Editor's note: Click here for our post-earnings analysis on Alibaba, as well as a BABA stock price outlook.
Alibaba Group Holding Ltd. (NYSE: BABA) stock closed Monday up 3.3% at $101.80, the final closing price before the firm's first earnings report as a public company comes out before Tuesday's bell. BABA reached an all-time high of $102.80 earlier Monday morning.
Alibaba's earnings report will be one of the most highly scrutinized reports of the third quarter. Alibaba has been trading less than two months since it raised $25 billion in the biggest IPO in history.
Analysts predict earnings per share (EPS) of $0.45.
Consensus estimates place revenue at $2.64 billion. That's up from the $2.54 billion Alibaba reported in the quarter before its Sept. 19 IPO.
Analysts also predict net profit of $1.17 billion for the e-commerce giant. That's a drop from last quarter's $1.99 billion.
Another key figure to watch is operating profit margin. The last number Alibaba reported was 43.4%, in an updated IPO filing from September.
BABA stock traded between $85 and $90 for most of its first month, up about 23% from its $68 IPO price. But in the last month, the stock climbed 16%. BABA's Monday close was a 50% gain from the offer price.
Because of the emphasis placed on this report, we should see a significant short-term fluctuation following the earnings release.
"The stock is now trading at a pretty high multiple, and in order to justify that, they need to show really strong results out of the gate," Wedbush Securities' Gil Luria told Reuters. As of Monday, Alibaba's forward P/E ratio was 47.
While Wall Street experts analyze Alibaba's EPS and revenue figures, there is something much more important to look for in Alibaba's Q3 earnings report...
Alibaba Earnings: The Biggest Factor for BABA Stock
Alibaba is not only well established in China - it's the industry leader. Last year, nearly 80% of all online transactions in China took place over Alibaba's network of sites.
And now, China's Internet industry is seeing massive user growth.
A recent study by the China Internet Network Information Center (CNNIC) determined the number of Internet users in the country will hit 800 million by 2016 or sooner.
Last year, China became the world's largest e-commerce market reaching $298 billion. According to the research firm yStats, that was a 60% year-over-year increase. It also surpassed the $263 billion that was spent in the United States last year.
That growth in China will keep boosting Alibaba's bottom line, but there's another factor that could be a total game changer: international expansion.
According to Reuters, just 9% of Alibaba's sales come from international markets right now. But Alibaba's chairman, Jack Ma, has expressed his desire to expand internationally.
"We want to be bigger than Wal-Mart," Ma said in December. "We hope in 15 years people say this is a company like Microsoft, IBM, Wal-Mart; they changed, shaped the world."
Last week, Alibaba stock crossed the $100 mark for the first time when Ma said he'd like to partner with Apple Inc. (Nasdaq: AAPL) and its new Apple Pay service.
Ma and Apple CEO Tim Cook reportedly met at the end of the week. It's unlikely they'll divulge many details, but any mention of a possible partnership will boost BABA stock.
Ma also announced last week that he has been looking into partnerships with large U.S. entertainment companies. "China will be the largest movie market in the world," Ma told listeners at The Wall Street Journal's global technology conference last week.
Alibaba had previously partnered with Lions Gate Entertainment Corp. (NYSE: LGF) to bring U.S. entertainment options like "Mad Men" to China. Now it looks like additional partnerships are in the works.
Alibaba also started an American e-commerce site called 11main.com that operates like an online boutique. Plans for additional U.S. websites would be welcomed by shareholders.
"We've invested a lot in this space and we're going to invest more," Ma said last week. "I got my inspirations from Silicon Valley... it's our time to come here and invest in Silicon Valley."
Again, it's unlikely that Alibaba will go into great detail regarding partnerships until they're finalized, but any mention of new U.S. partnerships would be huge for BABA stock.
Tomorrow most people will focus on how Alibaba performed in Q3 compared to estimates, and that will have a big impact on BABA's short-term performance. But forget about the short-term for now. Because international expansion plans will have much bigger ramifications.
Editor's Note: One of Alibaba's biggest competitors, Amazon.com Inc. (Nasdaq: AMZN) is facing its very own "D-Day" at the expense of its Chinese counterpart. Here's the enormous profit potential that investors are seeing now as the date approaches...