported quarter, the company delivered a negative earnings surprise of 4.87%. Its earnings beat the Zacks Consensus Estimate in two of the trailing four quarters and missed the same twice, the average surprise being 2.14%.
Alibaba Group Holding Limited Price and EPS Surprise
Alibaba Group Holding Limited price-eps-surprise | Alibaba Group Holding Limited Quote
Earnings Whispers for BABA
Our proven model does not conclusively predict an earnings beat for Alibaba this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of an earnings beat. This is not the case here. You can uncover the best stocks to buy or sell before they are reported with our Earnings ESP Filter.
BABA has an Earnings ESP of 0.00% and a Zacks Rank #3 at present. You can see the complete list of today’s Zacks #1 Rank stocks here.
Factors to Note for BABA Ahead of Q3 Results
Alibaba is set to report its third-quarter fiscal 2025 earnings against a backdrop of mixed operational dynamics. While the company’s international expansion shows promise, persistent challenges in the domestic market and competitive pressures warrant investor caution.
The company’s International Digital Commerce Group emerged as a bright spot last quarter with 29% year-over-year revenue growth, driven by strong performance in AliExpress’ Choice business and Trendyol’s expansion. This momentum is likely to have continued in the third quarter, supported by strategic investments in key European and Gulf markets. The recently launched AliExpressDirect model, leveraging local inventories for improved fulfillment, might have further strengthened the international segment’s performance.
However, the domestic e-commerce landscape remains challenging. Despite initiatives like implementing a 0.6% software service fee and increased adoption of the Quanzhantui marketing tool, Taobao and Tmall Group posted modest 1% revenue growth in the second quarter. While the company’s recent partnership with Douyin through the “Star Cube Plan” could drive user acquisition, persistent macroeconomic headwinds in China might have continued to pressure consumer spending.
The Cloud Intelligence Group warrants attention, having shown accelerating growth last quarter with 7% revenue increase. Triple-digit growth in AI-related products for five consecutive quarters suggests strong momentum in this high-margin segment. However, aggressive international pricing strategies, including significant reductions for customers outside mainland China, might have impacted near-term profitability despite potentially expanding market share.
From a financial perspective, while Alibaba maintains a strong balance sheet with RMB352.1 billion in net cash, the 70% year-over-year decrease in free cash flow last quarter due to cloud infrastructure investments raises concerns about near-term capital allocation. Given these mixed signals and ongoing market uncertainties, investors might consider waiting for clearer evidence of sustainable growth across key segments before increasing exposure. The stock’s current risk-reward profile suggests a hold recommendation, with particular attention needed to domestic consumption trends and cloud segment margins in the upcoming results.
As the curtains rise for Microsoft (MSFT) ahead of its fourth-quarter fiscal 2024 earnings report on Jul 30, investors are on the edge of their seats as they await the unveiling of financial numbers that are expected to reveal a growth trajectory. The Zacks Consensus Estimate for revenues hint at an upward trend, with projections at $64.13 billion, showcasing a 14.2% rise from the previous year. Similarly, earnings per share estimates hold firm at $2.90, indicating a potential 7.8% climb year-over-year.
The Symphony of ResultsIn the previous quarter, Microsoft orchestrated an earnings surprise, outperforming market expectations by 5.91%. This feat wasn't an outlier, as the company has consistently surpassed the Zacks Consensus Estimate in the last four quarters, with an average surprise of 7.38%.
The Art of ProjectionsWhile analysts crunch numbers ahead of Microsoft's earnings day, the forecast isn't all sunshine and rainbows. The crystal ball for Microsoft's earnings performance remains hazy, as our analytics fail to definitively predict an earnings beat this time around. With an Earnings ESP of 0.00% and a Zacks Rank of #3, the likelihood of an earnings surprise seems uncertain.
Anticipation and SpeculationCasting a keen eye on the upcoming results, Microsoft's growth narrative is believed to be strongly influenced by its Intelligent Cloud and Productivity and Business Processes wings. Azure and Office 365, the crown jewels in Microsoft's cloud empire, are expected to prominently drive revenue growth. Teams, the enterprise communication platform, has emerged as a pivotal player, expanding its reach and features to compete fiercely in the market.
Market Dynamics and Windows of OpportunityThe stage is set for the More Personal Computing segment, with Windows revenues anticipated to benefit from surges in Windows Commercial products and cloud services, fueled by a notable uptick in personal computer demand. The traditional PC market, following a historical trend of decline, saw a resurgence in the second quarter of 2024, underlining a shift in consumer preferences and market dynamics.
The Showdown: Price and ValuationWhen it comes to the stock performance arena, MSFT has showcased a return of 17.8% year-to-date, slightly trailing the broader Zacks Computer & Technology sector. Competitors like HPE and AAPL have put up a strong show, while others like LNVGY have faced headwinds.
The Visual Symphony of ProgressHighlighting the year-to-date performance, a visual representation of Microsoft's journey provides insights into the stock's movements amidst sectoral dynamics and market trends.
Insights into Microsoft's Financial LandscapeBABA Price Performance & Stock Valuation
Alibaba shares have gained 68.8% in the past year, outperforming the industry, the Zacks Retail-Wholesale sector and the S&P 500 index’s return of 37.1%, 31.4% and 23.3%, respectively.
BABA faces tough competition from Amazon AMZN, JD.com JD and PDD Holdings PDD among others. While JD and AMZN have gained 70.9% and 34.9%, respectively, in the past year, PDD has lost 8.2%.
1-Year Price Performance
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It is also important to consider whether the stock’s current valuation accurately reflects the company’s long-term growth potential and ability to navigate the competitive landscape. Currently, BABA is trading at a discount with a forward 12-month P/E of 12.39X compared with the industry’s 24.8X.
BABA’s P/E F12M Ratio Depicts Discounted Valuation
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Investment Thesis
Alibaba presents a mixed investment case ahead of third-quarter fiscal 2025 results, warranting a cautious stance. While the company’s International Digital Commerce Group shows robust momentum with 29% revenue growth and promising expansion in European and Gulf markets, challenges persist in its domestic e-commerce business. The Cloud Intelligence Group’s triple-digit growth in AI-related products demonstrates potential, but aggressive pricing strategies could pressure margins. Given macroeconomic uncertainties in China and significant investments impacting free cash flow, investors might benefit from waiting for clearer signs of sustainable growth across key segments before increasing exposure to the stock.
Conclusion
While Alibaba shows promise in its international expansion and AI initiatives, the combination of domestic market challenges, intense cloud competition, and substantial infrastructure investments suggests a measured approach. Investors may want to monitor the company’s execution in key growth areas and wait for more concrete evidence of sustainable profitability before considering new positions ahead of third-quarter fiscal 2025 results.
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