Date post: | 14-Jul-2015 |
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Economy & Finance |
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INVESTING IN CHINA:THE INTERNET SECTOR
Two Best performing Chinese stocks in the last 10 years.
10
100
1,000
10,000
2004 2005 2006 2007 2008 2009 2010 2011 2012
Baidu (52x) Tecent (62x)
Data: Yahoo Finance, prices are close prices of August 6, except for 2012 (April 5)
Big price-gainers since 2012
Data: imeigu.com, as of market close April 20
0
1
2
2
3
TUDO NQ RENN DANG KUTV QIHU YOKU PWRD NTES GAME
30%31%44%47%53%68%95%101%
124%
217%
Percentage of price gain
HOW TO FIND THESE STOCKS?•Good industry•Good product•Good monetization model
GOOD INDUSTRY• Large potential user scale
• Growing markets
• Lifelong/Frequent demands
Housing
Education
Relationship
Investment
MarriageHouse Maintenance
GOOD PRODUCT2.0 products, of course
•Open & Interactive
• User, not traffic
• UGC, not PPC
• Personality, not universality
• Long tail
WHAT DOES 2.0 DO?
• UX enhancement
• UGC re-org & re-use
• User relationships as an asset
•Monopoly (platform)
The runner-up is bound to die
• Closer to action, more profitable
• Sales budget outweighs marketing budget
GOOD MONETIZATION MODEL
WHEN IT COMES TO MONETIZATION MODEL...
• Charge for products > Traffic conversion
• Core services > Value-added services
• Commission-based > Ad services
• Performance ad > Brand ad
Good industryGood productGood monetization model
MONOPOLY PLATFORMSUsually growth guaranteed...
WHERE TO PUT YOUR MONEY?
BAIDUUnlimited market growthSimple business modelProblematic governance
0
325
650
975
1,300
2009 2010 20110
750
1,500
2,250
3,000
Operating incomeRevenue (in $thousands)
Data: Baidu (in $million)
TENCENTDeep moat built on social graphMonetization model less ideal
0
200
400
600
800
2007 2009 20110
7,500
15,000
22,500
30,000
IMAU Revenue
Data: Tencent (in RMB million)
ALIBABA GROUPGood product & governanceMonetization has just begunValued at $32b (Sep. 2011)
Data: Yahoo 20F (in $million)
-100
0
100
200
300
400
2009 2010 20110
750
1,500
2,250
3,000
Operating profit Revenue
POTENTIAL PLATFORMS Questionable monetization scheme
Risky business model
Not a platform
VERTICAL PLATFORMS
SOFTWARE/APPDEVELOPERS
CIGAR BUTTS• Portal
• Gaming
• E-commerce
• Search
• Video
WHY THE INTERNET SECTOR • Large potential user pool• Under expansion from media to
other businesses •Monetization models being
ungraded• Registered system lowers entry
barriers 0
150
300
450
600
2004 2006 2008 2010 2012
Data: World Bank 2011, CNNIC
China Internet Users (m)