Alibaba, Tencent and Baidu’s Earnings Show China’s Internet Boom Isn’t Slowing

As impressive as the growth rates being delivered by Alphabet Inc./Google (GOOGL) , Facebook Inc. (FB) and Inc. (AMZN)  are, China’s three biggest Internet companies are managing to collectively outpace them. And for a few different reasons, this trend has a good chance of continuing over the short-term.

Alibaba Group Holding Ltd.  (BABA) and Tencent Holdings Ltd (TCEHY) , whose spectacular growth and ever-expanding reach arguably make them China’s FANG stocks, have each delivered post-earnings gains on Thursday in spite of facing very high bars. Alibaba reported June quarter (fiscal first quarter) revenue of RMB50.18 billion (equal to $7.4 billion and up 56% annually) and adjusted EPS of $1.17, beating consensus analyst estimates of $7.13 billion and $0.93. Tencent reported Q2 revenue of RMB56.6 billion (equal to $8.36 billion and up 59%) and net income of RMB18.23 billion ($2.69 billion), beating consensus estimates of RMB53 billion and RMB14.2 billion.

Alibaba is up 3.8% to $165.50 as of the time of this article, and has made new highs. Tencent rose 1.9% overnight in Hong Kong. Alibaba is now up 89% on the year and valued at $424 billion. Tencent is up 74% and valued at $469 billion.

Alibaba’s revenue growth nearly matched the March quarter’s 60% in spite of a much smaller benefit from its 2016 deals to acquire Chinese online video giant Youku Tudou and a majority stake in Southeast Asian e-commerce leader Lazada. Notably, Alibaba’s “China commerce retail” revenue, which covers its giant Taobao and Tmall marketplaces and still accounts for 73% of its revenue, grew 57% to RMB36.7 billion ($5.4 billion), a big improvement from the March quarter’s 41% growth.

This growth was fueled by a 65% increase in revenue for “customer management” services for merchants (ads account for much of this business), and to a lesser extent a 28% increase in commission revenue (mostly from Tmall). While the annual active customer base for Taobao/Tmall only grew 7% annually to 466 million, annual revenue per active customer grew 35% to RMB273 ($41), thanks both to higher per-customer spend and Alibaba’s very successful efforts to monetize its mobile apps and sites.

Alibaba also noted Tmall saw a 49% increase in physical goods gross merchandise volume (GMV), with GMV growth accelerating for categories such as consumer electronics, fashion/apparel and “fast-moving consumer goods.” That’s likely a big reason why top Alibaba rival Inc. (JD) , which has a large presence in those categories, is down 5.1% to $41.44. JD, which reported seeing 46% Q2 GMV growth and 44% revenue growth a few days ago, is still up 63% on the year.

                                Alibaba’s China marketplaces are still seeing healthy customer growth.

Alibaba’s international retail e-commerce ops (still just 6% of revenue) saw revenue grow 136% to RMB2.64 billion ($389 million). The timing of the Lazada deal — it closed in mid-April 2016 — provided a small boost to growth, but organic growth for Lazada and the AliExpress site were larger factors. International commerce wholesale revenue, driven by the site, grew a modest 12% to RMB427 million ($64 million), and Chinese commerce wholesale revenue grew 30% to RMB1.64 billion ($242 million).

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