Alibaba Reports of Earnings Today. Don’t Get Taken in By Good News.

A slew of bad economic statistics from China has sent companies like Alibaba tumbling. While the software giant’s Alibaba reports, expected today, may appear to be a rare bright spot, they are unlikely to reveal the bad news — and what investors may be overestimating.

FactSet analysts estimated Alibaba (BABA) to announce a per-share profit of $2.02 for the three months ending June 30, the company’s first fiscal quarter, on revenue of $31.2 billion. If the statistics are correct, it will be the e-commerce and cloud computing behemoth’s strongest quarter in approximately two years on both criteria, barring December periods, which bring in massive holiday shopping activity.

However, there may be little reason to rejoice. Recent trade figures reflecting a sharp drop in imports, which bodes badly for consumption-sensitive Alibaba, signal a major downturn in China, the world’s second-largest economy. This month, the company’s stock is down about 8%.

Based on Alibaba reports, Alibaba has a difficult outlook, but investors may not realise it based on its performance. The firm does not often offer financial guidance in its results report, and its earnings call is equally sparse on specifics. Whereas data from China has been bleak for some time, the most recent terrible batch was for the July quarter, whereas Alibaba will only publish financials through the end of June.

Furthermore, investors are probably overestimating the way ahead. According to Wall Street estimates, Alibaba’s sales would increase to $31.3 billion in the September quarter. They anticipate a record-breaking December quarter with $37.2 billion in revenue, making it one of the company’s finest three-month periods on record. Can Alibaba truly be expected to deliver if the economic prognosis for China is as bleak as it seems, implying sluggish consumption?

Of course, there is a significant counter-argument: China’s economic recovery, while disappointing, isn’t as awful as it appears.

In addition to macro trends, there are other things to look out for in Alibaba’s results. The giant revealed plans to split up in March, converting from a tech conglomerate to a holding company, and its most recent quarterly report in late May provided an opportunity for an update. Any news from its cloud computing division will also be of interest. The unit has made attempts to capitalise on the AI growth and is set to be split off.

However, when CEOs speak about present trade circumstances, investors should read between the lines. Alibaba and its stock continue to live and die on the strength of its main e-commerce operation, which is inextricably linked to the health of China’s economy.