Many Chinese tech stocks stumbled this year thanks to escalating trade tensions between the US and China. The sell-off torpedoed many high-growth stocks, causing their valuations to drop to historically low levels. Let's examine three of those oversold stocks and see why they might rebound on any major breakthroughs with China.
YY (NASDAQ:YY) generates most of its revenue from its streaming video platforms, which include YY Live for streaming music, entertainment, sports, and e-learning videos; and Huya (NYSE:HUYA) for gaming-related streams. YY spun off Huya in an IPO earlier this year, but remains the new company's top shareholder.
YY monetizes its videos by selling virtual items to unlock premium features and virtual gifts for broadcasters. A smaller percentage of YY's revenue comes from its older online gaming, membership, and advertising units, which the company is pivoting away from to focus on its live streaming efforts.
YY's growth has been explosive. Its revenue rose 45% annually to 3.77 billion RMB ($570 million) last quarter as its live streaming revenue surged 50% and accounted for 94% of its top line. Its mobile live streaming monthly active users (MAUs) grew 21% to 80.2 million as its paying users climbed 21% to 6.9 million. Its non-GAAP net income also soared 52% to 873.2 million RMB ($132 million).
Analysts expect YY's revenue and non-GAAP earnings to grow 35% and 12%, respectively, this year. Those figures represent a deceleration from previous years, but they're still incredibly high for a stock that trades at just 8 times next year's earnings.
SINA (NASDAQ:SINA), one of China's oldest internet companies, generates nearly 80% of its revenues from the social network Weibo (NASDAQ:WB). It spun off Weibo in 2014, but maintained a majority voting stake in the company. The rest of its revenue come from its network of portal sites and its fledgling fintech business.
SINA's non-GAAP revenue surged 50% annually to $537.4 million last quarter as its Weibo and Portal revenues rose 68% and 8%, respectively. Weibo's MAUs grew 19% annually to 431 million as its DAUs grew 19% to 190 million. Its non-GAAP net income grew 26% to $66.5 million.
SINA's growth rates look decent, but its stock has been weighed down by concerns about rising operating expenses, currency headwinds, and tougher competition in the SME (small to medium-sized enterprises) market. As a result, analysts expect SINA's revenue and earnings to grow 40% and 10%, respectively, this year, which would represent a deceleration from previous years.
However, much of the slowdown was amplified by a shift to the new ASC 606 accounting standard this year, and analysts expect SINA's earnings growth to accelerate again next year. For now, SINA trades at just 15 times forward earnings -- which makes it look pretty cheap relative to its growth potential.
Baidu (NASDAQ:BIDU) owns China's top search engine and a sprawling network of portals, apps, and cloud services. The company is widely considered the 800-pound gorilla of the Chinese internet advertising market, and a major investor in next-gen AI and driverless technologies.
Baidu's revenue rose 32% annually to 26 billion RMB ($3.93 billion) last quarter as its online marketing revenues climbed 25% to 21.1 billion RMB ($3.18 billion). Its total number of active online marketing customers grew 9% to 511,000, and its revenue per online marketing customer rose 16% to 41,200 RMB ($6,200).
Baidu also recently added "mini programs" to its core mobile app, which should lock in more users and allow it to build a mobile ecosystem without owning an app store. That should bolster its mobile revenue, which accounted for 77% of its total revenue last quarter. Daily active users (DAUs) on Baidu's core app rose 17% annually to 148 million in June.
Baidu also remains highly profitable. Its non-GAAP net income rose 33% to 7.4 billion RMB ($1.12 billion) last quarter, and analysts expect the tech giant's revenue and non-GAAP earnings to grow 22% and 11%, respectively, this year.
Baidu's growth rates look solid, but its stock recently stumbled on rumors that Alphabet's Google could return to China with a censored search engine. I believe those fears are irrational, and that they merely make Baidu's stock cheaper, now with a forward P/E of 19. Investors who capitalize on the search giant's temporary dip should be well-rewarded over the next few quarters.
Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Leo Sun owns shares of Baidu and Sina. The Motley Fool owns shares of and recommends Alphabet (A shares), Alphabet (C shares), and Baidu. The Motley Fool recommends Sina and Weibo. The Motley Fool has a disclosure policy.