China's big internet names have mostly beat. Here's where analysts think the stocks are headed


Alibaba, Tencent, and Baidu are Chinese internet companies that have posted solid earnings for the quarter this month. However, their market performance has been disappointing. Tencent’s stock has been falling for the past four weeks. Alibaba and Baidu both closed higher this week in U.S. trade after three consecutive weeks of declines. However, it was not enough to make up for losses of over 10% so far this month. If the FactSet average analyst price target is accurate, all three stocks are set to see double-digit growth in the near future. The current sentiment doesn’t help. Headline uncertainty over future growth is fuelled by fears about spillovers from China’s worsening real estate market problems in the absence forceful stimulus. Gavekal’s founder and CEO Louis-Vincent Gave says that the market tells a moderate story here. Chinese bank stocks have a positive trend of 200-day moving-average. He said that when bank shares hit new lows it’s a sign that investors should get out as soon as possible. This was true in the U.S. from 2007-2008 and Europe between 2010-2011. He said that Chinese bank shares have not broken through a new low since October, but regional U.S. banks have experienced two massive sell-offs over the past five years. Nevertheless, the economists’ China growth forecasts have been revised downwards. UBS analysts reduced their estimate from slightly over 5% to 4.8%. The investment strategists of the firm said that they expect to see property-related policies implemented in the coming weeks. This would be critical in revitalising the economy and restoring confidence in the market. UBS strategists noted that the internet sector and e-commerce companies are expected to benefit from a sequential recovery of fundamentals, but also a greater sensitivity to policy changes. They added that the stocks were trading at low multiples of price to earnings. Alibaba’s top- and bottom-line results were better than expected, causing the average sell side price target to rise by 0.8% the following day to $136.83. Baidu exceeded expectations as well. FactSet reports that the average price target has risen by 1.1%, to $178.52. Tencent’s revenue growth was slower than expected. FactSet reports that the average price target has dropped 0.3%, to 441.67 Hong Kong Dollars. Barclays China Tech analyst Jiong Shao said that Tencent’s true potential was underappreciated. On August 17, one day after the release of the earnings, they upgraded the stock from underweight to overweight. The report stated that “we believe Tencent is on fire, and its recent growth should continue even though the broader economic is a little weaker than anticipated.” Some companies’ second-quarter results showed new trends of growth in gaming and e-commerce. According to FactSet, the livestreaming and video application Kuaishou has beaten both its top and bottom lines. Analysts have raised their price targets by an average 2.6%, to 85.60 Hong Kong Dollars. Nomura increased its price target to 72 Hong Kong Dollars, a level below the average. This is 10% higher than where Kuaishou ended Friday. Analyst Jialong Shi stated that, despite an increased in daily active users (DAU), the daily time per user decreased amid a highly-competitive environment where ByteDance’s Douyin is resilient and Tencent’s WeChat Video Accounts are growing rapidly. NetEase, a rival gaming company to Tencent that is growing, announced Thursday a quarter earnings report with a beat, but missed on revenue. FactSet reports that the average price target for a share has risen by 2.4%, to $118.90. Morgan Stanley added NetEase this week to its China/Hong Kong Focus List on the expectation that the company will continue to “deliver many blockbuster games titles in the next six to twelve months.” According to China Internet Analyst Alex Poon, one game received a domestic licence in June. International versions of other titles can also boost the business. The report didn’t specify a target price, but it did note that NetEase had a 27% increase in value as of Wednesday compared to its target. If the outlook for China’s economy and policy improves, then double-digit gains may be possible. KraneShares CSI China Internet ETF KWEB gained almost 19% in the last month. It is still on track to lose more than 10% in the next month. Rob Sanderson, Loop Capital’s Managing Director, captured the mood of the investors well in a note he wrote on Baidu dated August 22: “Will the (solid earnings), change the investor opinion?” No. Investor sentiment will remain mixed, with a more negative overall tone. Although we think that breakthroughs in the monetization of Baidu’s AI businesses will boost sentiment, this quarter was not one for them. The report stated that “we expect the stock to remain volatile in near-term along with China’s internet peers due to macro uncertainty.” Loop’s price target for Baidu is $210, which is more than 50% higher than where the shares closed Friday. Michael Bloom, CNBC’s Michael Bloom, contributed to this article.