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Chinese internet companies grow their users bases and their ability to monetize them, could result in rapid revenue and earnings growth.
Chinese internet company 58.com reported second-quarter earnings that beat estimates but the stock fell as its third quarter outlook fell short. The report came before the market open.
The trade war between the United States and China has been problematic for both nations, but despite the potential for economic strife both Beijing and President Donald Trump's administration appear to be digging their heels in. The conflict between the U.S. and China has hurt investors, especially those with exposure to China.Source: Sundry Photography / Shutterstock.com However, if you're a Warren Buffett disciple then you're probably looking out for undervalued Chinese firms that have been hit by the trade tension. And JD.com (NASDAQ:JD) may be just that. What is JD.com?If you're an investor then it's unlikely that you haven't heard of JD stock. However what makes JD stand apart from its peers like Alibaba (NYSE:BABA) is the firm's business model. Unlike BABA, JD got its start as a first-party seller. The firm stocks its goods in self-owned warehouses and has made a name for itself by offering a quality customer experience. Initially, the firm concentrated on selling big-ticket items to wealthy customers, but has since expanded into a wide variety of goods. InvestorPlace - Stock Market News, Stock Advice & Trading TipsBeyond its massive physical footprint, JD also carries a lot of value in its logistics business. With both of those aspects on firm footing, the company recently started adding third-party sales. Now merchants can stock their goods in JD controlled warehouses and use JD's logistics arm to ship. Plus, JD is also wading into the digital advertising space which has helped expand margins significantly. * 10 Undervalued Stocks With Breakout Potential The reason it's so important to understand JD's development is because it underscores the fact that the firm is moving out of the grunt work and into the reward. Building out an extensive warehouse and logistics network is difficult and expensive, but now that those assets are in place, JD can start to capitalize on them.Digital advertising and third-party sales are far more profitable than first-party selling and that's where JD is heading. It's encouraging as an investor to see a company that's laying the groundwork and is only just beginning to reap the rewards of high-margin business. Growth Is on the HorizonJD.com's most recent earnings report spotlighted the company's growth potential. The firm delivered better-than-expected results in just about every way possible which helped boost the stock by 15% in the days that followed. Revenue growth was 23% and margins were significantly higher -- even when you account for one-time tax benefits. A year ago, I cautioned that JD stock was in for a rough ride whether the trade war dies down or not. Back then, I worried that the firm was having to spend big in order to deliver growth. I pointed out that spending in order to facilitate growth isn't necessarily a bad strategy, but that investors might want to wait until the firm begins to grow organically before jumping in with both feet.That moment appears to have arrived. Golden Opportunity for JD StockWhat makes JD unique is the fact that the firm essentially shouted from the rooftops that its strategy is starting to pay off when it released its quarterly results last week. Investors responded and pushed the stock up 15% but the profit-taking has already begun. After nearing $32 per share at the beginning of this week, JD stock looks likely to make its way back below $30 before the week is over. JD stock lost 2% on Wednesday as investors squirreled away their profits and worries about the trade war weighed on Chinese stocks.Of course, there are still concerns about an economic slowdown in China -- but it's worth noting that the sluggishness in the Chinese economy doesn't seem to be pressuring consumer spending much, which is good news for JD stock. The bottom line here is that JD stock's e-commerce platform is growing in a country where online shopping is on the rise and the middle class is growing. The firm has already put in the hard work of building out its warehouse footprint and logistics network -- making now an ideal time to jump on board. The only dark cloud hanging over JD.com right now is the U.S.-China trade war, which could cause some bumpiness in the near term.However if you're a long-term investor looking to buy while the market is fearful of Chinese stocks, JD stock should definitely be on your short list.As of this writing, Laura Hoy did not hold any of the aforementioned securities. More From InvestorPlace * 2 Toxic Pot Stocks You Should Avoid * 10 Marijuana Stocks That Could See 100% Gains, If Not More * 11 Stocks Under $10 to Buy Now * 6 China Stocks to Buy on the Dip The post JD.com Stock Is a Risk that Long-Term Investors May Want to Take appeared first on InvestorPlace.
The Zacks Analyst Blog Highlights: China Life Insurance, JD.com, Qudian, China Southern and Sinopec Shanghai
The most you can lose on any stock (assuming you don't use leverage) is 100% of your money. But when you pick a...
It’s no secret that the Chinese eCommerce segment has developed into a burgeoning market. According to a recent Barclays report from analyst Gregory Zhao, the country’s large population and increasing disposable incomes suggest that its current penetration rate of 24% only stands to rise. Amid this backdrop, a new era of eCommerce is being ushered in. Zhao deems the resulting market structure a “three-kingdom phase”. “Competition has become less about user traffic, with the focus now turning to the evolution of ecosystems, with value added services like payment, logistics, media content, marketing solutions, and offline retail integration. Based on this, Alibaba is still our preferred name in the space,” he stated. In the report, the 1.5-star analyst provides his take on Alibaba (BABA) and 2 other Chinese eCommerce Stocks.Let’s take a closer look at what the analyst had to say about each. JD.com Inc. (JD)JD has managed to pull off quite the turnaround. The company has demonstrated significant margin improvement in its last few quarters thanks to an investment in expanding its geographic operations and optimizing warehouse logistics with robotics. While this investment had a negative impact on margins in the short-term, JD is now on the right track with margins expanding by 60 bps in Q2 vs 20 bps in the previous quarter. Revenue growth has also stabilized, with it gaining 23% from the prior-year quarter. Not to mention JD is starting to embrace the team-buy model and prioritize its direct access to users on WeChat to acquire long-tail users, in order to combat the slower user growth it saw in the second half of 2018. Zhao notes that this should benefit ads and commission revenue growth on its marketplace. That being said, the eCommerce company still has a long way to go. “While new initiatives such as logistics and tech services provide another avenue for growth, we think the above positives have been fairly reflected in the consensus and stock price during the re-rating post 2Q earnings. In addition, while JD focuses on the retail market, it may miss some significant opportunities such as in Cloud and payment,” Zhao explained. As a result, the analyst initiated coverage with a Hold and set a $36 price target on August 19. His price target suggests shares could gain 15% over the next twelve months, with the stock already up 4% in the last five days. The rest of the Street takes a slightly more optimistic stance on JD. It has a ‘Moderate Buy’ analyst consensus and a $37 average price target, implying 21% upside potential. Pinduoduo Inc. (PDD) This Chinese eCommerce stock has made substantial headway in its efforts to gain market share with its unique team-buy social-eCommerce marketplace model. Its platform allows users to share product information on social media networks like WeChat and QQ as well as form shopping teams to get a lower prices on their purchases.“We prefer PDD to JD, in addition to PDD's better use of social network resources, we view a larger monetization potential during its move toward high-end markets,” Zhao noted.This strategy appears to be paying off for PDD. According to its August 21 Q2 earnings release, monthly active users rose by 88% from the year-ago quarter to reach 366 million. Management attributed this growth to company’s user-first strategy as well as its shopping festival campaign. The company also highlighted the fact that customers have been impressed with PDD’s move up to large-ticket items, its effort to improve the brand image and stock keeping unit expansion into branded products.However, it should be noted that PDD reported operating loss more than doubled to RMB1.5 billion ($212.4 million) compared to RMB6.6 million ($934,500) in the prior-year quarter. Even with this loss, the Barclays analyst believes PDD’s strategy will drive sustainable long-term growth. “While the Street is concerned about PDD's profitability in intensive marketing, we regard this investment as necessary at the current stage. In the long run, we expect upside in its ARPU and take rate during its expansion into the high-end market, along with an improving margin profile,” Zhao explained. Based on all of the above factors, he initiated coverage with a Buy and set a $32 price target on August 19. The analyst believes share prices could surge 6% over the next twelve months. This is on top of the 28% growth the company has seen over the last five days.All in all, the consensus among analysts is that PDD is a ‘Moderate Buy’. Its $27 price target suggests 11% downside. Alibaba Group (BABA) It’s easy to see why the last stock on our list is widely considered to be the China equivalent of eBay (EBAY) and Amazon (AMZN). With 55% market share, Alibaba has cemented itself as the top player in the space.BABA’s “new retail” strategy centers around combining the best of both online and offline commerce to provide a shopping experience for the customer. The company creates this experience through three main eCommerce sites: Alibaba.com, its international trade site, Taobao, a Chinese online shopping website and Tmall, a Chinese-language website for business-to-consumer online retail. So far, investors like what they see. On August 15, BABA reported revenue of RMB114.9 billion ($16.7 billion) or a 42% year-over-year gain. Adding to the good news, user acquisition programs which deepened its penetration into less developed areas drove a 20 million increase in annual active users. By no means is the company stopping there. BABA’s cloud products alone generated RMB7.8 billion ($1.1 billion) in quarterly revenue, up 66% year-over-year thanks to the launch of over 300 new products and features in Q2. The company is also expanding its product offerings to include digital payments, online entertainment and food delivery.Based on all of these positive developments, Zhao points to BABA as most poised to outperform. “Alibaba is still our preferred name in the space, given its top market position, attractive valuation and monetization perspective,” he explained. As a result, he reiterated his Buy rating and $225 price target. With shares already climbing 8% in the last five days, the analyst sees even more upside as his price target suggests 28% upside. Wall Street mirrors Zhao’s sentiment, with the consensus among analysts being that BABA is a ‘Strong Buy’. Its $224 average price target suggests 28% upside potential.
China e-commerce company Baozun reported second-quarter earnings before the market open Wednesday that topped estimates from Wall Street analysts but the stock fell more than 12%.
58.com (NYSE: WUBA ) releases its next round of earnings this Thursday, August 22. Here's Benzinga's essential guide to 58.com's Q2 earnings report. Earnings and Revenue Based on 58.com management projections, ...
No Chinese stock excites traders like Iqiyi (NASDSAQ:IQ).Source: Faizal Ramli / Shutterstock.com Iqiyi (pronounced Ee-KWEE-kwi) is a streaming video company focused on people whose primary device is a mobile phone. Its shows are short and highly interactive, perfect for a young worker on their bus ride or coffee break. It is very different from Netflix (NASDAQ:NFLX), although both have intense, passionate CEOs.Iqiyi is a partial spin-off of Baidu (NASDAQ:BIDU), a search engine and cloud that's the weakest of that country's three "Cloud Emperors." Both Iqiyi and Baidu are growing, but Iqiyi's losses remain ahead of expectations.InvestorPlace - Stock Market News, Stock Advice & Trading Tips * 10 Marijuana Stocks to Ride High on the Farm Bill For the quarter ending in June Iqiyi lost $339 million, 49 cents per share fully diluted, on revenue of $1 billion. Iqiyi lost almost the same amount during last year's second quarter, but with 33% less revenue. The numbers, and a ton of call options from traders betting on a different result, caused an overnight sell-off of 9%, but IQ stock quickly recovered. Iqiyi Is Not Like NetflixInvestors on Aug. 21 are going to read all about the drop, and less about the recovery.The recovery is based on the paid membership. Subscribers pay just $3 per month. Members also see ads, which they don't do on Netflix. Since IQ users are members these ads can be narrowly targeted.I have written about IQiyi before and questioned its business model. I also warned against buying its sharp rise this spring (which wasn't sustained).More recently, I have emphasized the difference between Iqiyi's model and that of Netflix. It's now No. 1 in the Chinese market, ahead of Tencent (OTCMKTS:TCEHY) and Alibaba (NASDAQ:BABA), whose parent companies are much bigger. Iqiyi Is Like NetflixBut in some ways Iqiyi is a lot like Netflix.As founder and CEO Tim Gong Yu noted in the company's recent earnings call, Iqiyi creates programs in-house that are tailored to its unique audiences, and spends money ahead of the market.Its earliest hits were reality games like "The Rap of China," "The Big Band," and "CZR," all variations of "American Idol." It is now paying more for scripted dramas like "The Thunder," a detective show, "Go Go Squid," a romantic comedy, and "Love and Destiny," a costume epic. Long-term liabilities have doubled, most of them covered by convertible notes.Iqiyi stock was also hit during its most recent quarter by an industry-wide slowdown in the advertising market. Advertising revenue fell 16%. Its subscriber growth depends on getting better wireless infrastructure in smaller Chinese cities. It also needs to keep customers once they get them, reducing churn and marketing costs per subscriber. Iqiyi is hugely popular among young people in China's biggest cities. Gong Yu admitted the company needs to raise its game among older people and those in smaller markets.Unlike Netflix, Iqiyi also has a games business. It recently acquired a game maker called Skymoons. The hope is that Skymoons programmers can deliver games based on Iqiyi shows, and game revenue was up 82% year over year. The Bottom Line on IQ StockIqiyi is still a speculative stock, but it does have a compelling story.Bulls will note that Iqiyi is still growing its customer base and that it has several different ways to monetize - memberships, advertising and gaming services. They will point to CEO Tim Gong Yu, who has his company ahead of rivals backed by much bigger companies. They will brush off losses as the price of growth, over 27% year-over-year for the period from January through June.Bears will question the China story, point to the abundant competition, and note that Iqiyi stock has yet to narrow its losses.Iqiyi is a game for younger, hungrier investors than me. Buy if you're young and can afford a loss, watch it closely, and your patience may be rewarded.Dana Blankenhorn is a financial and technology journalist. He is the author of the environmental story, Bridget O'Flynn and the Bear, available at the Amazon Kindle store. Write him at email@example.com or follow him on Twitter at @danablankenhorn. As of this writing he owned shares in BABA. More From InvestorPlace * 2 Toxic Pot Stocks You Should Avoid * 10 Marijuana Stocks to Ride High on the Farm Bill * 8 Biotech Stocks to Watch After the Q2 Earnings Season * 7 Unusual, Growth-Oriented REITs to Buy for Your Portfolio The post Iqiyi: Like Netflix, but Not Like Netflix appeared first on InvestorPlace.
A base is an important concept in chart reading for growth investors. NetEase formed a pair of good ones in both 2015 and 2016
Baidu's (BIDU) long-suffering bulls finally had a reason to smile Monday, as the Chinese online-search giant reported stronger-than-expected Q2 earnings. The numbers themselves weren’t great — revenue was nearly flat, only growing 1% since last year, while net income fell 56%. But analysts were expecting much worse on the profit-side, with EPS beating estimated by $0.55 and contributing to shares rising. The company still relies heavily on online ads sales, accounting for 73% of second-quarter sales, but faced considerable challenges during the quarter, including the US-China trade war, slowing Chinese economy and stronger competition. Nevertheless, 5-star Bank of America analyst Eddie Leung maintains his Buy rating and $181 price target on BIDU stock. For perspective, the stock closed at $108.72 yesterday, so this implies upside of nearly 66%.A deeper dive of Baidu’s report shows that trouble comes from its main revenue source, ads. Often dubbed “core” or “ex-iQiyi” revenue in reference to its video streaming platform, this stream was down 2% year-over-year as iQiyi saw a 50% rise in subscribers. This contributed to higher sales in Baidu's “other” category, which includes video and cloud. But the drop in core revenue doesn’t concern Leung, who expects a “similar dip” next quarter, as well. Leung’s lack of concern comes from other strong metrics. The analyst says, “Baidu’s core traffic is still growing, underpinned by its mobile apps which had daily users up 27% YoY and search queries up 20% YoY,” which makes him optimistic that the service is still strong. In other words, Baidu’s challenge is more related to business-factors, including competition and the trade war, than whether or not users value its service.Aside from search, Leung says Baidu’s report shows that users “are also spending more time on its platform, driven by richer content (e.g. self-media accounts, news, mini-video, knowledge-based content), more services (e.g. mini-program features), better targeting, and, to a [lesser] extent, IoT such as smart speakers and in-car Internet.” This continues to reinforce Leung’s position that the problem is not with Baidu’s offerings, but with the company’s ability to monetize. Looking ahead, the analyst is keeping his “growth assumption for its core sales at low- to mid-teen % in 2020 and 21,” as Baidu is “keeping [operating expenses] in check” in a time of slow revenue. Though Leung sees “margin upside of the core biz after stable op exp. (YoY) in 2Q19,” the analyst is cutting his 2020 and 2021 estimates. All in all, even as Baidu faces strong headwinds, including the US-China trade war and stiffer competition, the Wall Street community is optimistic on the stock. TipRanks analysis of 14 analyst ratings shows a consensus Moderate Buy rating, with eight analysts saying Buy, while six suggest Hold. The $144.32 average price target represents ~34% rise from current levels. (See BIDU's price targets and analyst ratings on TipRanks)