The 2024 Q2 earnings season gradually nears its end, painting a picture of positivity and hope. Earnings growth continues its upbeat trajectory, with expectations high for the upcoming Q3 cycle.
This week, all eyes are on two prominent players in the eCommerce realm, Walmart and Alibaba, as they prepare to unveil their quarterly financial results. While Walmart is still in the nascent stages of its digital transformation, both enterprises have cemented their positions as key contenders in the online retail arena.
These forthcoming reports offer investors a valuable insight into the current consumer landscape. Let’s break down what each company brings to the table.
Walmart’s Ascending Profitability
The retail colossus Walmart, currently standing at Zacks Rank #2 (Buy), reaps the rewards of its digital initiatives, significantly boosting its quarterly performance in recent times. Year-to-date, its shares have surged impressively, showing a remarkable gain of over 30%.
Recent quarterly outcomes have spurred investor confidence, demonstrating an upward trajectory in shares. Global eCommerce sales soared by 21% year-over-year in its latest period, underscoring another robust quarter for the company in this domain. Moreover, eCommerce penetration witnessed an uptick across all its markets during this period.
The performance in the eCommerce sector is poised to be a focal point once again in the upcoming release, with robust results affirming Walmart’s digital momentum. Noteworthy is the fact that the company’s eCommerce sales encompass store pickups as well.
Walmart has shown a remarkable improvement in profitability in recent quarters, driven by cost efficiencies leading to margin expansion. The upcoming release holds critical importance for the retail landscape, as Walmart’s value proposition resonates strongly with lower-income consumers, while higher-income segments also exhibit a proclivity to ‘trade down’ during economic uncertainties. Market share gains in U.S. locations during the recent period were chiefly steered by upper-income households.
It’s essential to note that the stock enters the release with elevated valuation multiples, with the current forward 12-month earnings multiple of 26.6 times significantly surpassing the five-year median of 23.3 times. Walmart carries a Value Style Score of ‘C’.
Earnings and revenue projections have remained steady over recent months, with the retail giant expected to report 6.5% earnings growth on 4% higher sales.
Alibaba’s Cloud Endeavors in the Spotlight
Alibaba’s stock has witnessed a seesaw performance in 2024, with a modest 7% uptick so far and varied post-earnings reactions. Over a longer period, the stock has been somewhat vexing for investors, tumbling by 55% in the last three years amidst heightened volatility, owing to its exposure to the Chinese market.
A pivotal aspect to monitor in Alibaba’s release is the elaboration on its cloud and AI initiatives. In its previous release, Alibaba showcased favorable progress in these endeavors, citing, ‘During the quarter, our core public cloud offerings, which include products such as elastic compute, database, and AI products, recorded double-digit year-over-year growth in revenue.’
Despite Alibaba’s reduced cash-generating capacity, it’s crucial to acknowledge that increased capital outlays directed at bolstering its cloud infrastructure underpin the downturn. Free cash flow nosedived by 50% year-on-year in the recent period. Positive commentary on its cloud investments could spark optimism, potentially prompting a positive post-earnings response.
Presently, the stock holds a Zacks Rank #4 (Sell), with analyst sentiment skewing bearish as the release approaches.
Key Takeaways
This week heralds a multitude of corporate updates, notably from Walmart and Alibaba.
For Walmart, stakeholders should closely monitor its eCommerce performance, a driving force behind its recent success marked by robust growth. Positioned in a ‘sweet spot,’ Walmart’s appeal spans both lower-income and higher-income consumers, offering resilience during economic downturns.
Concerning Alibaba, the spotlight will likely be on its cloud and AI initiatives. With substantial investments in these areas, insights into its Gross Merchandise Volume (GMV) will shed light on prevailing consumer trends.
Given Alibaba’s unfavorable Zacks Rank #4 (Sell) compared to Walmart’s Zacks Rank #2 (Buy), the current scenario paints Walmart as a more compelling investment option leading up to the earnings release.