Even though their are all Chinese Internet giants, the prospects of Alibaba and Tencent are quite different. Bernstein analyst David Dai raised Alibaba’s target price but lowered Tencent’s target price.
This year 2019, Alibaba’s share price rise by 26% . Tencent’s share price has increased by only 3%, reflecting investors’ preferences. Alibaba’s core business is e-commerce, with a complete ecological chain to support e-commerce. WeChat has 1.1 billion users, making Tencent a “flow king” that generates revenue through games, advertising, payments and financial technology.
Although the two companies have performed similarly in the past 20 years. Profits and market capitalization have increased by 30% each year. David Generation believes that the two companies will differentiate in the next three years. Alibaba still achieved a compound annual growth rate of 31%. Tencent’s compound annual growth rate will fall back to 23%.
David’s representative Alibaba’s target price rise from $200 to $220. Tencent’s target price lowered from HK$430 to $410. He pointed out that Alibaba’s price-earnings ratio is 19 times, and Tencent is 20 times. “In the long run, both companies have provided good returns for investors”. David Generation raised Alibaba’s earnings per share forecast by 8% this year to RMB 51.45.