Consumers enjoy themselves at Nanjing Road Pedestrian Street, the busiest commercial tourist landmark in Shanghai, China, May 5, 2023.
CFOTO | Future Publishing | Getty Images
Analysts are bullish on China’s major technology companies even though the recovery has not been the same for the companies and their most recent earnings.
While search engine giant Baidu beat revenue and profit estimates for the first quarter of 2023 and Tencent returned to growth after consecutive negative and flat quarters, Alibaba missed first-quarter profit expectations and its Hong Kong-listed shares fell nearly 5% on Friday.
“Baidu, Alibaba, Tencent report – most earnings are a beat,” Ronald Keung, head of Asia Internet Research at Goldman Sachs, told CNBC’s “Street Signs Asia” on Friday.
Alibaba missed analysts’ revenue estimates, but revenue rose 2% year over year to 208.2 billion Chinese yuan ($29.6 billion).
The tech giant’s domestic business unit fell 3% in the first quarter, while its cloud business fell 2% – underscoring concerns that a spending spree in China may not be as strong as expected.
Noticing the decline in Alibaba shares, Jiong Shao, analyst at Barclays said on Friday, ahead of the weekend’s Group of Seven summit: “I think there are some geopolitical concerns… Investors worried about the potential type of a sanction against China and against Chinese companies.”
G-7 leaders were in Hiroshima, Japan over the weekend to discuss global and regional issues, including challenges posed by China’s policies and practices.
In a joint statement the G-7 leaders acknowledged that there is a need to de-risk and diversify from China – not decouple. They stressed the need to “deal with the challenges posed by China’s policies and practices” and “compress bad practices, such as illegitimate technology transfer or data disclosure.”
But analysts expressed optimism when Alibaba announced plans to spin off its Cloud business as a separatepublicly traded company, as well as its listing logistics and grocery divisions during the tech giant’s earnings call on Thursday.
Shawn Yang of the Blue Lotus Research Institute said in a report that the company “is positive about the impact of separate listing and disclosure of multiple business units.”
Wedbush Securities analyst Dan Ives told CNBC that Alibaba’s plan to spin off its Cloud unit is a “no-brainer strategic move that we believe adds value to Baba’s share valuation” and a “step in the right direction for the story of Alibaba.”
The regulatory environment for Internet companies seems to be deteriorating and we see Alibaba as the main beneficiary as a proxy in China.
Alibaba Cloud, the computing unit behind the tech firm’s ChatGPT-style product Tongyi Qianwenis the “real crown jewel,” said Shao, who noted that artificial intelligence has the ability to change the way people do things and even humanity.
“The value of Alibaba Cloud could easily be north of about $100 billion two, three years down the road,” Shao said.
Baidu, Tencent and Alibaba attributed their financial results to the domestic recovery after China’s aggressive zero-Covid policy ended in December – ending strict lockdown and quarantine measures.
In the company’s first quarter earnings presentation on Thursday, Daniel Zhang, chairman and CEO of Alibaba Group, said: “As the number of Covid-19 cases decreased after the Chinese New Year, business activities and social in China is gradually recovering. This change has affected some of our businesses at different levels.”
Tencent chairman and CEO Pony Ma said the company returned to double-digit revenue growth as payment volume and ad spending in most categories benefited from the recovery in Chinese consumption.
Advertising is doing very well, said Barclay’s Shao, noting that Tencent and Baidu both say their ad businesses are growing by double digits every year.
The latest official data shows China’s economy grew a faster-than-expected 4.5% year-on-year in the three months to March.
E-commerce is recovering, although not as fast as the market expected, Keung and Shao said.
“I think the e-commerce numbers are showing some recovery on a one-year basis and on a two-year basis, we’re seeing some signs of this consumption slowly recovering,” he said. said Keung.
“Travel is fast and things are starting to pick up in the month of March with clothes.”
Keung said they are “expecting some attractive prices that will drive demand during the 618 shopping festival.” The 618 shopping festival, which will take place on June 18, is one of the most important shopping festivals in China.