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Alibaba Sinks on ‘Black Swan’ Coronavirus Fears Despite Stellar Earnings

Alibaba Sinks on ‘Black Swan’ Coronavirus Fears Despite Stellar Earnings

Alibaba Group Holding Ltd beat its third quarter earnings forecast with record Singles’ Day event sales, but that didn’t stop shares of the Chinese online shopping giant from sinking this morning after warning of a coming drop in sales due to the coronavirus outbreak.

“BANYAN HILL CMT CHAD SHOOP: I like the stock if it falls below $180, or breaks out above $230. Until either of those happen, I’m in a wait-and-see mode even with the strong earnings report.”

Alibaba (NYSE: BABA) CEO Daniel Zhang called the outbreak a “black swan event” that has the potential to wreak havoc on the global economy and stock markets around the world. The outbreak, officially called Covid-19, so far has killed nearly 1,400 people and infected 60,000 more, mostly in mainland China.

Zhang said the delayed return to work for many after the Lunar New Year holiday break will cause problems for merchants and for fulfilling orders, hurting the company’s bottom line. He also said food delivery orders dipped year over year due to the number of restaurant closings. There was an increase in demand for goods from Alibaba’s Hema supermarkets, Zhang said, but orders were down because of limited delivery capabilities.

Nevertheless, Alibaba’s earnings for the quarter ending in December were outstanding. The company beat analyst estimates, ringing up a record number of transactions for its annual Singles’ Day shopping spree, which saw a record $38.4 billion during the 24-hour event.

Sales in core commerce business rose 38% to 141.48 billion yuan in the quarter, which ended Dec. 31. Alibaba’s cloud computing unit surged 62% to 10.72 billion. Net income attributable to shareholders rose to 52.31 billion yuan, up from 33.05 billion.

Excluding items, Alibaba made 18.19 yuan per American Depository Share (ADS) compared to 15.75 yuan per ADS that analysts expected. Total revenue also rose 38%, bringing in 161.46 billion yuan versus an estimated 159.28 billion.

However, finance chief Maggie Wu said most of the company’s businesses that rely on the sale of physical goods are likely to see a decline this quarter because of the outbreak.

“We, like other businesses, are not immune to supply and demand,” she said. “Their recovery and long-term success will translate to long-term growth for Alibaba Group.”

Zhang said the company has seen more and more people in larger cities heading back to work this week, which could portend a return to business as usual. Alibaba’s enterprise chat app DingTalk saw “explosive growth” as white-collar businesses and schools used it for remote work and online teaching.

Alibaba, considered the Chinese Amazon, is often looked at as a test case for the overall health of the country’s economy, which is now under more pressure, even after a new phase one trade deal with the U.S.

Shares of Alibaba were down about 1.6% to $220.53 as of 11 a.m. EST.

Is Alibaba Stock a Buy, Hold or Sell After Earnings?

Banyan Hill Chartered Market Technician and Quick Hit Profits Editor Chad Shoop said while “beating on earnings is always great,” now might not be the time to buy.

“I personally see the fears of the coronavirus being overblown. It is a negative event, and stocks are sliding because of it. The dips we see on the coronavirus will be an excellent opportunity to pick up the shares,” he explained. “However, price is key. And if investors are still concerned about the coronavirus that means more selling is likely to come.

“I like the stock if it falls below $180, or breaks out above $230. Until either of those happen, I’m in a wait-and-see mode even with the strong earnings report.”

Reuters contributed to this report. 


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