The U.S. and China recently took steps toward resolving their trade war by striking a "phase one" deal. China has agreed to buy at least $40 billion in American agricultural goods annually, tighten its intellectual property rules, and ban forced technology transfers from U.S. companies. In exchange for those concessions, the U.S. will roll back some tariffs and won't levy a new round of tariffs on consumer goods this month.
That's good news for investors, but the trade war isn't over and unresolved issues are likely preventing investors from buying Chinese stocks. That's a prudent move, but we should realize that there are still plenty of high-quality Chinese stocks that have minimal exposure to tariffs or trade war impacts. Let's take a closer look at three stocks that fit that description: Huya (NYSE:HUYA), Bilibili (NASDAQ:BILI), and NetEase (NASDAQ:NTES).
1. Huya: The "Twitch of China"
Huya owns the largest video game and esports streaming platform in China. It was spun off by YY (NASDAQ:YY) in an IPO last May, and its stock rallied about 50% since its market debut as it dazzled investors with its robust growth in revenue and users.
Huya generated 95% of its revenue by selling virtual gifts and items on its live-streaming platform last quarter. This business is well-insulated from the slowdown in the Chinese economy and the trade war because it relies on dedicated domestic fans buying gifts for their favorite broadcasters. Only 5% of its revenue came from online ads, which are more exposed to macro headwinds.
Huya's total monthly active users (MAUs) grew 48% annually to 146.1 million last quarter. Its mobile MAUs rose 28% to 63.8 million, while its total paying users grew 29% to 5.3 million. Its main rival, DouYu (NASDAQ:DOYU), has fewer mobile and paid users. Huya is also consistently profitable, while DouYu's bottom line remains in the red.
Analysts expect Huya's revenue and earnings to rise 37% and 80%, respectively, next year. Those are impressive growth rates for a stock that trades at just 23 times forward earnings.
2. BiliBili: A top play on China's Gen Z market
Bilibili is a diversified tech company that publishes mobile games, streams online videos and comics related to anime, comics, and games, and operates an e-commerce marketplace that sells related merchandise. It went public last March and currently trades more than 50% above its IPO price.
Bilibili generated 50% of its revenue from mobile games last quarter. The weight of this business is shrinking as it expands its other businesses. 24% of its revenue came from live video broadcasts and value-added services like virtual gifts. Those businesses are both well-insulated from macro headwinds.
Online ads account for 13% of its revenue, but the unit's revenue growth actually accelerated over the past two quarters as larger advertising platforms struggled -- which indicates that companies are still pivoting their limited ad budgets toward Gen Z-oriented platforms like Bilibili. The remaining 12% came from its e-commerce marketplace.
Bilibili's total MAUs grew 38% annually to 127.9 million during the quarter, as its revenue per MAU jumped 25%. Its average daily active users (DAUs) also grew by 40% to 37.6 million. Analysts expect its revenue to rise by nearly 50% next year. Bilibili isn't profitable yet, but it remains a promising play on China's growing Gen Z market.
3. NetEase: An online gaming giant
NetEase is the second-largest game publisher in China after Tencent. It went public nearly 20 years ago, but its stock rallied more than 30% this year as it impressed investors with its stable revenue growth and rising profits.
NetEase generated 79% of its revenue from its online gaming business last quarter. That business continues to grow, thanks to the strength of top games like Fantasy Westward Journey, Onmyoji, and Immortal Conquest. NetEase currently publishes three of the top 10 highest-grossing iOS games in China, according to App Annie.
The rest of NetEase's revenue comes from its "innovative businesses and others" unit, which includes its streaming music, advertising, and e-commerce units, and its gains from Youdao, the online education unit it recently spun off in an IPO.
Unlike Tencent, which repeatedly expands its ecosystem via acquisitions, NetEase streamlined its business with divestments (including sales of its online comics unit to Bilibili and its e-commerce platform Kaola to Alibaba) over the past year. That strategy boosted its margins and profits over the past few quarters.
NetEase isn't a high-growth company like Huya or Bilibili, but it offers stable growth with a decent forward yield of 1.3% (which was recently boosted to 2.4% by a special dividend). Analysts expect its revenue and earnings to grow 3% and 6%, respectively, next year -- which are decent growth rates for a stock that trades at 19 times forward earnings.