Major Chinese tech giants are reporting results this week, with Alibaba and Baidu both reporting Chinese markets closed versus US markets opening. Both companies exceeded revenue expectations, a remarkable achievement in difficult times, according to KraneShares on the China Last Night blog.
Alibaba’s fourth-quarter earnings for its fiscal year outpaced adjusted net profit, revenue and adjusted earnings per share, with revenue rising 9%. The annual number of active customers for the 12-month period ending March 31, 2022 grew to 1.31 billion, adding 28.3 million during that period. Alibaba had announced in advance that its net income year over year was going to be reduced, and it was indeed the case, as it fell by 24%.
“Overall, a solid job given the circumstances. Hats off to management as general/administrative expenses plunged. The share buyback was very strong,” KraneShares wrote.
Baidu‘s revenue rose 1% in its first-quarter earnings report, with core revenue rising 4% and its non-online marketing, which includes cloud and AI, growing 35%. Adjusted net profit was RMB 3.9 billion (approximately $612 million) versus analysts’ expectations of RMB 1,767, and adjusted earnings per share exceeded expectations by nearly double at RMB 11.22 (1 $.77) compared to the expected RMB 5.174.
“Like Tencent, advertising revenue has declined as households have tightened their purses and wallets. The company wisely invested earnings from the core search business years ago, which is paying off today. wrote KraneShares.
Alibaba and Baidu join Jd.com in what is proving to be a stronger-than-expected earnings season for many Chinese tech giants, although Tencent reported misfires in its recent first-quarter results. The space remains difficult, as evidenced by failures reported by Alibaba and Baidu, although regulatory uncertainty seems to be coming to an end.
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KWEB invests in Alibaba and Baidu
The KraneShares CSI China Internet ETF (KWEB) tracks the CSI Overseas China Internet Index and measures the performance of listed companies outside of mainland China that operate in the Internet and Internet-related sectors in China. Alibaba has a weighting of 9.30% within the fund and Baidu has a weighting of 7.03%.
This includes companies that develop and market software and Internet services, provide retail or commercial services via the Internet, develop and market mobile software, and manufacture entertainment and educational software for home use.
The fund saw net flows of $694 million from May to May 24 as advisors and investors sought exposure, with many holdings contained in KWEB continuing to trade at levels below half the multiples of their US counterparts. .
KWEB provides exposure to Chinese Internet equivalents of Google, Facebook, Amazon, eBay, etc., all companies that benefit from a growing user base in China, as well as a growing middle class. The fund has endeavored to convert all possible share classes into Hong Kong equities instead of ADRs to protect investors in the event of Chinese delistings in US markets.
The ETF has an annual expense ratio of 0.70% and has $5.8 billion in assets under management.
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