Alibaba, Baidu and Tencent Signal First Steps in Bumpy Recovery

Eight months ago, the future of China’s largest internet companies looked grim. Covid-era lockdowns crushed sales, and Beijing’s harsh tech regulations had spooked even audacious China investors. Shares of Alibaba, Baidu and Tencent dropped to some of their lowest levels in several years.

With China’s economy now reopen, the tech giants this week released earnings reports that showed initial signs of recovery. But the financial results, the first issued since the end of “zero Covid” restrictions, also reflected the uneven pace of China’s economic rebound and signaled that the companies’ makeovers, while underway, are likely to be rocky.

Baidu, China’s leading internet search business, and Tencent, owner of the ubiquitous messaging app WeChat, both recorded double-digit revenue growth in the first three months of the year over the same period in 2022, marking the first time in over a year that they had reached that level.

Revenue rose 10 percent at Baidu, which said on Tuesday that strong digital advertising sales had continued into the current quarter. Tencent on Wednesday attributed its 11 percent revenue climb in part to a rebound in digital payments as Chinese consumers began to spend money again after a long dry spell. Tencent, China’s dominant video game company, also benefited from an easing of restrictions on gaming licenses last year after a nine-month freeze.

On Thursday, Alibaba reported that revenue rose 2 percent from a year earlier, below analyst estimates. Its core online e-commerce division and cloud computing unit reported sales declines in the single digits, though online shopping began to rebound in March, the company said.

The reports followed a turbulent two years for tech companies under Beijing’s tight regulatory grip. After Alibaba’s founder, Jack Ma, criticized financial regulators in 2020 for stifling innovation, officials halted the public offering of Ant Group, a financial technology company built by Mr. Ma.

Alibaba, Baidu and Tencent are engaged in makeovers at a difficult time. Beijing’s grip on the economy is tighter than ever. Intensified rivalries with the United States have deprived Chinese companies of the access to some cutting-edge microchips necessary to develop the most advanced artificial intelligence systems. And analysts say a lucrative pool of domestic customers — China’s state-owned enterprises — are spurning private cloud-computing providers in favor of government-backed alternatives.

Recently, U.S. officials have called for a review of Chinese cloud providers such as Alibaba on national security grounds. Alibaba said Thursday that its cloud business declined last quarter in part because a major customer had backed out of its international service for “non-product reasons.”

Those difficulties, both in China and abroad, are keeping some investors away, knowing that the internet companies are not likely to return to the growth rates they had a decade prior. Others think they deserve a second look.

“I would suggest to forget the past,” said Kenny Wen, head of investment strategy at the asset management company KGI Asia in Hong Kong. “Now they are coming back, and we’re seeing gradual improvement. We need to give them a new evaluation standard.”

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