AliBaba (BABA) Post-earnings Analysis
Chart done on hourly timeframe. Shares of the Chinese conglomerate AliBaba are pulling back after the company’s latest earnings report. Their numbers are a clear reflection of the Chinese economy’s struggle in recent years, which weighed on both e-commerce and cloud computing. The last 12 months have already been difficult for AliBaba’s stock as relations between the U.S. and China remain tense, so the miss on revenue projections this quarter sent a chilling message to BABA investors. The company did try to salvage the bad news by announcing a massive $25B stock buyback, which brings their buyback expectations to be worth about 20% of the company’s current valuation. Stock buybacks are effective in raising the stock’s price because they decrease the stock float the public market, this is usually good news for investors. Unfortunately, that news seems to be eclipsed by the missed revenue for now, but we expect the buybacks to effectively increase BABA’s stock price in the coming quarters.
Although AliBaba missed revenue estimates, their year over year revenue grew at a rate of 5%. This is a positive sign, but it is nowhere near BABA’s previous double digit growth rate. It might be a long time before the Chinese economy bounces back strongly, which could explain why the company’s leadership announced the buyback in order to entice investors. The road ahead seems uncertain, but BABA remains a strong pick for the years to come. Like any other foreign investment however, BABA should take a small percentage of one’s portfolio because foreign investments, especially in China, come with risks and vulnerabilities that are higher than U.S. based investments.