China’s largest consumer enterprises are reporting poor revenues one after another, affecting market expectations for recovery. According to Bloomberg, the MSCI China Consumer Staples Index is not bouncing back but is instead poised to see its largest sales slump in at least two years. The performance of major tech companies like Alibaba Group Holding Ltd. has been disappointing, while retailers including Li-Ning Company have lowered their guidance for future revenue growth.
On August 15th, Alibaba Group released its quarterly revenue figures up to the end of June, showing a 4% year-on-year increase in revenue and a 27% year-on-year drop in net profit. These numbers indicate that previous aggressive promotional activities failed to boost spending.
On August 16th, Li-Ning Company disclosed its performance for the first half of 2024, with a 2.3% year-on-year increase in revenue and a nearly 8% year-on-year decline in net profit.
Li Ning Group’s Vice President and Chief Financial Officer Zhao Dongsheng candidly admitted at the performance meeting that while there is room for the overall recovery of consumer confidence in China, challenges such as weak consumer demand and expectations persist. He added that as the second half of the year unfolds, the consumer situation has not yet demonstrated good resilience, and the narrowing space for further improvement in discounts is putting pressure on profit margins.
Zhao Dongsheng revised down the group’s full-year revenue target expectations, forecasting a slowdown in annual revenue growth to the low single digits.
Tencent’s financial report for the second quarter, released on August 14th, showed an 8% year-on-year increase in revenue, below expectations. Weak consumer spending is impacting the company’s core businesses in financial technology and cloud services (with growth only at a disappointing 4%), reflecting how both consumers and businesses in the turbulent Chinese economy are tightening their belts.
Baidu’s second-quarter financial report unveiled on August 22nd revealed a nearly 0.4% year-on-year decline in revenue, marking the first year-on-year downturn since the third quarter of 2022.
Baidu’s founder, chairman, and CEO, Robin Li, stated that externally, the company faces challenges from a weak macroeconomic environment and competitive pressures. In the macroeconomic aspect, current consumer spending recovery remains weak, with many advertisers, especially small and medium-sized advertisers heavily reliant on offline activities, exhibiting an unusually cautious attitude towards advertising expenditures.
Quoting Joohee An, Chief Investment Officer at Mirae Asset Global Investments Co., Bloomberg reported that the latest performance reports once again confirmed the very weak domestic demand in China. Even online retailers maintaining stable profits are primarily doing so due to cost-saving efforts rather than revenue surprises.
The report also cited Kenny Wen, Chief Investment Strategist at KGI Asia Ltd., stating that in the past two weeks, circumstances have been such that investors are selling off stocks after companies announce their performance unless there is significant revenue growth or optimistic sales guidance, disregarding profit growth. This indicates how concerned investors are, as they will remain on the sidelines until some macro data shows signs of recovery.
Bloomberg data shows analysts have lowered their revenue expectations for Alibaba and Tencent in the third quarter. Next week, more companies will release new financial reports, including BYD and Trip.com, an online travel agency under Ctrip Group, which will once again be closely watched by investors.