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China’s Q4 Earnings Season Resumes With NetEase, Baidu, JD

The state of China’s wobbly economy will come into focus next week when a pair of big Chinese Internet companies are set to report fourth-quarter earnings. First up to bat is NetEase ( NTES ), a home-field favorite on China’s gaming scene. It ranks a close second in gaming to Tencent Holdings ( TCEHY ), which reports earnings next month. Also coming next week is China search engine leader Baidu ( BIDU ), followed by e-commerce company JD.com ( JD ) on March 1. NetEase is set to report after the close Wednesday. The company topped earnings expectations when it post Q3 earnings Nov. 11, sending its stock to a then record high of 159.34, as revenue rose 114% in local currency, year over year. The stock continued upward and hit an all-time high of 186.45 on Dec. 29. NetEase has pulled back and closed Thursday near 152. The Q4 consensus estimate on NetEase is for sales to rise 121% in local currency to $1.17 billion. Earnings per share minus items are seen rising 52% in local currency, to $2.25. Analysts will look at the state of new mobile games in the pipeline. In late December, NetEase unveiled 26 new mobile and PC games. Baidu is set to report after the close Thursday, with analysts looking for guidance on China’s ad market amid an economic slowdown. Baidu stock jumped 11% to 197.47 when it reported Q3 earnings on Oct. 30 that were in line with estimates. Revenue rose 36% in local currency. Analysts expect Q4 revenue will rise 32% in local currency, to $2.85 billion. EPS minus items is seen falling 27%, to $1.01. Last week, Baidu announced that it had received a non-binding proposal from two Baidu executives to acquire the company’s fast-growing Qiyi video wing for $2.8 billion. Baidu stock hit a seven-month high of 217.97 on Nov. 30 but closed Thursday near 161. JD.com is slated to report Q4 earnings before the market open on March 1. The focus is expected to be on JD’s push into online-to-offline (O2O) retailing and other new businesses. JD is banking on its O2O business to help it compete in China’s burgeoning e-commerce arena vs. China e-commerce leader Alibaba ( BABA ) and others. Analysts expect sales to rise 50% in local currency to $7.96 billion. They see the company swinging to a two-cent per-share loss from a penny profit in the year-earlier period. Tencent, China’s leader in messaging and gaming, is set to report earnings before the market open March 17. It’s traded in the U.S. over the counter. Tencent, Alibaba, JD and Baidu are the four largest Internet companies in China. On Jan. 28, Alibaba reported earnings for its fiscal third quarter, ended Dec. 31, that topped Wall Street expectations.

Apple Pay Launching In China As U.S. Adoption Stalls

Loading the player… Apple ( AAPL ) Pay will be available in China beginning this Thursday, with the consumer tech giant facing stiff mobile payment competition in the world’s largest smartphone market from Chinese Internet heavyweights Alibaba ( BABA ) and Tencent ( TCEHY ). Alibaba’s Alipay is China’s most popular online payment service, while Tencent has integrated payments into its WeChat mobile messaging app, much like Facebook ( FB ). And amid concerns of slowing iPhone sales, a new study says that U.S. adoption of Apple’s mobile payment platform has plateaued. First Annapolis, an electronic payments consultancy, says that some 20% of iPhone 6 owners report using Apple Pay at least once, while 15% say that they use it regularly or frequently. While awareness among iPhone 6 owners remains high at 84%, the usage figures are slightly down from last year. In the U.S., Apple faces competition from Samsung Pay and Alphabet ( GOOGL )-owned Google’s Android Pay. Samsung Pay was launched last fall and works not only with NFC (near-field communication) terminals like the Apple and Android systems but also with magnetic stripe terminals and chip-card terminals, which could allow for wider adoption. Still, Piper Jaffray analyst Gene Munster said at the start of the year that Apple is “overwhelmingly the share leader” in point-of-sale mobile payments. He expects new features like peer-to-peer payments and in-browser integration to further boost adoption in 2016. Shares are looking to continue higher with a 1.2% gain Wednesday after jumping 3% in heavy volume Tuesday. Apple is still in a downtrend, a little less than 30% below its all-time high reached last April. Alphabet advanced 1.8%. Apple stock could also be getting a boost from reports on Tuesday that it received a car-related patent for a mobile device sensor to “determine when the user is in a vehicle that is driving.” The news has sparked new speculation that Apple — along with Google, Tesla Motors ( TSLA ) and others — is working on a self-driving car.

Baidu Spending In Its ‘Online-To-Offline’ Push Will Be Focus In Q4

When Baidu ( BIDU ) reports Q4 earnings after the close on Tuesday, investors will get another look at how the aggressive online-to-offline e-commerce push of China’s largest search company is faring. In June 2015, Baidu announced that it would invest $3.2 billion over the next three years to bolster its lineup of O2O by fortifying group-buying website Nuomi, which Baidu acquired for $160 million in 2014. Baidu has said its big spending effort will pay off because its vast abilities in search will eventually translate to revenue from business commissions. The O2O business model aims to attract customers online, then direct them offline to physical stores and to services including health care and food delivery. “Ultimately, what Baidu is building and offering is much broader than a daily-deals business,” Baidu CEO Robin Li told analysts during a conference call after the company posted Q3 earnings in October. “We are creating an online-marketing and transaction-services platform, bringing to bear the power of our entire platform across search, maps, Nuomi, Takeout Delivery and Baidu Wallet. Our platform benefits from shared synergies, with traffic and data from search and maps enhancing the growth of our newer products.” Banking On O2O To Compete Baidu is banking on its O2O business to help it compete in China’s burgeoning e-commerce arena vs. China e-commerce leader Alibaba Group ( BABA ) and others. But Alibaba, too, has invested heavily to develop its online-to-offline retail capability. Other major China Web companies fortifying their O2O offerings include JD.com ( JD ) and Tencent Holdings ( TCEHY ). Analysts also want to find out how Baidu’s efforts to penetrate into the lucrative market of mobile apps are coming along. Baidu has been slow to advance into mobile apps, while China tech heavyweight Tencent has emerged as the top rival to Baidu in mobile search, according to a report on Jan. 22 from Nomura, which handed Baidu a price target cut and rating downgrade. ‘The Potential Threat’ “Who is the potential threat for Baidu on mobile? We believe it’s Tencent, rather than any of the existing search engines,” wrote Nomura analyst Jialong Shi in that industry note. “Baidu is trying to penetrate into mobile apps, but so far progress has been slow. Based on our checks with industry experts, the challenges for in-app search mainly lie in two aspects — immature technology and reluctance of app developers.” Nomura lowered its price target on Baidu stock to 180 from 200 and cut its rating on Baidu stock to neutral from buy. For Q4, Baidu has guided revenue of between $2.864 billion and $2.95 billion, up between 29.5% and 33.4% year over year in local currency, to between 18.2 billion and 18.75 billion Chinese renminbi. Analysts polled by Thomson Reuters are expecting Baidu to report Q4 revenue of RMB 18.59 billion, up 32% year over year in local currency, with Q4 EPS (GAAP) of RMB 6.60, down 26% year over year. For Q1, analysts polled by Thomson Reuters are expecting Baidu to report revenue of RMB 16.47 billion, up 29% year over year in local currency, with Q1 EPS (GAAP) of RMB 5.48, down 18% year over year. Internet Finance Initiatives Credit Suisse analyst Dick Wei boosted Baidu’s price target to 251 from 210 in mid-December, pointing to positive “traction” in both Baidu Nuomi and the company’s iQiyi video wing. Wei said iQiyi went from 5 million paid users in June to 10 million paid users on Dec. 1, while Baidu Nuomi had attained 11.2% of the online movie-ticket-booking sector. The company’s new Internet finance initiatives are also growing, Wei said. In November, Baidu announced its partnership with China Citic Bank to establish a direct sales bank, Wei said, while by the end of September, the number of registered users for Baidu Wallet reached 45 million, a 520% increase year over year. “We are positive on Baidu’s continued investment in this space,” he said. Baidu stock closed at 145.34 on Friday, down 4.8%. Instability in the Chinese stock markets and investor concern about the company’s O2O spending have helped drag down the price of Baidu stock 33% since this time last year.