BABA will release its Q1 results for fiscal 2019 (that is, the second quarter of 2018) before the US stock market opens on Thursday.

With the new retail layout in full swing, how much room does BABA have for revenue growth in the e-commerce empire? With the continuous progress of ele.me, rookie, box horse and other businesses, will profit margins continue to decline under pressure?

Amazon.Com Inc released bright results in July, net profit increased nearly 12 times compared with the same period last year, and the share price hit a new high. BABA has been falling all the way since June, and the market capitalization gap between BABA and Amazon.Com Inc is also widening.

Source: Futu Securities (2018 Japanese K Line-closing price)

Can the financial report this time bring a change for the better? BABA rose 5 times and fell 3 times on the day after the results for the past eight quarters were released.

The biggest declines were Q2 in fiscal 2017 (when net profit fell sharply, cloud business growth slowed + word-of-mouth and Cainiao lost a lot of money), and Q3 in fiscal 2018 (net profit fell short of analysts' expectations).

However, in fiscal year 2018, the net profit of Q4 BABA declined compared with the same period last year, but the share price closed higher on the day of the announcement of the results. The main reason is that the adjusted EPS is 5.73 yuan, which exceeds the expected 5.50 yuan. After the announcement of the results, BABA rose for three days in a row, with a cumulative increase of nearly 8 per cent.

Source: Futu Securities

It can be seen that the performance of net profit is very important. What the market is most concerned about is whether it can meet analysts' expectations.

Performance outlook:

Net profit:

Analysts surveyed by FactSet show that BABA's EPS for the quarter is expected to be $1.21, compared with $1.17 in the same period last year, up 34 per cent from a year earlier. Bloomberg analysts expect an average of $1.208, up 32.5% from a year earlier.

Income:

FactSet's average forecast is $11.8 billion, compared with $7.4 billion in the same period last year, up 59 per cent from a year earlier. Bloomberg analysts expect an average of $11.76 billion, up 58.9% from a year earlier.

At the previous fourth-quarter earnings report meetingBABA expects overall income growth to exceed 60 per cent in fiscal year 2019.

BABA should be ahead of any competitor in promoting the development of digital commerce, which is of course inseparable from BABA's retail genes. BABA's intensive layout and cooperation have created a huge imagination space for investors. However, there is a question that needs to be considered at present: how will BABA perform this time?

This paper will analyze the net interest rate and the three main businesses of core e-commerce, cloud business and content business.

A huge investment empire, profit margins may continue to decline

BABA's net profit fell year-on-year because of a sharp increase in investment expenditure in the last quarter.

According to the Q4 financial report for fiscal year 2018, expenditure on investment and acquisition activities in the quarter was 15.572 billion yuan, an increase of 185.36 per cent over the same period last year. BABA also said that he will continue to invest in new areas because these businesses are of strategic importance and the investment in them will not take one year.

As can be seen from the annual report for fiscal year 2018BABA EBITA (profit before interest, tax and amortisation) except for the core e-commerce sector, cloud computing, digital media and entertainment, and innovative projects are all at a loss.

Source: financial report

Among them, the core e-commerce profit margins are mainly dragged down by new retail, Cainiao and its acquisition of Southeast Asian e-commerce platform Lazada. (new retail: mainly to Yintai, Box Horse and Tmall International)

With the full development of BABA's new retail and innovation strategy, the company's investment in Cainiao, Hema and ele.me continues to increase, which is bound to be a drag on the company's overall profit margin. In order to seize the marketWang Lei, CEO of ele.me, said that ele.me will invest 3 billion yuan in the three months from July to September to increase its market share to more than 50%.As for ele.me, how much did you lose? No public data have been released yet, but Meituan's takeout business, which will be listed in Hong Kong in the second half of the year, is still losing money, and it is expected to be a year or two before it will be fully profitable.

China International Capital Corporation estimates that EBITFDA profit margins in the first quarter of fiscal 19 will fall 17.3 percentage points year-on-year, to 32.8% from 50.1% in the same period last year.

"We can still accept long-term interest rate cuts, because BABA will be able to create more long-term profits in the future and will improve BABA's overall ecological efficiency," said Scott Devitt, an analyst at Stifel. Last month, Devitt gave BABA a "buy" rating with a target price of $256and a historical average return on investment of 23.7%. )

How much tolerance do you have in this regard?

Under the trade conflict, can the core e-commerce business continue to be strong?

BABA's decline so far this year, China's largest cross-border e-commerce platform, has something to do with strained trade relations between China and the United States.

Since the trade war, the US dollar index has remained strong and the RMB has depreciated all the way, which may have a certain impact on domestic consumption. But according to the National Bureau of Statistics, emerging consumption such as online retail continues to grow rapidly.Among them, the national online retail sales of physical goods increased by 29.1% compared with the same period last year.

Source: national Bureau of Statistics

On the whole, the growth of domestic daily consumption is still relatively stable, especially with the launch of the Zhongqing Electronic Commerce Festival in 618, it is believed that it will give a big boost to Taobao, Tmall and so on.

And BABA, the retail empire GMV (platform turnover), has maintained double-digit growth in the past three fiscal years, and achieved a strong growth of 28% in the 2018 fiscal year ending March 31, reaching 4.82 trillion yuan.

Source: announcement, Futu Information (unit: trillion yuan / RMB)

Can this rapid growth be sustained? According to Aurora Mobile Limited big dataThe penetration rate of Taobao was 51.8% in June, down 7.3% from March. Pinduoduo's penetration rate was 26.3% in June, up 17.2% from March.

Source: Aurora Mobile Limited big data

Combined with the data of the Bureau of Statistics aboveFrom January to July, the total retail sales of consumer goods in rural society surpassed that of 9.1% in cities and towns with a growth rate of 10.4%.. Although the current absolute volume of rural retail sales still lags far behind, it also shows that there is a huge space in this market.The rise of "rural e-commerce" represented by Pinduoduo has also sounded the alarm for Taobao.

Its core ecommerce business still grew at a high rate of 62 per cent year-on-year last quarter, and may not grow as strongly this time due to seasonal factors and a high base in the same period last fiscal year.

For the core e-commerce business, BABA mainly starts from three aspects:1) enhance the personalized shopping experience of Taobao, Tmall and other platforms from the perspective of content and technology. 2) expand the influence of its cross-border retail platform through self-generated growth and acquisition. 3) through a new retail strategy, tap more potential consumer markets outside e-commerce. For example, in early August, BABA announced a strategic cooperation with Starbucks Corp. The two sides will strengthen online and offline model innovation and exploration, and strive to provide a better consumer experience, reshape consumer behavior, and explore new growth points.

In this financial report, we will focus on how BABA continues to perform in the above three aspects.

Cloud business and content business will become the focus, Youku DAU during the World Cup more than 100 million!

The cloud business was BABA's fastest-growing section last quarter, with revenue of $699 million last quarter, up 103 per cent from a year earlier and accounting for 7 per cent of revenue.

After decades of layout in the field of cloud computing, cloud computing will become one of the main driving forces for BABA to realize his investment in the future. With a market share of more than 47%, Aliyun is the number one IaaS service provider in China and will currently provide services in 18 other countries and regions. Aliyun recently partnered with Ford subsidiary Autonomic to build a joint car cloud platform, which is likely to be a key topic in a conference call.

Aliyun's business is still losing money, with a loss of $127 million in fiscal year 2018. However, Morningstar consumer analyst RJ Hottovy said, "although Aliyun may still focus on investment in the short term, as the growth rate of revenue contribution per user accelerates, it means that the shift to value-added content and data services has become a trend and will significantly improve adjusted profit margins in the future. "

China International Capital Corporation expects Aliyun's business to maintain steady growth, with revenue in fiscal year 19 rising by 80% compared with the same period last year.

In addition, another point of widespread concern is the performance of the content business, boosted by the World Cup.This summer, the one-month World Cup in Russia from June 14 to July 15 attracted worldwide attention. Youku got the broadcasting right of CCTV and fired the first shot in the summer traffic war.

On July 16, Youku handed over its World Cup papers:

More than 180 million users watched the 64 matches of the World Cup on Youku.，Equivalent to 1 / 7 of China's current population.. 
, according to QuestMobile data, since the start of the World Cup, it has been affected by the live broadcast of the event.Youku mobile DAU exceeded 100 million on June 23 and continued to stabilize at the order of over 100 million.

(note: BABA offered to acquire Youku wholly in 2016)

According to the latest financial report of Tencent, the number of paid users of Tencent video reached 74 million in the second quarter, an increase of 121% over the same period last year. By contrast, BABA still did not disclose the number of Youku members, which was disclosed last quarter as an increase of 160% compared with the same period last year. The historical data that can be traced back to the end of 2016 is 30 million paying users. Youku has made enough gimmicks and traffic this summer. I wonder if the disclosed data will satisfy investors. Youku's future development plans are worthy of attention.

Karen Chan, an analyst at Jefferies, warned that the World Cup will have a significant impact on BABA's content spending in the current quarter, and may even further affect his profits. Chan has a "buy" rating with a target price of $242,

Shyam Patil, an analyst at Susquehanna Financial Group, believes that the World Cup is a potential boon that will work with new retail to boost revenue growth. Patil has a "positive" rating with a target price of $305. He said he was looking forward to hearing discussions about Cainiao logistics and international expansion on the conference call.

After the announcement of the financial report, how will BABA's share price be interpreted? can giant BABA win this share price defense war? It mainly depends on whether the performance can meet market expectations, and we will continue to pay attention on Thursday.

(Wen / Wu Dongxia / tr. by Phil Newell)