Is Alibaba (BABA) Set to Miss Earnings Estimates Friday?

Shares of Alibaba (BABA ) were down marginally through early afternoon trading on Thursday in a sign that investors might be concerned about the company often called the “Amazon (AMZN ) of China” ahead of the release of its fiscal fourth quarter earnings report.

Alibaba has seen its stock price soar 55.6% over the last year as its popularity in China grows. The tech giant also managed to navigate through the recent downturn nearly unscathed, with its stock up 5.5% during the last four weeks. With that said, quarterly earnings season hasn’t been as kind to companies as they would have hoped, despite outsized bottom line growth from industry giants including Apple (AAPL ) and Facebook (FB ) .

This means investors need to be even more cautious with stocks, such as Alibaba, before their quarterly financial reports.

Alibaba’s Outlook

Alibaba’s quarterly revenues are projected to skyrocket by nearly 64% to hit $9.17 billion, based on our current Zacks Consensus Estimates. On the other end of the income statement, the e-commerce power’s quarterly earnings are expected to surge by 39.7% from the year-ago period to hit $0.88 per share.

However, Alibaba has earned six earnings estimate revisions, with 100% agreement to the downside, all within the last 30 days. This means that analyst sentiment has been trending in the wrong direction.

Still, investors need to know a little more to see if Alibaba is actually projected to beat or miss our current earnings estimate. Luckily, Zacks Premium customers can utilize the Earnings ESP Screener in order to search for stocks that are expected to surprise, either way.

This is done because, generally speaking, when an analyst posts an estimate right before an earnings release, it means that they have fresh information which could potentially be more accurate than what analysts thought about a company two or three months ago.

A positive Earnings ESP paired with a Zacks Rank #3 (Hold) or better ranking helps us feel confident about the potential for an earnings beat. In fact, our 10-year backtest has revealed that this methodology has accurately produced a positive surprise 70% of the time.

In contrast, a stock with a Zacks Rank #3 (Hold) or worse, coupled with a negative Earnings ESP, is one that we typically want to avoid during earnings season.

Alibaba’s Most Accurate Estimate—the representation of the most recent analyst sentiment—calls for earnings of $0.85 per share, which falls 3 cents below our current consensus estimate. The company is also currently a Zacks Rank #3 (Hold) and sports an Earnings ESP of -3.11%.

Therefore, Alibaba is a stock that could fall short of earnings estimates when it reports its financial results before the market opens on Friday.

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