Chinese tech stocks like Tencent and Baidu could see recovery

Just look at the growth and size of their businesses. Tencent grew 30 percent year-on-year in the second quarter of the year, Alibaba increased revenues 61 percent, while Baidu saw 32 percent growth.

All of these business are expanding rapidly into new geographies and areas. Tencent’s massive games business continues to have traction despite regulatory issues and the giant also owns WeChat, China’s most popular messaging app with over a billion monthly users. Tencent is pushing WeChat Pay, the payments service that runs within WeChat.

Alibaba continues to grow its core commerce business, while Baidu, which has seen hits to its core search business, has been investing heavily in artificial intelligence and autonomous cars.

The BATs have also spent billions of dollars investing in other companies, to the point where they are not only technology firms, but investors too. Bernstein Analyst Bhavtosh Vajpayee recently dubbed Tencent the “SoftBank of China.” SoftBank is the Japanese firm that has its own $100 billion Vision Fund which it invests in big tech firms across the world.

While heavy investment could be seen as a negative by investors because it weighs on profits, it could also set these companies up for future growth. The investments made by the BATs could provide good returns in the event of an initial public offering or acquisition of these companies. Or the firms that the BATs have invested in could just be acquired by either one of them.

And perhaps the biggest factor working in their favor is the impenetrable nature of the Chinese market for the FANGs. Google has not been in the Chinese market since 2010 after it withdrew over concerns about censorship. Facebook is blocked, Netflix is not available and Amazon has a very tiny business in the country.

Even though recent reports suggested Google is looking to enter the market, the company will find it difficult to dislodge the dominance of Baidu. Amazon could find it a huge task to take on Alibaba. And Facebook will face an uphill battle getting its product to stick, particularly as Tencent’s WeChat is woven into the fabric of Chinese society. China still remains a huge opportunity for the FANGs but it continues to be out of reach.

With a home market of over a billion people, a push by the Chinese government into new technologies like AI, and continued growth of digital services, the BATs may have taken a couple of hefty blows this year, but they’re certainly not down for the count.

Source link Google News

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