Alibaba earnings beat expectations. Shares are soaring 📈

Before the market opened, the Chinese conglomerate Alibaba presented its financial results. The results exceeded analysts' expectations, with Alibaba's pre-opening shares trading more than 6% higher. The company reports results in Chinese yuan:

EPS of CNY 11.73 vs. CNY 10.78 in forecasts

Revenue CNY 205.56 bln vs. CNY 205.74 bln in Q2 2021 vs. CNY 203.97 bln in forecasts

Net income: CNY 22.73 bln vs. CNY 18.73 bln forecast

Earnings per American depositary share (ADS): CNY 11.73 vs. 16.60 in Q2 2021 (down 29% y/y) vs. CNY 10.33 forecast (up more than 10%)

The F/X conversion rate for the USD/CNY pair at the time of publication is around 6.75 

• The company delivered a successful report despite the complicated situation in global markets and the slowdown in the Chinese economy. Analysts expect a rebound in the face of an improving outlook for the future, and Alibaba's rising stock price may herald the unwinding of massive declines in China. One priority for the company remains access to listings on both the New York Stock Exchange and the Hong Kong Stock Exchange, according to comments from Alibaba's CFO, Maggie Wu. The company intends to 'diversify' investor participation from around the world;
• Analysts had expected a slowdown in revenue; however, these turned out to be flat against Q2 2021 and positively surprised the market. The company's $25 billion share repurchase program will run through March 2024. Net income improved significantly, and similarly, the company's earnings from American depositary receipts beat analysts' expectations. However, revenue from cloud computing also came in below expectations (CNY 17.69 billion vs. CNY 18.22 billion forecasts);
• Analysts surveyed by Refinitiv expect 7% revenue growth in the next quarter and 10% growth in the final 'holiday' quarter of the year. Charlie Munger of the Berkshire Hathaway fund also remains positive on the company's shares. Over the past 2 years, EPS has exceeded analysts' expectations 75% of the time, while revenue has turned out to be higher than expected 63% of the time
• According to an analysis by China Merchants Securities, the company is being dragged down by declines in operating income primarily in China. In addition, the budgets of Alibaba's platform ad suppliers have fallen through the deteriorating macro landscape and decelerating consumption. All this means that revenues from so-called CMR (marketing, advertising) remain limited, yet Alibaba was able to exceed market estimates; 
• The company's total revenues have been limited by the slowing Chinese economy, restrictions in China's technology sector and the resurgent Covid virus, which continues to impinge on supplier chains through the 'Covid zero' lockdown policy. At the same time, an analysis by China Merchants Securities indicates that conditions in China are gradually improving due to cost reductions of which Alibaba may become one of the main beneficiaries in the coming quarters. Currently, the potentially 'brighter future' ahead of the company is positively valued by the market;
• Analysts at US Tiger Securities believe that the second half of the year will be better for the company in the face of a government focused on improving GDP growth. In addition, regulatory pressure in China, which has cost Alibaba nearly 19 billion yuan (nearly $3 billion), is beginning to ease;
• Alibaba shares on the Hong Kong Stock Exchange also gained during Nancy Pelosi's visit to Taiwan, when the broader market was trading down due to geopolitical tensions and deteriorating Washington-Beijing relations.

Alibaba (BABA.US) stock chart, D1 interval. The stock price has settled from record highs back in 2020, and since then the main line of resistance is set by the 200-session SMA 200 average. A climb above the average could herald bullish momentum. Key support set by the 71.6 Fibonacci retracement near $130 is located near the SMA200 which could further support buyers if the stock goes above the resistance line. The stock is already trading almost 7% higher in pre-session trade, indicating an opening above the psychological limit of $100. Source: xStation5