With the China internet sector up 15% year-to-date (or KraneShares Trust KraneShares CSI China Internet ETF (NYSE: KWEB) +30% from late-January lows), Goldman Sachs analyst Ronald Keung highlighted the critical numbers in focus heading in the Tencent Holding Ltd (OTC:TCEHY) and Alibaba Group Holding Limited (NYSE:BABA) prints and the investor debates as the companies kick off the results.
The analyst noted first-quarter bottom line (with different earnings set up where he expects +15% year-on-year operating profit growth for Tencent and -8% group EBITA decline yoy at Alibaba, yet mostly priced-in) forward-looking commentaries around second-quarter top-line growth across Tencent's games re-acceleration and Alibaba's eCommerce fightback and international & cloud as growth drivers, and any updates to shareholder return policies as the next key share price drivers.
While the analyst expects only mid-single-digit first-quarter group revenue growth Y/Y at both Tencent and Alibaba, for Tencent, he noted recent intense Tencent games March-April double-digit grossing growth trends could bring clear visibility of Tencent's second-quarter games revenue growth re-acceleration.
Meanwhile, alongside healthy advertising growth driven by Video Accounts, stable fintech and continued recovery in cloud revenue could contribute to Keung's expectations of healthy 20%+ profit growth for the first quarter and fiscal 2024.
For Alibaba, Keung noted recent better-than-expected China total parcel volumes that tracked at >20% growth in April and +30% yoy over the Labor Day holidays and noted Alibaba management's revamped fightback strategy in eCommerce continues to gain traction, with Taobao-Tmall returning to faster-than-national retail sales growth rate in recent months.
The analyst noted that GMV growth will eventually translate to a re-acceleration of Alibaba's CMR growth, albeit more back-end skewed towards the second half of 2024.
Keung noted room for multiple valuation improvements from the current valuation, more than offsetting his and the street's expectations. Keung remained Buy-rated on Tencent and Alibaba.
Price Action: BABA shares traded higher by 5.56% at $84.49 at the last check Monday.
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