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<Research>G Sachs: Short-term Profit Outlook for CN E-commerce Faces Challenges; TENCENT/ NTES-S/ XIAOMI-W Favored for Internet Stocks
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According to a Goldman Sachs report, Chinese internet companies delivered stable revenue and better-than-expected net profit in 1Q25. Because of increased investments in platform ecosystems (merchants, consumers), food delivery subsidies (provided by e-commerce), AI (applications and large-scale GPU depreciation), and overseas expansion, however, they have generally adopted a progressively conservative stance on the overall profitability for 2Q. Investors are mainly focused on three aspects. First, the competition in food delivery and reinvestment in e-commerce. Given that Pinduoduo (PDD.US) did not meet profit expectations in 1Q, and JD-SW (09618.HK) made significant progress from entering the food delivery sector to achieving an average of 20 million daily orders within three months, investors are concerned about the duration and intensity of the current competition and the risk/ reward in different end scenarios. Goldman Sachs dropped its preference for the Chinese e-commerce sub-sector from third to fourth place due to more challenging short-term profit prospects, but it estimated JD-SW to have the most favorable upside risk/ reward over a 12-month perspective. Investors' second concern is the beneficiaries of AI applications. In Goldman Sachs' estimates, TENCENT's "advertising + gaming" business will benefit most directly from AI applications in ad tech/gaming experience, while KUAISHOU-W (01024.HK)'s Kling AI (text-to-video) is making strong global progress. Meanwhile, there is still debate about the ultimate form of AI assistants between super-apps (like WeChat) and handset manufacturers (like XIAOMI-W (01810.HK)). The third aspect is the impact of geopolitical/ tariff developments, with investors focusing on how these impacts can be addressed. Goldman Sachs listed stock ideas in China's internet industry by sub-sector preference: TENCENT (00700.HK) and NTES-S (09999.HK) for games; Full Truck Alliance (YMM.US) for mobility; XIAOMI-W (01810.HK) and TRIP.COM-S (09961.HK) for internet verticals; and JD-SW and KUAISHOU-W for e-commerce. AAStocks Financial News |
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