Alibaba Stock Jumps On Strong Earnings, But After Sharp Pullback, Is BABA Stock Damaged Goods?

Alibaba stock was up 3% in premarket trading Friday, helped by a strong earnings report. BABA stock broke out powerfully in September after China announced stimulus measures to help an economy that's been slow to recover.

But Alibaba stock recently pulled back more than 20% off its high. On several occasions, the declines came in higher volume, a sign of at least some institutional selling. That means overhead supply could be a headwind for Alibaba stock as it tries to rally toward highs.

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Alibaba (BABA) reported better than expected earnings. But revenue of $32.7 billion, up 6% year over year, was below the FactSet consensus of $33.5 billion. Despite the miss, the company cited "robust growth" in gross merchandise volume for its Taobao and Tmall Group businesses during Singles' Day, a popular shopping holiday that's widely seen as a barometer of consumer sentiment. The results marked the second straight quarter of accelerating top-line growth.

BABA stock gapped up powerfully on Sept. 24 after China loosened lending standards to stimulate an economy that's been slow to recover. Other measures included cutting interest rates, reducing the minimum down payments for mortgages, and encouraging banks to lend more money for investors to buy shares.

The news fueled a broad rally in several Chinese internet stocks like JD.com (JD), PDD (PDD), Baidu (BIDU) and Bilibili (BILI).

Alibaba stock broke out of downtrend during the week of Sept. 20 after the company announced a suite of new open-source artificial intelligence (AI) models as well as text-to-video AI technology.

BABA stock also gapped up in late August after Chinese regulators said the company has successfully completed a three-year regulatory "rectification process." Alibaba was fined $2.6 billion in 2021 for monopolistic practices.

It hasn't been the best of times for Alibaba stock in recent years amid waning fundamentals. Alibaba isn't the growth engine it once was, but revenue growth should accelerate in coming quarters as China's consumer continues a slow recovery.

Recent Earnings

In mid-August, Alibaba reported adjusted profit of $2.26 a share. Revenue growth accelerated from the prior quarter, rising 4% to $33.5 billion.

Sellers hit Alibaba stock hard on May 14 despite a slight revenue beat, although buyers pushed the stock well of lows by the close. Buyers were in control for the next three trading sessions, sending shares higher by more than 11%.

On an adjusted basis, Alibaba earned $1.40 a share, down 10% year over year. Revenue edged higher by 1% to $30.7 billion.

Alibaba also announced a two-part dividend. It includes an annual cash dividend of $1 per American depository share and a "one-time extraordinary cash dividend" of 66 cents per ADS. The total dividend will cost $4 billion, the company said.

BABA stock rallied sharply on Feb. 6 after the company reported fiscal Q3 revenue of $36.7 billion, up 2% from the year-ago quarter and slightly above the $36.16 billion consensus. But adjusted profit fell 4% to $2.67 a a share.

Investors also liked the fact that Alibaba added $25 billion to its share buyback program through March 2027.

Three months earlier, Alibaba stock plunged in mid-November despite reporting an 18% rise in quarterly profit and 6% increase in revenue.

Alibaba Stock News

BABA stock surged on Jan. 23 on reports that co-founder Jack Ma and business associate Joe Tsai have been buying shares of BABA stock in recent months.

According to an SEC filing, Tsai purchased $151 million in Alibaba stock in the fourth quarter via his Blue Pool Management family fund. Ma, meanwhile, bought $50 million worth of Alibaba stock. Ma stepped down as the company's chairman in 2019 and remains a big shareholder.

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Alibaba came under selling pressure on Sept. 11 after outgoing CEO Daniel Zhang unexpectedly stepped down as head of the company' cloud business.

The company said in June that Zhang was departing as chairman and CEO of the company to focus on Alibaba's cloud intelligence unit. In May, Alibaba announced plans to spin off its cloud business as a separate, publicly traded company.

In December, the company said that CEO Eddie Wu would take over the company's struggling e-commerce business.

Alibaba stock soared above its 200-day moving average in July 2023 after Chinese regulators fined Alibaba's financial arm, Ant Group, just under $1 billion.

Chinese regulators halted Ant Group's IPO in late 2020 for not meeting listing requirements. In April 2021, regulators hit Alibaba with $2.8 billion fine in an anti-monopoly probe. But after three years of regulatory scrutiny, optimism is building that Beijing is close to ending its crackdown on tech firms.

In March 2023, Alibaba announced plans to separate into six separate units.

The company said each business will have the ability raise outside funding and even pursue an IPO. According to report, the company would likely hold on to its cloud/artificial intelligence business and its giant e-commerce operations.

• Cloud Intelligence
• Taobao Tmall Commerce
• Local Services
• Cainiao Smart Logistics
• Global Digital Commerce
• Digital Media and Entertainment

China/U.S. Relations

Sentiment was weak around Chinese stocks in October after the Biden administration announced new restrictions on China's access to U.S. semiconductor technology. This included tighter rules on the sale of chip equipment to China as well as restrictions on the exports of some types of chips used in supercomputing and artificial intelligence.

Alibaba stock rallied sharply in late August 2023 on reports that Beijing and U.S. regulators were close to an audit-inspection deal.

Increased regulatory scrutiny has weighed on Alibaba and other Chinese stocks for the past couple of years. Besides a strict regulatory environment, Chinese stocks have also been dealing with a slowing economy.

In April 2020, China regulators fined Alibaba $2.8 billion after an antimonopoly probe. At the time, it looked like BABA stock was ready to break out of a downtrend. But the stock got turned away at its 50-day moving average. It tried to rally above the 50-day line again in late April but sellers knocked the stock lower again.

Alibaba Stock Fundamental Analysis

The company has a five-year annualized earnings growth rate of 3%, hurt by recent earnings declines.

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Alibaba's Composite Rating of 62 (on a scale of 1-99 with 99 being the best) has drifted lower in recent weeks, weighed down by weak price performance and soft fundamentals.

But annual return on equity of 16% helps give Alibaba a top-notch SMR Rating (sales + margins + return on equity) of A from IBD Stock Checkup (on an A-to-E scale with A tops).

The Stock Checkup tool quickly identifies group leaders based on a combination of fundamental and technical factors.

According to Zacks, Alibaba is expected to earn $8.38 a share in its current fiscal year 2025, down 3% compared to fiscal 2024. For fiscal 2026, earnings are expected to rise 12% to $9.37 a share.

Click here to the top-rated stocks in the group.

Alibaba Stock Technical Analysis

Alibaba's relative strength line had been pointing upward again when the stock initially broke out on Sept. 19. But it's now trending lower as the stock lags the S&P 500.

A stock's relative strength line, found in daily and weekly charts at Investors.com, compares the stock's daily price performance to the S&P 500. An upward-sloping RS line means the stock is outperforming the S&P 500. A downward-sloping line means the stock is lagging the S&P 500.

Alibaba's Accumulation/Distribution Rating has weakened to C-. The rating is hurt by some higher-volume price gains in recent weeks. Higher-volume price gains will help the rating.

BABA Stock: Is It A Buy Now?

Overhead supply is an issue with Alibaba stock, with the stock more than 20% off highs ahead of the report. The stock's 10-week moving average, just below 99, is a potential resistance level to watch.

Some might call Alibaba a turnaround story with revenue growth expected to ramp up in coming quarters. For the December-ended quarter, revenue is expected to climb 8% to $39.4 billion, with 7% to 9% top-line growth expected for the March- and June-ended quarters.

Follow Ken Shreve on Twitter at @IBD_KShreve for more market insight and analysis right now.

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