Jefferies trims China tech targets but stays positive on Alibaba, Meituan and JD

Jefferies has lowered price targets for Chinese internet giants Alibaba ($153 from $156), Meituan (HK$165 from HK$185), and JD.com ($60 from $66), while maintaining Buy ratings. The adjustments reflect increased investment in competitive sectors like food delivery and logistics, which are pressuring near-term earnings as these firms build comprehensive one-stop apps. Despite this, Jefferies believes the companies are well-positioned for long-term growth and engagement, also highlighting entertainment platforms like Kuaishou and Bilibili as top picks for H2 due to steady ad revenue and lower macro exposure.

Analysis

Jefferies has revised its outlook on key Chinese internet firms, maintaining 'Buy' ratings while lowering price targets for Alibaba (to $153), Meituan (to HK$165), and JD.com (to $60). This adjustment reflects a central theme of aggressive investment in competitive service areas, such as food delivery and logistics, as these companies race to build comprehensive 'one-stop' applications. While these investments are expected to pressure near-term earnings, Jefferies views them as strategic moves to secure long-term user growth and engagement. For instance, Alibaba's on-demand services saw daily orders nearly double year-over-year to over 60 million, indicating strong user adoption despite the associated costs. Similarly, JD.com's nascent food delivery service is successfully attracting younger and female demographics, though its early stage poses a risk to immediate profitability. In contrast, Jefferies identifies the entertainment segment, including Kuaishou and Bilibili, as its top pick for the second half, citing its defensive characteristics like steady advertising revenue and lower exposure to macroeconomic headwinds. The online travel sector, led by Trip.com, is also viewed favorably due to its strong market position and limited expected disruption from new entrants.

Key Decisions for Investors

• Investors should weigh the near-term margin pressure from heavy investment at Alibaba, Meituan, and JD.com against the potential for long-term market share gains and user base expansion.
• Consider the relative defensive appeal of the entertainment segment, as exemplified by Bilibili and Kuaishou, which Jefferies highlights for its steady ad revenue and lower macro-sensitivity in the second half.
• For JD.com specifically, it is prudent to monitor key metrics on its food delivery expansion, such as user acquisition costs and impact on quarterly earnings, given Jefferies' warning that the early-stage venture may weigh on performance.
• Recognize that Trip.com is positioned as a clear leader in online travel with limited competitive threats, potentially offering a more stable investment thesis within the Chinese internet space.