Persistent macroeconomic struggles and changing winds of domestic regulation have thrown plenty of curveballs at China’s top two technology companies, Alibaba Group Holdings Ltd. and Tencent Holdings Ltd.
Yet both of them managed to offer promising signs for investors willing to take the time to dig into the numbers. The common thread for both was the performance of relatively new businesses that have been eclipsed until now by more renowned divisions.
Tencent, which focuses on games and social media, beat earnings estimates thanks to its long-term investment strategy, which includes financial services, online games and education. Revenue, which was less than analysts’ estimates, was hurt by regulations in the games business. For the first the time, however, it lifted the lid on its payments, wealth management and cloud-computing divisions.
I discussed this new hero in an earlier column. In summary, this collection of businesses now accounts for more than a quarter of revenue and outgrew the rest of the company. Without them, Tencent’s revenue miss would have been much wider.
At Alibaba, which remains beholden to advertising on its e-commerce platforms, revenue from customer management and commissions both grew around 30% each. That’s better than recent quarters but well below the rates it was posting just two years ago. What propped Alibaba up — hidden in the “others” category within China Retail Commerce — is its move into direct sales including its Freshippo supermarket chain (previously known as Hema) and Tmall Direct Import, which sources goods from foreign brands and distributors.
Alibaba built its name on e-commerce and selling cheap goods to Chinese consumers. But low-key bets made years ago (TDI opened in 2016) have ended up becoming the unlikely heroes, with the “others” division doubling revenue from a year earlier compared with the 51% corporate average.
At a time when their traditional businesses have grown too large to avoid a slowdown that’s impacting all quarters of the Chinese economy, the nation’s tech titans are showing an ability to adapt that’s helping them shine.