|Day's range||82.60 - 82.65|
Chinese e-commerce giant Alibaba is set to price its first share sale in Hong Kong next week, raising up to $13.4 billion (£10.5 billion) in what will be the largest deal in the city since 2010 and the world's biggest ever cross-border secondary listing. WHY IS ALIBABA LISTING IN HONG KONG? Alibaba, which is due to start trading on Nov. 26 in Hong Kong, could also benefit from Chinese demand.
Alibaba Group's $13.4 billion (£10.5 billion) Hong Kong listing is shrinking cash levels in the protest-wracked financial hub, with short-term borrowing costs shooting back towards a decade-high marked in July. Large IPOs and share sales typically hoover up cash in Hong Kong's relatively small banking system, albeit temporarily. "Timing wise, it's not good for the liquidity to get sucked out of the system as there's a bit of capital outflow happening due to the protests," said a Hong Kong-based senior banker at a European bank, who asked not to be identified.
(Bloomberg) -- Alibaba Group Holding Ltd. priced the retail portion of its Hong Kong share sale Friday, issuing an appeal to individual investors in a city in the throes of recession after months of violent pro-democracy protests.The largest Chinese e-commerce company capped the 12.5 million shares available to individual investors at HK$188 apiece -- an auspicious number in Chinese culture -- making it the most expensive first-time share sale in Hong Kong. Alibaba said it may price the remainder of its 500 million-share offering above that ceiling, signaling that it aims to raise at least $12 billion in what would be one of the world’s largest sales of stock this year. The company will price the rest of its international offering by Nov. 20.Asia’s largest corporation is proceeding with what could be Hong Kong’s biggest share sale since 2010. Slated for late November, it’ll be the Chinese e-commerce juggernaut’s official Asian coming-out party -- half a decade after snubbing the financial hub for a record Wall Street debut. Alibaba’s return hands a much-needed victory to a city wracked by protests since the summer, and will please Chinese officials who’ve watched many of the country’s largest private corporations flock overseas for capital. If the deal goes through, Alibaba will challenge Tencent Holdings Ltd. for the title of the largest Hong Kong-listed corporation.“The listing in Hong Kong will allow more of the company’s users and stakeholders in the Alibaba digital economy across Asia to invest and participate in Alibaba’s growth,” the company said. “During this time of ongoing change, we continue to believe that the future of Hong Kong remains bright,” Daniel Zhang, chief executive officer of Alibaba, said in a letter to investors.Read more: Alibaba Is Taking Orders for $11 Billion Hong Kong ListingListing closer to home has been a long-time dream of billionaire Alibaba co-founder Jack Ma’s. A successful Hong Kong share sale could help finance a costly war of subsidies with Meituan Dianping in food delivery and travel, and divert investor cash from rivals like Meituan and WeChat operator Tencent. It will also be a feather in the cap for Zhang, who took over as chairman from Ma in September. The former accountant is now spearheading the company’s expansion beyond Asia but also into adjacent markets from cloud computing to entertainment, logistics and physical retail.What Bloomberg Intelligence SaysAlibaba’s secondary listing in Hong Kong could lead to a shake up of the Hang Seng Index, the city’s main stock benchmark. The 50-member index is heavy on financial stocks, when comparing weights to other leading equity indexes in the world. Meanwhile, IT, industrials and consumer discretionary stocks are severely underrepresented.\- Steven Lam, analystClick here for the researchA marquee name like Alibaba’s could draw investors and boost trading liquidity for Hong Kong Exchanges & Clearing Ltd., which just incurred its biggest profit slump in more than three years. For Hong Kong, it’s bit of welcome news following half a year of often violent protests that have at times paralyzed the city and its service industry. Efforts to court Alibaba emanated from the very top, with Chief Executive Carrie Lam herself exhorting Ma to consider a listing in the city.Alibaba has considered a Hong Kong listing for a long time, Michael Yao, head of corporate finance at Alibaba, said on a call with investors this week. The deal size hasn’t changed as a result of the protests, he added.(Updates with details of price per share comparison in second paragraph)\--With assistance from Zhen Hao Toh.To contact the reporters on this story: Lulu Yilun Chen in Hong Kong at firstname.lastname@example.org;Alistair Barr in San Francisco at email@example.comTo contact the editors responsible for this story: Peter Elstrom at firstname.lastname@example.org, Edwin Chan, Colum MurphyFor more articles like this, please visit us at bloomberg.com©2019 Bloomberg L.P.
Alibaba Group Chairman Daniel Zhang said Hong Kong's "future is bright" as the ecommerce giant kicked off the retail campaign for its secondary listing in the city gripped by increasingly violent protests and recession. In a first for the Asian financial hub, Alibaba said the listing would be fully automated and paperless to reflect its environmental standards, confirming an earlier Reuters story. Four thousand people have been arrested in Hong Kong since June and the territory’s economy has sunk into recession for the first time in a decade as the anti-government demonstrations disrupt business and deter tourists.
(Bloomberg) -- Terms of Trade is a daily newsletter that untangles a world embroiled in trade wars. Sign up here. Jack Ma, the co-founder and former chairman of Alibaba Group Holding Ltd., said the U.S.-China relationship could face 20 years of “turbulence” if the two superpowers aren’t careful in how they handle trade.“We have to be very, very careful,” Ma said on Thursday in an interview with Bloomberg TV. “We have to solve problems, we should not create more problems.”While a full-scale trade war might not last that long, relations could end up rocky for the next two decades, he said. Ma emphasized the importance of the two countries working together and sharing technology.The trade dispute, which has been going on for more than a year and a half, has already ensnared more than 70% of bilateral trade in goods. If the two countries can’t resolve at least some of their differences in the coming weeks, the White House on Dec. 15 will add 15% punitive tariffs on $160 billion in Chinese imports. China-based Alibaba, one of Asia’s biggest companies, is expected to ride out the storm better than some, thanks to booming online consumption in the world’s No. 2 economy. But Alibaba saw its stock dip earlier this fall on reports that the Trump administration was weighing a limit on U.S. government pension funds buying Chinese stocks.The internet giant listed shares in New York in 2014, in the biggest ever initial public offering. It’s now readying a share sale in Hong Kong that could raise almost $12 billion. Alibaba’s shares were little changed in New York Thursday at $182.80. They have risen 33% this year.(Updates with shares in final paragraph. An earlier version was corrected to remove a reference to Ma’s reason for Hong Kong listing)To contact the reporters on this story: Kiley Roache in New York at email@example.com;Yinka Ibukun in Accra at firstname.lastname@example.orgTo contact the editors responsible for this story: Jillian Ward at email@example.com, Molly SchuetzFor more articles like this, please visit us at bloomberg.com©2019 Bloomberg L.P.
Alibaba's Hong Kong listing will not only land it $13.4 billion, it will also garner goodwill from Beijing to help the Chinese e-commerce giant weather the fallout of a damaging trade war. The share sale, set to be Hong Kong's largest in more than nine years, comes as Beijing seeks support from businesses and entrepreneurs in the face of anti-government protests there. "Beijing has long wanted China's tech champions to list closer to home," Mark Natkin, managing director at Beijing-based Marbridge Consulting, said of Alibaba's plans.
Alibaba's planned $13.4 billion share sale will be Hong Kong's first paperless stock market listing, a source with knowledge of the matter said, breaking with a long-held tradition of investors placing stock orders in bank branches. Companies carrying out initial public offerings in Hong Kong have traditionally placed prospectuses in banks, which would often stay open late or over the weekend, and investors would fill out paper forms to place their stock orders. The decision by Alibaba to fully automate the retail subscription component of its deal comes as Hong Kong is gripped by violent civil unrest which has shut shops in the financial district and on Thursday led the government to close schools.
(Bloomberg Opinion) -- “Technological sovereignty” is one of the European Union’s buzzwords of the moment, conjuring up an image of a safe and secure space for zettabytes of home-grown data, free from interference or capture by the U.S. and China.Both France’s Emmanuel Macron and Germany’s Angela Merkel have used the phrase to kick-start all sorts of initiatives, from artificial intelligence programs to state-backed cloud computing. The new European Commission president Ursula Von der Leyen has etched the concept into her political guidelines.It’s a noble goal, if only because it acknowledges Europe is anything but technologically sovereign right now. The internet behemoths are in America and China — Alphabet Inc., Facebook Inc., Amazon.com Inc., Alibaba Group Holding Ltd — and an estimated 92% of the Western world’s data is stored in the U.S., according to the CEPS think tank. China accounts for more than one-third of global patent applications for 5G mobile technology. Amazon boasts that 80% of blue-chip German companies on the DAX exchange use its cloud services business AWS. The trigger to do something about it is the race for supremacy between Beijing and Washington, which is spilling over into the tech sector and undercutting the EU’s ability to protect its turf. President Donald Trump’s ban on Huawei Technologies Co. and his attempts to bully allies into doing the same was a wake-up call, however valid his security concerns. The U.S. “Cloud Act,” which forces American businesses to hand over data if ordered regardless of where it’s stored, was another. Both China and the U.S. see the EU as an easy mark in the global tech tussle. And they’re right. Europe’s problem is that recapturing sovereignty is neither easy nor cheap. Take cloud computing, one area where France and Germany are eyeing the building of “sovereign” domestic infrastructure for use by national and European companies. This is a $220 billion global market dominated by U.S. suppliers with market values of close to $1 trillion, which invests tens of billions of dollars every year on infrastructure. Their power isn’t just technological: When Microsoft Corp. spends $7.5 billion on an acquisition such as GitHub, a forum for open-source coding, it’s bringing valuable developers into its own orbit. Likewise, Amazon’s AWS has the scale, cheap pricing and perks that lock in customers.France and Germany won’t win a head-on battle in this field. Paris is still smarting from a failed attempt years ago at building a sovereign cloud for the princely sum of 150 million euros ($165 million). Germany has Gaia-X, which looks like a common space for the sharing of data by the leading lights of the DAX , from SAP SE to Siemens AG. It’s hard to see how such initiatives will lead to true digital sovereignty, though; not just because of a lack of serious investment, but because it’s hard to avoid using U.S. cloud tech.Still, it wouldn’t be a bad thing if this trend led to France and Germany collaborating more — laying the groundwork for more ambitious spending — and to Brussels doing what it does best: setting the rules of engagement for tech companies everywhere. Digital commissioner Margrethe Vestager is already demanding tougher enforcement of data protection laws and taking a consistently muscular approach to antitrust violations by the Silicon Valley and Seattle giants. It’s not sovereignty, but it’s a start.To contact the author of this story: Lionel Laurent at firstname.lastname@example.orgTo contact the editor responsible for this story: James Boxell at email@example.comThis column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.Lionel Laurent is a Bloomberg Opinion columnist covering Brussels. He previously worked at Reuters and Forbes.For more articles like this, please visit us at bloomberg.com/opinion©2019 Bloomberg L.P.
(Bloomberg) -- Tencent Holdings Ltd. slid almost 3% after reporting earnings below the lowest analyst’s estimate, underscoring the Chinese internet giant’s challenges in reviving growth during an economic slowdown.The social media goliath’s profit plummeted 13% last quarter -- worse than the most pessimistic analyst anticipated -- when an economic downturn depressed advertising and prompted charges within its huge portfolio of investments. Marketers fled to nurse shrinking budgets after drama series got delayed. And costs jumped 21% as Tencent hoovered up content to feed its Netflix-style service.Tencent was supposed to hit the comeback trail this year after a nine-month freeze on game approvals gutted its most profitable business in 2018. But the slowdown, competition from up-and-comer ByteDance Inc. for internet traffic and advertising, and now tricky political considerations is snarling that recovery. That’s a key reason its stock has vastly under-performed rival Alibaba Group Holding Ltd. this year, creating a gap of roughly $90 billion in their market valuation.“The PC gaming and media advertising business was under pressure,” said David Dai, an analyst with Bernstein. “Fintech and cloud are doing well but we need to wait a bit longer to see them contribute more significant profit.”Read more: Tencent Will Have to Wait a Little Longer for Its ComebackChina’s economic slowdown is dousing revenue growth across Tencent’s platforms, dampening appetite for advertising among large brands as well as subscriptions to its video and music streaming services. Sales from media advertising, including on the Netflix-like Tencent Video service, plummeted 28% as marketers cut spending while major shows got delayed. Beijing’s decision to cap game-time for underage users is also prompting Tencent to spend more on producing AAA-rated mobile titles that appeal to a global audience.On Wednesday, the company posted net income of 20.4 billion yuan ($2.9 billion) in the September quarter. That came alongside a 90% drop in one-time gains -- an item that tracks its vast portfolio of startups around the world -- after it swallowed charges for investments in connected automobiles. Tencent fell as much as 2.9% Thursday, testing key support at around HK$320 in its biggest decline in more than two months. The company, which has shed roughly $90 billion of market capitalization this year, is now trading at about 24 times its estimated earnings for next year, about its lowest in 2019.On Thursday, Citigroup and BOCOM International were among the brokerages that trimmed their share-price targets on Tencent. But both maintained their buy ratings and BOCOM said its HK$401 goal still implied a valuation of 31 times 2020 earnings.Read more: Tencent Analysts See Turnaround Delay as Media Ads DisappointWhat Bloomberg Intelligence SaysRobust growth in mobile games should continue, as deferred revenue from Peacekeeper Elite is recognized in coming quarters. Tencent’s rapid internationalization of its game operations will also help.\- Vey-Sern Ling, analystClick here for the research.Tencent might see light at the end of the tunnel in the fourth quarter. It hit pay-dirt with its smartphone adaptation of Call of Duty. The game garnered more than 100 million downloads in the first week, putting it ahead of Nintendo Co.’s Mario Kart Tour. That was four times more than Fortnite’s mobile version managed. That strong debut positioned it to join the other mega cash-cows in Tencent’s stable: old favorite Honour of Kings and 2019’s standout hit, Peacekeeper Elite.It wants to replicate that success over the longer term. Tencent owns stakes in some of the biggest U.S. game studios and publishers, including the outfits that created household names Fortnite, League of Legends and World of Warcraft. The Chinese company is now counting on converting popular PC content for smartphones to re-kindle growth. The pipeline for such content stretches into 2022, the company says.The “business strategy of Tencent remains intact to capture long-term opportunities ahead,” Thomas Chong and Ken Chong, analysts with Jefferies, wrote.(Updates with valuation analysis from the sixth paragraph)To contact the reporter on this story: Lulu Yilun Chen in Hong Kong at firstname.lastname@example.orgTo contact the editors responsible for this story: Peter Elstrom at email@example.com, Edwin Chan, Charlie ZhuFor more articles like this, please visit us at bloomberg.com©2019 Bloomberg L.P.
(Bloomberg) -- Alibaba Group Holding Ltd. started taking investor orders for its Hong Kong share sale, which could raise more than $11 billion in the city’s largest equity offering since 2010.The New York-listed tech giant is offering 500 million new shares, according to terms for the deal obtained by Bloomberg on Wednesday. The base offering could raise about $11.7 billion based on Alibaba’s Tuesday close in New York, though it’s possible the stock will be priced at a discount. Alibaba’s American depositary shares, which represent 8 ordinary shares of the internet company, closed at $186.97 in U.S. trading Tuesday. The shares fell 2.4% on Wednesday.Asia’s largest corporation is proceeding with what could be one of this year’s biggest stock offering globally despite violent pro-democracy protests gripping the city. Alibaba aims to price the offering before U.S. market open on Nov. 20 and start trading in Hong Kong on Nov. 26, the terms show.Alibaba plans to use the offering proceeds to drive user engagement, improve operational efficiency and fund continued innovation, according to the terms. Deal underwriters have a so-called greenshoe option to sell an additional 75 million shares. Alibaba said in a regulatory filing that New York will continue to be its primary listing venue.China International Capital Corp. and Credit Suisse Group AG are joint sponsors of the offering, while Citigroup Inc., JPMorgan Chase & Co. and Morgan Stanley are joint global coordinators. HSBC Holdings Plc and ICBC International Holdings Ltd. are also helping arrange the sale, the terms show.Alibaba’s share sale marks a triumph for the Hong Kong stock exchange, which lost many of China’s brightest technology stars to U.S. rivals. The city’s bourse has introduced new rules that allow dual-class shares after resisting such a change for a decade. Efforts to lure Alibaba went all the way to the top of Hong Kong’s government, with Chief Executive Carrie Lam exhorting billionaire Jack Ma to consider a listing in the city.Alibaba has considered a Hong Kong listing for a long time, even as far back as five years ago when it was scouting for its initial public offering, said Michael Yao, head of corporate finance at Alibaba, on a call with investors. “We viewed Hong Kong as strategically important to us. It’s one of the most important financial centers. And this listing will allow more of our users and stakeholders in the Alibaba digital economy across Asia the ability to invest in and participate in the fruits of our growth,” Yao said.The New York-listed Chinese giant had aimed to list over the summer before pro-democracy protests rocked the financial hub, while trade tensions between Washington and Beijing clouded the market’s outlook. It’s unclear if the violence will affect the listing process, given growing resentment toward mainland Chinese influence as well as the country’s most visible corporate symbols.Yao said the deal size hasn’t changed as a result of the protests. “This has always been our deal size,” he said, adding that the company wants to ensure there is ample liquidity in the market.Listing closer to home has been a long-time dream of Ma’s-- a move that curries favor with Beijing and hedges against trade war risks. A successful Hong Kong share sale could also help finance a costly war of subsidies with Meituan Dianping in food delivery and travel, and divert investor cash from rivals like Meituan and WeChat operator Tencent Holdings Ltd.A successful Hong Kong debut will be another feather in the cap for Daniel Zhang, who took over as chairman from Ma in September. The former accountant is now spearheading the company’s expansion beyond Asia but also into adjacent markets from cloud computing to entertainment, logistics and physical retail.(Updates Alibaba’s share price to close in second paragraph.)\--With assistance from Manuel Baigorri, Crystal Tse and Julia Fioretti.To contact the reporters on this story: Lulu Yilun Chen in Hong Kong at firstname.lastname@example.org;Kiuyan Wong in Hong Kong at email@example.com;Carol Zhong in Hong Kong at firstname.lastname@example.orgTo contact the editors responsible for this story: Peter Elstrom at email@example.com, ;Fion Li at firstname.lastname@example.org, Ben ScentFor more articles like this, please visit us at bloomberg.com©2019 Bloomberg L.P.
(Bloomberg Opinion) -- Jack Ma is riding high this week. Alibaba Group Holding Ltd., the company he founded, has won approval to forge ahead with a Hong Kong share sale that could raise at least $10 billion. On Monday, China’s largest e-commerce company logged more than $38.3 billion of purchases during its annual Singles’ Day shopping event, a new record. The rest of China’s retail sector hasn't been so lucky. Just as shoppers were placing gadgets in their carts, investors were selling their consumer stocks. In two days, Gree Electric Appliances Inc. of Zhuhai and peer Midea Group Co. tumbled 7.4% and 6.2%. That’s despite electronics companies notching a 30% rise in sales this Singles’ Day.What explains the selloff?Blame Jack the Ripper. He’s killing the most beloved trade in China’s $12 trillion stock market: a bet on consumers. The retail sector, excluding cars, has been remarkably resilient this year.Now Alibaba’s Singles’ Day has kicked off a price war. Over the weekend, Gree announced it would forgo 3 billion yuan ($427.5 million) in profit just to please China’s lonesome hearts. Its air conditioners sold for as little as 1,399 yuan, a 42% discount, both online and at the company’s thousands of retail outlets. China’s biggest electronics makers have been caught in a three-way race, so it’s little surprise that rivals from Midea to Haier Electronics Group Co. quickly followed suit.Investors were already looking at Monday’s stellar statistics with suspicion, after an alarming report over the weekend that producer prices fell again in October. Call it bad timing — blockbuster sales on the heels of dour economic data. It’s also a stern reminder that deflation still grips broad swathes of the economy.There are good reasons to like consumer stocks. They are a bet on China’s rising middle class. Companies like Gree and Midea are also highly profitable, both notching a return on equity of more than 25%. This may not last much longer, however, with falling prices spreading through China’s manufacturing sector. A full-blown price war that erodes these companies’ profitability seems inevitable. In that light, you could argue that Alibaba is a good hedge against China Inc.’s deflation problem. If consumers expect deals, they’ll only visit the company’s Taobao and T-Mall platforms more frequently. When Alibaba lists in Hong Kong later this month, mainland investors will get an opportunity to buy shares via the stock connect with Shanghai and Shenzhen. Some may well dump their consumer-stock holdings to free up money for the e-commerce company. Everyone likes a good bargain; but once price wars take hold, it can be tough to find the basement.To contact the author of this story: Shuli Ren at email@example.comTo contact the editor responsible for this story: Rachel Rosenthal at firstname.lastname@example.orgThis column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.Shuli Ren is a Bloomberg Opinion columnist covering Asian markets. She previously wrote on markets for Barron's, following a career as an investment banker, and is a CFA charterholder.For more articles like this, please visit us at bloomberg.com/opinion©2019 Bloomberg L.P.
Alibaba Group Holding Inc co-founder Jack Ma said on Wednesday results from the Singles' Day annual online shopping festival had missed the Chinese e-commerce giant's expectations. Analysts monitor sales on Singles' Day to gauge consumer sentiment in China. The Chinese shopping festival is held on Nov. 11 and is also referred to as Double Eleven because of the date.
(Bloomberg) -- It’s getting harder to believe in Tencent Holdings Ltd.’s comeback.The Chinese social media goliath’s profit plummeted 13% last quarter -- worse than the most pessimistic analyst anticipated -- after an economic downturn depressed advertising and prompted charges within its huge portfolio of investments. Marketers fled to nurse shrinking budgets. And costs jumped 21% as Tencent hoovered up pricey content to feed its Netflix-style service. Shares in Prosus NV, which groups largest shareholder Naspers Ltd.’s internet holdings, fell as much as 4%.Tencent was supposed to hit the comeback trail this year after a nine-month freeze on game approvals gutted its most profitable business in 2018. But a sharp Chinese economic slowdown, competition from up-and-comer ByteDance Inc. for internet traffic and advertising, and now tricky political considerations is snarling that recovery. That’s a key reason its stock has vastly under-performed arch-rival Alibaba Group Holding Ltd. this year, creating a gap of roughly $90 billion in their market valuation. But after a brutal couple of years, its long-awaited turnaround may come down to a game -- good thing that game is Call of Duty, one of the best-selling franchises in industry history.On Wednesday, Tencent reported net income of 20.4 billion yuan ($2.9 billion) in the September quarter. That came alongside a 90% drop in one-time gains -- an item that tracks its vast portfolio of startups around the world -- after swallowing charges for investments in connected automobiles.“The results were unbearable,” said David Dai, a Hong Kong-based analyst with Bernstein. “Games and media advertising were especially bad.”Read more: Tencent Falls $90 Billion Behind Alibaba After NBA China RowChina’s economic slowdown is dousing revenue growth across Tencent’s platforms, dampening appetite for advertising among large brands as well as subscriptions to its video and music streaming services. Sales from media advertising, including on the Netflix-like Tencent Video service, plummeted 28% as marketers cut spending while major shows got delayed. Beijing’s decision to cap playing time for underage users is also prompting Tencent to spend more on producing AAA-rated mobile titles that appeal to a global audience.The company is also grappling with a potential suspension of National Basketball Association game broadcasts -- which drew half a billion viewers last year -- after Houston Rockets General Manager Daryl Morey triggered a media blackout in China by tweeting support for Hong Kong’s pro-democracy protests. The company had paid $1.5 billion for five years of exclusive streaming rights. Tencent President Martin Lau said however he foresaw no long-lasting impact.“What we’re trying to do is to work through this difficult period and maintain the positive engagement of sport between the users and the sports franchise, and over time hope the problem will solve itself,” Lau told analysts on a conference call.Tencent’s Greatest Strength? It’s Not Alibaba: Tim CulpanTencent might see light at the end of the tunnel in the fourth quarter. It hit pay-dirt with its smartphone adaptation of Call of Duty. The game garnered more than 100 million downloads in the first week, putting it ahead of Nintendo Co.’s Mario Kart Tour. That was four times more than Fortnite’s mobile version managed. That strong debut positioned it to join the other mega cash-cows in Tencent’s stable: old favorite Honour of Kings and 2019’s standout hit, Peacekeeper Elite.Longer term, Tencent owns stakes in some of the biggest U.S. game studios and publishers, including the outfits that created household names Fortnite, League of Legends and World of Warcraft. The Chinese company is now counting on converting popular PC content for smartphones to re-kindle growth. The pipeline for such content stretches into 2022, the company says.While Call of Duty downloads surged right out the gate, the trick now for Tencent is to get players spending in-game. It needs that revenue boost to offset pain in other parts of its business. Revenue still rose a respectable 21% in the September quarter, to 97.2 billion yuan, helped by a fintech division that grew sales 36%.Despite a tumultuous year, Lau said in February the company won’t scale back on investment. The company has sunk money into more than 700 portfolio companies, including 122 that have become unicorns worth $1 billion or more. In China, its portfolio companies are worth roughly $107 billion, according to data compiled by Bloomberg. But it’s likely a chunk of those associated startups face the same sort of external pressures as their giant backer.“Video ads and subscribers remain under pressure,” Jerry Liu, a Hong Kong-based analyst at UBS, said in a report. “Investors are pricing in lower structural growth in gaming, pressure in advertising growth due to macro and competition, and more regulatory headwinds in online content.”(Updates with executive’s comments from the seventh paragraph)\--With assistance from Zheping Huang.To contact the reporter on this story: Lulu Yilun Chen in Hong Kong at email@example.comTo contact the editors responsible for this story: Peter Elstrom at firstname.lastname@example.org, Edwin Chan, Colum MurphyFor more articles like this, please visit us at bloomberg.com©2019 Bloomberg L.P.
(Bloomberg Opinion) -- To understand how different China’s two largest internet companies are, take a look at the revenue breakdown for Tencent Holdings Ltd. As a provider of social media, games and financial services, Shenzhen-based Tencent merely dabbles in advertising. E-commerce giant Alibaba Group Holding Ltd. is built on it. That divergence could end up being Tencent’s greatest strength as it seeks to climb out of a prolonged funk that’s seen revenue slow and profit fall.While Alibaba and other Chinese internet companies such as Baidu Inc. and startup ByteDance Inc. battle it out for a share of advertising in an increasingly competitive market, Tencent has the chance to leverage its core strengths of games and social networking. That can make it less beholden to the ad business, which was its largest area of weakness in what was a very tepid quarter for the company.Tencent posted third-quarter revenue growth of 21% late Wednesday. That’s not the worst on record, but it wasn’t great. Ads contributed 19% of revenue, down from 20.2% a year earlier. In fact, that prior figure was a record. As recently as three years ago, ads accounted for just 12.3% of the top line. Alibaba, on the other hand, gets half its sales from advertising and around 22% from commissions.Advertising was the biggest area of weakness for Tencent, climbing a relatively lackluster 13%. It was hurt by a slowdown in the auto sector while “uncertain content scheduling and lower sponsorship” brought down revenue from ads placed alongside its various streaming services such as sports and self-produced drama series.Investors can expect this to turn around, but thankfully they won’t need to rely on it because Tencent is so diversified.The Alibaba versus Tencent divide worked against the latter’s share price over the past few months because investors remained concerned about its ability to sail through regulatory and economic storms. Clouds hang over the gaming business as the Chinese government continues a campaign against addiction that’s forced companies to implement stricter controls. Alibaba, on the other hand, benefited from an anticipated Hong Kong IPO and revenue growth that was largely driven by recent acquisitions. It’s understandable that investors remained gun-shy after last year’s crackdown on games, which prevented companies from monetizing new titles. Tencent management was pragmatic enough to ease up on marketing at that time, recognizing that there wouldn’t be a lot of business to chase as long as Chinese regulators put the brakes on that sector. With online games being the company’s largest division, at a third of revenue, even reduced expenditure couldn’t prevent the fiscal pain.The social-networks unit, at around 23% of sales, was also affected since it includes mobile games and other offerings such as video subscriptions and sports broadcasts. While controversy over the NBA forced Tencent to halt some basketball broadcasts last month, a bigger risk to Tencent Video is increasing censorship that will encroach on self-developed productions. Management hinted at such troubles by referencing “the unexpected delay of certain top-tier drama series” in its August investor conference, which it pointed to again in this earnings statement.And yet, Tencent’s management team has become experts in navigating Beijing’s political whims. It implemented the “Healthy Gameplay System” two years ago to combat addiction, which gave it the confidence to claim late Wednesday that “recent regulations that limit younger players’ game play will have limited additional impact to our business.”Tencent also returned from the games freeze with a new patriotic title called Homeland Dream, which topped the charts within days of its debut at the end of September. That helped push smartphone games revenue 25% higher in the third quarter. Expect the company to show similar pragmatic patriotism when it develops new drama series. I’d go so far as predicting that Tencent will say it wants to broadcast more Chinese sports leagues. Hint: President Xi Jinping is known to be a soccer fan.Harder to skirt, however, is an economic slowdown in China that’s impacting the advertising sector. This is worsened by increasing competition from upstarts like ByteDance’s Douyin short-video service (its international version is called TikTok).While many cheered Alibaba’s 40% increase in September-quarter sales, they missed the fact that China customer-management revenue (the company’s code phrase for ads) climbed just 25%. The remaining growth came chiefly from new businesses such as groceries and offline retail. By contrast, Tencent was able to lean not only on smartphone games, but also its fintech and business-services unit, where revenue rose 36%. I argued earlier this week that the company should spin off its fintech division, and these results bolster that thesis.It’s hard to argue that Tencent’s latest earnings are stellar. But at least its has a unique story to tell, one that doesn’t rely on it competing with a giant.To contact the author of this story: Tim Culpan at email@example.comTo contact the editor responsible for this story: Patrick McDowell at firstname.lastname@example.org, Beth WilliamsThis column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.Tim Culpan is a Bloomberg Opinion columnist covering technology. He previously covered technology for Bloomberg News.For more articles like this, please visit us at bloomberg.com/opinion©2019 Bloomberg L.P.
Chinese e-commerce giant Alibaba Group launched the share sale for its Hong Kong listing on Wednesday, braving unrest in the global financial hub to try to raise up to $13.4 billion to fund its expansion plans. The stock is due to start trading on Nov. 26 in Hong Kong, according to a term-sheet seen by Reuters. The books for institutional investors looking to buy the shares opened during the New York trading session on Wednesday.