Cheetah Mobile Reverses Despite Strong Earnings
Chinese Internet earnings have been hot, but not hot enough to satisfy investors in recent weeks.
Software security firm Cheetah Mobile (CMCM) on Tuesday reported earnings per share of 8 cents, at least double analyst forecasts. Revenue rose 139% year over year to $61.3 million, beating estimates by $5.5 million. It was the eighth quarter in a row of triple-digit gains.
Cheetah Mobile stock sprinted 13% to a new high of 30.37 early, but gave it all back, closing down a fraction to 26.66.
Similar action was seen last week with Vipshop Holdings (VIPS). The Chinese flash sales online apparel retailer crushed Q2 earnings and sales forecasts with triple-digit gains and guided Q3 views higher. But shares fell 5% on Aug. 14, after soaring to a record high the prior session. Investors reportedly expected even more, especially on guidance.
Late Monday, beauty products site Jumei International (JMEI) also beat Q2 expectations, but the stock fell 11% Tuesday.
The Chinese online retailer said revenue rose 42% to $154.4 million, beating the consensus by $4.8 million. Earnings per share minus items rose 23% to 16 cents and beat views by 4 cents.
The sell-off on good news trend was also evident in Q2 reports last week from JD.com (JD), China's largest online direct seller by transaction volume, as well as Internet retailer Dangdang (DANG). JD did jump Tuesday intraday to a record high, but gave up most of those gains at the close.
Great Expectations
Tencent Holdings (TCEHY), which owns a portfolio of Internet services including online games, social networks, Web portals and e-commerce sites, reported Q2 profit growth of 59%, much better than expected. But its stock fell 4% in reaction on Aug. 14. Tencent owns stakes in Cheetah Mobile, JD.com and 58.com (WUBA), a Craigslist-like company that reports earnings on Thursday.
"It could be the adage of buy the rumor and sell on the news," said Brendan Ahern, managing director of KraneShares, a China-focused provider of exchange traded funds.
BitAuto In High Gear
BitAuto was a notable exception. The Chinese auto informa tion site on Aug. 11 spiked 10% to a new high on strong earnings and accelerating revenue growth. That was part of a 9-day, 39% advance. Shares finally fell Tuesday, but just 5 cents to 82.23.
China-based e-commerce and mobile Internet earnings have been stellar. Of the 24 out of 42 China-based Internet companies in the KraneShares ETF (KWEB) that have reported Q2 results, revenue is up 71% year over year and earnings 32%, based on a weighted average.
"Across the board we've seen the Q3 estimates raised by most of these companies," said Ahern.
Huge Growth Market
They're riding a wave of growth in the world's largest Internet market. China had some 618 million Internet users in 2013 as some 53 million logged onto the Web for the first time. But that's still less than half of China's population. Internet users there could reach 725 million by 2016, or 58% of the population, according to iResearch.
China's e-commerce market is expected to reach $630 billion in 2016 from an estimated $300 billion in 2013.
Mobile e-commerce more than doubled last year to $27 billion as mobile surfers hit 500 million, iResearch said. It's expected to account for $131 billion in 2016.
"Wealth creation in China will be a key catalyst for e-commerce growth over the next several decades," a recent Morningstar report predicted. "According to China's Ministry of Human Resources and Social Security, the average yearly wage in China grew at a compound annual rate of 13.8% from 2003 to 2013.
These trends are a big plus for Alibaba, China's No. 1 e-commerce company, covering business and consumer markets. It's expected to launch an IPO in the U.S. next month that could raise $20 billion or more, topping Visa (V) and Facebook (FB) as the largest U.S. new issue ever.
