Week in Review
- Asian equities were mixed but mostly higher this week as Mainland China’s STAR Board and Vietnam outperformed, while India and the Philippines underperformed.
- It was another busy week for internet earnings as Meituan revealed how much the instant commerce price war weighed on its bottom line in the second quarter, PDD Holdings beat estimates, and Alibaba missed top-line estimates only due to the offloading of its two brick-and-mortar businesses.
- There were multiple releases from local governments and the central government this week on AI and cloud development and real estate, which powered gains in both sectors.
- AI chipmaker Cambricon has emerged as the “Nvidia of China”, according to some, after increasing its revenue by over 4,000% year-over-year (YoY) in the second quarter.
Alibaba Q2 Earnings Overview
Alibaba reported financial results after the Hong Kong close last night. Results missed analyst expectations on revenue, adjusted net income, and adjusted earnings per share (EPS). The revenue “miss” is a misnomer, as the company sold its supermarket chain Sun Art and department store chain Intime, which were included in last year’s quarterly revenue. Excluding revenue from these businesses in the comparison shows that Alibaba revenue grew 10% year-over-year (YoY).
Going into the quarterly results, investor concerns were primarily about the costs associated with instant commerce, as evidenced by the poor financial results from JD.com and Meituan. The relief rally is driven by management’s prudent participation in instant commerce, which weighed on net income but did not kill it off, like its two competitors.
Taobao’s monthly active users grew 25%, as instant commerce users grew to 300 million. The company projected RMB 1 trillion in gross merchandise value (GMV) for instant commerce within the next three years. AI and cloud computing services also took a big step forward, increasing EBITDA by 26% YoY. Buyback dry powder remains significant, at $19.3 billion.
% changes are year-over-year
- Revenue increased +2% to RMB 247.65 billion ($34.57 billion) from RMB 243 billion versus expectations of +4% to RMB 253 billion
- Revenue Excl. Sun Art & Intime +10%
- China E-Commerce Group Revenue +10% to RMB 140.07 billion, though adjusted EBITA was down -21% due to the investment in Taobao Instant Commerce
- Alibaba International Digital Commerce Group Revenue +19% to RMB 34.74 billion, as the unit has almost become profitable
- Revenue from Cloud Intelligence Group +26% to RMB 33.40 billion ($4.66 million), as adjusted EBITDA +26% to RMB 2.95 billion
- Adjusted Net Income -18% to RMB 33.51 billion ($4.68 billion) from RMB 40.2 billion, versus expectations of -7% to RMB 37.50 billion
- Adjusted Earnings per Share (EPS) -10% to RMB 14.75 ($2.06) from RMB 16.44 versus expectations of -3% to RMB 15.92
- Share Repurchases 56 million ordinary shares (7 million US-listed shares) at a cost of $815 million, with $19.30 billion left over in budget for further share repurchases, as of June 30, 2025.
Key News
Asian equities were lower overnight, though Hong Kong, Mainland China, and others managed small gains, while Thailand and Malaysia underperformed.
The Renminbi (RMB), China’s currency, paused its gains versus the US dollar after appreciating to 7.13 per US dollar. It was a quiet night from a news perspective, though volumes in Hong Kong and Mainland China continue to be very strong, which is impressive.
Hong Kong was driven by a positive day in pharmaceuticals, biotech, and life sciences, along with autos, electric vehicles, batteries, precious metals, and mining. While insurance held up, banks and brokers were off.
Alibaba fell -0.09% in advance of results, while Meituan gained +0.98% and Tencent gained +0.42%. Mainland investors bought a healthy $1.6 billion worth of Hong Kong-listed stocks via Southbound Stock Connect, as Alibaba and Tencent were big buys.
The Mainland had more decliners than advancers today, as semiconductors took a breather, and STAR Board heavyweight Cambricon fell -6.01% after warning investors about how quickly the stock has risen +200% year-to-date.
Electric vehicle battery giant CATL gained +10.37% on strong expectations for its batteries, as one of its suppliers, Wuxi Lead Intelligent Equipment, raised guidance on strong demand.
Foxconn Industrial Internet gained +9.99%, as the company’s market cap reached RMB 1 trillion.
There was chatter about the Mainland stock market’s total market cap closing in on RMB 100 trillion, after reaching RMB 95 trillion in July.
China’s trade team is leaving Canada, en route to Washington, DC, today.
Nvidia’s market cap of $4.38 trillion is larger than that of the 558 companies comprising the MSCI China Index. It is larger by $1.77 trillion! By market cap, Nvidia would be the 2nd largest country in the MSCI All Country World Index. This reminds me of the 2001 Greg Lemond comment about Lance Armstrong’s Tour de France, when he stated “unbelievable”, a decade in advance of Armstrong’s doping admission. Only time will tell!
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Last Night’s Performance
Last Night’s Exchange Rates, Prices, & Yields
- CNY per USD 7.13 versus 7.13 yesterday
- CNY per EUR 8.32 versus 8.34 yesterday
- Yield on 10-Year Government Bond 1.84% versus 1.85% yesterday
- Yield on 10-Year China Development Bank Bond 1.88% versus 1.89% yesterday
- Copper Price 0.51%
- Steel Price -0.29%