Are Internet giants worth investing in after Alibaba's 'worst' quarterly report?
Ali's quarterly results.
The basic data are as follows: Alibaba's revenue in the second fiscal quarter was 200.69 billion yuan, up 29% year on year; Operating profit of 15 billion yuan, up 10% year on year; Adjusted net profit was Rmb28.52bn, down 39 per cent year on year.
The basic data are as follows: Alibaba's revenue in the second fiscal quarter was 200.69 billion yuan, up 29% year on year; Operating profit of 15 billion yuan, up 10% year on year; Adjusted net profit was Rmb28.52bn, down 39 per cent year on year.
Adjusted profit mainly refers to the change of investment income, and cannot directly reflect the situation of enterprise management. So it's not true that Alibaba's profits fell 39%.
Many consider this the worst quarterly report ever, and there are many downsides:
First, adjusted profit fell 39%.
Second, operating profit rose only 10 per cent, lagging far behind revenues.
Third, core Chinese retail revenue grew just 3 per cent year on year.
Fourth, free cash flow fell 45 per cent. The numbers all say one thing:
The traditional e-commerce growth dividend has been completely exhausted. The growth rate of Internet enterprises declined on a large scale and entered a stable period.
And Alibaba's financial results, there is news about today's headlines:
Bytedance's commercialized products division held an all-staff meeting yesterday and revealed that its domestic advertising revenue has stopped growing in the past six months, the first time this has happened since it started commercializing in 2013. A half-year halt in advertising revenue, the main source of ByteDance's revenue, could mean an overall slowdown in revenue growth. Revenues from Tiktok have stopped growing and Toutiao is even on the verge of losing money, the person said. According to third-party data, Both Douyin and Toutiao are experiencing sluggish DAU growth.
So, we can be pretty sure that the whole Internet industry in China has entered the silver age.
Any industry is cyclical, the past real estate, home appliances, now the Internet. So we shouldn't be surprised. The demographic dividend of labor and the dividend of mobile Internet technology have all been exhausted, and this is the new situation we are facing now.
Under such circumstances, are Internet giants still worth investing in? First, Internet giants are still worth investing in, but the thinking has shifted from growth stocks to white horses and even blue chips. Let's take Gree Electric Appliances as an example. It can be regarded as A big bull stock in the history of A shares. The fastest growth period must be the growth period.
Gree's fastest growth was 15 years ago.
At this stage, China's home appliance industry is in a growing period. Gree has grown 20 times in 10 years.
Fifteen years later, due to the rapid expansion, the whole industry price war, finally cleared out, Gree and Midea two stand out. Home appliances also moved from the golden age to the silver age.
At this stage, Gree electric appliances stock price is still rising steadily. The 19-year high is up 150% from the 15-year high.
Twenty years later, under the dual influence of epidemic and social retail slowdown, the industry has entered the Bronze Age from the silver age. Share prices have been volatile for a long time. Affected by the pessimistic expectations of the real estate industry chain, in the past six months continuously falling.
Is it Gree Electric? No, because every industry has cycles. No matter how good a company is, it cannot escape this cycle rate. Internet giants are still worth investing in, but they can no longer demand the returns they did in the past.
In the Silver Age, we should look at the defensive ability of the enterprise and the core point of the real competitiveness of the enterprise.
My final thoughts on the Silver Age Internet giants are as follows:
The first $TENCENT (00700.HK)$
Tencent is one of the few Internet companies that does not promote Wolf culture. It also has the best benefits and the least overtime. Why is that? Not because Tencent itself is so noble, but because Tencent makes the most comfortable money.
Tencent was never a gaming company. Gaming was just a way for Tencent to monetize. Tencent's core competitiveness is traffic. Therefore, King of Glory has never been Tencent's moat, Tencent's moat is wechat, QQ. Tencent also never need to invest in enterprises for large-scale mergers and acquisitions, just need to develop. Tencent is the best milk source, everyone needs Tencent milk.
In instant messaging software, the only person who can beat Tencent is him. Wechat's biggest competitor has always been QQ. So Tencent's internal competition is very fierce, unlike Ali that kind of internal integration. Corporate culture and corporate structure always depend on its business model.
In the Silver Age, Tencent must be the most stable, the most good at defense, will always send you the most reassuring financial results.
Second $BABA-W (09988.HK)$
In the golden age, Tencent was inferior to Alibaba. In the Silver age, Alibaba was inferior to Tencent.
What Ali is essentially doing is monetizing traffic. Ali is desperate for traffic. In the early days, Taobao had its own traffic, but as e-commerce competition intensified, Alibaba became a giant stomach that needed to gobble up traffic.
Why did Ali acquire Youku and Ele. me instead of just taking a stake like Tencent? Because Tencent is to be invested in the enterprise blood transfusion, and Ali needs blood, the blood is flow. Both Youku and Ele. me are portals of traffic and serve Ali's grand strategy.
So, Ali than Tencent Wolf sex much.
But the good news is that Ali has kept his head. When the cash flow is the best, we expand crazily, and have advanced layout in finance, Ali Cloud and other aspects with strong execution. Now, Ali's valuation system, Ali Cloud and Ant Financial have to account for a considerable weight.
Alibaba is still worth investing in, given the stability of its e-commerce business and the resilience of its financial business, as well as the growth of its cloud business.
$MEITUAN-W (03690.HK)$
Meituan has very good traffic. But Meituan is different from Tencent. Tencent found a very good cash model, is the game + advertising. But Meituan didn't.
Meituan now has only two ways to cash out:
First, increase the proportion of commission for small and medium-sized businesses.
Second, increase the delivery cost of takeout.
Third, reduce the welfare treatment of riders.
First, offend the business. And the current economic environment, coupled with the government's support policies for small and medium-sized businesses, it is difficult to do that. The second point is to offend users. But Meituan is far from a monopoly on food delivery. Third, since I read the article "takeaway riders, trapped in the system", I think it is impossible, the pressure of public opinion is too great. Combined with these reasons, I am still not sure about the long-term development of this position.
Many consider this the worst quarterly report ever, and there are many downsides:
First, adjusted profit fell 39%.
Second, operating profit rose only 10 per cent, lagging far behind revenues.
Third, core Chinese retail revenue grew just 3 per cent year on year.
Fourth, free cash flow fell 45 per cent. The numbers all say one thing:
The traditional e-commerce growth dividend has been completely exhausted. The growth rate of Internet enterprises declined on a large scale and entered a stable period.
And Alibaba's financial results, there is news about today's headlines:
Bytedance's commercialized products division held an all-staff meeting yesterday and revealed that its domestic advertising revenue has stopped growing in the past six months, the first time this has happened since it started commercializing in 2013. A half-year halt in advertising revenue, the main source of ByteDance's revenue, could mean an overall slowdown in revenue growth. Revenues from Tiktok have stopped growing and Toutiao is even on the verge of losing money, the person said. According to third-party data, Both Douyin and Toutiao are experiencing sluggish DAU growth.
So, we can be pretty sure that the whole Internet industry in China has entered the silver age.
Any industry is cyclical, the past real estate, home appliances, now the Internet. So we shouldn't be surprised. The demographic dividend of labor and the dividend of mobile Internet technology have all been exhausted, and this is the new situation we are facing now.
Under such circumstances, are Internet giants still worth investing in? First, Internet giants are still worth investing in, but the thinking has shifted from growth stocks to white horses and even blue chips. Let's take Gree Electric Appliances as an example. It can be regarded as A big bull stock in the history of A shares. The fastest growth period must be the growth period.
Gree's fastest growth was 15 years ago.
At this stage, China's home appliance industry is in a growing period. Gree has grown 20 times in 10 years.
Fifteen years later, due to the rapid expansion, the whole industry price war, finally cleared out, Gree and Midea two stand out. Home appliances also moved from the golden age to the silver age.
At this stage, Gree electric appliances stock price is still rising steadily. The 19-year high is up 150% from the 15-year high.
Twenty years later, under the dual influence of epidemic and social retail slowdown, the industry has entered the Bronze Age from the silver age. Share prices have been volatile for a long time. Affected by the pessimistic expectations of the real estate industry chain, in the past six months continuously falling.
Is it Gree Electric? No, because every industry has cycles. No matter how good a company is, it cannot escape this cycle rate. Internet giants are still worth investing in, but they can no longer demand the returns they did in the past.
In the Silver Age, we should look at the defensive ability of the enterprise and the core point of the real competitiveness of the enterprise.
My final thoughts on the Silver Age Internet giants are as follows:
The first $TENCENT (00700.HK)$
Tencent is one of the few Internet companies that does not promote Wolf culture. It also has the best benefits and the least overtime. Why is that? Not because Tencent itself is so noble, but because Tencent makes the most comfortable money.
Tencent was never a gaming company. Gaming was just a way for Tencent to monetize. Tencent's core competitiveness is traffic. Therefore, King of Glory has never been Tencent's moat, Tencent's moat is wechat, QQ. Tencent also never need to invest in enterprises for large-scale mergers and acquisitions, just need to develop. Tencent is the best milk source, everyone needs Tencent milk.
In instant messaging software, the only person who can beat Tencent is him. Wechat's biggest competitor has always been QQ. So Tencent's internal competition is very fierce, unlike Ali that kind of internal integration. Corporate culture and corporate structure always depend on its business model.
In the Silver Age, Tencent must be the most stable, the most good at defense, will always send you the most reassuring financial results.
Second $BABA-W (09988.HK)$
In the golden age, Tencent was inferior to Alibaba. In the Silver age, Alibaba was inferior to Tencent.
What Ali is essentially doing is monetizing traffic. Ali is desperate for traffic. In the early days, Taobao had its own traffic, but as e-commerce competition intensified, Alibaba became a giant stomach that needed to gobble up traffic.
Why did Ali acquire Youku and Ele. me instead of just taking a stake like Tencent? Because Tencent is to be invested in the enterprise blood transfusion, and Ali needs blood, the blood is flow. Both Youku and Ele. me are portals of traffic and serve Ali's grand strategy.
So, Ali than Tencent Wolf sex much.
But the good news is that Ali has kept his head. When the cash flow is the best, we expand crazily, and have advanced layout in finance, Ali Cloud and other aspects with strong execution. Now, Ali's valuation system, Ali Cloud and Ant Financial have to account for a considerable weight.
Alibaba is still worth investing in, given the stability of its e-commerce business and the resilience of its financial business, as well as the growth of its cloud business.
$MEITUAN-W (03690.HK)$
Meituan has very good traffic. But Meituan is different from Tencent. Tencent found a very good cash model, is the game + advertising. But Meituan didn't.
Meituan now has only two ways to cash out:
First, increase the proportion of commission for small and medium-sized businesses.
Second, increase the delivery cost of takeout.
Third, reduce the welfare treatment of riders.
First, offend the business. And the current economic environment, coupled with the government's support policies for small and medium-sized businesses, it is difficult to do that. The second point is to offend users. But Meituan is far from a monopoly on food delivery. Third, since I read the article "takeaway riders, trapped in the system", I think it is impossible, the pressure of public opinion is too great. Combined with these reasons, I am still not sure about the long-term development of this position.
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GratefulPanda : Thanks for sharing, very insightful. Could you elaborate more on the slowing growth of domestic advertising that was in the portion about bytedance? Is that advertising going outside of the main giants? That sounds really interesting.
MrLi Investment OP GratefulPanda : It will be more troublesome because of space