3 Chinese stocks you can buy and hold for the next decade
The past year has been tough for Chinese tech stocks. In May, the US Senate passed a bill that threatened to deregister Chinese technology companies listed in the United States if they failed to comply with new auditing standards.
Several Chinese companies then filed secondary listings in Hong Kong, raising fears of a massive exodus from the American stock markets. Chinese regulators also recently drafted new antitrust rules to curb big tech companies like Tencent (OTC: TCEHY), Ali Baba (NYSE: BABA), and Baidu.
These challenges have cast a dark cloud over the Chinese tech sector, but I think three growing companies are still worth keeping over the next decade: NetEase (NASDAQ: NTES), JD.com (NASDAQ: JD), and bilibili (NASDAQ: BILI).
1. The underrated video game giant: NetEase
NetEase is China’s second largest video game editor after Tencent. His best games include Fantastic journey to the west, Invincible, Life after, and Knives Out. It also owns the Yanxuan discount e-commerce marketplace, a music streaming service and an online advertising business.
NetEase has streamlined its business over the past two years by selling its comics online to Bilibili, selling its Kaola cross-border e-commerce marketplace to Alibaba, and divesting its online education unit. Yudao (NYSE: DAO) in an IPO while retaining a controlling stake.
NetEase’s revenue grew 22% year-on-year to 35.2 billion yuan ($ 5 billion) in the first half of 2020, as its online gaming segments, Youdao and “innovative companies and others” (Including e-commerce and advertising) have all increased. throughout the pandemic. The gross margins of the three businesses also increased year-over-year and its ADS-adjusted net profit increased 28%.
Unlike Tencent, which is diversifying its businesses into games, social media, advertising, cloud and fintech, NetEase generates more than three-quarters of its revenue from video games. It’s also less exposed to antitrust regulations, as it doesn’t have a culturally dominant platform like Tencent’s WeChat and doesn’t run any of its major markets.
NetEase will likely continue to grow over the next ten years as it launches new installments of its flagship product Fantastic journey to the west video game franchise, invests in overseas markets like Japan and expands NetEase Cloud Music, which ranks second in the streaming music market in China after Tencent Music.
2. The resilient e-commerce giant: JD.com
JD.com is the largest direct retailer in China and the second largest e-commerce company after Alibaba. Unlike Alibaba, which primarily hosts SEO platforms for sellers who manage their own inventory, JD supports inventory and processes those orders with its own logistics network.
Therefore, JD generates higher revenues than Alibaba with much lower margins. Alibaba co-founder Jack Ma once claimed that JD’s capital-intensive approach would end in a “tragedy,” but JD’s continued investments in infrastructure and logistics have gradually paid off.
JD Logistics, which also serves third-party customers, is now one of China’s most advanced delivery networks, with automated warehouse robots, delivery drones and driverless delivery vehicles. The scale of the network now allows JD to remain profitable while keeping counterfeit products out of its market.
JD’s focus on quality and prompt delivery continues to attract new customers. Its annual active customer count grew 30 percent year-on-year to 417.4 million in the second quarter of 2020, and more than 80 percent of those new customers were from underserved lower-tier Chinese cities.
As a result, JD’s revenue grew 28% year-on-year in the first half of 2020, and its net profit by ADS more than doubled. It attributed this profit growth to strong sales of higher margin products, tighter cost controls and the overall efficiency of its logistics network.
This momentum is expected to continue for the foreseeable future, making JD a long-term leading player in the Chinese e-commerce market. In addition, the ecosystem support of its main investors – which include Tencent, Walmart, and Alphabet‘s Google – is expected to continually widen JD’s gap against Alibaba.
3. Generation Z’s favorite: Bilibili
Bilibili is a digital media company that provides ACG (anime, comics, and games) content to Chinese Gen Z users. It licenses mobile games, broadcasts animated series and live videos, and hosts comic books. digital on its platform. It also sells related products through its online marketplace.
Monthly active users of Bilibili grew 55% year-on-year to 171.6 million in the last quarter. Its daily active users increased 52% to 50.5 million, and its average monthly paid users jumped 105% to 12.9 million. Its number of “official” members, who pass a 100-question test for exclusive benefits, increased 65% year-over-year to 89 million.
These robust growth rates, especially among Gen Z users, have attracted big investments from Tencent, Alibaba, and Sony – all of whom saw Bilibili as a way to counter the growth of ByteDance. Gen Z oriented applications.
Bilibili’s revenue grew 69% year-on-year to 4.93 billion yuan ($ 740 million) in the first half of 2020, as its core businesses all delivered double- or triple-digit growth. Its net loss fell from 499 million yuan to 1.1 billion yuan ($ 170 million), but it remains sitting on 15.6 billion yuan ($ 2.2 billion) in cash, cash equivalents. cash and short-term investments.
Bilibili could gradually cut its losses as it expands its audience and converts more of its official members into paying members. It could be a bumpy ride, but Bilibili’s ability to lock in the youngest Chinese netizens makes him a promising growth stock to hold for the next decade.
This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are heterogeneous! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.