investing in china: the internet sector
TRANSCRIPT
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INVESTING IN CHINA:THE INTERNET SECTOR
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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)
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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
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HOW TO FIND THESE STOCKS?•Good industry•Good product•Good monetization model
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GOOD INDUSTRY• Large potential user scale
• Growing markets
• Lifelong/Frequent demands
Housing
Education
Relationship
Investment
MarriageHouse Maintenance
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GOOD PRODUCT2.0 products, of course
•Open & Interactive
• User, not traffic
• UGC, not PPC
• Personality, not universality
• Long tail
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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
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• Closer to action, more profitable
• Sales budget outweighs marketing budget
GOOD MONETIZATION MODEL
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WHEN IT COMES TO MONETIZATION MODEL...
• Charge for products > Traffic conversion
• Core services > Value-added services
• Commission-based > Ad services
• Performance ad > Brand ad
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Good industryGood productGood monetization model
MONOPOLY PLATFORMSUsually growth guaranteed...
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WHERE TO PUT YOUR MONEY?
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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)
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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)
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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
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POTENTIAL PLATFORMS Questionable monetization scheme
Risky business model
Not a platform
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VERTICAL PLATFORMS
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SOFTWARE/APPDEVELOPERS
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CIGAR BUTTS• Portal
• Gaming
• E-commerce
• Search
• Video
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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)