Despite softness caused by covid, Alibaba (BABA) earnings signal a return to growth

Alibaba (BABA) released results for its fiscal second quarter of 2023 early Thursday that seems to have placed it ahead of the broad United States market. Despite a large topline miss, BABA shares have advanced 4% early in the regular session to $81.31. This contrasts sharply with the rest of the market as St. Louis Federal Reserve President James Bullard said the fed funds rate probably needs to be raised at least one percentage point and may need to go as high as 7%. This has pushed the US stock market into a general sell-off, with the Nasdaq losing 1.5%.

Alibaba FQ2 earnings

China's answer to Amazon (AMZN) posted earnings per American depository share (EPADS) of $1.82, which was well above the $1.65 consensus expected by Wall Street. Revenue was another story. The setback from covid lockdowns hit sales figures nationwide in China, and Alibaba was a major victim of the policy. Revenue reached $29.12 billion in the quarter, missing its mark by $490 million. Despite being half a billion dollars off consensus, revenue still rose 3% YoY. This is a sign that the most recent quarter's pullback, when shareholders saw sales drop 4.2% YoY, might be a one-time phenomenon. 

“The uncertainties of the global landscape have only reinforced our resolve to focus on building capacity that will yield sustainable, high-quality growth for our customers and our own business over the long term," said Alibaba CEO and chairman Daniel Zhang. "The trust of our shareholders has enabled Alibaba's development over the past 23 years, and we are committed to improving shareholder return as we continue to strengthen the foundations for Alibaba’s future."

The EPADS figure also bested the year-ago figure of $1.75.

"We have continued to take a holistic approach to improve operating efficiency and cost optimization throughout the company that resulted in adjusted EBITA growth of 29% YoY," said CEO Toby Xu. "With strong net cash position and cash flow generation, we repurchased approximately $18 billion of our shares under our existing $25 billion share repurchase program."

Alibaba's board also increased the share repurchase program by $15 billion and extended the program to the end of fiscal 2025. 

Alibaba stock forecast

The macro backdrop of Alibaba stock does not look good. Nearly all the pundits seem to think the euphoria over the past week is over and expect another extended sell-off to ensue through the end of the year. Despite inflation appearing to finally give in to the Fed's rate hikes, Bullard's comments have forced trades to reckon with at least another wave of tightening before any true pivot is confirmed.

BABA stock is currently nearing the $85 resistance level from early October. After that sits a heavy precedent for $88, which worked on and off as support for much of the year. Beyond this point are the psychological $100 level and the $105 resistance price from the August 25 swing high. Support remains at $73.28.

BABA 1-day chart