What China's big earnings say about the consumer

The logo of Tencent is visible at the World Artificial Intelligence Conference (WAIC) in Shanghai, China on July 6, 2023.

Aly Song | A news organization named Reuters

BEIJING — Companies are beginning to report positive developments for China's consumer industry, which faces tough competition and a decrease in consumer spending.

In recent times, JD.com, Tencent, and Alibaba have shared their financial outcomes for the period spanning from April to June. These reports indicate a consistent increase in consumer expenditures during that quarter. However, it remains uncertain whether this growth has persisted in subsequent months.

This is the information gathered from public records and transcripts of earnings calls that show the areas where companies have observed growth related to consumers.

The earnings from electronics and household appliances increased by 11.3% to reach 152.13 billion yuan ($20.98 billion) in the second quarter of the year.

However, there was an 8.6% decline in revenue for general merchandise compared to the previous year, amounting to 81.72 billion yuan.

The income generated from marketing increased by 8.5% to reach a total of 22.51 billion yuan.

In the second quarter, the gross merchandise value of livestreaming e-commerce experienced a remarkable 150% increase in comparison to the previous year. The exact numerical figure is not specified. GMV is a metric used to calculate the total value of sales within a specified timeframe.

Every year, the livestreaming GMV amounts to billions of yuan.

WeChat's Mini program e-commerce has reached an astounding GMV value of several trillion yuan on a yearly basis. The GMV of tangible products has crossed the remarkable milestone of one trillion yuan annually.

In the past few weeks, there has been a significant increase in advertising revenue across all sectors, except for the automotive industry. Compared to the same period last year, ad sales experienced a remarkable growth of 34%, amounting to 25 billion yuan during the quarter ending in June.

In general, Tencent published financial results for the quarter that did not meet predictions, yet demonstrated a consecutive three-quarter increase in revenue.

Sales directly from Tmall Supermarket and Tmall Global in China increased by 21% compared to the previous year, reaching a total of 30.17 billion yuan.

The combined earnings of Taobao and Tmall Group increased by 12% to reach 114.95 billion yuan.

Alibaba's ticketing and movie studio departments experienced a revival in live performances and movie theater sales, which led to a significant increase in their revenue. Similarly, Youku, a video platform, witnessed a growth in their earnings from subscriptions. Overall, the digital media and entertainment sector observed a remarkable surge in revenue, reaching 5.38 billion yuan, marking its first profitable quarter.

The earnings from services provided within the vicinity saw a significant surge of 30%, totaling 14.5 billion yuan. This remarkable increase was largely influenced by the popularity of the Ele.me food delivery application, as well as the positive growth experienced by Alibaba's Amap, an application offering various services, including ride-hailing and hotel reservations.

Alibaba executives did not offer extensive information regarding the condition of the consumer base since the conclusion of June.

In general, Alibaba's profits surpassed predictions for the quarter.

China's Consumption During Sluggish Growth

Information for the month of July have indicated a decrease in the pace of China's economy, including a slight 2.5% rise in retail sales compared to the previous year.

However, amusement parks have thrived as tourism has increased within the country.

Shanghai Disney reported exceptional earnings, operating profit, and profitability figures for the most recent quarter, as stated by the company.

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Comcast has announced that Universal Studios Beijing has experienced its most lucrative period to date. Despite opening amid the ongoing pandemic, the park inaugurated in September 2021 with remarkable success.

Not all significant avenues for online expenditure in China are dominated by publicly traded companies. ByteDance, an unlisted entity, has emerged as an additional e-commerce platform by leveraging its Douyin application, the Chinese equivalent of TikTok.

According to The Information, the expenditure of Chinese customers on Douyin's vendors amounted to 1.41 trillion yuan, marking a 76% increase compared to the previous year. ByteDance has not yet provided any response to the comment request.

Kuaishou, a smaller competitor of ByteDance, will unveil its financial results on Tuesday. Likewise, the Chinese tech behemoth Baidu and the video platform iQiyi are also expected to disclose their earnings on the same day. On the other hand, the e-commerce titan Pinduoduo has not yet announced the date for its earnings announcement.

Other firms in China, or those with connections to China, have demonstrated slight areas of expansion, albeit in comparison to a minimal starting point in 2022. This was due to the strict lockdown measures imposed on the bustling city of Shanghai, causing two out of the three months in the second quarter to be effectively shut down.

Here's what a few individuals have commented up to now:

Earnings in the Greater China region experienced a 16% increase during the second quarter, indicating a substantial rise in sales for both wholesale purchases and their own retail stores.

The sportswear company from China reported that the retail sales value of its Anta brand increased by a notable percentage in the second quarter compared to the same period last year. Similarly, its Fila brand experienced significant growth in the late teens when comparing sales from the previous year. Additionally, the company observed a remarkable growth rate of 70% to 75% in its Descente, Kolon Sport, and other brands when comparing the current year to the previous one.

The chief executive of Apple, Tim Cook, stated that the company experienced a notable increase in China, as their sales grew by 8% compared to the same quarter of the previous year, totaling $15.76 billion. This marks a change from the 3% decline in sales experienced in the previous quarter.

According to the company, they experienced an all-time high in sales during the June quarter in Greater China for their wearables, home, and accessories division. The overall product group also observed a 2% rise in sales, amounting to $8.3 billion, in comparison to the previous year.

In China, there was a significant boost in sales at stores that have been open for at least a year, with a notable increase of 46%. However, it is worth mentioning that the average amount spent per purchase was slightly lower, experiencing a minor decrease of 1%.

— This report was also contributed to by Arjun Kharpal from CNBC.

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