Morgan Stanley: Chinese Internet Stocks Must Boost Investments, User Retention, Geographic Reach

Chinese Internet companies must invest in user retention, spend money to build their product and expand both their offerings and geographical reach to stay competitive, Morgan Stanley analysts said in a recent report.

A slowdown of user growth in the Chinese market is “inevitable,” the analysts said, and the the underlying drivers of the sector’s growth are beginning to shift from increases in monthly active users to advertising and diversification.

Morgan Stanley singled out stocks that follow their advice: “stay longer, spend more and step out.” Here’s what five companies in the Chinese Internet sector are doing right, according to the analysts.

• Alibaba Group Holding Ltd BABA is adding to the social features in its Taobao online shopping app, monetizing more effectively with the use of better targeting technology, and emphasizing globalization and cloud computing in its business. Morgan Stanley maintained an Overweight rating on Alibaba with a $140 price target.

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• Tencent is expanding its global reach through M&A, has a “fast-growing” payment business and launched a “Mini-program” last month that’s aiding both user retention and monetization, according to Morgan Stanley. Morgan Stanley maintained an Overweight on Tencent and raised its price target from $130 to $140.

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• Ctrip.com International Ltd (ADR) CTRP, an online travel provider, was named a long-term pick by Morgan Stanley analysts and is in a “dominant position in a fast-growing industry.” The company is expanding outside of China, having bought UK-based Skyscanner and two American tour operations, according Morgan Stanley. The firm maintained an Overweight and $57 price target on Ctrip.

• Momo Inc (ADR) MOMO, an instant messenger app, is raising user engagement with live broadcasting and short video initiatives, according to the Morgan Stanley analysts. “We expect Momo to leverage the strong cash flow generated by live broadcasting to expand the user base and develop new product initiatives, which will in return further drive long-term monetization.” Morgan Stanley maintained an Overweight and $34 price target on Momo.
• JD.com Inc (ADR) JD, an e-commerce company, has high margin improvement potential and stands to see profits rise after spinning off a money-losing subsidiary, JD Finance. Morgan Stanley maintained an Overweight on JD.com and raised its price target from $27 to $33.

Rico Shen [CC BY-SA 4.0-3.0-2.5-2.0-1.0] via Wikimedia Commons