Alibaba (BABA) saw a surging stock on Monday as investors piled into the stock before its first post-IPO earnings release. The company has seen a number of positive sell-side initiations, with many putting share price targets in the 30x 2016 EPS range, with strong but conservative revenue growth rates between now and then bringing the price target up to around $110 on average.
Earnings expectations remain uncertain going into the first earnings report, largely because the company’s prior releases have been scant on data. Nonetheless, FY2015 EPS estimates are at 2.91 and FY2016 EPS estimates rise to 3.80. Most sell-side analysts are not breaking out their expectations per quarter.
Partly for that reason, the growth rate curve looks odd. If we tabulate these estimates, we see that the annual earnings growth rate expectation is very high for now, and expected to fall precipitously:
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From an EPS growth of 80% to 30%, estimates believe strong earnings deceleration is likely to come, but not for another two years. Before then, EPS growth is expected to stay very strong thanks to Alibaba’s continued expansion into new industries and sectors, in addition to its continued momentum from the explosive growth of Chinese ecommerce.
The real problem that analysts on all sides have is part of the reason why quarterly estimates are hard to come by. Estimates for EPS growth are, at the moment, more guesses than anything else; the company’s actual revenue growth is the key. And that is much harder to pinpoint, because Alibaba has recently expanded into a number of explosive growth sectors, like mobile payments, whose size and revenue growth rate are difficult to decipher. It is also difficult to analyze because Alibaba’s previous F-1 filings have not been on a consistent quarterly basis. For this reason, most analysts are staying cautiously optimistic before looking at the stock on a quarterly basis.
That is likely to change tomorrow, when the company gives releases its earnings and offers guidance of some sort for the next quarter. Many analysts will be looking at revenue growth and any hint that the EPS growth rate currently assumed is overly conservative or ambitious. As its first earnings report, Alibaba’s announcement will be key.
For this reason, a lot of uncertainty means that the most aggressive institutional investors that do “play quarters” by offloading or onloading a stock before earnings is fundamentally different than in the past. Many analysts are expecting uneven technical performance right after the earnings, which will offer a rare opportunity for human traders to outsmart the HFT algorithms that have rendered so much technical analysis obsolete. Finally, macro conditions, such as the uncertainty of China’s growth rate and how Japan’s QE will impact the emerging market currencies that BABA is increasingly conducting business in, will also be a factor as traders bet on earnings.
Because of the uncertainty and the newness of this stock, one thing is certain: whether it goes up or down, the chatter afterwards is likely to be feverish as Wall Street digests its largest IPO in a long time.