what happened
Chinese Internet Stock Shares Alibaba (Baba -4.71%), tencent music entertainment (TME -6.22%)When Fuya (Fuya -9.81%) Through Thursday trading, they were up 19.1%, 35.1% and 23.9% respectively this week.
All three companies reported third quarter earnings this week. Alibaba fell short of revenue expectations slightly, but all three were able to beat profit expectations and maintain positive profitability despite China’s economic slowdown. The newfound cost discipline was a stark contrast to the more free-spending US tech giants, and was welcomed by investors.
In addition, Chinese authorities announced reforms aimed at stabilizing the recessionary real estate sector, while others expected a easing of restrictions due to COVID-19.
So what
Note that all three of these stocks have fallen significantly over the last few years. Even after this week’s big move, Alibaba is down his 75% from all-time highs, Tencent Music Entertainment is down his 82%, and Huya is down his 94%.
These stocks were priced fairly low amid a turmoil in China’s economy, with a state crackdown on tech companies, stringent “coronavirus-free” restrictions, and the decline of the large real estate sector. So the fact that each of these companies had at least some positives in their otherwise lukewarm results paid off.
Alibaba grew revenue by just 3% in the quarter, but thanks to cost controls and cuts, non-GAAP (adjusted) revenue before interest, taxes and amortization grew 29% year-over-year.
Revenue, monthly active users and online karaoke or “social entertainment” users declined at Tencent Music, but management’s focus on paying users led the company to grow paid subscriptions by 19.8% to 85.3 million users I was able to. And thanks to cost control, net profit actually increased him by 38.7%.
Huya, on the other hand, has had a tougher time as its revenue, paid users and profits are down from a year ago. However, even Huya showed some silver lining, as Huya Live’s monthly active users increased and both revenue and profit exceeded low expectations.
These better-than-expected numbers, combined with renewed optimism for the broader Chinese economy, kicked off the week. Last Sunday, Chinese authorities announced 16 measures to support the country’s real estate sector. Chinese property developers have been in trouble for over the past year as authorities tried to pop a massive bubble that had developed over the years in the real estate sector. will extend to the country’s banking system and healthier property developers. It was therefore heartening to see the government intervene in a package estimated to total $184 billion.
So
Better-than-feared earnings, a property bailout package and the possibility of China easing some of its COVID-19 policies have helped these stocks gain momentum until at least Thursday.
Going forward, investors in Chinese stocks should weigh the high risk of investing in the country against the potential for lower valuations and incremental improvement.
If the decline in the real estate sector is contained, these stocks could continue to rise if China finally eases all the way to ‘coronavirus zero’ next year and relations between China and the United States improve. However, this is a lot of ifs, so investors should invest in Chinese stocks with caution, with an allocation commensurate with their risk tolerance.
Billy Duberstein has no positions in any of the mentioned stocks. His client may own stock in the mentioned company. The Motley Fool has no positions in any of the companies mentioned. The Motley Fool’s U.S. headquarters has a disclosure policy.
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