On September 1st, shares of the Chinese internet giant opened lower in Hong Kong and continued to trade below the previous day’s close following the company’s recent transition to a dual-primary listing on both the Nasdaq and the Hong Kong Stock Exchange.
The company’s stock closed down 2.6% at HKD93.70 (around USD14).
Originally listed in New York in 2005, the company added a secondary listing on the Hong Kong exchange in 2021, with Nasdaq remaining its primary market. In July, the company’s board approved moving to a dual-primary listing structure. On August 27th, it announced that September 1st would mark the start of trading under this new setup.
An important reason for choosing Hong Kong as a primary listing venue is to leverage the Stock-Connect program, which facilitates cross-border trading between Hong Kong, Shanghai, and Shenzhen stock markets. This move aims to attract more capital from Mainland Chinese investors and support its share price, according to industry analysts. Only companies with Hong Kong as their primary listing are eligible for inclusion in the Stock-Connect system.
The CFO of the company has previously stated that transitioning to a dual-primary listing will help diversify its investor base and enhance the liquidity of its shares.
An analysis from Morgan Stanley suggests that following inclusion in the Stock-Connect program, the company’s Hong Kong shares could see net inflows of between USD 3 billion and USD 6.8 billion within the next six to twelve months. This estimate is based on past experiences with other major Chinese internet companies that listed in Hong Kong, such as Alibaba and Bilibili, whose shares were also added to the program.
It’s projected that mainland Chinese investors could hold between 7% and 15% of the company’s Hong Kong-listed shares within a year.
Profit Challenges
The company’s share price has recently experienced a significant decline, weighed down by weaker performance in its traditional businesses coupled with substantial investments in artificial intelligence. So far this year, its Hong Kong stock has dropped roughly 29%, and from its peak on January 23rd—its highest in nearly three years—it has fallen over 40%. Shares listed on Nasdaq have faced similar declines.
At the time of its Hong Kong secondary listing, investors mainly focused on its search engine and online advertising revenues. Over the past five years, however, revenue from AI-related businesses has come to represent about half of total revenue for two consecutive quarters.
Investors are increasingly interested in its AI initiatives, including its cloud infrastructure and assets like the AI-chip subsidiary Kunlunxin, which earlier this year began exploring a potential spin-off and Hong Kong listing.
Despite these developments, the company continues to face pressure from declining traditional revenue streams and the heavy costs associated with AI investments. In the second quarter, revenue fell 4% year-over-year to CNY 31.3 billion (approximately USD 4.3 billion), short of market expectations. Net profit also declined sharply, dropping 68% to CNY 2.3 billion (around USD 317.4 million).