May 26, 2020 07:35 PM

Internet Earnings: E-Commerce and Games Win Big, Advertising Platforms Suffer

The Covid-19 pandemic exposed a digital divide on China’s internet in the first quarter of 2020, with the latest financial results placing all of the nation’s top names squarely into one of two camps.

The winning camp was led by the nation’s two largest names, Alibaba Group Holding Ltd. and Tencent Holdings Ltd., and centered more broadly on providers of home-based services like e-commerce and online games. That group benefited as millions of Chinese remained largely homebound during the quarter, both under official orders and voluntarily to avoid catching Covid-19.

Meanwhile, the losing camp was centered most heavily on advertising-dependent companies like Baidu Inc. and Sina Corp., as business slowed to a crawl during the quarter and companies reined in spending as many went into survival mode. Providers of online-to-offline services also took a hit, exemplified by sector leader Meituan Dianping, as consumers avoided many of their services such as bike-sharing and online movie ticket buying.

“First quarter earnings reflect a change in consumer behavior under Covid-19: most e-commerce and remote work/school companies were beneficiaries as consumers adjusted to lockdowns,” said an analyst at a mid-sized brokerage who follows the stocks, speaking on condition of anonymity due to company policy. “Consumers will likely pivot back to offline activity, but the degree is an open question. Habits may change further after experiencing the convenience that offline models struggle to match, replacing what had been the status quo.”

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A new reality that saw providers of more home-based products and services emerge as winners was clearly in focus as Meituan Dianping became the last of China’s major internet companies to report its latest results on Monday.

Among the nation’s top players, the e-commerce triumvirate of Alibaba, and discount specialist Pinduoduo Inc. all reported strong revenue gains for the quarter, from 20.7% growth for, to 22% for Alibaba, and a turbocharged 44% rise for Pinduoduo.

Notably, a recent rally in Pinduoduo’s stock helped it overtake earlier this month to become China’s No. 2 e-commerce company behind only Alibaba, based on market value. That lead has continued to grow since then, with Pinduoduo now worth $83 billion compared with $72 billion for

Other winners for the quarter were online game operators led by Tencent, which also posted 26% revenue growth for the quarter, as people turned to activities like online gaming to fill their time at home during the pandemic. Game livestreaming specialist DouYu International Holdings Ltd. was a standout for the quarter, reporting 53% revenue growth in its results released on Tuesday before U.S. markets opened.

The clear losers during the outbreak were companies dependent on advertising, led by bellwether and online search leader Baidu, whose revenue fell 7% during the quarter. Meituan Dianping also posted a 12.6% revenue decline as home-bound users avoided activities that are at the heart of some of its most widely-used products, like going to restaurants and riding bicycles.

Looking ahead, most companies said the remainder of the year would remain largely the same, though they also emphasized a high degree of uncertainty. Alibaba and both forecast strong continued revenue growth in the 20% to 30% range for the year and quarter ahead, respectively, though Pinduoduo didn’t provide such figures.

Baidu was less committal, saying revenue in the current quarter could range anywhere from down 5% to up 4% from a year ago. “The Covid-19 situation in China is evolving, and business visibility is very limited,” Baidu said.

Contact reporter Yang Ge (

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