Alibaba may witness a decline in earnings for the first time ever; analysts hopeful for recovery in next quarter

(Representative image Source: Reuters)

Analysts have predicted that Chinese e-commerce giant Alibaba, may report a decline in its June quarter earnings for the first time in company's history, CNBC reported on August 4. While this could represent the bottom for sales, the numbers are likely to recover in the coming quarters.

According to average estimates from Refinitiv, an American-British global provider of financial market data, the Chinese e-commerce juggernaut is anticipated to announce fiscal first-quarter revenue totalling 203.23 billion yuan ($30.05 billion), down 1.2 percent from a year ago.

Over the past year, the economic slump in China, rising COVID cases and subsequent lockdowns, as well as regulatory tightening on the domestic tech sector, have led to a dramatic decline in Alibaba's revenue.

Also read: Alibaba and Tencent face end of an era as sales start to shrink

However, considering that revenue is anticipated to increase in the upcoming quarters, the June quarter may become a bottom for Alibaba's performance.

Investors will be paying close attention to Alibaba's forward guidance as the COVID-induced restrictions have now eased. Its outlook may be complicated by fears about a sluggish economy, ongoing regulatory crackdown, and Sino-American strains. On the Hang Seng Tech Index, the shares of Alibaba are currently trading significantly higher.

Alibaba's first-ever quarterly revenue contraction is predicted by analysts to witness a 0.9 percent decline in sales in the months of April to June compared to a year earlier.

Recovery

Refinitiv anticipates that revenue for the e-commerce powerhouse that Jack Ma founded will increase by 7 percent in the September quarter and as much as 10 percent in the December quarter.

The upcoming quarters may bring Alibaba some favourable breezes to aid in its revival. There are indications that China's regulatory enforcement, which resulted in an 18.23 billion yuan fine for Alibaba, is starting to relax.

In the meantime, the Chinese government launched a variety of economic stimulus measures in May to aid a struggling economy that had been hit hard by the revival of Covid and lockdowns in important cities, including the financial hub Shanghai.

Bloomberg reported that the e-commerce giant's stock saw gains of up to 6.5 percent in Hong Kong, making it one of the top performers on the Hang Seng Tech Index, which rose up to 3.4 percent. After US House speaker Nancy Pelosi's visit to Taiwan sent broader markets into a tailspin, the stock is expected to post gains for a second day this week.

Not all analysts, meanwhile, anticipate Alibaba's return to rapid growth.

“When I visualise my ‘cone of all plausible outcomes,’ the plurality of scenarios lead to a modest reacceleration of growth back to the mid-teens, but I also see a whole category of scenarios where things get much worse on the fundamentals,” John Freeman, vice president at CFRA Research, was quoted by CNBC.

“The cone is very wide right now.”

Even with the two-day rebound, Alibaba's stock has still fallen more than 20 percent so far this year.