What To Watch In Alibaba Earnings Report

Alibaba Group (BABA) is scheduled to report results of its second fiscal quarter of FY21 before the U.S. market opens on Thursday, November 5, and will hold a conference call to discuss the financial results at 7:30 a.m. ET the same day.

What to watch for:

1. "EXCELLENT RESULTS": On August 20, the Chinese e-commerce giant reported better than expected quarterly earnings and revenue, with CEO Daniel Zhang stating that the company "delivered excellent results."

At that time, Baird analyst Colin Sebastian said the first quarter's performance highlighted that the company's pandemic-related "storm clouds have largely passed." He added that he saw Alibaba being in a "strong position" to benefit from accelerating digital services adoption rates in commerce, cloud, communications, and media in China.

More recently, Sebastian reiterated his positive view of Alibaba while noting that online sales in China continue to strengthen, even as the broader economy returns to "normal." He also expects Q2 results to confirm ongoing strong growth for AliCloud, Sebastian tells investors.

2. ANT GROUP IPO SUSPENDED: On November 3, Ant Group, an unconsolidated related party of Alibaba Group, announced that it was notified by the relevant regulators in the People's Republic of China that its proposed share listing on the Shanghai Stock Exchange STAR board is suspended. Ant Group was told it "may not meet listing qualifications or disclosure requirements due to material matters relating to the regulatory interview of its ultimate controller, executive chairman and chief executive officer by the relevant regulators and the recent changes in the Fintech regulatory environment." Consequently, Ant Group's concurrent proposed H share listing on the Main Board of The Stock Exchange of Hong Kong Limited is also suspended, Alibaba noted. Alibaba owns about one third of Ant Group, according to Bloomberg.

Following the news, Raymond James analyst Aaron Kessler said that based on recent media reports of about a $300B valuation for Ant Group, the implication from the intraday move lower in Alibaba shares was that about two-thirds of the valuation of Ant had been wiped out, which was "an overreaction." Kessler has a Strong Buy rating on Alibaba.

3. SINGLES DAY: On October 20, Alibaba announced "new innovations and features to meet consumer trends" for its 11.11 Global Shopping Festival, otherwise known as "Singles Day." The company noted that this year the Festival expands the concept from "single" to "double," enabling merchants to "double up on promoting their products to consumers across China not just once, but twice." A new sales window will be added from November 1 to 3, ahead of the main event on November 11, with "the aim of providing merchants, specifically new brands and small businesses, the opportunity to showcase their products and tell their brand stories amid the pandemic," Alibaba stated.

Baird's Sebastian said he believes Alibaba offering its SME merchant base an additional sales window from Nov 1-3 should serve as a catalyst for increased customer demand and engagement. He anticipates overall Singles Day GMV growth of roughly 20% year-over-year, which would represent "a modest deceleration" from 26% growth in 2019 and 27% in 2018.