BEIJING — Major Chinese e-commerce leaders Alibaba, Tencent, and JD.com revealed their earnings this week, showcasing not just a rebound in consumer spending in China but also the advantageous impact of artificial intelligence on advertising.
Alibaba, the e-commerce powerhouse, announced late Thursday that its Taobao and Tmall group sales climbed 9% year on year to reach 101.37 billion yuan ($13.97 billion) for the quarter ending March 31. This figure surpassed the forecast of 97.94 billion yuan set by analysts surveyed by FactSet, indicating robust growth compared to the mere 3% segment increase recorded during the preceding 12 months.
“The e-commerce and ad revenues were positive surprises as there were expectations tariffs would affect consumer behavior,” stated Kai Wang, an Asia equity market strategist at Morningstar, following the earnings announcements of the three firms.
It is notable that these earnings reports only reflect the period before tensions between the U.S. and China escalated in April, which saw the imposition of new tariffs exceeding 100% on goods exchanged between the nations — effectively a trade embargo. However, both countries issued a usual joint statement on Monday announcing a temporary reduction in most of the newly enforced tariffs over the next 90 days.
Charlie Chen, managing director and head of Asia research at China Renaissance Securities, indicated that the escalating U.S.-China trade conflict has somewhat dampened consumer spending due to rising uncertainty among small and medium-sized enterprises. He expressed optimism that as these tensions diminish, overall consumption would increase.
Despite overall lackluster consumer activity, sales in specific categories, particularly electronics and home appliances, have flourished since last year, driven by government trade-in subsidies aimed at stimulating consumer expenditures.
JD.com reported on Tuesday that its sales in this sector surged by 17% compared to the previous year. The e-commerce firm also announced an overall 16.3% increase in revenue from its retail division, reaching 263.85 billion yuan for the quarter ending March 31, outperforming the FactSet estimate of 226.84 billion yuan in retail sales.
On Wednesday, Tencent disclosed that its “fintech and business services” segment, which serves as a barometer for consumer-related business transactions, experienced a 5% increase in revenue, totaling 54.9 billion yuan in the first quarter.
Nomura analysts noted that while this segment’s growth aligned with expectations, Tencent’s advertising sector thrived, standing out in the challenging macroeconomic landscape. Tencent’s revenues from marketing services skyrocketed by 20% to 31.9 billion yuan, bolstered by strong demand from advertisers for short videos and content within its WeChat platform. The company attributed this surge to ongoing upgrades in its AI-driven advertising technology.
AI Enhancing Advertising Efficiency
AI technologies are significantly enhancing Tencent’s online advertising engagement rates, reaching nearly 3%, according to company executives during an earnings call on Wednesday. This is a remarkable increase from the historic click-through rate of 0.1% for traditional banner ads and around 1% for feed ads.
For the first time, WeChat’s combined monthly active users surpassed 1.4 billion in Q1, positioning the app as one of the dominant mobile payment platforms in mainland China. Many local retailers also utilize mini-apps within WeChat for customer orders. Tencent announced the establishment of a dedicated unit within WeChat due to the substantial growth of its e-commerce operations.
“AI advertising enhances efficiency and algorithm performance, potentially allowing for better consumer targeting even during less favorable market conditions,” commented Wang from Morningstar. “While it’s still premature to measure the incremental advantages of AI-driven ads over traditional methods, we’ve already observed some monetization from these innovations.”
Meanwhile, JD reported a 15.7% increase in marketing revenue to 22.32 billion yuan for the quarter, attributing part of this growth to the application of AI tools.
On its earnings call, JD’s management shared that its advertising R&D team is leveraging large language models to optimize ad conversion rates and bolster revenue growth. They also introduced AI capabilities enabling merchants to easily manage complex advertising campaigns with simple commands.
Advertisers have continuously sought innovative methods to effectively target their campaigns towards potential buyers.
YouTube recently announced that advertisers can utilize Google’s Gemini AI model to optimize ad targeting based on viewer engagement levels.
Alibaba also reported a 12% year-on-year rise in marketing revenue, referred to as “customer management,” which nearly reached $10 billion, driven significantly by the enhanced efficacy of their AI tool, Quanzhantui.
Mixed Projections Ahead
Despite these positive highlights, Alibaba’s overall profit fell significantly short of analyst expectations, resulting in a nearly 7.6% decline in its share price during subsequent U.S. trading sessions.
China is expected to release its retail sales figures for April on Monday, with analysts surveyed by Reuters predicting a year-on-year increase of 5.5%, a slight decline from the 5.9% growth recorded in March.
A recent Morgan Stanley survey conducted from April 8 to 11, right after the rise in U.S.-China tensions, indicated a dip in consumer confidence to a 2.5-year low, with 44% of respondents expressing concerns about job security — the highest since the survey began in 2020. Moreover, only 23% of consumers anticipate increased spending in the upcoming quarter, reflecting an 8 percentage point decrease from the previous quarter.
April also saw subdued domestic demand, with a 0.1% year-on-year drop in the consumer price index — marking three consecutive months of decline. However, excluding food and energy prices, the core CPI remained steady with a 0.5% increment, mirroring the growth rate from March.
Given the continued struggles in the real estate market and export restrictions due to geopolitical factors, Chen believes that Chinese policymakers will prioritize measures to stimulate consumption to achieve the yearly growth target of approximately 5%.
He anticipates that forthcoming stimulus policies will likely focus on enhancing expenditures in sectors such as food and beverages, caregiving, travel, sports, and durable goods that are not yet included in the trade-in subsidy programs.
June 18 is set to mark the next significant shopping season in China.
“I expect a positive turnout for the 618 shopping festival. While we won’t see the 30% year-on-year growth rates we witnessed in the inaugural decade of the event,” stated Jacob Cooke, co-founder and CEO of WPIC Marketing + Technologies, a firm assisting foreign brands in penetrating the Chinese market. “I predict that growth during the 618 period will be in the very low double digits.”
