China’s slowdown could hurt Alibaba’s earnings. Here’s what analysts expect

Published Mon, Nov 15 202110:02 PM EST

China's economic headwinds and slowing retail sales growth could weigh on Alibaba 's fiscal second quarter earnings when it reports numbers on Thursday . Some analysts have downgraded their price target on the stock on concerns that slowing e-commerce sales as well as the regulatory crackdown on China's technology sector could hurt the company's outlook. However, others say Alibaba's valuation is cheap at current levels and the company should perform well over the long term. Alibaba has had a rough year along with many of its peers in the technology sector as Chinese regulators tightened scrutiny. Beijing has introduced a slew of laws in areas from data protection to anti-monopoly rules for the so-called platform economy and regulations on unfair competition in the internet sector . In April, Alibaba was fined 18.23 billion yuan ($2.8 billion) as part of an anti-monopoly probe. After hitting a record high in October last year, Alibaba's shares in the U.S. have lost about 40% of its value, wiping off billions of dollars. "We believe 2Q FY22 is likely to be one of the most challenging quarters for Alibaba," John Choi, analyst at Daiwa Capital Markets, said in a note published in September. Here's what analysts are expecting from Alibaba's fiscal second quarter earnings, according to Refinitiv estimates. Revenue: 204.93 billion yuan ($32.16 billion) EPS: 12.36 yuan ($1.93) Macro headwinds Several analysts are concerned about the macroeconomic headwinds that could hit Alibaba's numbers. China's economy grew 4.9% in the third quarter from a year ago, according to the National Bureau of Statistics. That was slower than analysts had expected. China's economy has also faced a number of economic challenges including power shortages and severe flooding which has hit supply chains. Analysts also noted a slowdown in online retail sales in the world's second-largest economy, which is likely to have an impact on Alibaba's key revenue driver. Customer management revenue, or CMR, is the single largest portion of Alibaba's sales. CMR is revenue Alibaba gets from services such as marketing that the company offers to merchants on its Taobao and Tmall e-commerce platforms. Morgan Stanley said in a September note that it forecasts CMR growth for the quarter at 5.2%, versus 13.7% in the quarter ending June, "given weak macro conditions with limited monetization improvement." China Renaissance, meanwhile, lowered its CMR growth for the quarter from 12% to 8% year-on-year. Cloud growth constrained Cloud computing is an area where Alibaba has put a lot of effort into the past few years. It is now the number one cloud computing player in China. In the quarter that ended December 2020, the division turned a profit for the first time . However, in the June quar