China’s Tech Giants Struggle to Regain Investor Confidence
Economic Uncertainty Weighs on Quarterly Earnings
China’s tech leaders, including Tencent Holdings Ltd. and Alibaba Group Holding Ltd., have reported underwhelming numbers for the quarter, citing economic and geopolitical uncertainty. The sector’s giants are struggling to win back investors, and their fate may increasingly depend on Beijing’s actions.
Cautious Optimism and Pleas for Patience
In calls with investors, China’s internet pioneers described how the uneven economy was undermining their business and clouding the future. While they expressed cautious optimism about the government stimulus unleashed late in the summer, they pleaded for patience. However, the group that once defied Silicon Valley and defined China’s private economy was short on new ideas and ambitious goals.
Market Value Plummets
Just over the past week, the five biggest tech firms erased $41 billion in market value, while a gauge of sector stocks listed in Hong Kong has fallen into bear market territory. On Friday, a selloff in Chinese stocks deepened as concerns over Donald Trump’s imminent return mingled with growing frustration over the pace of Beijing’s fiscal stimulus rollout.
Lack of New Ideas and Ambitious Goals
Executives from PDD Holdings Inc. boasted about their cheap hairy crabs instead of offering reassurance for disappointing earnings. Tencent went through its usual pitch about building and sustaining “evergreen” games, without promising any imminent new blockbusters. Alibaba executives spent their time justifying elevated spending to ward off intense competition. Even Baidu Inc., the frontrunner in AI development, failed to wow with any exciting new projects.
Pressure Builds on Beijing for Further Measures
Pressure is building for Beijing to offer further measures, as late September’s market rally on the stimulus campaign fizzles. The parade of ho-hum numbers, vague comments about fiscal policy, and warnings contrasted sharply with the pre-Covid era, when Alibaba and Tencent each approached $1 trillion in market value and analysts talked about the threat they posed to US rivals.
A Shift in Focus
That swagger has vanished since Beijing’s 2020 crackdown on a sector it deemed too powerful. Having once commanded enviable growth rates off the back of China’s burgeoning economy, these companies now face prolonged consumer malaise at home, a lack of obvious growth engines, and costly ventures to expand overseas.
Some Bright Spots Remain
However, there are some bright spots. PDD’s Temu shopping platform has proven to be a hit in the US and other overseas markets. Alibaba’s international e-commerce division delivered strong growth rates several quarters in a row, prompting the company to unify all online retail operations under the leadership of that division’s chief, Jiang Fan. Meituan is following the trend and bringing its takeout service to the Middle East.
Gaming Sector Sees Revival
In the realm of games, Tencent and NetEase Inc. enjoyed a string of hit releases over the summer that revived domestic sales. Tencent-backed Black Myth: Wukong was an unexpected smash hit on PCs, tapping Chinese history and folklore and potentially opening more opportunities for similarly ambitious titles.
Uncertainty Remains
There remain questions about the full extent and timing of China’s support, which is rolling out in stages, leaving the macroeconomic outlook uncertain. One of the sharper comments this earnings season came from PDD co-Chief Executive Officer Jiazhen Zhao, who appeared to find fault within his own ranks.
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