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Alibaba vs Tencent: Which Came Out on Top After Latest Earnings?

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). As it turns out, both companies also recently happened to report their latest quarterly earnings on the same day (15 May).

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, it looked like Alibaba gave investors more confidence. Here’s a breakdown of why.

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 – that include the well-known online marketplaces Taobao and Tmall. Here, revenue jumped 51% while its customer management (CRM) revenue, that includes advertising and fees charged to merchants, expanded 31%. It’s a sign that the business is succeeding in incentivising 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 one of the main culprits. However, on the revenue side, investors can take solace that growth will probably 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, in China it is still a fair way behind Alibaba Cloud. 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.

Where next?

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. On the face of it though, Alibaba’s business has been more of the “steady ship” of late and the market has been recognising that fact, with its share price outperforming Tencent’s by over 10% so far in 2019.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Tim Phillips owns shares in Tencent Holding Limited. The Motley Fool Singapore has recommended shares of  Tencent Holdings Ltd.