Wall Street optimistic about the recovery of Chinese technologies Alibaba, Tencent and Baidu

Shoppers enjoy themselves in Nanjing Road Pedestrian Street, the busiest commercial tourist spot in Shanghai, China, May 5, 2023.

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Analysts are bullish on China’s big tech companies, even as the recovery appears uneven between the companies and their latest earnings.

While the search engine giant Baidu beat revenue and profit estimates for the first quarter of 2023 and Tencent returned to growth after consecutive negative and stable quarters, Ali Baba missed first-quarter earnings expectations and its Hong Kong-listed shares fell nearly 5% on Friday.

“Baidu, Alibaba, Tencent reported – most revenue was 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-on-year to 208.2 billion Chinese yuan ($29.6 billion).

The tech giant’s domestic commerce unit fell 3% in the first quarter, while cloud business fell 2%, underscoring fears that a rebound in Chinese consumer spending may not be as stronger than expected.

Noting the drop in Alibaba shares, Jiong Shao, an analyst at Barclays, said on Friday, ahead of the weekend’s Group of Seven summit: “I think there have been geopolitical concerns… Investors are s are worried about some sort of 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, G-7 leaders acknowledged the need to reduce risk and diversify from China, not decouple. They stressed the need to “address the challenges posed by China’s policies and practices” and to “counter malicious practices, such as illegitimate technology transfer or data disclosure”.

But analysts expressed optimism when Alibaba announced plans to spun off its cloud business into a separate publicly traded company, as well as listing its 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 effect 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 was “an obvious strategic move that we believe adds to the coin valuation sum on Baba. and a “step in the right direction for Alibaba’s history”. “

The regulatory environment for Internet companies appears to be easing, and we see Alibaba as the main beneficiary as China’s proxy.

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Alibaba Cloud, the computing unit behind tech firm Tongyi Qianwen’s ChatGPT-style product, is “really the crown jewel”, said Shao, who noted that artificial intelligence has the ability to change the way which people do things and even humanity.

“Alibaba Cloud’s value could easily be north of around $100 billion in two or three years,” Shao said.

Still recovering

Baidu, Tencent and Alibaba attributed their financial results to the domestic recovery after China’s aggressive zero Covid policy ended in December – ending strict lockdowns and quarantine measures.

During the company’s first quarter results presentation on Thursday, Daniel Zhang, Chairman and CEO of Alibaba Group, said: “As Covid-19 cases declined after the Chinese New Year, business and social activities are gradually recovering in China. This change has impacted some of our businesses to varying degrees.

Tencent Chairman and CEO Pony Ma said the company had returned to double-digit revenue growth as payment volumes and ad spend across most categories benefited from the recovery in consumer spending in China.

Advertising is doing very well, Barclay’s Shao said, noting that both Tencent and Baidu said their advertising business saw double-digit year-over-year growth.

The latest official data showed China’s economy grew faster than expected by 4.5% year-on-year in the three months to March.

E-commerce is recovering, but not as fast as the market hopes, Keung and Shao said.

China's e-commerce competition will be

“I think the e-commerce numbers are showing some of the recovery on a one-year basis and on a two-year basis we’re seeing signs of a gradual recovery in that consumption,” Keung said.

“Travel was strong and merchandise started to really pick up in March along with apparel.”

Keung said they “expect attractive prices to drive demand during the 618 shopping festival.” The 618 Shopping Festival, which takes place on June 18, is one of the most important shopping festivals in China.


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