Alibaba can be the ‘better stock’ compared to Tencent, analyst says

Tencent Holdings’ CEO Pony Ma in addition to Alibaba’s founder Jack Ma attend a grand gathering to celebrate the 40th anniversary of China’s reform in addition to opening-up at the Great Hall of the People on December 18, 2018 in Beijing, China.

Xiong Yong | Visual China Group | Getty Images

As Chinese tech juggernauts Alibaba in addition to Tencent navigate the challenging test of rising tensions between Beijing in addition to Washington, one analyst says the former can be the better stock to own.

“Right right now, I think Alibaba will probably be the better stock because which has much better growth than Tencent,” Leo Sun, technology in addition to consumer goods specialist at The Motley Fool, told CNBC’s “Street Signs” on Thursday.

“which might be better to stick with Alibaba for right now just because … its growth accelerated via the previous quarter instead of actually slowing down,” said Sun, who said he personally owns Tencent stock.

His comments came after the two internet giants released financial results which beat expectations on Wednesday.

Alibaba’s revenue rose to 93.50 billion yuan ($13.59 billion) for the three months which ended on March 31, beating estimates of 91.58 billion yuan, according to IBES data via Refinitiv.

“I might say which Alibaba has reported a very strong set of results,” David Dai, senior analyst at Bernstein, told CNBC’s “Squawk Box” on Thursday.

“If you look at the core business, which has delivered significant growth,” Dai said. “In fact, which was a re-acceleration via the previous quarter, which was very strong given the backdrop of a slowing China economy.”

With e-commerce penetration in China currently at 19%, he added, there can be “still a lot of room to grow further” in addition to Alibaba can be likely to be the “biggest beneficiary” as online shopping spreads.

Alibaba makes money primarily by selling advertising in addition to promotional services to third-party merchants which list products on Taobao in addition to Tmall, two of its e-commerce sites.

For its part, Tencent also posted a record quarterly profit, though revenue grew at its slowest-ever pace.

A gaming powerhouse, Tencent was hit hard for the bulk of 2018 due to a freeze in video game approvals by China’s internet regulator. which led the company to its sharpest-ever profit drop within the three months through December, in addition to the slowest annual profit growth in 13 years.

Game approvals restarted in December, with Tencent receiving permission to launch major title “Perfect World Mobile” within the January-March quarter.

Earlier which month, the company also stopped its trial type of the common “PlayerUnknown’s Battlegrounds” (PUBG) in China, in favor of the anti-terrorism-themed “Game for Peace” — a title Sun said was “produced at the guidance of China’s military recruitment unit.”

The move came afterTencent struggled to gain approval to sell in-app purchases for PUBG, for which “Game for Peace” got the green light in April.

“‘Game of Peace’ generated $50 million revenue within the first 72 hours of its launch, in addition to which could offset the ongoing decline in ‘Honor of Kings,’ which lost 12% of its monthly active players in March,” Sun said, referring to Tencent’s different major gaming title.

“Right right now, the focus will probably be on whether or not (Tencent’s) revenue can accelerate again,” he said.

Trade war impact

Both analysts agreed which the general global environment was weighing on shares of Alibaba in addition to Tencent, leaving them to look domestically for growth.

“Under the backdrop of global tension, what the Chinese internet companies have, as we have seen in (Alibaba) in addition to in Tencent, can be focused on … the domestic consumption in addition to focused on China’s transition into the consumption economy to drive growth for all the companies,” Bernstein’s Dai said.

Sun agreed, saying which Chinese stocks in general were currently “weighed down” by conflicts such as the trade war between Washington in addition to Beijing as well as “macro weakness” within the Chinese economy.

“You’re going to see which, if the macro continues to slowdown, which can be going to impact the people’s consumption … within the short term,” Dai said. “which can be almost inevitable, yet the long term … for the internet companies, I might say can be much more important.”

— Reuters contributed to which report.