Chinese tech giants, including Alibaba, have seen slow or no growth as the Chinese economy faces weakness as a result of Beijing’s no-coronavirus policy.
Kelay Shane | Bloomberg | Getty Images
Chinese tech giants are beginning to emerge from their worst quarter of growth in history as the massive slowdown in the world’s second-largest economy, fueled by Beijing’s tough policy on the Covid virus, takes a heavy toll.
In the second quarter of the year, the e-commerce company Ali Baba Posted her First year-over-year steady revenue growth Social networking and games Tencent I mentioned her First ever drop in sales. JD.comthe second largest e-commerce company in China, Recorded the slowest revenue growth in historywhile the electric car maker Exping Posted Wider than expected loss plus poor steering.
Combined, the market capitalization of these companies is more than $770 billion.
In the June quarter, China saw a resurgence of Covid cases. China has stuck to the so-called “zero COVID” policy, which is a set of strict measures Including lockdowns and mass testing to contain the virus. Major cities, including Shanghai, have been closed for several weeks.
China’s economy grew only 0.4% in the second quarterThis has affected consumer power as well as corporate spending in areas such as advertising and cloud computing.
Those headwinds have fed China’s tech giants.
“Retail sales fell year-over-year in April and May due to the resurgence of Covid-19 in Shanghai and other major cities, and slowly recovered in June,” Alibaba CEO Daniel Zhang said on the company’s earnings call this month. .
Alibaba’s logistics networks in China were also affected, and it said some cloud computing projects had been delayed.
Tencent, owner of the WeChat messaging app and one of the world’s largest gaming companies, has felt the impact of the zero-Covid policy. Fintech services revenue grew more slowly than in previous quarters as fewer people were going out and using the WeChat Pay mobile payment service. The company’s revenue from online advertising has also fallen sharply as companies cut their budgets.
JD.com did well in the second quarter because it controls a lot of supply chain and logistics inventory. However, it has seen its implementation and logistics costs rise in the face of the shutdowns.
Electric vehicle maker XPeng said it expects to deliver between 29,000 and 31,000 vehicles in the third quarter. But this was weaker guidance than the market had expected. In addition to the seasonal weakness, XPeng president Brian Gu said that “traffic in stores is less than we’ve seen before due to (the) post-COVID situation.”
China’s internet giants have enjoyed a boom during the pandemic as people have turned to online services such as shopping and gaming amid the lockdowns. This made year-on-year comparisons more difficult. Now, the Chinese economy is facing a number of headwinds this year that have made the macroeconomic environment more challenging.
China’s tech sector continues to deal with a tougher regulatory environment. Over the past two years, China has introduced a much stricter policy in areas from gaming to data protection.
With growth rates lower than in previous years, investors are being cautious about their outlook.
“What I find interesting is how the narrative around the big tech companies has changed…: Early in the pandemic, COVID was expected to benefit large online platforms at the expense of ‘offline’ businesses,” said Tariq Denison. “Be stuck at home with few options other than online shopping and entertaining online.”
“The recent decline in revenue and earnings for these big tech names reflects the lack of concerns about COVID in the short term, but there are also many long-term investors, including myself, who have revised our estimates of the long-term growth prospects for these names.”
Denison said Tencent, Alibaba and JD.com previously maintained more than 25% annual revenue growth and that a long-term slowdown would be a concern.
“If this quarter is a sign of a permanent slowdown in single-digit growth rates, rather than just a temporary dip, that will of course have a significant impact on the long-term valuations of these stocks,” Denison said.