Three major Chinese companies are preparing to release their quarterly earnings in the coming weeks—Tencent Holdings, Alibaba Group, and Ctrip.com International—that are major players in tech and travel, and whose earnings could act as market indicators for the rest of this year and into the next.
It’s been a dismal year for China’s biggest stocks. American depositary receipts in Tencent, the operator of the popular Chinese social media platform WeChat, have fallen over 40 percent since the beginning of 2018. Meanwhile, shares of e-commerce giant Alibaba have declined about 27 percent, and shares of the online travel site Ctrip.com International are down by 32 percent during that period (and down even more from its 52-week high). Despite the doom and gloom over these record-setting declines (particularly for Tencent), many analysts are still positive on the long-term stability of these companies and continue to assign buy ratings for their stocks.
Shares of Tencent, Alibaba, and Ctrip have all taken a significant hit since the beginning of the year
These declines manifested from a variety of market concerns. Most recently, Chinese stocks have been in a downturn due to the continued effects of the Trump administration’s trade war with China, which has also adversely affected U.S. stocks that rely on Chinese sales and resources. There have also been concerns over the yuan’s depreciation vs. the U.S. dollar affecting short-term profits.
In the case of Tencent, the decline began in the first quarter of the year when the company announced that it would increase its outside investments, a strategy that investors didn’t like as it meant lower profits in the short term. That news was followed by new mobile gaming regulations that have hindered the company’s ability to monetize its most popular game, PlayerUnknown’s Battlegrounds Mobile.
While the stock markets have become increasingly concerned over tariffs on Chinese imports to the U.S., these three companies should be relatively unaffected as they don’t manufacture products for export. They do, however, have significant connections to the Chinese travel market.
In fact, all three companies should benefit from the most recent travel holidays in China—Mid-autumn Festival and National Day—as well as the end of the summer travel season during the quarter. As the two fall holidays were close together, more Chinese citizens took longer holidays, and early reservations mean that the companies may recognize the revenue in the quarter ending September 30. Ctrip even reported that more people booked more trips with them than in previous years. Combine that increase in travel with a growing acceptance of mobile payments like Alipay and WeChat Pay at more overseas locations, and the companies should see significant revenue growth for the quarter.
Yet analysts and investors will ask whether revenue growth from increased travel will be enough for these stocks to break out of their funk. Ctrip, Asia’s largest online travel agency, has beaten expectations in consecutive quarters this year but hasn’t been able to shake the negative market sentiment over the last few months.
While China’s major market-driving companies may well report better-than-expected results for the quarter, it likely won’t be enough to boost their stock prices in the short term, as outside factors weighing them down will remain. In the case of Ctrip, the company reported positive results in Q2 and maintained growth projections for the year, but its stock price has continued to slide since their earnings release on September 6.
Beating expectations in the second quarter couldn’t stop shares of Ctrip from sliding further
A rebound in stock prices may hinge on trade talks between the U.S. and China next month, to which President Trump offered some optimism about at the opening of trading on Tuesday. There is caution, however, as he noted that he’s prepared to slap China with billions more in tariffs if the talks aren’t to his liking.
Alibaba reports its Q2 2019 (quarter ending September 30, 2018) results on Friday morning, while Ctrip releases its Q3 2018 results next Wednesday evening and Tencent reports Q3 2018 financial results the morning of November 14.