China e-commerce giant Alibaba (BABA) is scheduled to report fiscal Q4 2018 earnings before market open on Friday, May 4. Heading into earnings, the stock remains a ways below its all-time high of $206.20 it hit at the end of January.
This will be the first quarter where BABA will not receive 37.5% of Ant Financial’s, pre-tax profits. That deal ended in February when BABA took a 33% equity stake in Ant, which runs mobile-payment network Alipay and provides other financial services.
For the quarter, BABA is expected to report adjusted EPS of $0.88 on revenue of $9.17 billion according to third-party consensus estimates. Analysts are projecting revenue growth of 64% and earnings growth just shy of 40% compared to the prior-year period. In the same quarter last year, the company reported adjusted EPS of $0.63 on revenue of $5.6 billion.
BABA’s core commerce segment, which includes Taobao and Tmall, makes up the bulk of the company’s revenue and profits. When it last reported, core commerce revenue increased 57% year-over-year to $11.26 billion. BABA has also increasingly pushed into offline retail, something several analysts have cautioned will weigh on the company’s earnings.
To expand its core commerce segment in China and abroad, BABA has been on a bit of an acquisition spree. In March it invested an additional $2 billion in Lazada, its e-commerce subsidiary that operates across Southeast Asia, bringing its total investment to $4 billion. Just a few weeks ago, BABA announced it would fully acquire Ele.me, China’s largest food delivery platform, in a deal that valued the company at $9.5 billion.
Beyond the company’s core commerce business, its cloud computing division is another common focus among analysts. The segment has been its fastest growing in recent quarters, although it is still its third largest segment by revenue behind core commerce and digital media and entertainment. When it last reported, cloud computing revenue increased 104% year-over-year to $553 million.
Options Trading Activity
Around the upcoming earnings release, options traders have priced in about a 4.3% stock price move in either direction according to the Market Maker Move indicator on the thinkorswim® platform. Implied volatility was at the 72nd percentile as of this morning.
In short-term trading at the May 4 weekly expiration, calls were active at the 180 and 185 strike prices. Activity on the put side was spread out across a range of strikes and concentrated at the 175, 177.5 and 180 strikes.
At the May 18 monthly expiration, calls were active at the 190 and 195 strikes, while puts were active at the 175 and 180 strikes. At the June 15 monthly expiration, there has also been higher volume in recent trading at the 200 and 210 strikes, a decent ways out of the money.
Note: Call options represent the right, but not the obligation, to buy the underlying security at a predetermined price over a set period of time. Put options represent the right, but not the obligation to sell the underlying security at a predetermined price over a set period of time.
What’s Coming Up
Earnings season is starting to slow down a little bit, although there are still many major companies left to report. Over the next few weeks, Nvidia (NVDA), Home Depot (HD), Lowe’s (LOW), Wal-Mart (WMT), Target (TGT) and Deere (DE) are just some of the bigger names scheduled to release quarterly results.
Looking at economic data, the next major report coming up is the April jobs report set to be released Friday morning, the same day as BABA’s earnings. For a look at what else is going on, check out today’s market update.