Tactical Window Before Q1 Earnings: Favor Alibaba, Tencent & NetEase; Meituan Offers Short-Term Opportunity

Overview

This report focuses on the China internet and new media sector ahead of the release of Q1 2026 earnings. Nomura Securities notes that recent volatility in select stocks has been driven largely by liquidity and sentiment factors—not fundamental deterioration. The report maintains 'Buy' ratings on Alibaba, Tencent Holdings, and NetEase, highlighting their long-term advantages in AI transformation, gaming resilience, and ecosystem synergies. While Meituan’s long-term competitive landscape remains uncertain, its recent share price correction presents a tactical trading opportunity, with particular focus on its upcoming Q1 earnings and Q2 food delivery unit economics (UE) guidance. Ctrip faces near-term headwinds from antitrust scrutiny and rising fuel costs, warranting a continued 'Neutral' rating.

Core views

Meituan (3690 HK, Neutral): The stock has recently underperformed the Hang Seng Tech Index (down 3.6% over the past five days vs. index up 2.1%), mainly due to fund outflows triggered by regulatory actions against cross-border brokers such as Futu and Tiger—not changes in company fundamentals. Nomura believes the Q1 earnings release itself (scheduled for after market close on June 1) may not be the key catalyst, as management provided preliminary guidance three months ago; instead, the real catalyst lies in management’s commentary on Q2 (2Q26) food delivery unit economics (UE). Channel checks indicate that Alibaba’s efforts to reduce losses in its quick commerce (QC) business have accelerated since April, potentially significantly easing competitive pressure on Meituan. Consensus estimates project Meituan’s loss per order will narrow from RMB 1.34 in Q1 to RMB 0.78 in Q2. Although the short-term tactical opportunity is compelling, Nomura maintains a Neutral rating because, longer term, Alibaba’s subsidy budget still dictates the pace of recovery in Meituan’s food delivery profitability, and Douyin’s high-margin in-store services business poses a persistent threat. Ctrip (TCOM US, Neutral): Outlook is clouded by both the ongoing antitrust investigation and surging fuel surcharges. Launched in January 2026, the State Administration for Market Regulation (SAMR) investigation remains unresolved. Ctrip has already implemented remedial measures (e.g., suspending its AI-powered pricing assistant), which may dampen domestic hotel booking revenue growth and compress margins in FY2026. Additionally, amid Middle East tensions, domestic flight fuel surcharges have risen sharply (short-haul flights: from RMB 10 to RMB 90; long-haul: from RMB 20 to RMB 170), driving average ticket prices up 15–25% year-to-date and suppressing domestic air travel demand. Data show domestic air passenger volume was flat YoY in April and deteriorated further to -7.3% YoY in May. Nomura believes the market’s expectation of only a modest 0.5-percentage-point decline in Ctrip’s non-GAAP operating margin for FY2026 is overly optimistic. Alibaba (BABA US, Buy): At its recent Cloud Summit, Alibaba explicitly pivoted toward AI Agents—a move expected to accelerate its AI monetization. Furthermore, a potential IPO of its chip subsidiary T-Head represents a medium-term catalyst. Although e-commerce customer management revenue (CMR) is forecast to decline 5% YoY in the June quarter due to soft retail demand and tough prior-year comparisons, robust AI-related growth is sufficient to offset short-term weakness in core e-commerce. Tencent Holdings (700 HK, Buy): Expected to lead the current financing round for private AI firm DeepSeek. This collaboration offers strong synergies: DeepSeek’s foundational models help address Tencent’s relative weakness in proprietary AI development, while Tencent’s vast internet ecosystem provides unparalleled real-world deployment scenarios for DeepSeek’s models. Such cooperation should alleviate investor concerns regarding Tencent’s competitiveness in China’s AI landscape. NetEase (NTES US, Buy): Delivered strong Q1 results—legacy games grew revenue 7% YoY despite high base effects and without reliance on blockbuster new releases. Upcoming summer game launches serve as a near-term catalyst. Concurrently, NetEase is transitioning its Hong Kong listing status from secondary to primary listing, paving the way for future inclusion in the Stock Connect program.

Analysis framework

Nomura’s analytical framework combines event-driven and fundamental analysis. First, it isolates irrational sell-offs triggered by external regulatory events (e.g., crackdowns on cross-border brokers) by comparing individual stock performance against benchmarks like the Hang Seng Tech Index—identifying 'oversold' tactical opportunities. Second, at the fundamental level, it applies Sum-of-the-Parts (SOTP) valuation to independently value distinct business lines (e.g., food delivery, gaming, cloud, e-commerce) using differentiated multiples (e.g., P/E or P/S), supplemented by channel checks to validate evolving competitive dynamics (e.g., Alibaba’s loss reduction easing pressure on Meituan). For macro-sensitive businesses (e.g., Ctrip’s travel segment), the report closely tracks high-frequency data—including air passenger volumes and fuel surcharge policy changes—to refine near-term earnings forecasts. Finally, AI-driven technological transformation serves as the central variable for long-term valuation re-rating, evaluating each tech giant’s strategic positioning within the AI ecosystem (e.g., Alibaba’s AI Agents, Tencent’s partnership with DeepSeek) and its implications for long-term competitiveness.

Methodology notes

• Valuation MethodSOTP Valuation

  Sum-of-the-Parts Valuation

  The report applies distinct valuation multiples (e.g., P/E or P/S) to separate business segments (e.g., food delivery, gaming, cloud, e-commerce) of diversified internet companies such as Meituan, Tencent, and Alibaba, then aggregates them to derive a target price. This approach enables more precise reflection of differing growth prospects and risk profiles across business units.

• Industry/Industrial Analysis FrameworkVolume-price decomposition

  Volume-Price Analysis

  When analyzing Ctrip, the report decomposes revenue drivers into 'volume' (passenger count) and 'price' (total fare including fuel surcharges). By observing how rising fuel surcharges boost 'price' but subsequently suppress 'volume', it assesses the net impact on overall revenue and profitability.

• Event-Based Game Theory & Behavioral FinanceExpectation Gap / Expectation Management

  Expectation Gap Analysis

  The report highlights that Meituan’s share price decline reflects sentiment—not fundamentals—and that markets may underestimate the competitive relief stemming from Alibaba’s loss reduction. By identifying discrepancies between market sentiment and actual operational improvement—the 'expectation gap'—the report pinpoints short-term tactical trading opportunities.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• Meituan-W (3690.HK)

  Benefited/Tactical Opportunity

  Strengths

  Food delivery unit economics expected to improve beyond expectations; Alibaba’s loss reduction eases competitive pressure

  Weaknesses

  Long-term exposure to Alibaba’s subsidy war and Douyin’s high-margin in-store services business; low earnings visibility

  Comparison

  Strategic clarity slightly weaker than Alibaba or Tencent, but higher near-term optionality

  Risks

  Intensified competition; new business performance below expectations

• Alibaba (BABA.US)

  Benefited/Top Pick

  Strengths

  Clear AI agent transformation; cloud business growth; potential IPO catalyst for chip business

  Weaknesses

  Core e-commerce business pressured by weak retail demand; CMR expected to decline

  Comparison

  More direct AI monetization path via cloud than Tencent, though e-commerce base faces headwinds

  Risks

  Margin compression from increased investments; regulatory risks in payments and internet finance

• Tencent Holdings (700.HK)

  Benefited/Top Pick

  Strengths

  Leadership in DeepSeek financing strengthens AI ecosystem; stable gaming and advertising businesses; rich ecosystem

  Weaknesses

  Relative weakness in self-developed foundational AI models; dependence on external partnerships

  Comparison

  Deepest social moat; unique AI collaboration model; attractive valuation

  Risks

  Excessive market expectations; aggressive WeChat Pay and overseas marketing spend; disruptive products from competitors

• NetEase (NTES.US)

  Benefited/Top Pick

  Strengths

  Exceptional resilience in legacy gaming revenue; summer game launches as catalyst; primary listing in HK improves funding access

  Weaknesses

  Incubation of new businesses may compress margins

  Comparison

  Highest gaming purity; relatively insulated from macro consumption volatility

  Risks

  Lower-than-expected revenue from legacy titles (e.g., 'Fantasy Westward Journey'); margin drag from new businesses

• Ctrip Group (TCOM.US)

  Adversely Affected/Cautious

  Strengths

  Relatively stronger recovery in international air passenger volumes

  Weaknesses

  Antitrust investigation weighing on valuation; soaring fuel surcharges suppressing domestic travel demand

  Comparison

  Hit hardest by dual macro-cost and regulatory pressures; most uncertain near-term outlook

  Risks

  Global economic recession; intensifying competition from emerging players

Key data

• Meituan Q2 2026 Loss Per Order ForecastRMB 0.78Significant improvement from RMB 1.34/order in Q1 2026; Bloomberg consensus
• Domestic Short-Haul Flight Fuel SurchargeRMB 90 per passengerSharply increased from RMB 10 in January; applicable to routes under 800 km
• May Domestic Air Passenger Volume Growth-7.3%YoY decline, worsening from flat YoY growth in April
• NetEase Q1 2026 Gaming Revenue Growth+7%YoY growth demonstrated resilience amid high base and absence of major new releases
• Alibaba E-Commerce CMR Forecast-5%Expected YoY decline in June quarter, reflecting soft retail market conditions

Impact & implications

The report concludes that current sector divergence offers investors structural allocation opportunities. For Meituan, short-term tactical rebound potential outweighs long-term trend certainty—making it suitable for higher-risk traders focused on earnings guidance. For Alibaba, Tencent, and NetEase, tangible progress in AI and resilient gaming cash flows underpin long-term holding logic—especially Tencent’s DeepSeek investment, which could re-rate its technology profile. Ctrip requires vigilance regarding sustained margin pressure from macro costs and regulatory policy, lacking clear near-term upside catalysts. Overall, institutions favor leaders with clear AI monetization paths or strong content moats, while remaining cautious on names exposed to macro cost shocks or unclear competitive dynamics.

Risks

• Meituan: Intensified competition in food delivery or in-store services; underperformance of new businesses (e.g., globalization).
• Alibaba: Margin erosion from stepped-up investments; regulatory risks in payments and internet finance.
• Tencent: Overly elevated market expectations; aggressive WeChat Pay and overseas marketing expenditures; disruptive products or business models from competitors.
• NetEase: Margin contraction from incubated businesses; lower-than-expected revenue from legacy titles (e.g., 'Fantasy Westward Journey').
• Ctrip: Severe global economic downturn triggered by natural disasters or human-made crises; intensified competition from emerging players.

What to watch

• Meituan management’s Q2 guidance on food delivery unit economics (UE).
• Progress of Alibaba’s quick commerce (QC) business in reducing losses and its impact on industry-wide competitive intensity.
• Specific terms of Tencent’s participation in DeepSeek’s financing round and subsequent strategic collaboration developments.
• Performance of NetEase’s summer game launches and progress on its transition to primary listing in Hong Kong.
• Conclusion of SAMR’s antitrust investigation into Ctrip and the impact of remedial measures.
• Future adjustments to domestic aviation fuel surcharges and recovery trajectory of domestic air passenger volumes.