Chinese e-commerce giant Alibaba (NYSE:BABA) will release its Q4 (quarter ended March 31, 2024) financial results on May 14. The tech company’s initiatives to ensure competitive pricing will likely boost its volumes and support top-line growth. However, this could pressure its profitability, leading to a year-over-year decline in its earnings.
But before we dig deeper into analysts’ expectations, it’s worth highlighting that the Financial Times reported that Alibaba is aggressively investing in China’s growing generative artificial intelligence (AI) startups.
Alibaba Is Adding a New Growth Stream
According to the report, Alibaba provides credits to AI startups for using its network for model training instead of traditional cash-for-equity funding. The report emphasized that Alibaba took stakes in leading startups like Moonshot, MiniMax, Zhipu, and 01.ai.
In this regard, Alibaba spearheaded a $1 billion fundraising round for Moonshot AI in February 2024, valuing the startup at $2.5 billion. Additionally, it injected $800 million into the developer of the rapidly growing Kimi AI chatbot, with nearly half of the investment in the form of cloud computing credits.
These investments show the company’s emphasis on adding a new growth stream, especially amid rising competition in its core businesses. Moreover, it will enable Alibaba to capitalize on the rising demand for AI solutions. With this backdrop, let’s delve into analysts’ estimates for Alibaba.
Alibaba – Q4 Expectations
Analysts expect Alibaba to report revenue of $30.48 billion in Q4, reflecting a slight improvement over sales of $30.32 billion reported in the prior-year quarter. While Alibaba’s low-pricing strategy could support volumes, heightened competition in the e-commerce business and the company’s decision to reduce certain low-margin project-based contracts in the Cloud segment will likely weigh on its top line in the short term.
Meanwhile, analysts expect the company’s profit to be under pressure due to pricing initiatives. Wall Street expects Alibaba to post earnings of $1.42 per share in Q4, down about 4% from $1.48 in the previous year’s quarter.
Is Alibaba a Buy, Sell, or Hold?
Wall Street is bullish about Alibaba stock ahead of Q4 earnings. With eight Buy and two Hold recommendations, Alibaba stock has a Strong Buy consensus rating. Analysts’ average price target on BABA stock is $106.29, implying 32.8% upside potential from current levels.
Insights from Options Trading Activity
While analysts see solid upside potential in BABA stock, options traders are pricing in a +/- 6.72% move on earnings, greater than the previous quarter’s earnings-related move of 5.87%.
The anticipated move is determined by computing the at-the-money straddle of the options closest to the expiration after the earnings announcement.
Learn more about TipRanks’ Options tool here.
Bottom Line
Alibaba’s top line could remain muted amid heightened competition and its transition towards public cloud products and services in the near term. Meanwhile, its lower pricing strategy could hurt its bottom-line growth, as reflected by analysts’ estimates. Nonetheless, Alibaba’s aggressive push into AI, through the acquisition of stakes in leading startups, provides a solid base for future growth.
