The first onset of the COVID-19 pandemic was adjudged to be very beneficial to tech giants as many people resorted to the services they provide to survive and get entertainment during the lockdowns. Today, the narrative seems to be changing across the board.
For the first time in history, four Chinese tech giants have seen a decline in the performance of their businesses as the zero-COVID policy of Beijing resulted in a more tightened business environment. An investment holding company with a specialty in gaming and social media, Tencent Holdings Ltd (HKG: 0700) recorded its first sales decline year-on-year in the second quarter.
E-commerce giant, Alibaba Group Holding Ltd (HKG: 9988) recorded marginally flat revenue growth, the first time this is happening. While JD.com Inc (HKG: 9618), the country’s second-largest e-commerce player after Alibaba recorded the slowest revenue growth in history and auto giant, Xpeng Inc (NYSE: XPEV) announced a very huge loss backed by a weaker than expected guidance.
There was an outbreak of COVID-19 in China in the second quarter and the government implemented a zero-covid policy with a very strict lockdown. The lockdowns disrupted quite a number of businesses while cutting off supply lines. This in particular affected the businesses of Alibaba, JD.com, and Xpeng.
While most major economies saw a major depression in the second quarter, a trend that was fueled by the Russian invasion of Ukraine and its aftermath, China recorded a very slow economic growth of 0.4% in the second quarter. This generally impacted the flow of funds from companies, and this impacted their advertising and cloud infrastructure allocations with Tencent and Alibaba being the major loser in this regard.
“Retail sales decreased year-over year in April and May due to the resurgence of Covid-19 in Shanghai and other major cities, and has slowly recovered in June,” Daniel Zhang, CEO of Alibaba, said on the company’s earnings call this month.
Tencent felt the brunt of the whole lockdown the more as consumers were unable to move freely and this impacted their use of the WeChat Pay app for their regular payments.
Changing Narratives on the Chinese Big Tech Giants’ Performance
The first onset of the COVID-19 pandemic was adjudged to be very beneficial to tech giants as many people resorted to the services they provide to survive and get entertainment during the lockdowns. Today, the narrative seems to be changing across the board.
“What I find interesting is how the narrative on the big tech companies … has changed: early on in the pandemic, COVID was expected to benefit the big online platforms at the expense of ‘offline’ businesses, as much of the economy would be stuck at home with little other choice than to shop online and entertain themselves online,” Tariq Dennison, wealth manager at GFM Asset Management, told CNBC via email.
“The recent revenue and earnings dip hitting these big tech names reflects zero COVID concerns short-term, but also has many long-term investors, including myself, revising our estimates of the long-term growth prospects of these names.”
In all, many companies are exploring avenues to maintain productivity and possibly reverse course if need be. A revision of their business strategy is likely going to be the core focus to weather the current storm shaking the business ecosystem at this time.
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