Skip to main content
BoF Logo

The Business of Fashion

Agenda-setting intelligence, analysis and advice for the global fashion community.

After $140 Billion Wipeout, Alibaba and Tencent Bid for Comeback

The Chinese companies are likely to rebound from trade war losses since May, with Alibaba's revenue projected to grow by 38 percent and Tencent's revenue is expected to grow by 27 percent.
Alibaba sign | Source: Flickr/Leondel
By
  • Bloomberg

HANGZOU, China — China's two largest companies have lost a combined $140 billion in market value since the escalation of the trade war in May. As Alibaba Group Holding Ltd. and Tencent Holdings Ltd. report earnings this week back-to-back, they'll try to show the punishment is overdone.

The brutal market selloff began three months ago as Donald Trump's administration slapped restrictions on Chinese national champion Huawei Technologies Co., drawing the ire of Beijing. The Hong Kong benchmark has slid more than 10 percent, with the two giants dropping by similar amounts.

Yet Alibaba and Tencent’s businesses are largely domestic, having little to do with the US or trade. Tencent is back on track after a horrendous 2018, with revenue growth projected to rebound to 27 percent in the June quarter thanks to hits like Peacekeeper Elite and durable titles like Honour of Kings. Alibaba, coming off a record June online promotional blitz, is expected to report revenue growth of 38 percent.

"Despite growth concerns, a few China internet companies have performed quite well recently, especially in e-commerce and gaming," said Jerry Liu, a Hong Kong-based analyst at UBS.

ADVERTISEMENT

Alibaba, in particular, needs a strong quarter when it reports on Thursday. The e-commerce giant is weighing a secondary listing in Hong Kong that could raise as much as $20 billion, though the target is in flux. Shares are down by about 12 percent over the last year, while its price to earnings ratio, based on financial estimates for the next 12 months, is about 24, compared with Amazon’s roughly 70.

Raising capital could help replenish ammunition for the e-commerce giant, currently engaged in a cash burning battle for on-demand and food delivery services with Meituan. It’s one of the areas where Alibaba is struggling. Alibaba’s Ele.me’s market share may have lost another 2 percentage points in food delivery to 36 percent in the second quarter compared with three months ago, according to David Dai, a Hong Kong-based Bernstein analyst.

The worst seems to be behind for Tencent, which reports on Wednesday. After a year of not being able to monetise its most popular gaming genre, the social media giant has finally won regulatory approval to make money from its latest title, Peacekeeper Elite. The new battle royale game, where players engage in a fight to the death, has been toned down in violence to appease government concerns.

That said, regulator approval rates for games have slowed down. Monthly approval rates have fallen from more than 200 games a month in the first quarter to less than 50 games per month in the second quarter, according to government website data.

Apart from gaming, Tencent is expanding its services on WeChat — the instant messaging app with 1 billion users. It is attracting more users to its mini programs, lite apps that allows users access to services from other companies, including ride-hailing, food delivery, bike sharing and ordering food at restaurants.

The company is fending off ByteDance Ltd., parent of the popular short video services Douyin and TikTok. Tencent had six out of the top 10 apps in China in terms of time spent in June, according to research by QuestMobile and Nomura. Tencent’s WeChat alone accounted for 20 percent time spent share among Chinese mobile users and its QQ was next with 6.1 percent, followed by Douyin at 5.8 percent.

"Investors have some concerns about macro conditions and trade war, but if you look long term, the fundamentals are more stable," said Liu.

By Lulu Yilun Chen and Zheping Huang; editors: Peter Elstrom and Edwin Chan.

© 2024 The Business of Fashion. All rights reserved. For more information read our Terms & Conditions

More from Financial Markets
A financial lens on the fast-changing fashion sector, including markets, investors and deals.

The Best of BoF 2023: Diversity’s Litmus Test

In 2020, like many companies, the $50 billion yoga apparel brand created a new department to improve internal diversity and inclusion, and to create a more equitable playing field for minorities. In interviews with BoF, 14 current and former employees said things only got worse.


The Year Ahead: The Future of Fashion Deal-Making

For fashion’s private market investors, deal-making may provide less-than-ideal returns and raise questions about the long-term value creation opportunities across parts of the fashion industry, reports The State of Fashion 2024.


The Investment Giant Behind Some of Fashion’s Biggest Deals

L Catterton, the private-equity firm with close ties to LVMH and Bernard Arnault that’s preparing to take Birkenstock public, has become an investment giant in the consumer-goods space, with stakes in companies selling everything from fashion to pet food to tacos.


view more

Subscribe to the BoF Daily Digest

The essential daily round-up of fashion news, analysis, and breaking news alerts.

The Business of Fashion

Agenda-setting intelligence, analysis and advice for the global fashion community.
CONNECT WITH US ON
BoF Professional - How to Turn Data Into Meaningful Customer Connections
© 2024 The Business of Fashion. All rights reserved. For more information read our Terms & Conditions, Privacy Policy, Cookie Policy and Accessibility Statement.
BoF Professional - How to Turn Data Into Meaningful Customer Connections