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Alibaba earnings: 45% the magic number?

Alibaba shares have risen 45 percent since their September debut, and the e-commerce giant's earnings report on Tuesday could signal whether upward momentum is set to continue.

The New York-listed firm will report quarterly earnings for the July-September period before the U.S. market open and 45 appears to be the magic number.

Revenue is also seen jumping 45 percent to $2.61 billion, while earnings per share are estimated at 36 cents, according to a Reuters poll of 21 analysts. Meanwhile, net profits are expected to rise to $1.16 billion.

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Earnings from internet names such as Facebook, eBay and Amazon, have been weak thus far, but Alibaba will be different, Neil Doshi, managing director and co-head of technology and media at CRT Capital told CNBC.

"With Alibaba, there's been a flight to safety since you don't have the foreign-exchange risk from Europe or other risks that these other companies had," he said. "[The result] might be a little lumpy but our guess is that they come out with very strong numbers and we could see an upward trajectory in the stock."

Monday was the busiest day yet for the options market, with volume at 349,000 contracts. The stock rallied as much as 4 percent to a record high of $102.80, before paring gains to close at $101.29.

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What to look out for

Investors will focus on profit margins, which have been shrinking as Alibaba spends heavily to increase its mobile presence. In the second quarter, operating margin declined to 43 percent from 50 percent a year earlier.

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"What Alibaba has been trying to catch up in the past few quarters is mobile monetization. It was quite low up until a year ago, which is when they understood they needed to charge more for mobile listings and sales. Their rate of monetization is still only half of that of desktop but they've caught up quite a bit and I expect that to continue," said Gil Luria, managing director at Wedbush Securities.

For the first time, the firm will release earnings guidance for the October-December quarter. Sales are expected to get a boost from China's 'Singles Day' event on November 11, the equivalent to America's Cyber Monday. Last year, the one-day online shopping event – China's biggest of the year – saw Alibaba break its sales record by over 80 percent. Neil Doshi of CRT Capital expects 20-30 percent upside on the stock on that day alone.

Growth in gross-merchandise value is another factor investors must look out for, said Jon Steinberg, chief executive officer of Daily Mail North America.

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"On desktop, it has gone from 304 billion renminbi in June 2013 to 424 billion in December. Now, we're looking for 343 billion," he said. "Year over year, that's only 8 percent, that's a huge decline from the 52 percent annual growth they were showing in desktop previously."

"If we see any further slowing on desktop and any less growing on mobile, investors are going to be very upset because this still has to be a big market, big top-line story," Steinberg said.

Competition in focus

Finally, traders will size up Alibaba against Amazon, widely considered one of its key rivals.

Amazon still holds the title of the world's largest e-commerce company by sales, but Alibaba's $243 billion market capitalization is $100 billion bigger than Amazon's.

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Deutsche Bank points out Alibaba's third-party hosting model is better and unique amongst global e-commerce platforms since it's based primarily on ad revenue outsourcing to third parties.

"Regardless of what happens in any given quarter, Alibaba is a very good long term investment on the growth of the Chinese consumer and middle class," Lurio said. "Any one quarter isn't going to change that."


Clarification: This story has been updated since first published to include a restated Reuters analyst forecast of a net profit of $1.16 billion.