INVESTING IN CHINA'S INTERNET SECTOR: FINDING THE NEXT BATs
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A guide on investing in Chinese internet companies, from Snowball Finance. Drafted by me and Simon, our Founder.
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INVESTING IN CHINA'S INTERNET SECTOR: FINDING THE NEXT BATs
- 1. INVESTING IN CHINA: THE INTERNET SECTOR
- 2. Baidu (52x) Tecent (62x) 10,000 1,000 100 10 2004 2005 2006 2007 2008 2009 2010 2011 2012 Data: Yahoo Finance, prices are close prices of August 6, except for 2012 (April 5) Two Best performing Chinese stocks in the last 10 years.
- 3. Percentage of price gain 3 2 217% 2 124% 101% 95% 68% 53% 1 47% 44% 31% 30% 0 TUDO NQ RENN DANG KUTV QIHU YOKU PWRD NTES GAME Data: imeigu.com, as of market close April 20 Big price-gainers since 2012
- 4. HOW TO FIND THESE STOCKS? • Good industry • Good product • Good monetization model
- 5. Housing Relationship GOOD INDUSTRY • Large potential user scale Investment Education • Growing markets • Lifelong/Frequent demands House Maintenance Marriage
- 6. • Open & Interactive GOOD • User, not traffic PRODUCT • UGC, not PPC 2.0 products, of course • Personality, not universality • Long tail
- 7. • UX enhancement WHAT DOES • UGC re-org & re-use 2.0 DO? • Userrelationships as The runner-up is bound to die an asset • Monopoly (platform)
- 8. GOOD MONETIZATION MODEL • Closer to action, more profitable • Sales budget outweighs marketing budget
- 9. WHEN IT COMES TO MONETIZATION MODEL... • Charge for products > Traffic conversion • Core services > Value-added services • Commission-based > Ad services • Performance ad > Brand ad
- 10. Good industry Good product Good monetization model MONOPOLY PLATFORMS Usually growth guaranteed...
- 11. WHERE TO PUT YOUR MONEY?
- 12. Operating income Revenue (in $thousands) 1,300 3,000 975 2,250 BAIDU Unlimited market growth 650 1,500 Simple business model Problematic governance 325 750 0 0 2009 2010 2011 Data: Baidu (in $million)
- 13. IMAU Revenue 800 30,000 600 22,500 TENCENT Deep moat built on social graph 400 15,000 Monetization model less ideal 200 7,500 0 0 2007 2009 2011 Data: Tencent (in RMB million)
- 14. Operating profit Revenue 400 3,000 ALIBABA 300 2,250 GROUP 200 1,500 Good product & governance 100 Monetization has just begun 750 Valued at $32b (Sep. 2011) 0 -100 0 2009 2010 2011 Data: Yahoo 20F (in $million)
- 15. Risky business model POTENTIAL Questionable monetization scheme PLATFORMS Not a platform
- 18. CIGAR BUTTS • Portal • Gaming • E-commerce • Search • Video
- 19. China Internet Users (m) WHY THE 600 INTERNET SECTOR 450 • Large potential user pool • Under expansion from media to 300 other businesses • Monetization models being 150 ungraded • Registered system lowers entry 0 barriers 2004 2006 2008 2010 2012 Data: World Bank 2011, CNNIC