Bottom line: JD.com is likely to pass Baidu this week and become China’s third most valuable internet company, while Weibo’s stock is likely to enter a period of correction while it awaits an official live broadcasting license.
The era of the Internet triumvirate of Baidu (Nasdaq: BIDU), Alibaba (NYSE: BABA) and Tencent (HKEx: 700), often called the BAT, is on the cusp of ending, as up-and-comer JD.com (Nasdaq: JD) looks set to pass Baidu in terms of market value. Meantime, I suspect the end of another era is coming for the soaring Weibo (Nasdaq: WB), which had some of the wind knocked out of its sails following some strict words from China’s heavy-handed regulator.
We’ll focus mostly on the Baidu/JD transition here, as that really does seem to mark a changing of the guard in China’s dynamic Internet sector. That move has seen Baidu experience a longer-term stagnation, as its core search business comes under assault from a few other newer players and it fails to find new revenue sources to offset the loss. On the other hand, JD.com seems unable to do any wrong these days, and is starting to resemble US titan Amazon (Nasdaq: AMZN) in the sense that people don’t really care whether it makes money.
In this case the actual story lies in the stock market tables, which show that JD.com was officially worth $61.3 billion at the end of last week’s Friday trading session. That was just a shade above Baidu, whose market value stood at $61.9 billion on the same day.
Quite tellingly, Baidu’s shares were down 0.7 percent during the session, while JD’s shares were up 3.9 percent. Those changes are relatively consistent with trends over the last year, during which time Baidu has mostly moved sideways and is up around 11 percent over the period. By comparison, JD’s stock has more then doubled over the same time.
This is really the tale of two companies moving in very different directions. Baidu has been in a bit of a muddle over much of the last 5 or 6 years, as it experimented with a number of new areas to try and move beyond its core search business. But none of those really panned out, and the company took a major shellacking last year when it landed at the heart of a scandal over ads being placed to look like they were organic search results.
Meantime, JD has been moving aggressively to consolidate its position as China’s second largest e-commerce firm. Its revenue has been growing by healthy amounts over the last few years, and last quarter it posted its first-ever net profit since going public. Many believe the company could fall back into the red, much the way that Amazon seems to dart in and out of the loss column, which hasn’t seemed to faze investors.
Overhyped and Underappreciated
I personally think JD is probably getting a little overhyped, much the way many people believe Amazon is, and that Baidu is probably underappreciated. But at the same time, these particular trends do seem to reflect the longer-term trajectories of these two companies. Baidu is likely to experience a period of stagnation over the next 2 to 3 years as it tries to find a new footing in artificial intelligence. For now, at least, we may have to shortly retire the BAT term and find a new replacement, perhaps JAT.
Next there’s Weibo, which we’ll touch on just briefly as it’s not yet really clear about the longer term implications of the latest news. That news has seen China’s publishing regulator suddenly tell Weibo to stop video streaming because it was doing so without a license. (English article) Weibo wasn’t the only one hit, as the regulator also told the news portal operated by Phoenix New Media (NYSE: FENG) to do the same.
The backstory here is that live broadcasting has literally brought Weibo, often called the Twitter of China, back from the dead, or nearly dead, and is now the company’s big growth area. The regulator’s motivation appears to be its concern that Weibo users were airing current events-like programs and other news-like products, which violate China’s strict ban on any private companies from broadcasting news.
Weibo’s stock tumbled about 10 percent last week after the news came out, though the shares bounced back slightly and are down 6.4 percent from their level before the news. But they have still nearly tripled over the last year, much of that on the back of this live broadcasting hype. I do suspect the company will ultimately get a live broadcasting license, since the regulator is unlikely to just suddenly shut down a business that has been around for well over a year. But that license could come with many conditions, which could ultimately put a big damper on the kinds of program that Weibo and others can broadcast.