China’s tech giants including Alibaba have seen slower or no growth as the Chinese economy faces a slowdown due to Beijing’s zero-Covid policy.
Qilai Shen | Bloomberg | beautiful pictures
China’s tech giants are experiencing their worst quarterly growth in history as the world’s second-largest economy suffers a massive slowdown, caused by Beijing’s strict Covid policy, to take its toll.
In the second quarter of the year, the e-commerce firm Alibaba posted it flat annual quarterly revenue growth for the first time and social media and game companies Tencent reported it First sales drop to record. JD.comChina’s second largest e-commerce player, posted slowest revenue growth in historywhile electric vehicle manufacturers Xpeng posted a Larger-than-expected losses as well as weak guidance.
Combined, these companies have a market capitalization of more than $770 billion.
During the June quarter, China saw a resurgence of Covid cases. China has stuck with the so-called “zero-Covid” policy, a series of strict measures including lockdown and mass testing for viruses. Major cities, including Shanghai, were closed for several weeks.
China’s economy grew only 0.4% in Q2and that has affected consumer power as well as spending from companies in areas like advertising and cloud computing.
Those headwinds have already hit China’s tech giants.
Daniel Zhang, CEO of Alibaba, said: “Retail sales decreased year-on-year in April and May due to the resurgence of Covid-19 in Shanghai and other major cities, and recovery slowed down in June,” Daniel Zhang, Alibaba’s CEO, said in the company’s earnings report this month.
Alibaba’s logistics network in China was also affected, and the company said some of its cloud computing projects have been delayed.
Tencent, owner of messaging app WeChat and one of the world’s largest gaming companies, also feels the impact of the zero-Covid policy. Its fintech revenue grew more slowly than in previous quarters as fewer people went out and used its WeChat Pay mobile payment service. The company’s online advertising revenue also dropped sharply as companies tightened their budgets.
JD.com performed well in the second quarter because it controlled a lot of its logistics and inventory supply chain. However, it has seen implementation and logistics costs increase in the face of lockdown.
Electric car maker XPeng said it expects to deliver between 29,000 and 31,000 vehicles in the third quarter. But it was a weaker lead than the market expected. As well as the seasonal weakness, XPeng president Brian Gu said that “traffic in stores is less than what we’ve seen before because of (due to) the post-COVID situation.”
China’s internet giants have enjoyed a boom during the pandemic as people turn to online services like shopping and gaming amid factory lockdowns. That has made year-to-year comparisons more difficult. Currently, the Chinese economy is facing a number of difficulties this year making the macroeconomic environment even more difficult.
China’s technology sector continues to face a much stricter regulatory environment. Over the past two years, China has taken a tougher line in areas ranging from gaming to data protection.
With growth falling more sharply than in previous years, investors are cautious about their outlook.
“What I find interesting is that the narrative of the big tech companies … has changed: from the beginning of the pandemic, COVID was expected to benefit the major online platforms by the cost of ‘offline’ businesses, like much of the economy Tariq Dennison, wealth manager at GFM Asset Management, told CNBC via email at home there is only one choice other than to shop online. and online entertainment.
“The recent drop in revenue and earnings for these big tech names reflects COVID with no short-term concerns, but also that many long-term investors, myself included, are adjusting back our estimate of these names’ long-term growth prospects.”
Dennison said that Tencent, Alibaba, and JD.com have previously maintained more than 25% year-over-year revenue growth, and a long-term slowdown would be a concern.
“If this quarter is a sign of a permanent decline to single-digit growth, rather than just a temporary drop, that will of course have a significant impact on earnings,” said Dennison. long-term valuation of these stocks,” Dennison said.
