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Alibaba, Baidu and Tencent Signal First Steps in Bumpy Recovery

Eight months ago, the future of China’s largest Internet companies looked grim. Covid-era lockdowns have crushed sales, and Beijing’s tighter tech regulations have spooked even China’s most intrepid investors. Shares of Alibaba, Baidu and Tencent fell to multi-year lows.

With China’s economy now reopening, tech giants released earnings reports this week that showed early signs of recovery. But the financial results, the first released since the end of “zero-Covid” restrictions, also reflected the uneven pace of China’s economic recovery and signaled that companies’ transitions, while underway, could be rocky. There is a possibility of

Baidu, China’s leading internet search business, and Tencent, owner of the ubiquitous messaging app WeChat, both recorded double-digit revenue growth in the first three months of the year compared to the same period in 2022, a It is the first time during the year. He had reached that level.

Revenue rose 10 percent at Baidu, which said Tuesday that strong digital ad sales continued in the current quarter. Tencent on Wednesday attributed its 11 percent revenue growth to a recovery in digital payments as Chinese consumers started spending money again after a long dry spell. China’s dominant video game company Tencent also benefited from an easing of restrictions on gaming licenses last year after a nine-month freeze.

On Thursday, Alibaba reported that revenue rose 2 percent from a year earlier, missing analysts’ estimates. The company said its core online e-commerce division and cloud computing unit reported single-digit sales declines, although online shopping picked up again in March.

The reports follow a tumultuous two years for tech companies under Beijing’s tight regulatory grip. After Jack Ma, the founder of Alibaba, criticized financial regulators in 2020 for stifling innovation, authorities blocked the public offering of Ant Group, a financial technology company built by Mr. Ma.

In January, a month after China abruptly reversed its “zero-Covid” restrictions under public pressure, a top official at China’s central bank said the campaign against tech companies “Basically complete“China’s top leader, Xi Jinping, is now hoping that the country’s tech industry can provide a lifeline to growth. And spurred by growing tech competition with the United States, China is reviving its beleaguered titans. Eager to do.

“The worst is over for them policy-wise,” said Tian Hu, founder of data analytics company TH Data Capital in Beijing. “The government now wants to use these Internet companies to create more jobs, innovate and catch up with the United States.”

Early investor reaction to the companies’ first-quarter results was muted. Shares in Baidu and Tencent were roughly flat in Hong Kong this week, although both have rallied since October. Alibaba’s stock fell about 6 percent on Friday, but was down about 2 percent for the week.

The fortunes of companies will be tied to China’s economy. There are local governments. Trapped in debt. The real estate sector has long been a driver of growth. to explode. Data released by China’s National Bureau of Statistics for April confounded analysts: Chinese were spending more on food, but appeared to be avoiding items such as cosmetics and cars. Youth unemployment reached a record high of 20.4 percent.

“People are going out on vacation, but they’re not spending compared to pandemic levels,” said Bruce Peng, chief economist for Greater China at Jones Lang LaSalle, a global real estate and investment advisory firm. Is. “They are cautious because they have less confidence in job prospects and future sources of income.”

Alibaba is in the midst of an overhaul. He announced a restructuring in March that split the company. Six units. And this week it announced a spin-off of its prized cloud division, which the company said would be completed within 12 months to prepare for a public listing.

The e-commerce giant also said it is exploring public offerings for its grocery chain and logistics arm, after several regulatory probes barred many promising tech firms from going public.

The collapse of Alibaba, one of China’s most famous corporate empires, shows the level of reevaluation taking place in the tech sector. Over the years, China’s Internet firms have grown as millions of Chinese have gone online. Recently, that migration has reached a plateau, and companies are fiercely competing for those same customers.

China’s big three Internet companies are hoping to tell investors a new story. Artificial intelligencenew technology-based services, such as ChatGPT, that promise to disrupt old ways of doing business.

Daniel Zhang, Alibaba’s chairman, who will also serve as chief executive of Alibaba’s soon-to-be independent cloud unit, described AI as a technology that will “reshape every aspect of our society.” Will give.”

Companies hope that investments in artificial intelligence will pay off for their cloud computing units, a technology that powers AI services. Baidu said its AI cloud division reported its first profit last quarter.

This year, Baidu and Alibaba unveiled an artificial intelligence system similar to ChatGPT, developed by Silicon Valley research lab OpenAI. Baidu said it requested approval to proceed after China’s cyberspace watchdog was released. Instructions for AI Systems in April.

Tencent has made “good progress” on its AI model, the company said Wednesday, adding that teams are planning new AI offerings, though it did not elaborate.

Companies are focusing their AI services on enterprises or businesses — in part because chatbots with mass appeal can break the chain’s grip on information. Alibaba and Baidu each said more than 100,000 enterprises have lined up to try their artificial intelligence products.

Alibaba, Baidu and Tencent are undergoing makeovers in tough times. Beijing’s grip on the economy is tighter than ever. Fierce rivalry with the United States has deprived Chinese companies of access to some of the advanced microchips needed to develop sophisticated artificial intelligence systems. And analysts say a lucrative pool of domestic users — China’s state-owned enterprises — are rejecting private cloud computing providers in favor of government-backed alternatives.

Recently, US officials have called for a review of Chinese cloud providers such as Alibaba on national security grounds. Alibaba said on Thursday that its cloud business declined in the last quarter in part because a major customer withdrew its international service for “non-product reasons”.

Those difficulties, both in China and abroad, are keeping some investors away, knowing that Internet companies will not return to the growth rates of a decade ago. Others believe they deserve a second look.

“I would suggest forgetting about the past,” said Kenny Wen, head of investment strategy at asset management company KGI Asia in Hong Kong. “Now they’re coming back, and we’re seeing gradual improvements. We need to give them a new evaluation standard.



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