The recent research report released by Bank of Communications International has stirred significant conversation in the investment community, spotlighting the anticipated financial performance of the internet sector for the fourth quarter of 2024. As the industry gears up to unveil its earnings, analysts are particularly optimistic about specific sub-sectors, notably Online Travel Agencies (OTAs), gaming, and e-commerce. The report highlights a divergent performance among advertising, lifestyle services, and entertainment companies, hinting at a mixed bag of results on the horizon.
Analysts suggest that Hong Kong stocks and U.S.-listed Chinese companies stand to benefit from a valuation reassessment driven by technological innovations. Companies like NetEase, JD.com, Trip.com, Tongcheng Travel, Bilibili, NetEase Cloud Music, and Tencent Music are expected to see upward adjustments in their earnings forecasts for the fourth quarter of 2024 and into 2025. This potential growth signals a broader trend of resilience in the tech-driven market landscape.
In the gaming industry, there is a marked focus on the anticipated acceleration of game revenue alongside scheduled launches of new titles. Tencent, for instance, is gearing up for the release of significant new games such as "Victory Goddess: New Hope," "Valorant: Source Energy Action," and "Honor of Kings: World," all of which are expected to drive revenue growth. The forecasts indicate that mobile gaming revenue should witness accelerated growth due to robust consumer spending. Interestingly, both Tencent and NetEase are anticipated to exhibit substantial growth in earnings, with estimates suggesting a 16.9x and 14.6x price-to-earnings ratio for 2025, positioning NetEase as particularly promising due to its impressive revenue from PC games.
The e-commerce sector is also in the limelight, with analysts zeroing in on the "trade-in" policy and shifts in monetization rates that could affect future performance. Alibaba's financials will be closely watched for contributions from technical service fees and product penetration across its entire platform, while JD.com may see revenue growth in its electronic product categories during the first quarter of 2025. Currently, Alibaba, Pinduoduo, and JD.com’s price-to-earnings ratios are predicted at 12.7x, 8.3x, and 8.6x, respectively, with a preference for JD.com owing to favorable policy support and growth potential.
The OTA sector is anticipated to benefit from improving hotel average daily rates (ADR) and greater revenue generation from domestic hotel bookings. Trip.com, for example, forecasts a reduction in pressure on domestic hotel ADRs, projecting a 20% increase in revenue driven by enhanced market share and a softer competitive landscape. Analysts are optimistic about the overall operational efficiency of OTAs and how they can surpass performance expectations. In contrast, Tongcheng is showing signs of double-digit growth in room night bookings and a continued positive trend in monetization. The price-to-earnings ratio for Trip.com and Tongcheng are currently pegged at 18.2x and 11.5x for 2025, respectively, indicating a greater potential for Tongcheng.
In terms of lifestyle services and logistics sectors, analysts are looking at volume growth and how economies of scale could drive profit margins. Meituan's strategies in navigating the short-term competitive landscape of food delivery and expanding into overseas markets can significantly impact its operational strategies. JD Logistics is gearing up for accelerated income growth, attributed to refined operational practices. SF Express hopes to leverage key accounts and new business models to maintain a robust income growth rate of around 25% in 2025. Current price-to-earnings ratios stand at 16.6x for Meituan and 10.9x for JD Logistics, both of which exhibit room for improvement compared to industry averages.
Furthermore, the advertising sector is witnessing transformation through new technologies and innovative monetization methods. Tencent's search and mini-program advertising are expected to continue driving steady growth in revenue. However, Baidu’s ad segment may see a tightening profit margin with a prediction that its core business will yield a 16% profitability rate.
In the realm of entertainment, platforms like Bilibili, Tencent Music, NetEase Cloud Music, and China Literature are capturing market attention with their unique trajectories of growth. Bilibili, known for its vibrant content community, and its young user demographic is seen as holding steady in its gaming and advertising segments due to its robust engagement tactics. The platform has leveraged user co-creation through gaming events and collaborations with high-profile game developers to enhance its market presence. This commitment to community-driven initiatives offers significant promise as the gaming industry continues to evolve.
Moreover, Bilibili's advertising business remains a focal point of interest as it strategically grows its user base and enhances engagement. The platform’s innovative advertising formats and collaboration with content creators for integrated advertising have enhanced its market value. As the platform pushes toward operational efficiency and cost control, its ability to release profits appears promising. The company's foray into the advertising sector, combined with its community engagement efforts, aids in maximizing its monetization potential.
On the musical front, both Tencent Music and NetEase Cloud Music are on a positive growth trajectory in their paid services. Tencent Music, with its substantial library and strong user base, is steadily refining its paid offerings. The launch of exclusive content, quality enhancements, and personalized recommendations have attracted a significant number of subscribing users. Moreover, the integration of live music and social features has diversified user interaction and amplified willingness to pay.
NetEase Cloud Music, praised for its unique community feel, employs personalized recommendation algorithms and user interactions to foster strong user loyalty. The platform is working to deepen its music library and offer a variety of membership incentives, aiming to solidify its position in the burgeoning market for paid music content. While there may be fluctuations on a quarterly basis, both platforms are expected to maintain a bullish growth outlook as consumer habits are rooted over time.
Lastly, despite facing headwinds from project delays, China Literature's core IP management capabilities remain robust. As one of the largest online literature platforms, its extensive catalog and rich IP resources allow for versatile content transformations. Successfully adapting popular novels into films and series has enhanced the visibility and profitability of its IP. With a strong market valuation projected at 16.6x for 2025, stakeholders can be assured of confidence in the platform’s long-term viability.
In conclusion, despite the various challenges and uncertainties faced by companies like Bilibili, Tencent Music, NetEase Cloud Music, and China Literature, their innovative approaches and strategic optimizations set the stage for continued success. This dynamic landscape promises enhanced user experiences and substantial returns for investors in the continually evolving internet and entertainment sectors.