Alibaba, Tencent To Post Lack-Luster Quarterly Results As Domestic Regulatory Crackdown Takes A Toll

Fastest growing companies like Alibaba Group Holding Limited BABA and Tencent Holding Ltd TCEHY are struggling to keep up with even the most staid utilities amid China's crackdown on internet giants, Bloomberg reports.

Tencent's results on May 18 will likely show a revenue growth of a mere 4.3% in the March quarter. Alibaba's revenue will likely grow by 7.1%. 

The companies will see record lows and lag the 8.6% average growth reported by the ten largest utilities, including Duke Energy Corp DUK and Southern Company SO last year.

Xi Jinping's sweeping tech-sector crackdown forced the internet industry to cut staff, freeze investments into new arenas even donate billions to social causes. 

WeChat creator Tencent could be hardest-hit after embracing what second-in-command Martin Lau calls a "new industry paradigm."

A Bloomberg analyst acknowledged the fundamental shift in the growth story for China tech. The sector will focus on quality and sustainable growth, unlike previous unconstrained growth. The move may result in a downshift in revenue and user growth as companies become more conscious about how they go about user acquisition, M&A, and opening up their platforms to competition.

Prominent marketers, including online tutors, insurers, and game developers, have succumbed to separate regulatory actions, while stricter user privacy rules took a toll.

Online advertising sales are forecast to decline about 15% after contracting for the first time in the December quarter and will likely persist for most of this year.

Online gaming revenue will likely grow just 4.9%, the slowest in three years.

An analyst concluded that the critical share-price driver for the sector remains on the policy side rather than company fundamentals. As the market is increasingly focused on profitability, companies prioritize efficiency gains over scale expansion. Hence investors should be aware of slowing growth across the sector in 2022 and 2023.

Price Action: BABA shares traded higher by 7.85% at $93.27 premarket on the last check Tuesday.