Tag: JD.com

China’s $10 Trillion Stimulus: Is Alibaba (BABA) Set for a Surge?

Posted on by The INO.com Team

In a strategic response to a slowed economy, China is considering a significant fiscal move: a 10 trillion yuan ($1.4 trillion) stimulus aimed at revitalizing growth by bolstering local government debt management, supporting consumer spending, and stabilizing core economic sectors. This fiscal plan, as per recent reports, would be spread across multiple years, with large portions channeled through special-purpose bonds for infrastructure and other targeted areas.

Alibaba Group Holding Limited (BABA), a prominent figure in China’s e-commerce and cloud markets, stands to be impacted by this stimulus. With its strong foothold in retail via Taobao and Tmall and significant presence in cloud computing through Alibaba Cloud, Alibaba could see both opportunities and risks from China’s economic boost. Here’s a deeper dive into the implications of the stimulus for Alibaba’s stock and growth potential.

China’s Fiscal Stimulus and Its Aims 

China’s $1.4 trillion stimulus proposal focuses on a range of economic concerns, including managing local government debt, shoring up liquidity in the property market, and catalyzing consumer spending. The central government’s support will come through the issuance of special treasury and local bonds and initiatives that include funding for infrastructure projects. With high debt levels and a weakened property market threatening economic stability, this fiscal support could indirectly stimulate consumer activity by stabilizing financial pressures at the local level.

Historically, similar stimulus packages have buoyed consumer sentiment and increased disposable income, supporting higher spending across sectors like retail and technology. Alibaba, with its vast ecosystem encompassing e-commerce, cloud computing, logistics, and entertainment, could be well-positioned to capitalize on an uptick in consumer and business expenditure.

Alibaba’s Strategic Positioning Amid Economic Support 

Alibaba commands a substantial portion of China’s e-commerce market, with platforms like Taobao and Tmall playing central roles in the digital lives of millions. In the most recent quarter, Alibaba’s revenue from its China commerce segment hit RMB113.4 billion ($15.6 billion) despite a modest 1% drop year-over-year, attributed to investments in user experience and competitive pricing. These figures underscore Alibaba’s resiliency and the potential for further growth if consumer spending rises due to the stimulus.

Alibaba’s cloud segment also represents a significant growth avenue. Alibaba Cloud, leading the market in China, saw revenue reach RMB26.5 billion ($3.6 billion) in Q2 2024, marking a 6% increase year-over-year. In tandem with public cloud services, the company is expanding its AI-related offerings, which saw a triple-digit growth rate as more enterprises adopt AI infrastructure—a trend that may accelerate with more government-backed economic stability.

Beyond its core segments, Alibaba has diversified into areas such as logistics through Cainiao, local services, and international commerce, which grew by 32% in the past quarter. This breadth allows Alibaba to capture consumer spending across a variety of sectors, making it especially responsive to a stimulus-driven economic revival.

Navigating Risks: Regulation and Competition 

Despite the positive growth prospects, Alibaba faces certain risks that could temper the impact of the stimulus. One primary concern is regulatory scrutiny within China and abroad. Over the past few years, Chinese authorities have increased regulatory oversight on major tech companies, introducing policies aimed at data security, anti-monopoly actions, and fair competition. Any regulatory pressure could hinder Alibaba’s operational flexibility and investment capacity, particularly in the cloud and digital finance sectors.

Additionally, competition within China’s tech landscape is intense. E-commerce peers like JD.com, Inc. (JD) and Pinduoduo, as well as cloud competitors such as Tencent Holdings Limited (TCEHY), continuously challenge Alibaba’s market share. For instance, Alibaba’s adjusted EBITDA in its international digital commerce division showed an increased loss, reflecting substantial investments in global markets to fend off competition. As a result, Alibaba may need to balance between maintaining its competitive edge and managing profitability, especially in a period of high regulatory vigilance.

Investment Outlook: Assessing Alibaba’s Valuation and Growth Potential 

Investors evaluating Alibaba’s growth prospects in light of China’s stimulus should consider the company’s recent financial performance and market positioning. For Q1 2025, Alibaba reported revenues of $33.94 billion, a 4.6% year-over-year increase.

Furthermore, Alibaba has been proactive in managing shareholder value through stock repurchases, with a buyback program that saw $5.8 billion returned to shareholders. This shareholder-friendly approach, combined with stable operating metrics, positions Alibaba as an attractive option for those looking to capitalize on potential stimulus-fueled economic growth.

However, Alibaba’s valuation remains sensitive to external factors, including U.S.-China relations and global economic conditions. If China’s stimulus delivers on its promise, Alibaba could benefit from increased spending in consumer and business markets, likely providing a tailwind for the stock.

What Action Should Investors Take? 

Given the current climate, investors may consider Alibaba a cautiously optimistic buy, particularly for those with a higher risk tolerance. The potential for Alibaba to benefit from China’s large-scale fiscal stimulus, coupled with its established market dominance, makes it a promising candidate in the e-commerce and cloud sectors. However, the regulatory environment and competitive landscape warrant a conservative approach. Long-term investors might see the benefits of holding Alibaba, as growth in cloud computing and AI could continue to provide meaningful returns, especially if the stimulus bolsters consumer confidence and spending.

For those more risk-averse, staying on the sidelines or taking a smaller position could be advisable, as regulatory developments and global economic shifts may affect Alibaba’s stock in unpredictable ways. In short, Alibaba offers potential for growth in a recovering Chinese economy, but careful attention to policy and competition is essential for investors looking to navigate this complex market.

Short-Term Gains vs. Long-Term Risks: Evaluating Chinese Stocks in Your Portfolio

Posted on by The INO.com Team

Over the past half-decade, China has implemented unpredictable and business-unfriendly policies, including the world's longest-lasting COVID-19 lockdown, making it a challenging environment for investment. A poll conducted at a Goldman Sachs conference in Hong Kong in early February indicated that over 40% of attendees considered China ‘uninvestable.’

Major companies like Apple Inc. (AAPL) and Samsung are also shifting their supply chains away from China, and many others are not planning future investments in this previously coveted market.

As the Chinese economy grapples with market weakness, the New York Times reported a shift in the government’s stance towards more business-friendly policies.

Moreover, JPMorgan analysts are optimistic about the continuation of positive China trading trends, predicting this momentum could extend through the summer. While longer-term structural concerns such as deflationary backdrop, excess capacity, real-estate demand-supply imbalances, credit saturation, and global decoupling persist, analysts believe the worst of the housing market weakness is over. And that should keep the rally going.

Last week, Alibaba Group Holding Limited (BABA), JD.com, Inc. (JD), and Baidu, Inc. (BIDU) released their quarterly results, revealing that growth, although modest, continues. Their management teams are effectively delivering on efficiencies and enhancing shareholder value.

BABA shares have gained more than 8% over the past five days, while JD saw marginal gains over the same period. Although down 4% in the past week, BIDU has logged nearly a 7% gain over the past month.

Meanwhile, the iShares MSCI China exchange-traded fund (MCHI) climbed 17% over the past month, outpacing the S&P 500, which rose nearly 7%.

Despite these gains, the question still lingers: is the rally short-lived? Let’s dig deeper.

Alibaba Group Holding Limited (BABA)

The Chinese e-commerce giant Alibaba Group Holding Limited (BABA) faced tough regulatory, macroeconomic, and competitive headwinds in the past. For the fourth quarter that ended March 31, 2024, BABA’s revenue increased by a modest 7% year-over-year to $30.73 billion. However, the company’s income from operations declined 3% from the prior-year quarter to $2.05 billion.

Alibaba has been navigating a period of cautious consumer spending in China, yet there have been signs of a slight recovery in its core e-commerce business. Revenue from the Taobao and Tmall Group rose 4% year-over-year to $12.91 billion.

Also, customer management revenue (including marketing services for merchants on Taobao and Tmall) increased 5% after being flat in the prior quarter, and revenue from the Alibaba International Digital Commerce Group (AIDC) surged 45% year-over-year to $3.80 billion.

CEO Eddie Wu's commitment to “reignite” growth through further investments showed early results in the March quarter, as he noted the strategies were “working and we are returning to growth.”

However, BABA’s net income plunged by 96% from the prior year’s quarter to $127.18 million, primarily due to a decline in the value of its holdings in other publicly traded companies. The company’s non-GAAP earnings per share fell 5% from the year-ago value to $0.18. Also, its adjusted EBITDA decreased by 5% year-over-year to $3.32 billion.

Analysts expect Alibaba’s revenue for the first quarter (ending June 2024) to increase 5.5% year-over-year to $34.22 billion. However, its EPS for the ongoing quarter is expected to decline by 15.2% year-over-year to $2.04. Further, for the fiscal year 2025, BABA’s revenue is forecasted to reach $140.52 billion (up 8% year-over-year), while the consensus EPS estimate of $8.25 indicates a 4.1% decline from the prior year.

In terms of forward non-GAAP P/E, BABA is trading at 10.74x, 31.9% lower than the industry average of 15.79x. Likewise, its forward EV/EBITDA and Price/Book multiples of 6.93 and 1.47 are 28.9% and 40.5% lower than the industry averages of 9.74 and 2.48, respectively. Attractive, isn’t it? But the question remains: why is this stock so cheap in the first place?

In response to its low valuation, Alibaba's management repurchased $4.8 billion worth of shares in the fourth quarter. Although buybacks can theoretically boost the value of remaining shares by reducing the number outstanding, they fail to tackle the fundamental reasons for Alibaba's low stock price.

Alibaba's diverse investments dilute its focus on core e-commerce and cloud businesses, impacting its efficiency and valuation in the long run. For instance, although the management reported triple-digit growth in AI-related revenue in the fourth quarter, the cloud computing division only expanded by 3% year-over-year to $3.55 billion.

The stock has gained over 28% over the past month and nearly 14% year-to-date. Despite these gains, many investors are wary of the unpredictable and hostile Chinese market, and Alibaba's sprawling conglomeration of disjointed businesses further diminishes its appeal. Plus, the company's AI prospects seem weak compared to U.S. competitors.

Given BABA’s mixed financial performance and uncertain near-term outlook, waiting for a better entry point in this stock seems prudent.

JD.com, Inc. (JD)

Headquartered in Beijing, JD.com, Inc. (JD) offers a wide range of products, including computers, communication devices, consumer electronics, home appliances, and general merchandise. It also provides online marketplace services for third-party merchants, marketing services, omnichannel retail solutions, and online healthcare services.

In the latest quarter, the Chinese online retailer saw accelerated growth in its topline and market share, complemented by a robust bottom line that exhibited healthy gains. As consumers have been gravitating toward low-cost, discount-focused platforms, the company’s strategic price cuts and discount coupons have boosted sales that have been hit by cautious consumer behavior.

JD’s CEO, Sandy Xu, highlighted strong performance in categories like general merchandise, electronics, home goods (especially mobile phones), and apparel. He added that improved price competitiveness resonated with users, accelerating growth in lower-tier cities faster than in higher-tier cities.

During the first quarter that ended March 31, 2024, JD’s net revenues increased 7% year-over-year to $36 billion, beating analysts’ estimate of $35.68 billion. Its income from operations grew 19.8% from the prior year’s quarter to $1.10 billion. Furthermore, non-GAAP net income attributable to the company’s ordinary shareholders came in at $1.20 billion and $0.78 per ADS, up 17.2% and 18.7% year-over-year, respectively.

Earlier this month, analysts expressed concerns about the impact of JD.com’s low-cost strategy on margins and profitability. However, CFO Ian Shan dismissed these worries, stating that increasing users and profitability simultaneously is not contradictory.

“We believe by constantly dedicating resources to product, price, and service, this improves user experience, which drives up GMV (gross merchandising volume) and market share,” forming a virtuous cycle of business enhancement and profit growth, Shan explained.

Looking at the balance sheet, JD.com holds more cash than debt, which indicates financial stability and potential for investment in growth opportunities. As of March 31, 2024, its cash and cash equivalents stood at $11.31 billion, and its total current assets were $39.34 billion. Also, JD’s free cash flow increased by 166.3% over the past 12 months, reaching $7.01 billion.

This strong cash position allowed the company to pay an annual dividend (yielding 2.19% at the current price level) for the year ended December 31, 2023, of $0.38 per ordinary share, or $0.76 per ADS, to its shareholders on April 23, 2024. JD's four-year average dividend yield is 1.24%, with a payout ratio of 23.45%.

Despite robust short-term performance, JD.com has been cautious with international expansion compared to its peers. For instance, it opted not to acquire the warehouse and store network of British electrical retailer Currys in March. However, with expectations of slowing domestic growth, the company might need to explore new overseas revenue streams to sustain its momentum.

In terms of forward non-GAAP P/E, JD is trading at 10.66x, 32.5% lower than the industry average of 15.79x. Similarly, its forward EV/Sales multiple of 0.30 is 75% lower than the industry average of 1.22. Also, the stock’s 0.33x forward Price/Sales compares to the 0.89x industry average.

Street expects JD’s revenue and EPS for the second quarter (ending June 2024) to increase 5.6% and 7.2% year-over-year to $41.69 billion and $0.79, respectively. Also, the company has topped the consensus EPS estimates in all four trailing quarters.

For the fiscal year 2024, the Chinese online retailer’s revenue and EPS are anticipated to grow 6.6% and 7.4% year-over-year to $160.66 billion and $3.31, respectively.

Shares of JD have surged more than 43% over the past three months and approximately 20% year-to-date.

Based on the company’s outlook, JD.com is focused on enhancing user experience and solidifying its market position for sustainable growth. This includes developing an ecosystem benefiting both first-party and third-party merchants. Additionally, the company’s shareholder-friendly actions, such as share repurchases and dividends, will likely bolster investor confidence and support the stock’s valuation.

Analyst Saiyi HE maintains a bullish outlook on the stock, with a price target of $51.90.

Considering these factors, along with JD.com's ongoing initiatives and potential for margin expansion, investors should closely monitor the company's performance throughout this year.

Baidu, Inc. (BIDU)

Baidu, Inc. (BIDU) operates as a Chinese-language Internet search provider with its headquarters in Beijing. Its Baidu.com platform enables users to discover online information. The company operates through two segments, Baidu Core and iQIYI.

Often called the "Google of China," Baidu is a prominent AI leader in the world’s second-largest economy. It not only develops AI tools but also supports the technology through its cloud computing infrastructure. Baidu launched the ERNIE bot, China's first public ChatGPT-like tool, and has a growing business in self-driving taxis.

For the first quarter that ended March 31, 2024, BIDU reported a marginal year-over-year increase in its revenues of $4.37 billion, slightly above Wall Street’s estimate of $4.34 billion. Its non-GAAP operating income rose 4% from the year-ago value to $924 million. Its non-GAAP net income came in at $971 million, up 22% year-over-year.

 Baidu’s focus on AI-driven advertisements and cloud services is expected to drive long-term growth despite potential short-term volatility in ad revenue due to the lower monetization of AI-generated search results. Moreover, AI significantly contributed to Baidu’s performance in the latest quarter. The core business, which includes online marketing and AI efforts, reported revenue ahead of analyst expectations, driven by a 6% annual growth in the AI Cloud segment.

“Baidu Core’s online marketing revenue remained stable, while the end-to-end optimization of our AI technology stack continued to propel the growth of our AI Cloud revenue during the quarter,” said Robin Li, Baidu’s CEO, in a statement.

The company’s non-GAAP earnings per ADS amounted to $2.76, a 23.7% increase from the prior year’s quarter. In addition, its adjusted EBITDA increased marginally year-over-year to $1.14 billion.

As of March 31, 2024, the company’s cash and cash equivalents were $4.21 billion, and its total current assets stood at $30.12 billion.

Rong Luo, Baidu’s Chief Financial Officer, stated, “In the coming quarters, we will execute on what is needed to optimize our operational efficiency in support of our AI enabled businesses and high-quality growth, and maintain a healthy non-GAAP operating margin.”

In terms of forward non-GAAP P/E, BIDU is currently trading at 9.87x, 28.7% lower than the industry average of 13.86x. Also, its forward EV/EBIT multiple of 8.61 is 42% lower than the industry average of 14.85x.

Analysts expect BIDU’s revenue for the second quarter (ending June 2024) to increase 3.1% year-over-year to $4.81 billion. However, its EPS for the current quarter is expected to decrease by 12.2% year-over-year to $2.71. Over the past month, the stock has gained more than 17% to close the last trading session at $108.87.

While the firm’s short-term gains are apparent, demonstrated by robust financial performance and stock price increases, there are looming risks, primarily due to potential fluctuations in ad revenue and the complexities of integrating generative AI capabilities.

Given this backdrop, investors should monitor BIDU's progress closely, especially its advancements in AI and cloud services, to evaluate the sustainability of its growth.

Beyond Gaming: Assessing the Ripple Effect of China's Regulatory Actions on BABA and JD

Posted on by The INO.com Team

The Chinese authorities have recently issued a comprehensive draft of rules and regulations to reduce online expenditure and in-game rewards in video games. These impending regulations would prohibit online games from offering incentives to players based on their consecutive logins, first-time purchases, or recurring payments – standard practices typically deployed in online gaming scenarios.

The removal of the incentives could reduce daily active users and in-app revenue. Such a change could ultimately compel publishers to restructure their game design and monetization strategies.

The draft represents the most stringent enforcement to date. It bars games from presenting probability-based draws to underage users and disallows the trading of virtual gaming items. Amid ongoing concerns over user data security, it mandates that game publishers host their servers domestically in China.

The aggressive regulations have slammed the world's largest gaming market. The immediate fallout saw investors retreating in haste, resulting in an approximate loss of $80 billion in market value for China’s two dominant gaming companies, Tencent Holdings and Netease.

Several U.S. and European video game developers saw shares take a hit after Friday’s announcement, but the losses were small when compared with Tencent’s 16% tumble and NetEase’s 25% decline. The regulation news wiped about $54 billion off Tencent’s share value.

The country initiated its major clampdown on the gaming sector in 2021, implementing stringent playtime restrictions for minors and freezing new game approvals for almost eight months, citing increasing concerns over gaming addiction. These regulatory measures led to unprecedented challenges for China's gaming industry in 2021 and 2022, marking the first time the industry witnessed a contraction in total revenues.

While the Chinese authorities resumed approval of new games in the following year, regulators have maintained their focus on managing the duration of gameplay for minors and their overall expenditure within the game.

The recent draft comes as China's domestic game market revenue reached ¥303 billion ($42.6 billion), growing 14% in 2023, reversing a 10% decline from the year before, as per figures from industry association CGIGC. Due to the sheer size and impact of Chinese gaming giants, the global video games market could also be affected in the long run.

The profound impact of China's recent regulations has reverberated beyond the gaming industry and has significantly impacted Chinese tech corporations.

A regulatory storm against big tech firms emerged in late 2020 when Chinese authorities began to express concerns about the extensive influence and growth of the nation's major internet platforms.

This regulatory onslaught against China’s tech giants resulted in the wiping of trillions of dollars in market value, leaving a significant dent in one of the most burgeoning sectors of the world's second-largest economy. This intensified the U.S.-China decoupling, with its effects visibly shrinking those Chinese tech companies that once competed neck-to-neck with their U.S. counterparts.

Alibaba Group Holding Limited (BABA) found itself in the eye of the storm following critical comments made by co-founder Jack Ma against Chinese regulators ahead of the impending IPO of its subsidiary Ant Financial. This fintech affiliate, whose IPO plans in Shanghai and Hong Kong were halted abruptly, created a global tremor among the investment community.

BABA faced a record-breaking fine of $2.8 billion, and Chinese antitrust regulators imposed rigorous restrictions on the company's e-commerce operations. The newly enacted measures – barring BABA from implementing exclusive agreements with merchants, employing loss-leader promotions to attract fresh clientele, and boosting its ecosystem through unauthorized investments – have subsequently weakened BABA's safeguards against market competitors.

Following the censure of BABA, China's regulatory hawks turned their attention toward the online financial service units of 13 other tech titans, including JD.com, Inc. (JD).

It was initially predicted that Chinese policymakers would change their trajectory and prioritize growth stimulation in 2023, with tech firms being key players in this strategy. But with recent gaming regulations eroding consumer faith in tech stocks, it is expected to trigger a domino effect, potentially impacting shares of high-flyers like BABA and JD.

Here, we delve deeper into the ramifications and implications faced by these tech companies.

Alibaba Group Holding Limited (BABA)

BABA, previously regarded as China's best contender for becoming a trillion-dollar entity, currently stands near its lowest trading value of the year, a significant reduction from its 2020 peak. The company is navigating through turbulence on multiple fronts. Weakened economic recovery and burgeoning rivals threaten BABA's once primarily dominant position in the online retail sector.

BABA recently aborted plans to float its cloud division due to uncertainties stirred by the United States' export restrictions on advanced computing chips. The tech giant now looks forward to formulating a robust growth model centered around the increasing demand for networked and highly scalable cloud computing services underpinned by AI. However, it's worth noting that U.S. bans on high-end chip exports to China may hinder China's technological ambitions.

In an endeavor to revive profits, BABA is refocusing on e-commerce, leveraging content creators and competitive pricing to remain relevant amid stiff competition. The e-commerce behemoth is looking at slashing prices and is projected to continue heavy investment in curating content encompassing shopping, consumption, and everyday life.

Stricter regulations enforced in recent years have purportedly placed pressure on Chinese tech firms like BABA. This year, BABA has also witnessed a contraction in its workforce. BABA's stock prices dropped following China's announcement to regulate the online gaming industry with tough measures aimed at reducing excessive spending and controlling online game content.

Alibaba Cloud offers custom solutions for the gaming industry, providing dependable support for game development and distribution, ensuring an excellent experience for players and users. Globally, it remains a top choice for gaming businesses intending to streamline their digital transition journey with flexible game development, secure and swift global distribution, and economical operations.

BABA owns several renowned gaming platforms in China, including Youku Games, Epic Games China, and Perfect World. These platforms boast millions of gamers and generate billions of dollars in revenue each year.

Nonetheless, these platforms will also have to conform to new rules that curtail online gaming time for minors and limit game content featuring violence, gambling, or inappropriate language. These newly imposed rules mandate BABA to modify its game development strategy and content to meet the novel standards and evade potential penalties.

Additionally, it might require extensive resources and effort to supervise and moderate its gaming platforms to maintain regulatory compliance, potentially risking the loss of consumers. Such changes could then detrimentally affect BABA's revenue and profitability derived from the online games that the tech behemoth develops and distributes.

However, analysts expect BABA’s revenue for the fiscal third quarter ending December 2023 to increase 4.9% year-over-year to $37.65 billion. Its EPS is expected to come at $2.79 for the same quarter.

JD.com, Inc. (JD)

JD, China’s leading e-commerce platform, has extended its realm of operations to include online gaming under the name of JD Gaming.

What JD is doing in gaming?

The retail giant's gaming venture has several elements to its approach. Firstly, it harnesses the insights of its extensive consumer base, who contribute an abundance of product feedback collected through the platform's transactions. This data is shared with industry partners to inform and enhance their product development.

One key instance is JD's engagement with influential partners like Lenovo, a noted Chinese PC manufacturer, and the gaming behemoth Tencent. The collaboration resulted in the creation of mobile gaming optimized smartphones. Through this strategy, JD not only participates in product development but also acts as a distributor for these devices, directly catering to its gaming clientele via its shopping app.

Secondly, a significant component of JD's gaming strategy involves its stake in e-sports or competitive video gaming. In 2017, JD unveiled its professional e-sports team, JD Gaming, expanding it later by launching JD Esports, a dedicated mobile gaming team, in 2020.

Considering that global esports revenue is projected to surge to $3.8 billion by 2023, the potential for profit is vast. JD intends to ensure that a part of this profitable domain is its.

However, recent changes in gaming regulation affecting youth in China might cause a shift in consumer preferences and gaming habits. Consequently, online games, accompanying accessories, game consoles, and in-game purchases may see a decrease in demand. These developments have the potential to impact JD's e-commerce operation in ways worth close observation.

Analysts expect JD’s revenue and EPS for the fiscal fourth quarter ending December 2023 to decline 1.1% and 3.8% year-over-year to $41.97 billion and $0.66, respectively.

Bottom Line

The sweeping restrictions unveiled before Christmas elicited reminders of the unceremoniously harsh crackdown on the tech sector in 2021. During that year, Chinese regulatory bodies spontaneously initiated limitations spanning various areas from e-commerce to entertainment, effectively destroying the online education industry through the outlawing of profits.

Some believe that there are traces of a governmental aspiration for an enhanced and diverse gaming environment marked by creativity and exceptional quality. The authorities lean toward a marketplace where publishers gain profits via ethical practices and innovative offerings instead of aggressive monetization tactics or endorsing "pay-to-win" games.

In a surprising turn of events, Chinese officialdom has moderated newly formulated online gaming regulations soon after the proposed constraints resulted in major technology firms losing billions of dollars. They sanctioned 105 domestic games, indicating the Chinese authorities' approval for the evolution of online gaming. This could potentially bolster investor sentiment.

However, analysts remain cautious when considering China's e-commerce titans, like BABA and JD. As it stands, the Chinese consumer is progressively tightening discretionary spending amid a frail economic climate. Additionally, the looming threat of intensified sector rivalry might influence company profitability.

Last week saw Chinese stocks taking a downturn, induced by apprehension over a potential surge in COVID-19 contagions, endangering progress in the world's second-most prosperous economy. This puts the decision to open the country post-lockdown under scrutiny, especially considering the resultant economic deceleration witnessed last year.

Given this backdrop, it could be wise to wait for better entry points in the featured stocks

4 China Tech Stocks to Get into BEFORE Mid-August Hits

Posted on by The INO.com Team

President Joe Biden plans to sign an executive order to curb critical U.S. technology investments in China by mid-August, according to people familiar with the internal deliberations. The order primarily focuses on semiconductors, artificial intelligence (AI), and quantum computing. It won’t affect any existing investments and will only prohibit certain new transactions.

These so-called outbound investment controls are part of a broader White House effort to limit China’s capabilities to develop next-generation technologies to dominate military and economic security. This includes steps to control the sales of advanced chips and the tools to build them.
The timing of the executive order has slipped multiple times before, and there is no assurance that it won’t be delayed again. However, internal discussions have already shifted from the substance of the measures to rolling out the order and accompanying rule, stated the people familiar who spoke anonymously.

The effort can complicate the Biden administration’s already troubled relations with China, which sees these restrictions as an effort to contain and isolate the nation. Earlier this month, China’s envoy in Washington said that Beijing would retaliate if the U.S. imposed new restrictions on tech or capital flows.

Meanwhile, Treasury Secretary Janet Yellen has tried to calm Chinese anger over the limitations, stating they wouldn’t considerably damage the ability to attract U.S. investment and were narrowly tailored.

“These would not be broad controls that would affect US investment broadly in China, or in my opinion, have a fundamental impact on affecting the investment climate for China,” Janet Yellen commented in an interview with Bloomberg Television.

4 China Tech Stocks to Buy Before Mid-August

JD.com, Inc. (JD) is a leading supply chain-based technology and service provider in the People’s Republic of China. It provides computers, communication, consumer electronics, home appliances, and general merchandise products.

The company provides online marketplace services for third-party merchants, marketing services, and omnichannel solutions to customers and offline retailers. Also, it offers integrated data, technology, business, and user management industry solutions to support the digitization of enterprises.

On July 21, JD Logistics (JDL) and Geopost entered a strategic partnership to strengthen their global logistics capabilities. By leveraging JDL’s solid warehousing network and Geopost’s logistics delivery capabilities, the collaboration would enhance international express services between China and Europe. This partnership should bode well for both companies.

Also, the same day, JD announced a partnership with French luxury group SMCP to launch Sandro, Maje, and Claudie Pierlot flagship stores. This launch should offer JD.com’s nearly 600 customers access to more than 4,000 high-end products from these top-tier brands. Beyond providing products, the partnership with SMCP extends into operations, marketing, and supply chain support.

On July 13, JD introduced ChatRhino large language model (LLM) on its 2023 JDDiscovery tech summit. Combining 70% generalized data with 30% native intelligent supply chain data, the company’s latest AI model provides targeted solutions for real industry challenges across sectors, including retail, logistics, finance, and health. JD’s ChatRhino also sets a new benchmark as a 100-billion-parameter model.

The company’s large language model evolution aligns with its relentless pursuit of technology, encircling the pillars of efficiency, user experience, cost-effectiveness, inclusiveness, and groundbreaking progress.

For the first quarter that ended March 31, 2023, JD’s net revenues were $35.40 billion, up 1.4% from the same period in 2022. Its net service revenues increased 34.5% from the year-ago value to $6.90 billion. The company’s non-GAAP income from operations was $1.10 billion, an increase of 68.1% year-over-year.

Furthermore, non-GAAP net income attributable to the company’s ordinary shareholders for the first quarter was $2.20 billion or $0.69 per ADS, up 90% and 88.1% year-over-year, respectively.

After witnessing strong growth in profitability in the first quarter of fiscal 2023, JD expects to continue its business momentum in the upcoming quarters.

“In the quarters ahead, we will further enhance our business structure in order to drive the expansion of our user base throughout China. JD.com has built China’s most trusted brand in retail, and is uniquely positioned to provide our loyal user base with the superior quality, value, speed and selection they have come to expect, while maintaining the flexibility to seize upon multiple growth opportunities across our businesses,” said Lei Xu, JD’s CEO.

Analysts expect JD’s revenue and EPS for the fiscal year (ending December 2023) to increase 2.9% and 18.4% year-over-year to $154.54 billion and $3.02, respectively. The consensus revenue and EPS estimates of $170.25 billion and $3.55 for the fiscal year 2024 indicate a growth of 10.2% and 17.9% year-over-year, respectively.

The second tech stock investors should consider buying is Baidu, Inc. (BIDU). The company provides internet search services in China. BIDU operates through Baidu Core and iQIYI segments. Its offerings include Baidu App, Baidu Search, Baidu Feed, Baidu Health, Haokan, Baidu Wiki, Baidu Experience, and Baidu Drive. Also, the company offers online marketing services.

On June 16, BIDU obtained licensing for the commercial operation of its fully driverless ride-hailing service in Shenzhen. With this new license, Baidu’s Apollo Go robotaxis would be allowed to operate across 188 square kilometers in Shenzhen from 7 a.m. to 10 p.m. daily. This expansion broadens the scope of BIDU’s commercial, fully driverless ride-hailing service operations nationwide.

On May 4, BIDU Research developed a groundbreaking AI algorithm that significantly drives the stability and antibody response of Covid-19 mRNA vaccines. Such algorithm designs could enhance BIDU’s AI capabilities and provide a competitive edge, boosting the company’s revenue through licensing or commercializing the technology.

Also, on March 16, BIDU launched ERNIE Bot, a next-generation large language model with impressive capabilities in Chinese language and culture comprehension, literary and business writing, mathematical calculations, and multi-modal content creation. By leveraging cutting-edge technology to enhance its products and services, BIDU positions itself for long-term, sustainable growth.

BIDU’s revenues increased 9.6% year-over-year to $4.54 billion during the first quarter that ended March 31, 2023. Its non-GAAP operating income rose 60.9% from the prior-year quarter to $936 million. The company’s adjusted EBITDA grew 48.1% from the year-ago value to $1.19 billion.

In addition, non-GAAP net income to BIDU increased 47.6% year-over-year to $834 million, and its non-GAAP earnings per ADS were $2.34, up 43.5% year-over-year.

According to Rong Luo, CFO of BIDU, “Generative AI represents a new paradigm shift in AI, and Baidu is poised to take advantage of this massive market opportunity. Baidu will continue to invest unwaveringly in this area in the coming quarters.”

Street expects BIDU’s revenue to increase 8.5% year-over-year to $4.65 billion for the second quarter ended June 2023. Likewise, the consensus EPS estimate of $2.39 for the same period indicates a 4.5% year-over-year rise. Also, the company surpassed the consensus revenue and EPS estimates in all four trailing quarters, which is impressive.

Furthermore, BIDU’s revenue and EPS for the current fiscal year 2023 are expected to grow 6.4% and 12.6% from the previous year to $19.10 billion and $9.63, respectively.

Another prominent Chinese tech stock, NIO Inc. (NIO), should be added to one’s portfolio before mid-August hits. The company is a pioneer and a leading company in the premium smart EV market. It provides five and six-seater electric SUVs and smart electric sedans. Also, NIO offers power solutions such as Power Home, Power Swap, Power Charger, Power Mobile, and Power Map.

On July 12, NIO closed the $738.50 million strategic equity investment from CYVN Investments RSC Ltd, an affiliate of CYVN Holdings L.L.C., an investment vehicle majority owned by the Abu Dhabi Government with a strategic focus on advanced and smart mobility.

After the Investment Transaction and the Secondary Share Transfer, CYVN Investments RSC Ltd owns nearly 7% of the company’s total issued and outstanding shares. NIO and CYVN Entities will work jointly to pursue strategic collaborations in international business and technology cooperation.

On July 1, the company announced its June and second quarter 2023 delivery results. NIO delivered 10,707 vehicles in June. The deliveries comprised 6,383 premium smart electric SUVs and 4,324 premium smart electric sedans. It delivered 23,520 vehicles in the second quarter of 2023. As of June 30, 2023, cumulative deliveries of NIO vehicles reached 344,117.

On June 15, NIO launched the ET5 Touring, a smart electric tourer, and started its deliveries the following day. Designed for family users, the ET5 Touring is crafted with versatile space and inherits the exquisite and dynamic design, high-performance genes, and advanced intelligent features of its sedan variant ET5.

Also, the company commenced delivery ramp-up of the All-New ES8, a smart electric flagship SUV, on June 28, 2023.

During the first quarter of 2023, NIO’s revenues were $1.55 billion, an increase of 7.7% from the first quarter of 2022. The company’s other sales increased 117.8% from the previous year’s quarter to $211.40 million. The increase in other sales was mainly due to the increase in sales of accessories, provision of power solutions, provision of auto financing services, and sales of used cars.

For the fiscal year (ending December 2023), NIO’s revenue is estimated to increase 28.2% year-over-year to $9.20 billion. In addition, analysts expect the company’s revenue for the fiscal year 2024 to grow 48.9% year-over-year to $13.69 billion.

Tech stock Bilibili Inc. (BILI)could also be an ideal buy before the Biden government signs the executive order. BILI provides online entertainment services for the young generations. The company’s platform offers a wide range of content, including video services, mobile games and value-added services, and ACG-related comic and audio content.

For the first quarter that ended March 31, 2023, BILI’s net revenues were $738.20 million, a marginal increase from the same period of 2022. Its revenues from value-added services (VAS) grew 5% from the year-ago value to $314 million, and revenues from advertising were $185.20 million, up 22% year-over-year, primarily attributable to the company’s improved advertising product offering and enhanced advertising efficiency.

BILI’s gross profit for the first quarter increased 37% year-over-year to $160 million, mainly due to reduced revenue-sharing and server and bandwidth costs. As of March 31, 2023, the company had cash and cash equivalents, time deposits, and short-term investments of $2.80 billion.

As indicated by its latest financial results, the company started the first quarter of fiscal 2023 on a positive note, with a notable improvement in its gross profit. Furthermore, BILI will continue prioritizing profitability while fostering a vibrant and highly engaged community for its users and creators in the upcoming quarters.

Analysts expect BILI’s revenue for the third and fourth quarters of 2023 to increase 12.3% and 10.8% year-over-year to $908.37 million and $984.70 million, respectively. Also, the company’s revenue for the fiscal year 2024 is expected to grow 16.8% from the prior year to $3.95 billion.