BABA Alibaba Group Holding Limited

By Yoko Kubota 

Chinese e-commerce giant Alibaba Group Holding Ltd. will report fiscal third-quarter earnings before the U.S. market opens Wednesday. Analysts expect the New York Stock Exchange-listed company to post a rise in revenue, with solid demand for items including apparel and cosmetics and a steady growth in commissions from vendors, helping to buck China's economic slowdown. Meanwhile, it is expected to post a decline in net income, as investments into new business areas as well as spending on content for its online video platform and other costs weigh on profitability. Here is what to look for:

EARNINGS FORECAST: Analysts polled by FactSet expect the Hangzhou-based company to report a 8.5% drop in net income to 21.35 billion yuan ($3.16 billion), compared with 23.33 billion yuan from the same period a year earlier.

REVENUE FORECAST: Alibaba is expected to post 119.08 billion yuan in quarterly revenue, up 43.4% from 83.03 billion yuan a year earlier, the poll showed.

What to Watch

CHINA'S SLOWDOWN: In 2018, China's economy expanded at its slowest annual pace since 1990. Many companies, including Apple Inc., have warned about the impact from China's deceleration. Alibaba runs China's two largest online retail platforms, Taobao and Tmall, and so its results serve as a barometer for China's consumer economy. Investors are all ears for what Alibaba executives say about the economy and any fallout from U.S.-China trade tensions. They would also be looking for signs Alibaba is tightening its belt.

CORE COMMERCE: Despite the slowdown, Alibaba in November sold a record $30.8 billion worth of goods for Nov. 11's Singles Day. Investors are eager to understand how much Chinese consumers are paring back spending and for what types of purchases. Last week, Alibaba Executive Vice Chairman Joe Tsai said demand for smaller items such as apparel, consumer staples and fast-moving consumer goods like toiletries has continued to be strong despite slowdown of big-ticket items such as cars. "People are, sentiment-wise, tending to be a little bit more conservative, but it's not a disaster scenario," he said.

OUTSIDE BETS: Alibaba has aggressively invested in businesses beyond online retail, including food delivery and bricks-and-mortar stores, moves that have weighed on profit margins. Mr. Tsai last week suggested that Alibaba will be more conservative with future investments. "Of course we are going to be selective. We are going to be disciplined in some cases, but aggressive in other cases. In the areas we feel we want to invest, we will continue to invest very aggressively," he said. Signs of where Alibaba could be cutting back and where it is pouring money into will be closely scrutinized.

Write to Yoko Kubota at yoko.kubota@wsj.com

(END) Dow Jones Newswires

January 29, 2019 07:14 ET (12:14 GMT)

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