Chinese Big Tech Firms: Recovery Looks Uneven Across Companies and Latest Earnings

Chinese Big Tech Firms: Recovery Looks Uneven Across Companies and Latest Earnings

Chinese big tech firms have delivered mixed results in their latest earnings reports. While Baidu beat revenue and profit expectations for Q1 2023, Tencent bounced back to growth after consecutive negative and flat quarters. However, Alibaba’s first-quarter revenue fell short of analysts’ expectations, causing its Hong Kong-listed shares to slide almost 5% on Friday. Despite these uneven results, analysts remain bullish on Chinese big tech firms.

Ronald Keung, head of Asia Internet Research at Goldman Sachs, said that “most of the earnings were a beat,” in reference to the Q1 earnings report of Baidu, Alibaba, and Tencent. Although Alibaba missed analysts’ revenue estimates, its revenue still rose by 2% YoY to reach ¥208.2 billion ($29.6 billion). However, the tech giant’s domestic commerce unit dropped by 3% in Q1, while its cloud business fell by 2%. These declines highlight concerns about a Chinese consumer spending rebound, which may not be as strong as expected.

Jiong Shao, an analyst at Barclays, noted that Alibaba’s shares declined due to “geopolitical concerns” regarding the possibility of sanctions against China and Chinese companies. The G-7 leaders met in Hiroshima, Japan, over the weekend to discuss global and regional issues, including the challenges posed by China’s policies and practices. In a joint statement, the G-7 leaders acknowledged the need to “address challenges posed by China’s policies and practices” and “counter malign practices, such as illegitimate technology transfer or data disclosure.”

Analysts Optimistic About Alibaba’s Spinoff Plan

Despite the concerns raised by Alibaba’s Q1 earnings report, analysts are optimistic about the company’s plans to spinoff its cloud business as a separate, publicly traded company. The company also plans to list its logistics and grocery divisions. Shawn Yang of Blue Lotus Research Institute said that the firm is “positive on the effect of separate listing and disclosures of several business units.” Wedbush Securities analyst Dan Ives called Alibaba’s spinoff plan a “no-brainer strategic move” that would add value to the company.

The regulatory environment for internet companies in China appears to be easing, and Alibaba’s spinoff plan is seen as a sign that China may be loosening its grip on its domestic tech companies. In March, Alibaba announced that it would be splitting its business into six individual units, each with the ability to raise external funding and pursue listings. Morgan Stanley sees Alibaba as the key beneficiary of this regulatory easing, calling it a “China proxy.”

Alibaba Cloud, the computing unit behind the company’s ChatGPT-style product Tongyi Qianwen, is seen as the “jewel in the crown” of the company. Shao noted that artificial intelligence has the ability to change the way people do things and even humanity. He estimated that the value of Alibaba Cloud could easily be in the north of $100 billion in the next two to three years.

Chinese big tech firms have delivered mixed results in their latest earnings reports, with Alibaba missing revenue expectations while Baidu and Tencent beat them. Despite these uneven results, analysts remain bullish on Chinese big tech firms, and Alibaba’s spinoff plan is seen as a positive move for the company. The regulatory environment for internet companies in China appears to be easing, and Alibaba is seen as the key beneficiary of this trend.

World

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