Most investors will be familiar with the two Chinese tech giants that dominate all spheres of China's economy: Alibaba Group (NYSE: BABA) and Tencent Holdings Limited (SEHK: 700). Both companies also recently happened to report their latest quarterly earnings on the same day (May 15th).
The ongoing US-China trade war gave investors an opportunity to see how the China economy was faring with the country's two largest listed companies. Despite both companies' results beating expectations, Alibaba gave investors more confidence. Here's a breakdown of why.
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Better revenue growth
Alibaba beat revenue estimates comfortably by registering a rise in revenue of 51% year-on-year to RMB93.5 billion (US$13.9 billion). What was even more impressive was the strong growth seen in its core commerce business – which includes well-known online marketplaces Taobao and Tmall. Here, revenue jumped 51% while its customer management (CRM) revenue, which includes advertising and fees charged to merchants, expanded 31%. It's a sign that the business is succeeding in incentivizing merchants to spend more.
Meanwhile, Tencent saw its slowest revenue growth in a decade, registering a 16% year-on-year rise to RMB85.5 billion in the first quarter of 2019. Its online ads business fell short of expectations over the quarter given the weaker Chinese economy, with video advertising as one of the main culprits. On the revenue side, however, investors should be pleased to learn that growth is likely to pick up in the current quarter on the back of the promising pipeline of new games.
Taking a lead in cloud
On the cloud computing side, Alibaba strengthened its grip on the market by posting a solid 76% year-on-year growth in revenue to RMB7.7 billion for the quarter. In its fiscal 2019, Alibaba Cloud served more than half of A-listed companies in China and, according to Gartner, is the largest cloud computing service provider in Asia – as measured by Infrastructure as a Service (IaaS) and Infrastructure Utility Service (IUS).
Although Tencent's cloud business has expanded rapidly and its paying customer base has grown, it is still a fair way behind Alibaba Cloud in China. For example, in the first half of 2018, Alibaba Cloud had a 43% market share of China's public cloud services market, followed by Tencent at 11.2%. So even if Tencent has managed to make up some of that ground (which is most likely has), the sheer size and breadth of Alibaba Cloud's offering mean its dominance in the cloud arena in China is set to continue in the short term.
Although both companies appear to be faring relatively well in the face of the ongoing trade uncertainty, each company has its own growth areas that investors can be optimistic about over the longer term. Lately, however, Alibaba's business has been steadier, and the market recognizes this, with its share price outperforming Tencent's by over 10% so far in 2019.
A version of article originally appeared on our Fool Asia site. For more coverage like this head over to Fool.hk.en
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