ALIBABA Group Holding

China’s largest e-commerce Alibaba Group (BABA) will announce its fourth-quarter earnings next Thursday.

The December quarter’s sales are usually very strong for Alibaba, because of large promotional events such as the annual Single’s Day sale on November 11. Wall Street analysts now expect revenue at Alibaba to rise by 47.3% from a year ago to 27.6 billion yuan.

But we are not likely to see operating leverage from Alibaba yet. Analysts expect earnings before interest, taxes, depreciation and amortization, or EBITDA, to rise by only 24% (almost halving the revenue growth) to 14 billion yuan. The EBITDA margin is expected to be just over 50%, down from 60% a year ago.

This is mostly due to a rise in operating expenses,”owing to investments and consolidation of new businesses (e.g., UC Web, AutoNavi), as well as likely greater marketing expenditure for the promotional events during the quarter,” noted Morgan Stanley‘s Angela Moh and team. Alibaba and Tencent (0700.HK/TCEHY) spent more than $8 billion last year buying strikingly similar companies in their bid to be China’s top Internet company, Reuters reported.

Quelle: Morgan Stanley vom 21. Jan. 2015, Q3 und darueberhinaus

The Chinese e-commerce giant’s stock remains one of their top picks. In particular, they think the recent retreat in Alibaba’s share price means the price to earnings ratio for the 2015 calendar year estimates is now 36 times, which they think makes the stock look attractive.

In their model, they included a deceleration in gross merchandise volume growth. They see possible upside in this metric if users adopt Alibaba more quickly than expected or if they spend more than expected on the company’s online retail properties.
What to expect in Alibaba’s earnings report

The Morgan Stanley team is looking for non-GAAP net profits of 11 billion yuan, a 6% year over year increase. They’re projecting a decline in Alibaba’s gross margin to offset the expected 46% year over year increase in revenue. That would result in a 22% growth rate in non-GAAP operating profit.

The analysts expect to see total Chinese gross merchandise volume of 759 billion yuan, a 43.5% year over year growth rate.

They believe the mix shift will continue to move toward Alibaba’s Tmall online property and spending on mobile devices. They’re looking for continued improvements in mobile monetization as well, plus stable PC monetization, which should result in a bit of an improvement in blended monetization.
Possible upside to Alibaba’s current quarter