Alibaba and Baidu Both Beat Earnings Expectations, KWEB Invests

Major Chinese tech giants are reporting earnings this week, with Alibaba and Baidu both reporting between the close of China’s markets and the opening of U.S. ones. Both companies beat on revenue earnings expectations, a noteworthy achievement in difficult times, according to KraneShares in the China Last Night blog.

Alibaba’s fourth quarter earnings for its fiscal year beat on adjusted net income, revenue, and adjusted earnings per share, with revenue increasing by 9%. The annual active customers for the 12-month period that ended on March 31, 2022 grew to 1.31 billion, adding 28.3 million during that time period. Alibaba had broadcast ahead of time that its net income year-over-year was going to be reduced, and indeed that was the case, as it fell 24%.

“All around solid job considering the circumstances. Hat tip to management as General/administrative expenses plunged. Stock buyback was very strong,” KraneShares wrote.

Baidu’s revenue increased 1% in its first quarter earnings report, with core revenue growing 4% and its non-online marketing that includes cloud and AI grew 35%. Adjusted net income was RMB 3.9 billion (approximately $612 million) compared to analyst expectations of RMB 1.767, and adjusted earnings per share beat expectations by nearly double at RMB 11.22 ($1.77) compared to the expected RMB 5.174.

“Like Tencent, advertising revenue was off as households tightened their purses and wallets. The company wisely invested profits from the core search business years ago, which is paying off nicely today,” KraneShares wrote.

Alibaba and Baidu join Jd.com in what is turning out to be a stronger-than-expected earnings season for many of China’s technology giants, although Tencent reported misses in its recent Q1 earnings. The space remains challenged, reflected in the misses reported by Alibaba and Baidu, although the regulatory uncertainty looks to be drawing to a close.

See also: This Chinese E-Commerce Giant’s Stocks Just Jumped

KWEB Invests in Alibaba and Baidu

The KraneShares CSI China Internet ETF (KWEB) tracks the CSI Overseas China Internet Index and measures the performance of publicly traded companies outside of mainland China that operate within China’s internet and internet-related sectors. Alibaba is carried at a 9.30% weight within the fund, and Baidu is carried at 7.03% weight.

This includes companies that develop and market internet software and services, provide retail or commercial services via the internet, develop and market mobile software, and manufacture entertainment and educational software for home use.

The fund has seen net flows of $694 million in May through May 24 as advisors and investors have sought exposure, with many of the holdings contained in KWEB continuing to trade at levels that are less than half of the multiples of their U.S. counterparts.

KWEB provides exposure to the Chinese internet equivalents of Google, Facebook, Amazon, eBay, and the like, all companies that benefit from a growing user base within China, as well as a growing middle class. The fund has worked to convert all possible share classes over to Hong Kong shares instead of ADRs so as to protect investors in case of Chinese delistings within U.S. markets.

The ETF has an annual expense ratio of 0.70% and has $5.8 billion in AUM.

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