Alibaba is set to report slowest ever growth in December quarter as Chinese economic headwinds hit

Published Tue, Feb 22 20227:25 PM EST

Macroeconomic headwinds in China are likely to weigh on e-commerce giant Alibaba 's fiscal third-quarter earnings, which are expected Thursday. The company's shares have tumbled more than 50% in the last year as China's regulatory crackdown on the domestic technology sector intensified and investors dumped Chinese internet names. Analysts told CNBC that Beijing's regulatory crackdown on the internet sector could also take the wind out of the sails of the fast-growing cloud computing business. Expectations are low going into the December report. Here's what analysts expect from the headline figures, according to Refinitiv consensus estimates: Revenue: 246.59 billion yuan (about $38.98 billion) EPS: 16.23 yuan per share If realized, that would imply revenue growth of 11.5%, the slowest quarterly year-on-year growth rate for the company since its 2014 U.S. listing. Investors will also be watching key metrics including customer management revenue, or CMR, cloud revenue growth and Alibaba's investments. Analysts expects core commerce revenue to come in at 221.82 billion yuan ($35.02 billion), according to Refinitiv estimates. CMR, the single largest portion of sales, is revenue Alibaba gets from services such as marketing that the company offers to merchants on its Taobao and Tmall e-commerce platforms. James Lee, managing director at Mizuho, forecasts CMR revenue growth to be 1% year-on-year in the December quarter, down from 3% in the quarter before. Lee said that CMR revenue could fall in the March quarter but that would be the bottom. Macroeconomic headwinds are weighing on Alibaba's commerce division. Chinese retail sales remained sluggish in the fourth quarter of the year . Meanwhile, the European Union ended a value added tax waiver for goods under 22 euros ($24.99) in July, which could pose a challenge to Alibaba's international retail business, according to analysts at U.S. Tiger Securities. Cloud, investments in focus For the December quarter, analysts expect cloud computing to bring in revenue of 20.6 billion yuan ($3.25 billion), according to Refinitiv consensus estimates. That's a near 28% year-on-year rise. Several analysts expect even slower growth for the division, with estimates ranging from 18.56 billion yuan to 22.04 billion yuan. Mizuho said it expects revenue growth of 20% year-on-year while China Renaissance expects 23% rise in sales. That would be a slowdown from the 33% growth seen in the September quarter. TikTok-owner ByteDance has continued to move its overseas operations operations off of Alibaba's cloud products. While China's regulatory crackdown on sectors including gaming and education — key customers for Alibaba — will also weigh on results. Investors will also be looking at Alibaba's continued strategy to put money into future initiatives such as group buying and discount platforms to chase customers in less wealthy cities in China. These efforts would help fend off competition and open new revenue streams. "While the current macro backdrop remains challenging, management is committed to building up infrastructure and capabilities to fuel long-term growth in the lower-tier market," China Renaissance said in a note published last month. Investors will be also watching closely for Alibaba's guidance. Regulatory overhang Alibaba has been hit by changing regulation as Beijing writes new rules for everything from antitrust to data protection . In April, Alibaba was slapped with a 18.23 billion yuan ($2.8 billion) fine by regulators as part of an antitrust investigation . Mizuho's Lee said that regulatory risk is already "priced in" to Alibaba's stock. He added that there should be "stability" in terms of regulation this year. "By stability, I mean, the government probably will not establish any additional framework on regulation," Lee told CNBC in an interview. Meanwhile, economists said that the People's Bank of China could be looking to ease monetary policy and Beijing could enact fiscal stimulus too. That could potentially help Chinese stocks, including Alibaba. "Stabilization along with potential fiscal stimulus … that is going to be good for the industry. That will create a situation where we start to see industry multiples start to expand," Lee said.

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Macroeconomic headwinds in China are likely to weigh on e-commerce giant Alibaba's fiscal third-quarter earnings, which are expected Thursday.