As Chinese public companies announced their financial results for the first quarter of 2020, global investors waited with bated breath for data on the true economic impact of the COVID-19 shutdown. Some of China’s tech giants exceeded market expectations, while other traced a gloomy outlook for their business, still affected by the pandemic.
Following the global sell-off in mid-March, when the S&P 500 was down 35% from its February peak, many of China’s top tech players have rebounded. According to Beijing-based think tank Trivium China’s National Business Activity Index, 87.4% of the country’s economy has resumed work as of May 28, 2020.
Winners
Some of the biggest winners to emerge from a turbulent first quarter were social e-commerce company Pinduoduo (NASDAQ: PDD), gaming giant Tencent (HKG: 0700), video game livestreaming platform Huya (NASDAQ: HUYA), and e-commerce giant Alibaba (NYSE: BABA; HKEX: 9988), which were all able to capitalize on digital shifts in user behavior.
Huya’s revenues in the March quarter grew 47.8 % YoY, and MAUs of Huya Live increased by 22.2% YoY as people turned to game-centric entertainment during the lockdown. While overall spending on digital advertising contracted, more ad spend was directed to areas of increased traffic during the lockdown, like gaming and education. As a result, Huya’s advertising revenue soared 74.0% YoY to RMB 137.5 million (USD 19.4 million) during the quarter.
Huya’s main competitor, Wuhan-based Douyu (NASDAQ: DOYU), also benefitted from the lockdown, as revenues jumped 53% YoY, while the company generated a net profit of RMB 254.5 million. However, the firm’s user base actually declined slightly during the quarter, despite Douyu’s average revenue per user (ARPU) increasing by 23.7% YoY.
Tencent’s gaming empire carried the company through the first quarter of 2020, with a 31% YoY increase in gaming revenues, while the firm’s super app WeChat reached over 400 million DAUs. While the global health crisis delayed the implementation of Tencent’s cloud services projects, the Shenzhen-based tech giant remained optimistic about its recovery outlook. As people relied on Tencent apps like WeChat for reliable information about the pandemic, advertising revenue grew 32% YoY.
Online entertainment and mobile gaming company Bilibili (NASDAQ: BILI) generated a 69% YoY growth in total revenues during the March quarter, as revenue from value-added services grew by 172% YoY to USD 112.2 million. Mobile gaming revenue also rose by 32% YoY, as the lockdown indulged gamers across China.
Pinduoduo’s share price reached a new peak since its IPO on the back of a 44% year-on-year (YoY) increase in revenues, and a 42% YoY increase in active buyers on the platform to 628.1 million. The company benefitted from people’s reliance on e-commerce for basic daily necessities while connecting at-risk SMEs with continued revenue sources throughout the pandemic.
E-commerce titan Alibaba, meanwhile, saw a growth in demand for its digital products. As reliance on internet infrastructure increased during the outbreak period, so did the demand for cloud services, as Alibaba Cloud’s revenue increased by 58% YoY. The company’s enterprise software product DingTalk also gained widespread adoption during the remote work transition, reaching 300 million total users.
JD.com (NASDAQ: JD), Alibaba’s main competitor in China, also weathered the lockdown, beating market estimates as reliance on e-commerce increased despite an overall consumption decline. JD Logistics generated revenue of USD 930 million, an increase of 53.6% YoY as the company continued its essential delivery business during the lockdown. The company cultivated new users from China’s more rural areas, as around 70% of new users acquired during the March quarter were from lower-tier cities.
Survivors
Electronics retailer Xiaomi (HKG: 1810) got through the first quarter on the back of overseas sales while China was in lockdown, although that is likely to flip in the coming quarters as China’s economy reopens and other countries battle the virus.
Xiaomi’s China sales dropped by over 26% YoY in the first quarter, and with COVID-19 now paralyzing offline retail in overseas markets, the company will have to rely on a domestic revival in the coming quarters.
Online content platforms like iQiyi (NASDAQ: IQ) and Weibo (NASDAQ: WB) saw subscribers jump during the lockdown, but advertising revenue fell sharply as a struggling economy squeezed advertisers’ budgets. Weibo’s advertising revenue fell by 19% YoY while iQiyi’s advertising sales declined by 27% YoY.
Beijing-based search and internet giant Baidu (NASDAQ: BIDU) experienced a 7% YoY decline in total revenues and the company forecasted negative revenue growth to continue into the second quarter. However, the firm did see a 28% YoY increase in DAUs during the quarter and managed to beat market expectations.
On the other hand, on-demand services platform Meituan-Dianping (HKEX: 3690) was hit hard by the COVID-19 shutdown, and will likely face a long road to recovery as consumers slowly rebuild their confidence in offline dining and entertainment outlets. Meituan’s revenue declined by 12.6% YoY while the company also posted a loss of RMB 1.58 billion (USD 221.3 million) after three consecutive profitable quarters.
Online travel platform Trip.com (NASDAQ: TCOM) was also severely impacted by the COVID-19 lockdown. As travel restrictions were enforced both domestically and internationally, Trip.com’s total revenues dropped by 42% YoY. The firm expects revenue to decline by between 67% and 77% YoY in the second quarter.
Vehicle makers also got hit by COVID-19. Electric scooter company Niu Technologies’ (NASDAQ: NIU) total revenue fell by 34.4% YoY during Q1, as the economic shutdown ravaged the company’s offline sales channels. Domestic sales dropped 43.5% YoY, offset by growing popularity overseas before COVID-19 spread globally.
Electric vehicle maker NIO (NYSE: NIO) reported a more than 50% YoY decrease in both total revenue and vehicles delivered during the first quarter, as offline sales channels were paralyzed during the shutdown. However, the company expects growth to resume in the second quarter, forecasting record sales.
Second-quarter outlook
While digitization accelerated across industries, companies in a variety of sectors were impacted by declines in advertising spending, consumer demand, as well as travel and lifestyle expenditure. Despite the economic hardship leveled by the lockdown, some of China’s tech companies benefitted from a more digital society, growing user bases, increasing monetization, and tapping new revenue streams.
For the second quarter, most companies reported signs of demand recovery in April and into May. As offline consumption slowly returns to pre-pandemic levels, advertising spend should increase. However, the normalization of the economy will likely lead to decelerating growth in terms of users and traffic online, as people emerge from lockdown.
Meanwhile, for companies like Meituan or Trip.com, which rely on demand for offline entertainment and travel, the road ahead is filled with challenges, while bastions of the digital economy like Alibaba and Tencent will ultimately further benefit from a widespread transition to online life.