Alibaba, Tencent results ‘a bright sign’
Analysts see figures as harbinger of better prospects for mainland firms
Signs of improvement in earnings statements by Alibaba Group Holding and Tencent Holdings, two of the nation’s largest technology firms, are being taken as a harbinger of a brighter overall outlook as the economy shows signs of stabilising.
Alibaba yesterday reported a 10 per cent rise in net income for the year to March, while Tencent’s profit rose 62 per cent in the three months to March.
The results by the two companies – which have more than 300,000 staff between them – are seen as the touchstones of growth in corporate earnings and the economy that global investors have been looking for, as they debate whether recent signs of a recovery were a flash in the pan.
With economic growth showing signs of stabilising after the Covid-19 pandemic, the outlook for profitability at mainland companies looks bright, UBS said on May 8.
“From a macro perspective, recent property sales and new starts have yet to hit bottom, while overall earnings remained pressured amid subdued demand in the first quarter,” said Meng Lei, a strategist at UBS in Shanghai.
“Looking ahead, earnings are set to pick up as property activity stabilises and inflation recovery fuels household income and consumer spending growth.”
That would be a relief for investors after a 4 per cent average decline in first-quarter net income among the 5,000 companies listed on the stock exchanges of Beijing, Shanghai and Shenzhen, according to UBS.
Earnings had fallen earlier because consumers had refrained from spending amid a prolonged slump in the property market.
UBS is among the global investment banks and brokers that have dialled down their scepticism about China’s growth prospects in recent months. It has joined Goldman Sachs and BNP in saying that they are now “positive” on the world’s second-largest economy.
HSBC has switched its position on mainland equities from “underweight” to “neutral”.
The economy expanded by 5.3 per cent in the first three months, at a faster pace than the previous quarter, according to official data.
The state of retail sales is of particular importance to economists, as spending by consumers is key to restarting economic growth. Sales growth had slowed to 3.1 per cent in March, as consumers eschewed big ticket purchases such as residential property and vehicles.
The earnings of Alibaba and Tencent are important indicators for the state of retail sales. Alibaba, which operates Taobao and Tmall Marketplace, sells everything from personal and household goods to fresh produce, and even conducts land and ownership auctions for companies.
Tencent earned 180 billion yuan (HK$194.3 billion) last year, or about 30 per cent of its group revenue, from the world’s largest catalogue of mobile games, including such blockbusters as Honour of Kings and PUBG Mobile. Improved corporate earnings are also crucial for gains in Chinese stocks traded on the mainland and in Hong Kong and New York, analysts said.
“We are seeing a resurgence in investor interest in Chinese stocks, including the internet industry, and Tencent is poised to be a top choice for larger funds due to its decent profit growth,” said Shawn Yang, a senior analyst at Arete Research.
China’s benchmark CSI 300 Index has risen 15 per cent from its February low after a series of government measures such as direct stock purchases and restrictions on short selling. Overseas investors snapped up yuantraded stocks for a third consecutive month in March largely because of improving sentiment and recalibration of portfolios by global money managers.
Tencent is the largest stock on the Hang Seng Index, which crossed the 19,000 level this week, capping a 27.8 per cent rise from a January low. Tencent’s stock has gained 45.6 per cent in the same period.
Alibaba owns the Post.
Alibaba Group Holding reported its most profitable financial year since 2021, with revenue beating analysts’ forecasts, signalling the technology giant is back on a growth path as it refocuses on core business units amid tougher competition at home.
Net income attributable to shareholders grew by 10 per cent to 79.7 billion yuan (HK$86.1 billion) in the year to March, beating the 72.5 billion yuan reported in the previous year despite a decline in the final quarter. Revenue grew by 8 per cent to 941.2 billion yuan, beating the consensus estimate of 939.7 billion yuan.
The March quarter’s results were slightly weaker than the year as a whole. Revenue at the company, which owns the Post, grew by 7 per cent year on year to 221.9 billion yuan, beating the consensus estimate of 219.8 billion yuan. Growth was faster than the 5 per cent seen in the December quarter.
“This quarter’s results demonstrate our strategies are working and we are returning to growth,” Alibaba CEO Eddie Wu Yongming said in a press release yesterday.
“Our China and international commerce businesses realised double-digit year-over-year [gross merchandise value] growth through our focus on the customer experience. We are also excited by the accelerated growth of customers and cloud computing revenues related to our AI [artificial intelligence] products.”
Net income was 3.3 billion yuan in the three months to March 31, worse than the 14.5 billion yuan expected by analysts surveyed by Bloomberg. Alibaba said this was primarily attributable to “a net loss from our investments in publicly traded companies during the quarter”.
Under non-generally accepted accounting principles, net income fell by 11 per cent year on year to 24.4 billion yuan for the quarter.
The results come as Alibaba has been working to reorient its sprawling business empire towards its traditional bread-andbutter e-commerce segment and AI, leveraging its status as China’s largest cloud services provider.
Shares in Alibaba closed up 1.9 per cent at HK$82.65 in Hong Kong yesterday ahead of the earnings release. The stock is down by more than 3 per cent since the company unveiled a corporate restructuring in March last year amid a broad pullback in Chinese technology shares.
The Alibaba earnings are also the first full-year results after the tech giant unveiled its largest-ever corporate restructuring more than a year ago. The initiative to split the company into six major units has faced headwinds, as it halted plans to publicly list Cainiao, its logistics unit, and spin off Alibaba Cloud.
Alibaba has refocused on its e-commerce units, primarily Taobao and Tmall Group, as it seeks to fight off fresh competition from PDD Holdings, the operator of domestic rival Pinduoduo and overseas budget shopping app Temu.
The company also announced plans for fresh dividend payouts and share buy-backs. It approved a US$4 billion dividend for the year to March 31 in a bid to “continue to return value to our shareholders”, chief financial officer Toby Xu said.
For the March quarter, Taobao and Tmall Group saw revenue increase by 4 per cent to 93 billion yuan, as the platforms sought to improve price-competitiveness and user experience.
Cloud Intelligence Group, one of the company’s most important growth engines, saw revenue rise by 3 per cent to 25.6 billion yuan, thanks in part to AI-related income.
The company has been pushing ahead with the application and development of its large language model called Tongyi Qianwen, first unveiled last April and adopted by more than 90,000 corporate clients as of May.
Growth in international commerce remains a highlight for the company that has been trying to boost cross-border e-commerce.
Revenue for the unit surged by 45 per cent to 27.4 billion yuan, fuelled in large part by the growth of AliExpress Choice, which offers faster service and more premium products on the international e-commerce platform. Combined orders of Alibaba’s international marketplaces grew by 20 per cent year on year.
Alibaba has refocused on international markets amid a rise in the use of apps leveraging cheap goods shipped straight from Chinese suppliers. Shein popularised the model in fast fashion, and PDD’s Temu has seen rapid growth since airing Super Bowl commercials last year and this year.