Alibaba, Baidu, Didi, Tencent: regulations affect tech companies

Chinese supervisors have introduced a whole host of new laws over the past year. The government wants to regulate platform companies more closely and limit their market power. The procedure aims, among other things, to limit the frenzy of data collection and anti-competitive practices and to ensure the stability of the financial system. Lau was self-critical as the industry had continued its “ruthless expansion” for years.

Ongoing speculation about mass layoffs shows just how dire the situation in the sector is. Last week, Reuters news agency reported, with reference to insiders, that Alibaba and Tencent wanted to part ways with 10-15% of their workforces in certain business areas. Transport agent Didi is also considering cutting jobs.

At the end of last year, Alibaba had over 250,000 employees and Tencent employed over 94,000 people. Although the staff is reduced in some areas, the total number of employees is expected to increase in 2022, according to the press conference on Tencent’s balance sheet. In addition, stock prices have fallen significantly over the year. The Handelsblatt analyzed how major Chinese tech companies are affected by regulation.

Alibaba: $500 billion loss in market value

The Group’s fiscal year ends on March 31. Most recently, the company posted the weakest growth since its IPO in 2014 for the months of October through December. In the e-commerce sector, which accounts for about 85% of sales, he is feeling growing competition from rivals such as JD.com and Pinduoduo.

Alibaba cited high losses in the market value of its holdings as the main reason for the more than 74% drop in profits in the important quarter between October and December. Financial subsidiary Ant, in which Alibaba still owns 33%, was briefly banned by authorities in November 2020 from the planned mega IPO. It has since been restructured at the request of Chinese financial regulators to reduce risk.

But operating profit also fell by more than a third in the last quarter of 2021. CEO Daniel Zhang stressed that in the future, the focus will be more on customer retention rather than growth by through acquisitions. According to calculations by financial data service provider Bloomberg, China’s once-most valuable company has lost nearly $500 billion in market value since regulation began.

Baidu: Demand from advertisers drops sharply

The search engine operator suffers less from technology regulation than other major platform companies. However, Baidu is indirectly feeling the effects. Demand from major advertisers in the gaming and education sectors has fallen sharply, as these areas are subject to strict regulations.

Nevertheless, the online advertising sector, which accounts for nearly 60% of Baidu’s sales, grew by 12% last year. The Iqiyi video platform, which accounts for an additional 30% of revenue, also rose slightly. At the balance sheet press conference in early March, however, Baidu boss Robin Li warned that the company would not experience as strong growth at the start of 2022 as it did at the end of last year.

Despite last year’s growth, profits have collapsed by more than 50% compared to 2020. As with Alibaba, this is due to the large losses in the value of investments, which are presented with their respective market values ​​in the annual financial statements. Operating profit, on the other hand, increased by around 36%.

Didi: US IPO angers regulators

The transport service provider is the most affected by the tightening of the measures taken by the supervisory authorities. The company is not among the dominant platform groups. But with its IPO in the United States last summer, Didi became the target of cybersecurity regulator CAC. She accuses Didi of endangering national security through the US IPO because sensitive data could fall into the wrong hands.

As punishment, the Didi app was removed from Chinese app stores. The company has failed to win new customers in its home market to date.

Didi has yet to present any figures for the past financial year, let alone a date for them. But the latest available and unaudited figures from the third quarter of 2021 show how much sales have fallen. The loss amounted in the first nine months to the equivalent of approximately $7.8 billion.

There are currently no signs that the supervisors will let go of the company. The taxi service provider is apparently to postpone its planned IPO in Hong Kong and therefore also the delisting in New York. Bloomberg news agency reported in mid-March. As a result, the cybersecurity authority still has objections because the protection of sensitive data is not guaranteed.

Tencent threatens to part ways and register a fine

For the full year, the social media conglomerate was able to increase sales by 16%. In the social media and games sector, which accounts for more than 50% of revenues, the group grew by 10%. The fintech field, particularly around the Wechat Pay payment application, has grown by almost a third and now accounts for 31% of sales.

However, according to media reports, financial regulators may ask Tencent to turn Wechat Pay into a separate financial holding company. Tencent Chairman Lau confirmed discussions with regulators on the matter during the press conference. Additionally, according to a report, Tencent faces a record fine for alleged violations of money laundering regulations in the payment app.

Despite regulatory headwinds, Tencent was able to increase its net profit by 40% last year. However, the most came from, among other things, the sale of shares in online retailer JD.com and other investments. Adjusted operating profit rose only seven percent.

Hoping for an end to the wave of regulations

Recent statements by state leaders have recently raised hopes in stock markets that China’s wave of regulations is ending. The government recently called on the authorities to complete “remedial work on major platforms as soon as possible” and to put in place uniform and predictable regulations.

Nevertheless, industry experts remain skeptical. In a widely shared message on the short message service Weibo, he said: We can only talk about a green light when the Didi app is available again in the store, the financial subsidiary of Alibaba Ant is authorized to resume its stock plans and the Tiktok parent company, Bytedance, is also cleared to be received for the IPO.

After: Chinese stocks continue to rally strongly – but investors remain skeptical.