Why Alibaba, RLX Technology and LexinFintech Holdings Stocks Are Soaring Today

What happened

Despite a bearish day for the broader market, several Chinese stocks rose today following recent earnings results.

Shares of the big Chinese e-commerce company Alibaba (BABA 7.80%) traded more than 8% higher today at 12:37pm ET. Chinese e-vaping company shares RLX technology (RLX 20.14%) rose more than 20% and shares of LexinFintech Holdings (LX 17.20%) increased by more than 22%.

so what

After a brutal year for the sector, momentum has been building for Chinese equities recently. Earlier this week, Beijing unveiled a 16-point plan to help the ailing real estate sector. China’s President Xi Jinping also appears to be easing some of the government’s restrictive COVID-19 measures that have really hurt economic growth this year. He also appears to have had a productive meeting with President Joe Biden.

Red line with arrow moving up.

Image source: Getty Images.

For the most recent quarter, Alibaba reported adjusted diluted earnings per American depositary share of $1.82 on total revenue of $29.1 billion. While adjusted earnings beat analysts’ estimates, revenue fell sharply, rising just 3% year over year.

“The uncertainties of the global landscape have only reinforced our determination to focus on building capabilities that bring long-term, sustainable, high-quality growth to our customers and our own business,” Alibaba CEO Daniel Zhang said in a earnings release.

Alibaba’s cloud division, which management has focused on, posted 4% year-over-year revenue growth in the quarter. China e-commerce sales within the company shrank 1% year over year, while international e-commerce sales rose 4%.

Yesterday, RLX reported earnings of $71 million, down 48% year over year. Net sales of $146.8 million were also down sharply as the company discontinued several of its products due to new regulations. RLX is also gearing up for a new 36% tax on the production or import of e-cigarettes, which should hurt profitability in the near term.

LexinFintech reported diluted earnings per US depositary share of $0.21 for the quarter, down nearly 48% year over year. Total operating income for the quarter of $378.2 million decreased approximately 9.4% year over year. During the quarter, the consumer fintech grew its total number of registered users to 184 million, up more than 19% year over year. Lending was also up more than 31% year over year.

What now

I think it’s safe to say that none of those three earnings reports were anything spectacular. Alibaba has seen very minimal growth, RLX is struggling with a host of new regulations, and LexinFintech has seen a pretty big year-over-year profit decline despite growing customers and originations.

However, much of this was likely expected due to the broader economic struggles China’s economy has been experiencing, particularly its COVID-19 policies. Chinese equities have also been under pressure this year and for all the positive momentum, investors seem to think a bottom may be in place.

I still like Alibaba here, despite the slower growth, and believe that things will recover in better economic conditions. I’m less interested in RLX, due to all these new regulations, or LexinFintech, despite the massive market potential, due to the uncertainty of how the Chinese consumer will fare from a credit perspective.

Bram Berkowitz does not hold any of the shares mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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