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Alibaba Earnings Aren’t Bad but the Stock Is Plunging. Here’s What to Like.

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Alibaba investors had it tough in 2021. So far, 2022 is shaping up to be better.

Greg Baker/AFP via Getty Images

Earnings from


Alibaba

 will be closely watched by investors after a tumultuous year for the Chinese tech giant, which continues to face regulatory and macroeconomic headwinds.

Expectations are for Alibaba (ticker: BABA) to report profit of $7 billion for the final three months of 2021 on revenue of $38.7 billion Thursday. That should deliver earnings per share of 31 cents. The company’s profit figure is based on a preferred adjusted metric—earnings before interest, taxes, and amortization—that is closely watched by analysts.

If the company reports numbers in that ballpark, it would mark revenue 13% higher than the same period in the prior year, but a profit decline of 26%. Even though that looks like a scary profit drop, it’s not. There are a number of key reasons why earnings are expected to decline by so much on an annual basis —they’re not all bad, and the market expects it.

Alibaba shareholders have been taken on a wild and mostly ugly ride over the past year. If anything can be expected from the reaction to earnings, it’s more of the same volatility.

Earnings surprises of more than 10% above or below analysts’ expectations for Alibaba’s performance are not unusual. However, profits in the last four December quarters have been, on average, 4.25% higher than analysts’ estimates.

5 Numbers to Watch

Perhaps the most critical number in Alibaba’s report will be outlook — if the company discloses an updated figure. In May, the group projected more than $146 billion in revenue for the year ending March 2022, which would have represented nearly 30% year-over-year growth. It has since cut that figure starkly, projecting revenue to grow 20% to 23%. Another guidance trim would likely be matched by a fall in the stock price.

Gross merchandise volume (GMV) represents the total value of merchandise transacted on Alibaba’s platforms in the quarter. It should be a macro indicator of consumer behavior. Expectations are high: Analysts expect GMV to come in near $404 billion, its most ever and 10% more than the same quarter a year ago.

Customer management revenue (CMR) made up 36% of Alibaba’s total sales in its most recent reported quarter. CMR comes from services like marketing on Alibaba’s platforms, and is expected to slow if merchants trim their budgets. The company reported $11.1 billion in CMR in the September quarter.

International commerce represents a growing segment for Alibaba, and one in which analysts at Goldman Sachs and others have been bullish. Expectations are for $2.5 billion in revenue from international sales, up 6% from the September quarter and 16% higher than a year ago.

Cloud computing is another increasingly important segment for Alibaba. When it last reported quarterly results, cloud revenue of $3.1 billion represented 33% annual growth; similar growth momentum in cloud would be a welcome bonus when Alibaba reports.

Write to Jack Denton at jack.denton@dowjones.com

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