Finance
Why Alibaba, Baidu and JD.com were down today
Shares of Chinese technology stocks Alibaba.com (NYSE: BABA), Baidu (NASDAQ: BIDU)And JD.com (NASDAQ: JD) fell 2%, 5.9% and 5.3% respectively during Monday’s trading session.
The decline of China-focused consumer tech companies seemed to be entirely related to the disappointing economic data coming out of China today.
“Only” 4.7% growth
In the second quarter, China reported only 4.7% economic growth, well below the 5.3% of the previous quarter and below the 5.1% growth that analysts had expected. While 4.3% growth may seem very strong, remember that China is primarily considered to be an ’emerging’ economy and growth rates are above those of developed countries, with the government aiming to to achieve a growth of 5%. Secondly, the country was on a very low base from last year’s depressed numbers, making this miss very disappointing.
Even worse for these companies in particular, most of that economic growth appeared to be concentrated in the industrial production and export sectors. Meanwhile, Chinese consumers still seem to be in a depressed mood. Retail sales growth was just 2% in June, below expectations of 3.3%, due to both a decline in tourism and Chinese consumer reluctance. Early reports from the 618 shopping festival held each June also showed less than expected growth.
That likely means disappointing second-quarter results from these three companies when their numbers are released in July or August.
Although Alibaba fell the least today, a downbeat mood among Chinese stocks could further curtail or delay plans IPOs of its cloud unit and its logistics unit, whose IPOs have already been scrapped once, each in the past year amid a depressed market.
Like Alibaba, Baidu is also investing in R&D in artificial intelligence, but its main business is still with Chinese consumers. The core search engine depends on online marketing, and the other main activity has a controlling interest iQiyi (NASDAQ: IQ), one of China’s leading streaming services. While digital marketing rose slightly last quarter, iQiyi reported a 5% decline.
Meanwhile, JD.com is heavily focused on consumer e-commerce, but mainly on big-ticket items like electronics and appliances. With these products likely to face reduced demand in a tough consumer environment, it’s no wonder JD stock also trended lower today.
Chinese technology stocks were cheap and now they’ve become even cheaper
The big question is whether these Chinese tech stocks offer great value opportunities or pitfalls. After all, many of these once high-flying tech leaders are now trading at just single-digit multiples of earnings estimates. Some have been quite bullish on Chinese stocks lately, including famous value investors David Tepperas well as macroeconomic analysts from Goldman Sachs.
Although there is no trend to be seen one day, it is clear that there are still challenges in turning around China’s consumer economy following the ‘zero-Covid’ lockdowns, the crisis in the country’s real estate sector and the stricter measures of the regulators of large technology companies.
China has introduced interest rate cuts and measures in recent months to support its ailing housing sector, but more is likely needed. The economic data published today seems to confirm this. China’s Politburo is likely to introduce new measures to boost growth later this month, so interested investors should tune in accordingly.
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Billy Duberstein and/or his clients have no positions in the stocks mentioned. The Motley Fool holds positions in and recommends Baidu, Goldman Sachs Group, and JD.com. The Motley Fool recommends Alibaba Group and iQIYI. The Motley Fool has one disclosure policy.
Why Alibaba, Baidu and JD.com were down today was originally published by The Motley Fool
