DgcityChina’s largest internet companies are expected to return to profit growth when they report third-quarter earnings over the next two weeks, analysts say, as cloud computing and gaming recover from a difficult year even as consumer-facing businesses continue to struggle with weak household spending.
Combined net profit across the country’s biggest online groups is forecast to rise about 9 percent from a year earlier, a sharp swing after declines in the first and second quarters. The earnings season, which kicks off in earnest next week with JD.com, Weibo and Tencent Music before Alibaba and NetEase report later, offers a test of whether China’s technology sector can sustain a rebound after a bruising autumn for share prices.
The most striking turnaround is expected at Alibaba, where analysts see net profit jumping as much as 165 percent. The company’s cloud division, benefiting from explosive demand for computing power tied to artificial intelligence, is expected to post revenue growth above 50 percent with improving margins, while losses from its costly food-delivery and instant-retail push are narrowing. The contrast between booming cloud and cautious online shopping mirrors the wider economy.
Gaming is another bright spot. Tencent, the country’s largest social and gaming company, is expected to post stable revenue growth supported by its hit titles and advertising business, while NetEase benefits from a strong lineup of new releases. With consumers spending less on big-ticket items, inexpensive entertainment has held up better than most categories.
Online retailers face a tougher backdrop. JD.com is still expected to grow profits thanks to cost discipline, but revenue growth will be modest, and PDD, the company behind the Pinduoduo and Temu platforms, is forecast to report a decline in quarterly profit as heavy spending on its overseas business and subsidies at home weigh on returns. Meituan, the delivery and local services leader, should see strong profit growth as a year of cutthroat competition begins to ease.
The earnings come at a sensitive moment for Chinese stocks. The CSI 300 index suffered its worst month in nearly a decade in October before regulators stepped in with support, and investors are weighing record exports and an AI boom against soft consumption and a continued property slump. Technology stocks, which led the market earlier in the year, have been at the centre of the volatility.
Analysts say the sector’s recovery will depend on whether companies can show profits are genuinely improving rather than being propped up by cost cuts and a pause in price wars. Cloud spending by Chinese technology groups continues to rise sharply, underpinning demand for semiconductors and data centres, but the scale of investment has also raised questions about returns. Strong earnings over the next fortnight would go some way to answering them.
