What happened
Chinese stocks struggled today as investors digested earnings results and remained concerned about economic conditions in the country.
Shares of large Chinese tech conglomerate Alibaba (BABA 0.88%) traded 2.7% lower as of 2:35 p.m. ET today. Meanwhile, shares of another large Chinese tech and e-commerce company, JD.com (JD 1.31%), traded 5.7% lower, while shares of grocery delivery company Dingdong (Cayman) Limited (DDL 2.92%) plunged nearly 18%.
So what
Dingdong reported its first-quarter earnings results today, which included a diluted-earnings-per-share loss of $0.02 on total revenue of roughly $727.7 million. Adjusted earnings came in at breakeven and were in line with analysts' predictions, while revenue missed estimates.
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Gross merchandise value in the quarter fell by 6.8% on a year-over-year basis. The company experienced less demand and withdrew from several cities last year due to a decision by management to pull out of markets in which profitability would be difficult to achieve.
"During the first quarter of 2023, there was reduced consumer demand for our products as China lifted its dynamic zero-COVID policy and people were traveling during the Chinese New Year and engaging in spring outings," Dingdong's founder and CEO, Changlin Liang, said in a statement. "We also incurred additional expenses and labor costs to ensure timely order fulfillment during the holiday. Despite these setbacks, we are proud that we were still able to achieve our expected non-GAAP breakeven this quarter."
In more general news, investors seemed to be growing increasingly concerned about the Chinese economy, which has been on the rebound from zero-COVID policies, including lockdowns implemented last year. Data released earlier this week showed that Chinese consumer prices rose 0.1% in April, the slowest pace of growth seen in about two years. China's Producer Price Index, which measures wholesale activity, fell 3.6% in April, worse than what economists had been expecting.
Macquarie Capital Chief China Economist Larry Hu said yesterday that investors shouldn't worry about deflation because consumer prices tend to lag. But the recent data shows that "China will still face a weakening domestic demand and a sluggish labour market, and there is a great need for further policy support."
What now
Chinese companies are now in earnings season, and while earnings were supposed to boost these stocks, that hasn't been the case so far. JD.com's earnings, reported earlier this week, were initially received well by the market, but the stock has since given up most of those gains and is slightly down for the week. Alibaba will report on May 18.
Dingdong's recent earnings results seem to support the economic data from this week that showed consumer demand remains weaker than investors were expecting, perhaps due to a flagging global economy. Some believe this raises the need for additional stimulus.
Ultimately, I still think Alibaba and JD.com will be good long-term investments, given their scale and the roles they now play in the large Chinese economy. Dingdong certainly has potential, but I don't see the need to jump in just yet.
