Down

Tech earnings are wrapping up for the US and China — but problems aren't over for tech cos

Monday, May 24, 2021 by Robinhood Snacks |

From NYC to Beijing... Big Tech earnings season is (almost) over. This month, Wall Street's "Big Tech 5" – Apple, Amazon, Google, Microsoft, and Facebookdemolished results with back-to-back records. Still, the techy Nasdaq index is up just 6% this year — half of the S&P 500 and the Dow's gains. Now, we're looking at China, to see how the world’s other tech epicenter stacked up:

  • Alibaba (aka: the Amazon of China) posted its first loss ever as a public company, though sales soared 64%. Blame a record fine by China’s regulator. Shares are down 7% this year.
  • Tencent is the world's largest video games publisher, and the owner of WeChat (the app for everything). Despite impressive earnings growth, shares have barely budged this year.
  • Pinduoduo is the ecomm app that connects farmers/distributors with Chinese consumers. We'll see how it fared when it reports tomorrow. Shares have plunged 22% this year.

You've been warned... For years, Chinese tech titans were seen as untouchable sources of national pride. This year, China has been cracking down. China ordered 34 of the country's largest tech cos, including TikTok-owner ByteDance, to comply with anti-monopoly laws or face “severe punishment." The scrutiny is hitting companies where it hurts: their share prices and balance sheets.

  • Alibaba was fined $2.8B, while Pinduoduo, ride service Didi Chuxing, and others were each fined $200K for “improper pricing behavior.”
  • Fintech giant Ant Group will likely be overseen by China’s central bank, after regulators halted its mega IPO. Oh, and China wants companies to know that crypto services are still banned.
THE TAKEAWAY

China is a window... Despite strong earnings, tech stocks are on the struggle bus. While Chinese and US regulation are very different, China's crackdown begs the question of how intervention might change in the US —  where it’s been much more light-handed. Antitrust scrutiny is rising, and President Biden’s FTC pick Lina Khan is a well-known tech critic. While US regulation isn’t likely to look like China’s, more intervention doesn’t seem far-fetched.