China Tech Giants Rise on Report of Alibaba, Tencent Tie-Up

(Bloomberg) –Shares of some Chinese tech giants rose in early trading after the Wall Street Journal reported Alibaba Group and Tencent Holdings are considering making their services available on each other’s platforms.

  • Tencent +2.3%, Alibaba +1.9%; NetEase +0.1%, Meituan +0.5%
  • Alibaba’s ADRs closed about 1% higher in the U.S., while those of Tencent rose 1.2%
  • Hang Seng Tech Index has slumped 30% from a peak in Feb. amid China’s regulatory crackdown on the technology sector

Here’s what analysts and investors are saying:

Beijing Eastern Smart Rock Asset Management (Cai Dian)

  • “Integration among platforms is definitely the larger trend amid anti-monopoloy crackdown, but I think just how much of it boost and how open one will be to the other still remains to be seen”
  • “I’m more concerned about the negative impact this may have on smaller e-commerce platforms and how this move may erode their market share”

Bloomberg Inteliigence (Matthew Kanterman and Vey-Sern Ling write in a note)

  • The move “could help to appease antitrust and other regulatory concerns, easing the burden that has sent its shares down,”
  • “Still, this may increase competition and hurt the profitability of key businesses such as WeChat Pay and Tencent’s e-commerce investee affiliates”

Nomura (Jialong Shi and Thomas Shen write in a note)

  • “We think this news, should it materialize, will likely benefit Baba more, as it would gain access to WeChat’s huge user base and powerful social graph”
  • The move can also impact Meituan, and Pinduoduo as they are Tencent’s allies and Alibaba’s competitors
  • “We think the impact on Pinduoduo is likely the biggest among the three if Baba, as we have anticipated, aggressively promotes its Taobao Deals within WeChat”
  • Maintains buy on Alibaba’s ADRs and Tencent’s listing in Hong Kong

Northeast Securities (Zhou Luyun)

  • “Ali and Tencent seek to make the move in order lessen monopoly risks, but obviously this benefits Alibaba more, introducing additional traffic from Tencent”
  • “That would level the playing field for Alibaba and give it a leg up in comparison with Tencent backed e-commerce competitors such as Meituan and PDD”
  • “For Tencent, the benefits would be accumulating more data on its users’ transactions as Wechat Pay is allowed on Alibaba platforms, also highly valuable to learn about its own users”