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Alibaba is poised to report slower revenue growth, but analysts still see a big rally ahead

Alibaba is poised to report slower revenue growth, but analysts still see a big rally ahead

Alibaba is set to report its June quarter results on Thursday. Analysts expect a slowdown in revenue growth. The company's core commerce business is expected to drive growth alongside other divisions like cloud computing. Analysts are broadly positive on Alibaba's stock with many expecting a rally over the next 12 months. A monitor displays Alibaba Group signage on the floor of the New York Stock Exchange (NYSE) in New York, U.S., on Monday, Jan. 7, 2019. Michael Nagle | Bloomberg | Getty Images Alibaba is expected to show slowing revenue growth after years of blockbuster earnings when it reports fiscal first quarter earnings on Thursday. Its profitability, however, is likely to be improved.

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Here's what the market expects for Alibaba's June quarter:

Revenue of 111.73 billion yuan ($15.93 billion), according to Refinitiv data. If realized, this would be a 38% year-on-year rise, but slower than the more than 61% growth seen in the same quarter last year. Non-GAAP diluted earnings per share (EPS) of 10.25 yuan, according to Refinitiv estimates. Alibaba's core commerce business, which includes its Tmall and Taobao shopping platforms, is expected to be the biggest growth driver given it's the company's biggest division.

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The Chinese giant has been expanding the core commerce business internationally through the Singapore-based e-commerce platform Lazada which it majority owns, and domestically by pushing its products into smaller cities.

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“We expect a solid June quarter for BABA, with e-commerce possibly beating revenue expectation thanks to Tmall's strong GMV (gross merchandising value) growth,” Xiaoyan Wang, analyst at 86Research told CNBC. “We also anticipate continuous user growth even on such a large base, as Taobao and Tmall are successfully penetrating into low tier cities.”

New retail Part of Alibaba's core commerce business is its so-called new retail strategy which looks to fuse the various parts of its business from payments to bricks and mortar stores and food delivery together into one big ecosystem. Part of the push here has been investments in logistics, its Hema supermarkets and food delivery business

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Investors will be looking at the performance of these new areas — particularly food delivery, which faces stiff competition from Chinese rival Meituan

Cloud One of the most promising areas of Alibaba's business, according to analysts, is cloud computing. The division saw 76% year-over-year revenue growth in the March quarter and has slowly been growing its share of Alibaba's revenues. Though it is still only around 8% of revenues, analysts see a big opportunity for the technology giant

“Cloud remains the key asset we believe the Street is focused on. Given the penetration of cloud in China, BABA has a major green field opportunity over the coming years on this front,” Daniel Ives, managing director of equity research at Wedbush Securities, told CNBC

Alibaba is the largest cloud computing player in China by market share

Headwinds Alibaba's investment into new areas has come at a price — falling margins. The company has signaled, however, that it will continue to invest, something that has so far not spooked the market. Investors will be watching the margin figure closely

Another worry is the effect of the U.S.-China trade war

China e-commerce players have come under major pressure in light of worries around growth in the region and macro slowness. We believe … the bark is worse than bite at this point although this remains a major ('prove me') quarter for BABA,” Ives said

Alibaba's shares are up nearly 20% this year, but Wall Street thinks they can go higher over the next year. The average price target on the stock is $218.09, according to Reuters data. That implies a 34.5% upside from Wednesday's close

The Chinese e-commerce giant is also reportedly looking to hold an initial public offering in Hong Kong, which could raise as much as $20 billion. On Thursday, however, the New York Post reported that Alibaba was weighing whether to delay the listing, which was scheduled for September, amid the anti-China protests in Hong Kong. Alibaba declined to comment when contacted by CNBC about the matter

Despite some of the near-term headwinds, Alibaba's various investments should set it up for growth over the next few years, according to Thomas Chong, equity analyst at Jefferies

Alibaba has multiple growth drivers in the years ahead, in our view, with the core marketplace a strong cash cow enjoying secular momentum amid China's ongoing consumption upgrade, thanks to solid execution and technological ability to digitalize the retail sector, thereby enhancing efficiency,” Chong wrote in a recent note

“Its highly synergistic ecosystem enables it to ramp up easily in lower tier cities and local services. It has clear market leadership in cloud computing, which is the backbone of digitalization across different industries.”

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