Insights

Why Shares of Alibaba, JD.com, and Yatsen Are Rising Today

What happened

Shares of several Chinese stocks trading on U.S. exchanges moved higher today after the large Chinese e-commerce platform Alibaba (NYSE: BABA) reported solid earnings results for the quarter ending June 30.

Shares of Alibaba were trading roughly 3.5% higher at 10:04 a.m. ET today. Shares of another large Chinese e-commerce company, JD.com (NASDAQ: JD), were trading 5.4% higher, and shares of the Chinese beauty company Yatsen (NYSE: YSG) were trading more than 7% higher.

So what

Alibaba reported diluted earnings per share equivalent to $0.16 for the quarter on total revenue equivalent to $30.7 billion, both numbers that beat expectations.

“During the past quarter, we actively adapted to changes in the macro environment and remained focused on our long-term strategy by continuing to strengthen our capability for customer value creation,” Daniel Zhang, Alibaba’s chairman and CEO, said in a statement.

He added: “Following a relatively slow April and May, we saw signs of recovery across our businesses in June. We are confident in our growth opportunities in the long term given our high-quality consumer base and the resilience of our diversified business model catering to different demands of our customers.”

Alibaba posted flat revenue year over year, marking the first time the company has not grown revenue since inception. Alibaba is one of the closest-followed Chinese stocks, so its earnings beat is boosting other Chinese stocks today.

“The company mentioned the business recovery in June which should help other e-commerce players like JD.com and Pinduoduo,” said Henry Guo, an analyst at M Science LLC, according to Bloomberg. “Investors had low expectations on China ADRs before this print but Alibaba reports suggests likely business upsides to expectations for those companies.”

There has been no shortage of difficulties for Chinese stocks over the last year, from regulatory crackdowns from the Chinese government to difficulties with U.S. financial regulators. Recently, the Securities and Exchange Commission put Alibaba’s name on its list of Chinese stocks that could get delisted if the company doesn’t comply with U.S. auditing laws.

After a long-standing dispute, U.S. lawmakers a few years ago passed the Holding Foreign Companies Accountable Act, which says that foreign companies on U.S. stock exchanges can be delisted if U.S. auditors cannot fully review their up-to-date working financial statements. However, the Chinese government has not allowed these documents to be made available to U.S. regulators due to national security and data concerns.

The SEC started a list of companies that have been violating the law to show they are serious on the matter, although Chinese regulators have said they are working with U.S. regulators to come to a resolution. 

Now what

Despite the flat revenue growth from Alibaba in the quarter, most investors were well prepared for this, so the earnings beat is still good news.

Furthermore, the fact that Zhang said Alibaba saw signs of recovery across all its different business segments in June is also great news, especially considering all the COVID-related lockdowns in the country and weak economic growth this year.

Chinese stocks will always be influenced by unpredictable regulations from the Chinese government, but there are opportunities in the sector, and I think Alibaba and JD.com are great places for interested investors to start looking.

Bram Berkowitz has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends JD.com. The Motley Fool has a disclosure policy.

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