Outlook on the financial reports of Chinese internet giants: E-commerce recovery boosts Alibaba's quarterly performance, video account advertising may drive Tencent's profits beyond expectations, and food delivery supports Meituan's continuous growth

Alibaba, Tencent, and Meituan are about to release their latest financial reports, and several institutions have issued forward-looking reports, generally expecting the performance of the three internet giants to improve.

JP Morgan expects that Alibaba will benefit from the recovery of e-commerce GMV and cost control, with profitability expected to improve. Total revenue in the third fiscal quarter is expected to grow by 8% year-on-year, 1 percentage point higher than market expectations. The adjusted profit of Taotian Group is expected to return to positive growth, with a year-on-year increase of 6%.

Nomura expects that, thanks to strong performance in the gaming business and growth in video account advertising, Tencent's total revenue in Q4 may grow by 8% year-on-year. The online gaming segment's revenue is expected to grow by 15.6% year-on-year in the fourth quarter, further accelerating from 13% in the third quarter.

Nomura also expects Meituan's total revenue in the fourth quarter to grow by 20% year-on-year to 88.13 billion yuan, with profit increasing by 197% year-on-year to 9.45 billion yuan. However, it may face challenges of slowing growth in 2025 due to declining growth in the takeaway business and intensified competition in the in-store segment.

Alibaba Performance Outlook: E-commerce GMV Recovery Boosts Profitability, Total Revenue in Q3 Expected to Grow by 8% Year-on-Year

JP Morgan's latest report points out that Alibaba Group may see a comprehensive improvement in core domestic e-commerce indicators in the third quarter of fiscal year 2025 (the fourth quarter of the calendar year 2024).

JP Morgan expects that Alibaba's total revenue in the third fiscal quarter will grow by 8% year-on-year, 1 percentage point higher than market expectations, significantly up from 5% in the previous quarter. The core drivers come from domestic e-commerce and cloud business:

• GMV Growth Recovery: The GMV growth of Taobao/Tmall has improved sequentially, with strong performance during the Double Eleven shopping festival confirming an increase in consumer mind share. CEO Eddie Wu previously emphasized in the earnings call that Taobao and Tmall achieved strong GMV growth during the "Double Eleven" promotion, confirming this trend.
• CMR Accelerated Growth: Starting from September 2024, Taobao will begin to charge a 0.6% basic software service fee, which will drive the growth rate of core customer management revenue (CMR) from 2.5% in the previous quarter to 6% in the current quarter.

JP Morgan predicts that, thanks to incremental monetization and rational investment, Taotian Group's adjusted EBITDA profit will return to positive growth, with a year-on-year increase of 6%. However, the report also notes that the visibility of sustained positive profit growth for Taotian Group in the coming quarters may be low due to reasons including: the new CEO possibly implementing different execution strategies, a fierce competitive market environment, and the stage of Alibaba's investment cycle (fiscal year 2025 is the first year of Taotian Group's three-year investment cycle, which may focus more on GMV and CMR, with relatively less attention on profits).

The report also points out that Alibaba has been taking frequent actions recently to inject new momentum into its business:

• Ecosystem Interconnectivity Increment: Interconnection with WeChat Pay is expected to open up user growth ceilings, with a trend of merchant budgets flowing back from Douyin to the Taotian platform beginning to emerge;
• Monetization Rate Improvement Space: The current monetization rate of the Taobao platform is below the industry level, and its commercialization potential has not been fully released;
• Divest non-core assets: The disposal of assets such as Intime and Hoshin Retail is expected to result in a one-time loss of 22 billion yuan in the fourth quarter of fiscal year 2025, but will drive the adjusted EBITA profit margin for fiscal year 2026 from 45% to 54%, leading to a profit growth of 13%. After adjustments, JP Morgan expects fiscal year 2026 revenue to be 8% lower than market expectations, but net profit to be 13% higher, with return on equity (ROE) expected to improve.

Excluding the e-commerce sector, cloud business revenue year-on-year growth may rebound from 7% to double digits, mainly due to the low base effect and the release of digitalization demand from government and enterprises. JP Morgan maintains a valuation framework based on a 12 times expected price-to-earnings ratio for fiscal year 2026, with a target price corresponding to $125/120 HKD, representing a potential upside of 34% compared to the current stock price.

Tencent Q4 Preview: Revenue expected to grow 8% year-on-year, gaming business strongly drives profits beyond expectations

Nomura's latest forecast indicates that Tencent Holdings' performance in the fourth quarter of 2024 may continue to show growth momentum, with total revenue expected to grow 8% year-on-year, in line with market expectations. Earnings per share are expected to increase significantly by 28%, 4% higher than market forecasts, mainly benefiting from continuous expansion of gross profit margins.

The report points out that the revenue share of high-margin businesses such as video account advertising has increased, driving the quarterly gross profit margin up 3.3 percentage points year-on-year to 53.2%, becoming a key factor for profits exceeding expectations.

The online gaming sector performs well, with fourth-quarter revenue expected to grow 15.6% year-on-year, accelerating from 13% in the third quarter. Domestic gaming revenue is expected to grow 18% year-on-year, while overseas market revenue is expected to grow 12%, with overseas revenue maintaining a stable one-third share of total gaming revenue.

Advertising business growth may slow sequentially, with fourth-quarter revenue expected to grow 13% year-on-year to 33.8 billion yuan, lower than the 17% growth in the third quarter. Among them, video account advertising continues to grow rapidly, benefiting from increased click-through rates and video views, with revenue surging nearly 50% year-on-year; however, traditional advertising resources such as Tencent Video and the mobile advertising alliance are dragged down by weak consumer demand, lacking growth momentum.

Nomura expects the financial technology and enterprise services sector (FBS) to perform moderately, with overall revenue expected to increase slightly by 3% year-on-year.

Based on expectations of improved gross profit margins, Nomura has raised its net profit forecast for fiscal year 2024 by 2%, while maintaining the forecast for 2025. The current stock price corresponds to a forecast price-to-earnings ratio of only 15 times for 2025, lower than the implied 19 times price-to-earnings ratio of the target price. Nomura maintains a "Buy" rating and a target price of 500 HKD, representing about 27% upside potential compared to the current price.

Meituan Q4 Performance Outlook: Revenue Expected to Grow 20% Year-on-Year, In-Store Business Profit Margin Improvement

Nomura Securities' latest report on Meituan's Q4 2024 earnings preview indicates that the company's revenue and profit for this quarter are expected to meet market expectations, but the growth rate of core business in 2025 may slow down.

Nomura forecasts that Meituan's total revenue in Q4 will grow 20% year-on-year to RMB 88.13 billion, with profit surging 197% year-on-year to RMB 9.45 billion, which is basically in line with market expectations. By business segment:

• Delivery Business: Revenue is expected to grow 15% to RMB 43.68 billion, with average profit per order (UE) increasing 32% year-on-year to RMB 1.17 per order, mainly due to improved subsidy efficiency and increased order density.
• In-Store and Hotel Travel: Revenue may grow by 25%, with operating profit margin increasing by 3.6 percentage points year-on-year to 32.3%. The advantage in the catering sector remains solid, but Douyin's rapid penetration in the travel segment may pose long-term pressure.
• Overseas Expansion: The delivery brand Keeta has expanded to seven cities in Saudi Arabia since September 2024, marking the initial implementation of its international strategy.

The report points out that Meituan's core challenges in 2025 will stem from the slowdown in delivery business growth and intensified competition in the in-store segment. It is expected that the revenue growth rate of the delivery business will slow to 10% in 2025, below the market expectation of 13%.

Although Nomura predicts that in-store revenue will grow by 23% in 2025, it remains cautious about the market's expectation of a 35% operating profit margin. The recently launched "Shen Membership" (SHY) program aims to strengthen the in-store business through cross-selling, but some analysts point out that its algorithm efficiency may limit short-term effectiveness.

Nomura maintains a "Buy" rating on Meituan, with a target price of HKD 212, representing a 40% upside from the current stock price (HKD 150).