Chinese tech behemoth Alibaba reports quarterly results on August 23 before the US open. Alibaba is one of biggest online retailers globally and has a unique combination of business models – picture Amazon, eBay, PayPal, and
Google. Alibaba surpasses both Amazon and eBay in sales terms through Taobao, Tmall, and Alibaba.com, and represents around 75% of the Chinese e-commerce market.
Like Tencent, the domestic consumer uptake is huge with Taobao boasting approximately 600 million monthly active users.
Despite strong fundamentals, Alibaba has succumbed to the overarching poor sentiment within the Chinese market, and Chinese tech sector and since reaching all-time highs in June shares in Alibaba have fallen around 16% to yesterdays close.
As we have previously noted, Chinese tech stocks' valuation has been extreme
relative to US tech stocks; historically, a basket of Chinese tech companies trades at a valuation premium to US tech when comparing P/E ratios due to stellar growth.
Alibaba’s results will be watched closely given that most of the Chinese tech stocks that have reported so far have failed to meet expectations, confirming the fact that the Chinese economy has slowed somewhat. Shares of internet streaming providers YY and Huya fell more than 10% after they failed to meet market expectations in their forward guidance. Tencent shares fell 6.67% in the US after reporting weaker than expected numbers, dragging down other internet stocks including Momo and Weibo. JD.com also reported weaker than expected Q3 revenue outlook and as with all other Chinese tech companies, the market punished the outlook.
Despite the sector still maintaining a high growth rate, given the high multiple these stocks trade on the onus is on them to continue delivering. Given that the majority of Chinese tech stocks that have reported so far have given weaker than expected forward guidance, we have seen a sharp revaluation across the sector as a whole.