Alibaba stock price forecast: key levels to watch ahead of earnings

Alibaba (BABA) stock price continued lagging the financial market this year as investors remained about its growth and rising competition in key markets. The stock is up by just 4% this year, while Amazon, its American rival, is up by 10%.

Amazon vs Alibaba

Alibaba and Amazon have some striking similarities. They are both large e-commerce giants and have expanded their businesses in other industries like cloud computing. Amazon is the biggest player in cloud infrastructure while Alibaba is the fourth.

Their e-commerce strategies are fairly different. Alibaba’s main product mostly focuses on business-to-business, where buyers from around the world order Chinese items. Sellers are mostly responsible for their logistics. 

Amazon, on the other hand, provides a marketplace where buyers can buy its products and from third party sellers. 

In the past few years, however, the two companies have moved in different directions. Amazon has become a bigger company valued at over $1.7 trillion while Alibaba has moved from the biggest Chinese company into the eighth. It has been overtaken by PDD Holdings, the parent company of Temu and Pinduoduo.

Alibaba has faced numerous challenges in the past few years, including regulatory issues and soaring competition from the likes of PDD and JD.com. The strong growth trajectory it had in the last decace is now gone. 

Regulators have harmed Alibaba’s appeal among investors. Take its Ant Financial business for example. Once valued at over $300 billion in the private markets, the company was forced to shelve its IPO goals and change its business model. In July last year, it was valued at $75 billion.

Amazon, on the other hand, has seen friendly regulations and has continued to grow its business by expanding in other areas. It acquired Wholefoods, MGM Studios, Zoox, Ring, and Twitch. It has also become a top provider of infrastructure needed for the artificial intelligence industry.

Alibaba Q1 earnings review

Next week will be an important one for Alibaba as it publishes its financial results. The most recent results showed that Alibaba’s business was not growing as it used to before. 

Its revenue rose by 7% in Q1 to $30.7 billion even as global e-commerce and cloud growth continued. In contrast, Amazon’s revenue growth rate stood at 13%, helped by its retail and cloud computing growth.

Alibaba’s net income dropped by 96% to $127 million mostly because of its external investments. Its Taobao and Tmall Group’s revenue rose by 4% while its Cloud Intelligence Group’s revenue rose by 3%. 

The cloud division is one of Alibaba’s weakest points since it is no longer growing as it did in the past. In this division, Alibaba provides cloud computing solutions to both its subsidiaries and other companies, mostly in China.

To a large extent, the cloud computing segment has a small total addressable market because of the dominance of American companies like Amazon, Alphabet, Microsoft, and IBM. Alibaba will also find it challenging to sell its cloud solutions internationally because of the geopolitical tensions with the US. 

The company is also facing substantial competition from other Chinese companies in the cloud computing industry. Its biggest competitors are companies like Tencent, Huawei, Baidu, JD, China Unicom, and China Telecom. 

BABA earnings ahead

Alibaba will publish its financial results on Thursday, which will provide more color on whether its business was growing. The average estimate among investors is that its revenue rose to $34.7 billion in the last quarter from the $34 billion it made in the same period a year earlier. 

Analysts also expect its earnings per share to come in at $2.12, lower than the $2.38 in Q2 of last year. Alibaba has missed its revenue guidance in the last two consecutive quarters, meaning that the trend could continue. 

In addition to the headline figures, the BABA stock price movement will depend on its forward guidance. Analysts expect its revenue guidance to come in at $141 billion, higher than $129 billion last year. 

Also, traders will eye its share repurchases program. In a recent update, the company said that its share repurchases in the last quarter stood at over $5.8 billion. Altogether, it has repurchased shares worth $25.8 billion since September 2022, a move that has reduced its outstanding shares from 2.71 billion in 2021 to 2.43 billion. 

Most analysts believe that Alibaba is cheap and that it could soon rebound. In July, I wrote that the company’s comeback would be epic.

Alibaba stock price analysis

Turning to the weekly chart, we see that the BABA share price has moved sideways in the past few months. It has remained slightly below $80 and formed a symmetrical triangle pattern, which is an important sign.

Now, the stock’s triangle is nearing its confluence level while the Relative Strength Index (RSI) has moved slightly above the neutral point at 50. 

In most cases, stocks make major moves after reaching the triangle’s confluence point, which, in Alibaba’s case, could happen after its earnings results on Thursday. The key support and resistance levels to watch will be at $67 and $88.

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