Alibaba, AdTiger, Baidu - Advertising market in digital transformation

Alibaba - When will the bottom be reached?

Founded in 1999, Alibaba owns an online marketplace like Amazon and payment services, messenger services and auction houses. The Company places its ads on all its e-commerce websites and streaming video services. Merchants pay the Company to get their products listed higher in search results. The business is booming, as you can see from the growth figures over the years.

The latest quarterly figures were again very respectable. Revenue increased by 34% year-on-year to USD 31.9 billion. The profit decreased to USD 6.6 billion. On the one hand, this is due to the integration of Sun Art. On the other hand, the management has emphasized to continue investing in potential growth markets. This statement can certainly be seen as positive, especially since customers have also increased by 45 million. In total, the Company has 1.18 billion users to whom advertising can be presented.

Nevertheless, investors did not like the figures, so the share was again sent downward, only stopping at USD 152.80. From a fundamental point of view, the share is in an excellent position. The pressure on the share price comes from the uncertainty brought in by the Chinese government. The bad news will subside at some point, and then higher prices should be seen here again. Currently, one should wait and see whether the low has already been reached. After all, the stock is up about 14%.

AdTiger - Establishes site in China

AdTiger is listed on the Hong Kong Exchange and offers its customers an online advertising platform. In doing so, the Company provides online advertising services both domestically and internationally. These services draw on Big Data and Artificial Intelligence to optimally place their clients' advertising content on the right platforms and apps such as Facebook, Google, Twitter, Yahoo, Baidu, etc., for maximum reach. This data is analyzed in real-time to increase the advertising benefit accordingly.

On August 23, the Company reported a profit warning and two days later, the half-year figures were announced. Revenue rose 16.7% to 143.45 million renminbi (RMB). Profit for the first half slumped 40.9% to RMB 13.76 million. This slump should be short-term, however, as the Company established a subsidiary in late March to better cover the Chinese market in the development zone of Shandong province. The establishment of the site is likely to have caused the high costs.

Overall, the business has developed very positively over the past year, and when the one-off costs for the new site are eliminated, the Company's profits will also rise again. The share currently has a market capitalization of around EUR 68 million. Assuming that the Christmas business is always the biggest of the year, AdTiger should earn about RMB 27 million in the second half of the year, the equivalent of about EUR 3.5 million, if no further charges are added. Thus, the Company is favorably valued at the current level of EUR 0.102.

Baidu - Business areas are being expanded

Baidu is the Asian counterpart to Google. It is the largest Chinese search engine and displays advertisements in search results. However, in the meanwhile, the business areas have been significantly expanded. It operates various online communities, provides maps, offers cloud services, uses artificial intelligence to enable autonomous driving and, most recently, even manufactures hardware.

The brand "Xiaodu" stands for the hardware division, and there it was just announced on August 24 that financing with a valuation of USD 5.1 billion was closed. The division is now one of the largest sellers of smart displays. Looking at the latest quarterly figures, we see an overall growth of 20% to USD 4.86 billion. Online marketing sales rose to USD 2.95 billion, an increase of 18% year-on-year. Total profit was USD 1.13 billion in the quarter.

The stock marked its all-time high at USD 354.82 at the end of February and, like almost all large Chinese tech companies, was sold off to USD 135.89 last week. At the moment, the fear of intervention by the Chinese government is too great, and well-known short-sellers such as Carson Block are warning against investments in Chinese stocks. Above USD 170, the chart picture becomes friendlier. Currently, the share is trying to break the downward trend line, which would be the first positive signal.

Whether selling ads on their sites like Alibaba and Baidu or offering advertising services like AdTiger, one can see that the market is clearly rising. Thus, all three companies are attractive. AdTiger stands out because it is not directly exposed to Chinese government pressure, unlike Alibaba and Baidu.