Alibaba investors await Thursday earnings release after brutal month
The Alibaba stock price has ticked up ahead of the release of its Q2 earnings report on Thursday morning U.S. time (7:30pm Hong Kong time). But it’s been a brutal few weeks for shareholders who’ve seen losses of almost 30% over the past month.
The company has been in the headlines yet again, this time striving to maintain its listing on the New York Stock Exchange. The company has been grappling with multiple issues since late 2020, including payment of regulatory fines and an indefinite halt of its subsidiary Ant Group’s potential blockbuster IPO.
Alibaba first came under fire after founder and former executive Chairman Jack Ma publicly criticized the Chinese government. Since then, the company had to pay a record $2.8 billion fine in the landmark antitrust case, as well as make supplementary changes in its business model.
In the United States, the stock has been placed on a delisting watch-list by the U.S. SEC after it failed to meet the country’s auditing requirements.
The Alibaba audit battle
Tensions between the U.S. and China are not new. However, on top of the worrisome trade relations and geopolitical tensions surround Taiwan, a relatively new financial war is brewing between the top two global economies.
In May 2020, the U.S. Senate passed the Holding Foreign Companies Accountable Act, which requires all foreign companies listed on U.S. exchanges to comply with national accounting standards.
While most international companies typically meet the auditing standards set by the Public Company Accounting Oversight Board (PCAOB), China and Hong Kong have a long-standing history of evading these requirements.
These countries have historically prohibited internationally-listed companies to release certain data on grounds of national security concerns and confidentiality perseveration laws. Currently, more than 270 Chinese companies listed on the NYSE are at risk of being delisted.
Alibaba was added to the SEC’s list of Chinese companies at risk of being delisted on July 29th. Consequently, Alibaba shares listed on the NYSE fell nearly 11% in July’s last trading session. In fact, the stock slumped 21.4% in July alone. This comes after Alibaba’s financials for the year ended March 31, 2022, were not fully reviewed by the PCAOB.
However, the company has stated that it plans to work to maintain its U.S. listing amid the accounting battle brewing between the U.S. and China. Regarding this, the company released a statement yesterday saying, “Alibaba will continue to monitor market developments, comply with applicable laws and regulations and strive to maintain its listing status on both the NYSE and the Hong Kong Stock Exchange.”
What’s next for the Alibaba stock price?
Alibaba is currently listed on both NYSE and Hong Kong Stock Exchange (HKSE). While NYSE stands as the primary listing, the HKSE listing is the secondary one.
To mitigate risks associated with a potential delisting from the NYSE, Alibaba announced its plans to apply for a dual primary listing on the HKSE. This comes after the HKSE modified its rules to allow companies to get dual primary listings in Hong Kong.
Alibaba is the first mega-cap company to take advantage of this rule change, and the company plans to complete the dual primary listing in Hong Kong by the end of this year.
However, this is just a backup plan to limit the downside. Chinese authorities are reportedly working with the SEC to resolve the auditing issues, which could prevent the Chinese behemoth from being delisted from the NYSE.
What to watch when Alibaba’s Q2 results are released tomorrow
- Revenue growth – Some analyst are expecting negative revenue growth due to ongoing lockdowns in China and supply chain issues. A surprise positive results could see Alibaba shares surge.
- Revenue outlook – The company will most likely provide guidance on expected revenue for the remainder of the year. The tone of the guidance and any talk of an accelerated recovery will be assessed closely by investors.
- Active user numbers – Alibaba added over 113 million active users in Q1, taking total active users in China to above 1 billion. Slower user growth could spell trouble for Alibaba shares.
- Cloud computing – This business unit will be watch closely as investors look for new growth avenues for the Group.
- ADR future – Any mention of the future of Alibaba’s NYSE ADR listening is sure to make headlines.