I was asked yesterday by Benzinga (Marketfy's parent company) to give a comment on the upcoming earnings announcement from China's meganormous online retailer, Alibaba (BABA). You'll find my comments in full here: CLICK HERE.
So I nailed the overall results, but had the individual bits reversed. I predicted a top-line beat and a bottom-line miss. It was, in fact, the other way around. And GMV values, the real concern of analysts, were actually pretty good, all things considered. The market reaction was as predicted, however, as investors immediately began selling the news, with shares falling 7% in premarket trading.
Of the 3 big online rivals -- AMZN, EBAY, BABA -- Alibaba is your best bet, given the growth potential in China. I'll take a 46% profit margin any day of the week. But this is no longer your uncle's China. The world's largest country, and arguably largest economy, has seen a 40% cut in its growth rate and it is likely going lower as government overreach puts a damper on the party. Alibaba, to its credit, is fighting government regulation, much to the chagrin of the onlooking public. It is indeed a new day in Red China. Unfortunately, their chances of success are slim.
I like BABA shares going forward. But let the "sell the news" crowd thin out first. A drop back to $85 would be a nice entry point. In my Dr. Stoxx Options Letter, we've been playing BABA using put-writes. We don't have any position in the stock now, but today's drop may provide a nice opportunity to sell some premium in order to lower costs on an eventual purchase.