Should You Stay Away From Alibaba Stock Ahead of Q1 Earnings?

Alibaba Group Holding Limited BABA is scheduled to report first-quarter fiscal 2026 results on Aug. 29.

For the fiscal first quarter, the Zacks Consensus Estimate for revenues is pegged at $34.26 billion, suggesting a 2.37% rise from the year-ago quarter’s reported figure.

The Zacks Consensus Estimate for earnings is pinned at $2.13 per share, indicating a decline of 5.75% from the prior-year quarter’s reported figure.

Alibaba has a mixed earnings surprise history. In the last reported quarter, the company delivered an earnings surprise of 16.89%. Its earnings beat the Zacks Consensus Estimate in two of the trailing four quarters and missed the same twice, the average surprise being 2.47%.

Alibaba Group Holding Limited Price and EPS Surprise

Alibaba Group Holding Limited price-eps-surprise | Alibaba Group Holding Limited Quote

Earnings Whispers for BABA

Our proven model does not conclusively predict an earnings beat for Alibaba this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of an earnings beat. This is not the case here. You can uncover the best stocks to buy or sell before they are reported with our Earnings ESP Filter.

BABA has an Earnings ESP of 0.00% and a Zacks Rank #5 (Strong Sell) at present. You can see the complete list of today’s Zacks #1 Rank stocks here.

Factors to Note for BABA Ahead of Q1 Results

Alibaba's first quarter fiscal 2026 results are likely to have depicted deepening concerns over the company's ability to navigate intensifying competitive pressures and China's deflationary economic environment. The e-commerce giant's previous quarter disappointed investors with missed expectations on both revenue and earnings, setting a troubling precedent for fiscal first-quarter performance. During the April-June period, China's consumer price index remained in deflationary territory, falling 0.1% year-over-year in both April and May, signaling persistently weak domestic demand that directly impacted Alibaba's core Taobao and Tmall operations.

The company faced brutal competition from industry leaders, including PDD Holdings PDD, whose market capitalization is likely to have surpassed Alibaba's during the quarter as its Temu platform continued aggressive expansion. PDD's value-for-money positioning and unbranded goods strategy created sustained pressure on Alibaba's traditional branded merchant ecosystem, forcing the company into margin-eroding price wars. Chinese authorities' anti-involution campaign targeting excessive price competition paradoxically highlighted the severity of margin pressure across the sector in the quarter under review.

Consumer spending remained constrained as household consumption continued to account for less than 40% of China's GDP, well below international averages, while deflationary pressures deepened throughout the quarter. Industrial profits plunged 9.1% in May, the steepest decline since October, as price wars ravaged sectors. The company's stock corrected more than 20% from March highs, reflecting investor pessimism about prospects despite management's AI investment rhetoric. Trade tensions with the U.S. created uncertainty, with tariff disruptions affecting supply chains and export dynamics that historically supported Chinese e-commerce.

While Alibaba Cloud showed promise with 18% revenue growth and AI momentum, acceleration remained insufficient to offset core commerce struggles. The company's share repurchase activities during the fiscal first quarter, totaling 56 million shares worth $600 million, suggested management's acknowledgment of business headwinds rather than confidence in organic growth acceleration, raising questions about whether AI investments could meaningfully counteract structural challenges facing China's largest e-commerce platform.

BABA Price Performance & Stock Valuation

Alibaba shares have surged 46.7% in the year-to-date period, outperforming the industry, the Zacks Retail-Wholesale sector and the S&P 500 index’s increase of 12.5%, 8.1% and 9.4%, respectively.

BABA faces tough competition from Amazon AMZN, JD.com JD and PDD Holdings, among others. While AMZN and PDD have gained 3.9% and 32.2%, respectively, in the year-to-date period, JD has lost 7.7%.

Year-to-date Price Performance

It is also important to consider whether the stock's current valuation accurately reflects the company's long-term growth potential and ability to navigate the competitive landscape. Currently, BABA is trading at a premium with a Value Score of C, concerning investors ahead of the fiscal first-quarter results.

Investment Thesis

Investors should avoid Alibaba ahead of the fiscal first-quarter results as the company faces insurmountable headwinds despite premium valuations relative to deteriorating fundamentals. PDD Holdings has displaced Alibaba as China's most valuable e-commerce company, leveraging superior value-positioning that forces Alibaba into destructive price wars. China's persistent deflation, with consumer prices falling throughout the quarter, undermines domestic demand, while industrial profits plummeted 9.1%. Management's $600 million share repurchase program signals acknowledgment of structural decline rather than confidence. With intensifying competition eroding market share and margins amid weak consumer spending, Alibaba's premium valuation appears unjustified given the company's diminishing moat and bleak prospects.

Conclusion

Alibaba's upcoming results will likely confirm deepening investor fears as the company grapples with PDD's competitive dominance, China's persistent deflationary spiral, and deteriorating fundamentals that render its premium valuation completely unsustainable. Investors should decisively avoid this structurally impaired stock facing irreversible market share erosion and vanishing growth prospects.

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This article originally published on Zacks Investment Research (zacks.com).

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