Internet & Tech

Dwelling on the positive

How the stay-at-home economy has been good for Tencent and e-commerce


Some of its divisions have benefited from the lockdowns, others less so

Historically, stocks in companies selling some of life’s essentials hold up better in times of turbulence. During the market crash of 1929, food and beverage producers like Coca-Cola and Archer Daniels Midland were market winners. In the 2008 global financial crisis Campbell’s Soup was one of the few US stocks to go up. But as the coronavirus wreaks havoc, it is the internet brands that help with the “stuck at home” experience that are being classed as the new essentials – and therefore outperforming.

One of the most resilient stocks is The Nasdaq-listed shares of the Beijing-headquartered e-commerce giant have risen 11% year-to-date. That doesn’t sound terrific but it’s compelling performance when the S&P500 had tanked by 25% in the same time period. is expecting its first-quarter revenues to climb at least 10% on the year. The optimistic forecast was buttressed by the announcement of its largest share repurchase programme ever, which will be worth up to $2 billion and funded by cash and cash equivalents totalling $9.3 billion at the end of December.

Last year it posted robust results, which marked its first success in achieving profitability since its establishment 21 years ago. More significantly, the company beat analysts’ consensus for both its revenues and net profit for the final quarter, which reached a record Rmb170.7 billion ($24.5 billion) and Rmb3.6 billion respectively.’s stellar performance has much to do with its self-operated supply chain and logistics network, which comprises 700 warehouses spanning 17 cities in China. With the opening of its largest facility in Dongguan, as well as two other sorting centres last quarter, it can handle an additional two million daily orders as it looks to attract more users from non-coastal regions.

“During the epidemic, we noticed that the merchants who use [’s] warehouse services fare a lot better than those who don’t,” CEO Xu Lei said during the company’s latest earnings call.

An example among its 270,000 merchants was Jomoo, which sells bathroom products, which saw its sales jump by 75% on the year in February. The claim was that’s logistics chain was better at getting the products delivered, even when much of the country’s conventional transport system was suspended, according to China Finance Online.

Xu also noted that a large number of dormant customers had become active again as bricks-and-mortar stores were shut down. While’s active user base – 362 million people by the end of last year – is still substantially smaller than Alibaba’s, it has been acquiring new shoppers at a faster pace than its larger rival. In the fourth quarter it added 28 million new customers, of which over 70% came from third-tier and smaller cities, according to Sina, a local news portal.

Alibaba, which launched Juhuasuan, a flash-sales and marketing platform targeting the same demographic, grew its active customer base by a lesser 18 million over the same period.

The latest results were expected to improve’s appeal to investors as it prepares for a secondary listing in mid-2020 in Hong Kong, reports Reuters. Its logistics unit, spun off in 2017, is also said to be considering an overseas IPO that could raise $8-10 billion on a valuation of $30 billion.

Following the success of Alibaba’s $12.9 billion secondary listing in Hong Kong last November,’s proposed transaction could spur other US-traded Chinese internet companies including Baidu, NetEase and (better known in China as Ctrip) to follow suit.

For some of China’s other internnet giants, including Tencent, which also holds a 20% stake in, the coronavirus has had a mixed impact. An obvious merit is the surge in traffic to its dominant social media app WeChat. People from all walks of life have been drawn to the platform, especially its mini-programs, which have become a nearly essential feature to millions of lives.

Here are a few of the figures: over 10 million daily active users are using the audio and video conferencing application Tencent Meeting to work from home (see WiC486). More than 120 million school kids and teachers have joined QQ School-plus-Home groups to stream classes and send work as schools shut. And about 65% of the population have used Tencent’s Health Code, a passport-like tool that is supposed to indicate whether a person is virus-free, on a total of eight billion visits across the country.

As more companies are trying to shift their operations online, the number of daily transactions generated within mini-programs also doubled year-on-year, with gross sales value crossing Rmb800 billion in 2019 (see WiC487).

The Shenzhen-based tech giant also logged a 52% increase in its net profit to Rmb21.6 billion in the fourth quarter, with revenues reaching Rmb105.8 billion. It announced a hike of a fifth in its annual dividend to HK$1.20 per share as full-year earnings reached Rmb9.86 per share.

Fintech and business services was the fastest-growing segment for the quarter, which raked in 39% more revenue on a year earlier to Rmb29.9 billion. This contribution is now head-to-head with gaming, which has long been Tencent’s bread and butter. Sales here climbed to Rmb30.3 billion on 25% growth.

Coronavirus-induced restrictions on free movement are now intensifying outside China, meaning analysts are expecting Tencent to benefit more from its gaming franchises overseas as well. The firm owns five of the world’s top 10 most popular online games by daily active users, (based on 2019 figures). These include PUBG Mobile, Call of Duty Mobile, Clash Royale, Brawl Stars, as well as Clash of Clans.

Tencent’s payment services are suffering from impact of the outbreak, according to James Mitchell, Tencent’s chief strategy officer. Starting out as a messaging platform, Tencent has tried to catch up on Alipay in mobile payments by targeting bricks-and-mortar retailers and other offline services. The mass closure of shops during February and March meant that its payment volumes have slowed substantially, however, especially as a minority of the one billion transactions that Tencent processes on a daily basis are related to online purchases.

The economic gloom has also meant that companies are delaying their implementation of cloud-related services, which will constrain near-term revenues in what was previously a fast-growing unit. More surprising, perhaps, was a 24% pullback in its media advertising business in the last quarter. This was blamed on delays in the broadcasting of drama series and fewer telecasts of sports events.

Investors were divided about how Tencent would perform through the virus crisis, as suggested by option contracts pricing in a 7% move either way for its Hong Kong-listed shares post-results announcement, Bloomberg said. So far the shares have rebounded 15% since the results came out on March 18. Prosus, its proxy listed in Amsterdam, has also jumped 29% in the same period (see WiC467).

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