Perk Up, Tech Investors. It Could Be Even Worse.

Shira Ovide
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Perk Up, Tech Investors. It Could Be Even Worse.

(Bloomberg Opinion) -- U.S. stock investors don’t have much to be thankful for as we start the holiday season, and that’s largely because the big technology companies that helped drive the stock market up have been dragging it down lately. 

But if the tech superpowers had their way, their share declines might have been even uglier. 

Big U.S. tech companies such as Google, Facebook Inc., Amazon.com Inc. and Netflix Inc. have either been barred from operating their online services in China or been unsuccessful there despite their sometimes desperate efforts. Their Chinese shutout might have been a blessing in disguise — for the short term, at least — because the stock rout has been even worse for China’s tech giants, which are tied heavily to that country’s slowing economic growth, the trade fight with the U.S., and tightening government influence in tech and other commercial areas. 

Just look at Amazon, whose stock price has fallen 27 percent from its 2018 peak in September but remains up 28 percent this year. Contrast that with the ugly stock chart of Chinese online shopping powerhouse Alibaba Group Holding Ltd., whose shares have fallen 31 percent from a June closing high and are down 15 percent for the year. Another e-commerce star in China, JD.com Inc., has lost half of its stock market value in 2018.

Given the headaches of Amazon’s Chinese counterparts, Jeff Bezos could be glad that Amazon’s market share in China is somewhere between tiny and nonexistent. As my Bloomberg Opinion colleague Tim Culpan wrote recently, Alibaba is being stung by both stiff competition with newer online shopping companies in China and by strains on the domestic economy that seem to be weighing on consumer spending.

Despite efforts to diversify its revenue, Alibaba generates nearly all of its sales from its home market. Amazon is in a similar position; it rings up two-thirds of its net sales in the U.S. At a time when the U.S. economy and consumer spending are holding up while big economic question marks loom in much of the world, Amazon’s dependence on its home country looks like a strength. 

Other U.S. technology giants generate much bigger chunks of their revenue outside the U.S., but they, too, may be giving thanks that they’re not operating in China. While shares of Google parent company Alphabet Inc. are down 20 percent from a 2018 high, two of China’s leading internet companies, Tencent Holdings Ltd. and Baidu Inc., have declined 41 percent and 38 percent, respectively, from their 2018 high water marks. (Facebook is in that territory, too.) 

There are, of course, U.S. tech companies that do operate in China or rely on China in other ways, and that has been both a blessing and a curse at times. U.S. chip companies have been rocked this year, in part by the trade battle between the U.S. and China. Apple Inc. has navigated China better than perhaps any other U.S. technology company. That country is both an essential part of Apple’s global iPhone supply chain and a big buyer of the company’s products. Apple generated nearly 20 percent of its revenue in its 2018 fiscal year from a region that consists of China, Hong Kong and Taiwan. Sales from that region rose 16 percent from fiscal 2017.

Lately, though, China has been a cloud hanging over the company. There are concerns that U.S.-China trade tussles will hurt Apple, and Goldman Sachs analyst Rod Hall wrote this week that demand for Apple’s products appears to be weakening in that country.

In the long run, it’s tough for America’s tech superpowers to ignore a population of 1.4 billion people and a country that leads the world in internet use and sales of personal computers and smartphones. China has been a cradle of technology innovation for a while now, and that’s showing up in attempts by American companies to copy the country’s technology products or business models. China’s government has also committed to pouring money into developing homegrown technology such as semiconductors and artificial intelligence, and that investment should be a boon to domestic tech companies. 

That all helps explain why Facebook, Google and some other U.S. tech companies hold out hope of operating in China as they do in much of the rest of the world. At least in this year of tech tumult, however, America’s tech superstars have benefited from being shut out of China.

To contact the author of this story: Shira Ovide at sovide@bloomberg.net

To contact the editor responsible for this story: Daniel Niemi at dniemi1@bloomberg.net

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Shira Ovide is a Bloomberg Opinion columnist covering technology. She previously was a reporter for the Wall Street Journal.

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