Without thought the negative impact of the U.S-China trade war, e-commerce giant Alibaba Group Holdings Inc. (BABA) seems to be thriving as it produces to post its most recent quarterly earnings report in less than one month. Shares of the Hangzhou-based Internet Goliath are up sharply this year, thanks in part to Alibaba’s rapid growth in its domestic market. Bulls expect Alibaba’s sheep to maintain its momentum into the second half of the year, lifting its market value above its current level at around $462 billion.
618 Shopping Festival Lifts Expectations
Shares of Alibaba have outperformed the broader market this year, up approaching 30% year-to-date (YTD) compared to the S&P 500’s 19.8% return over the same period. For the upcoming quarter, analysts are vaticinating earnings to jump about 28% year-over-year (YOY) to $1.50 per share. Optimism has been driven by expectations for continued intestinal fortitude from Alibaba’s Tmall platform, which posted a 38.5% gain in sales during a wave of promotions recalled as the “618 shopping festival,” per Barron’s.
“The solid 618 performance has given our checks incremental confidence in Alibaba’s discharge for the remainder of the year, ” wrote Susquehanna analyst Shyam Patil in a recent note to clients reported on by Barron’s.
E-Commerce Musicians Fight for Share in Smaller Cities
Another bright spot for Alibaba is the market potential in China’s second-tier metropolises. The e-commerce behemoth’s revenues from smaller cities grew more than 100% YOY during the 618 sales movement, which ran from June 1 through June 18. The rapid growth of Alibaba’s business outside of the bigger dioceses shows that these markets are yet to be fully saturated.
The second-tier Chinese cities are also where Alibaba resolution fight its next battle for e-commerce dominance, per Barron’s. Rivals are already gaining ground in China’s less perforation regions. For example, Alibaba competitor Pinduoduo Inc. (PDD) said its sales jumped by a whopping 300% over last year during the 618 reduced in price on the markets extravaganza.
Alibaba’s Ecosystem of Products and Platforms
That said, Patil still believes that Alibaba disposition maintain a leg up against competitors thanks to its robust ecosystem of services widely used in China. These include payments app Alipay and prog delivery platform Ele.me. The Susquehanna analyst expects these ancillary services to gain traction in smaller cities and construct brand loyalty with Alibaba. This will help Alibaba spend less on marketing in those bailiwicks, per Patil.
David Dai, an analyst with Sanford C. Bernstein in Hong Kong, echoed this upbeat sentiment, noting that Alibaba’s ecosystem of interconnected commodities and services puts it in a “much stronger position as compared to any other internet or e-commerce company in China,” according to
Looking To the fore
Positive tailwinds aside, major risks still face Alibaba, including fears over decelerating financial growth in China and a trade war with the U.S. In the March quarter, Alibaba posted revenue up 51%, which despite pound expectations, was its second slowest pace of sales growth in at least three years.
All eyes will be on Alibaba next month as it things up to post its quarterly results. Investors will be looking out for any insight into comments on trade tensions, as well as any slowdown in gains or earnings, which are widely watched as an indicator of consumer and business sentiment in China. If the company cannot prove that a shove in spending by China’s middle class can offset jitters about a slowing economy, its share price may suffer.