Alibaba shares are poised for a sales rebound

(Bloomberg) — Investors are betting that Alibaba Group Holding Ltd could finally see its fortunes turn around after a rough 2022, plagued by a 40% drop in shares and rare sell calls from Wall Street analysts .

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Options data showed traders were pulling back from buying bearish contracts that take advantage of further declines, with the put-to-call ratio for U.S. Alibaba shares nearing a record low. The technology firm is expected to return to sales growth in the September quarter when it reports earnings on Thursday, following its first decline in the previous period.

Although bear buyers have been repeatedly burned over the past year when it comes to investing in Chinese technology stocks, there is a growing belief that the worst of the crackdown on the private sector is over. Beijing’s plans to ease a raft of virus restrictions in a significant departure from Covid Zero and a wide-ranging rescue package for the nation’s beleaguered property market are also adding to the optimism.

Alibaba is expected to report a 4.3% rise in revenue for the quarter, along with the first margin increase since 2019. Investors will also be watching for updates on its efforts to cut costs, along with guidance for further share buybacks . The stock was up as much as 4.6% on Monday morning in New York.

“Net income could beat the Street consensus given the cost-cutting measures and that the company has stopped many investments in some initiatives,” said Julia Pan, a Shanghai-based analyst at UOB Kay Hian. She added that the company’s business should improve next month after the new quarantine rules are introduced.

The recovery in consumption also looks more robust. Although Alibaba did not disclose full sales results for its signature Singles Day shopping festival for the first time, China’s largest e-commerce company said gross merchandise value was in line with last year’s performance despite the headwinds of Covid. Ad sales, which have been hampered by lockdowns over the past year, may finally be recovering as reopening measures lift the economy.

“Despite the more challenging economic backdrop, we expect this year’s buyers to be just as exuberant,” said Nicholas Yeo, head of China equities at abrdn. “Disposable incomes are rising across the country and this wealth is driving growth in aspirational areas.”

Of course, Alibaba faces bigger challenges, with the days of breakneck growth believed to be over for the industry. Concerns about the impact of US chip export legislation on the company’s cloud business weighed on sentiment, while China’s full exit from Covid Zero is expected to be a long time coming.

Still, the mood is turning more positive, and it’s not just about Alibaba. Bearish bets also eased on rivals including JD.com and Tencent Holdings Ltd., according to options data. Analysts also expect its earnings results to meet or even beat expectations.

“The valuations of technology and innovation stocks in China look very attractive compared to historical levels and global peers,” said Minyue Liu, Asia and China equity investment specialist at BNP Paribas Asset Management. “The risk-reward ratio is more on the reward side at the current valuation level.”

Technical chart of the day

U.S. technology and internet stocks posted a huge rally last week, with the Nasdaq 100 climbing 8.8% in its biggest advance since November 2020. The rally came after inflation cooled more than forecast in October, fueling optimism that The Federal Reserve will be less aggressive in raising rates. Microsoft Corp. climbed 12%, its biggest weekly gain since April 2015. Meta Platforms Inc. had an even bigger rally, jumping 24%, the most since July 2013. The Meta, which remains down 66% this year, also got a boost after they announced job cuts, a move that could help address with cost concerns.

Leading Tech Stories

  • Apple Inc.’s recent job postings. shed light on plans for its upcoming mixed reality headset. Several job postings indicate that Apple is stepping up work to bolster the device with content, while others suggest that Apple is looking to create a video service for the headset that includes 3D content that can be played in virtual reality.

    • The Apple Store where you’ll be shopping this holiday season looks the same as ever. Behind the scenes, however, things have changed, as interviews with dozens of Apple Store employees in nine cities make clear.

  • GlobalFoundries Inc., the largest U.S.-based supplier of custom semiconductors, has begun job cuts and imposed a hiring freeze.

  • Freyr Battery SA is in talks with KKR & Co. Inc. to raise funding, according to people familiar with the matter.

  • Shares of SoftBank Group Corp. fell 13% on Monday in their biggest drop since the pandemic broke out in early 2020 after the company failed to announce a widely expected share buyback.

  • President Joe Biden came into office pledging to abandon Donald Trump’s “with us or against us” approach to China. Instead, it forces America’s partners to choose sides in a deepening global technology standoff.

–With help from Subrat Patnaik, Ryan Vlastelica and Phil Serafino.

(Updates with Alibaba’s stock price in the fourth chart)

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