NetEase, Baidu and Alibaba have a lot to prove this week
The earnings season is almost over, but this week will be huge if you’re a fan of China’s iconic internet growth stocks. NetEase (NASDAQ: NTES), Baidu (NASDAQ: BIDU), and Alibaba Holding Group (NYSE: BABA) will publish new financial data on Tuesday, Wednesday and Thursday respectively.
It is a difficult time to be a shareholder in Chinese growth stocks. Regulators are cracking down on some business models, and “common prosperity” initiatives are undermining overall profitability. Let’s see how the three companies are holding up ahead of this week’s revealing quarterly reports.
NetEase is one of the oldest Chinese dot-coms on the market, having gone public over 21 years ago. Initially, it interfered in several online businesses, but it established itself as a major player in online games. Online games on PC and mobile applications represent more than 70% of its revenues.
It might not be a household name for many investors, but NetEase has been a monster growth stock over the years. It has achieved positive revenue growth every year as a public company, including double-digit revenue growth for 13 consecutive years. It is on track to extend that streak to 14 years, as earnings grew 16% in the first half of the year.
Chinese gambling stocks came under fire this summer, after Chinese regulators decided to crack down on the time minors could spend on online hijackings. NetEase investors were relieved after the company revealed that the move would only impact around 1% of its business.
Revenue growth continues to move in the right direction, but the same can’t be said for the end result. NetEase has missed profit estimates in two of the last three quarters, and that’s important since its dividend policy is to return 20-30% of its after-tax profits to its shareholders in quarterly installments.
China’s major search engine has seen better days, with the stock trading less than half of its 52-week high. He reports Wednesday morning.
As a welcome note, Baidu received encouraging coverage from analysts earlier this month. Jiong Shao at Barclays launched a cover of Baidu with an overweight rating and a price target of $ 243 which suggests a 42% rise from current levels.
Shao’s bullish view of Baidu is that it is one of the most overlooked Chinese dot-coms and is successfully growing its online advertising business. Many investors are avoiding the country’s growth stocks in this difficult political climate, but Shao believes the Chinese government will make local internet and tech companies stronger instead of weakening them.
Finally, we will have a report from Alibaba on Thursday. China’s main online marketplace has been hit hard by fines and restrictions imposed by the country’s government this year. From antitrust sanctions to forced splits, it’s not easy to be a juggernaut in China these days.
The biggest success has been that Alibaba agreed two months ago to “donate” $ 15.5 billion to support China’s Common Prosperity Initiative, the country’s attempt to tackle inequality. income and slow the culture of consumerism.
For now, the consumer is still a winner. Alibaba celebrated Singles Day last week, a business event that culminates Nov. 11-11, a play about ‘singles’ – and that was another record. Despite the muted promotional atmosphere to play well with the country’s common prosperity goals, Alibaba still managed to hit a new sales record of $ 84.5 billion during the 11-day event.
Alibaba and Baidu’s prices have fallen to the point that they are now trading only 19 times projected earnings for this fiscal year, a historic boon for two of the country’s best-known growth stocks. NetEase doesn’t trade at a multiple of earnings as a teenager, but its steady growth over more than two decades is worth a premium. All three stocks have a lot to prove this week.
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