What happened
Despite a down day for the broader market, several Chinese stocks ripped higher today after recent earnings results.
Shares of the large Chinese e-commerce company Alibaba(NYSE: BABA) traded more than 8% higher as of 12:37 p.m. ET today. Shares of the Chinese electronic vaping company RLX Technology(NYSE: RLX) surged more than 20%, and shares of LexinFintech Holdings(NASDAQ: LX) jumped more than 22%.
So what
Momentum for Chinese stocks has been building recently after what has been a brutal year for the sector. Earlier this week, Beijing introduced a 16-point plan to aid the struggling real estate sector. China's president, Xi Jinping, also looks to be easing some of the government's restrictive COVID-19 policies, which have really cut into economic growth this year. He also seems to have had a productive meeting with President Joe Biden.
Image source: Getty Images.
For its recent quarter, Alibaba reported adjusted diluted earnings per American depositary share of $1.82 on total revenue of $29.1 billion. While adjusted earnings beat analyst estimates, revenue came in light, up only 3% year over year.
"The uncertainties of the global landscape have only reinforced our resolve to focus on building capacity that will yield sustainable, high-quality growth for our customers and our own business over the long term," Alibaba CEO Daniel Zhang said in an earnings statement.
Alibaba's cloud division, which management has been focusing on, saw 4% year-over-year revenue growth in the quarter. China e-commerce sales within the company shrunk by 1% year over year, while international e-commerce sales grew 4%.
Yesterday, RLX reported a profit of $71 million, down 48% year over year. Net revenue of $146.8 million was also way down, as the company discontinued several of its products due to new regulations. RLX is also preparing to deal with a new 36% tax on the production or import of e-cigarettes, which is likely to hurt profitability in the near term.
LexinFintech reported diluted earnings per American depositary share in the quarter of $0.21, down nearly 48% year over year. Total operating revenue for the quarter of $378.2 million was down about 9.4% year over year. During the quarter, the consumer fintech company grew its total number of registered users to 184 million, which was up more than 19% year over year. Loan originations were also up more than 31% year over year.
Now what
I think it's safe to say that none of these three quarterly reports were anything spectacular. Alibaba saw very minimal growth, RLX is dealing with a host of new regulations, and LexinFintech saw a pretty big year-over-year earnings decline despite growing customers and originations.
But much of this has likely been anticipated because of the broader economic struggles that China's economy has experienced, especially due to its COVID-19 policies. Chinese stocks have also been hammered this year, and with all of the positive momentum, investors seem to think a bottom might be in.
I continue to like Alibaba here despite the slower growth and believe things will pick up under better economic conditions. I'm less interested in RLX, due to all of these new regulations, or LexinFintech, despite the massive market potential, because of uncertainty about how the Chinese consumer will hold up from a credit perspective.
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