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INVESTING IN CHINA:THE INTERNET SECTOR
Baidu (52x)                                           Tecent (62x)10,000 1,000  100    10       2004          2005        ...
Percentage of price gain 3 2      217% 2                 124%                                101% 95%                     ...
HOW TO FINDTHESE STOCKS?• Good industry• Good product• Good monetization model
Housing        RelationshipGOODINDUSTRY• Large   potential user scale      Investment        Education• Growing    markets...
• Open    & InteractiveGOOD                      • User, not     trafficPRODUCT                   • UGC, not      PPC2.0 pr...
• UX   enhancementWHAT DOES                       • UGC    re-org & re-use2.0 DO?                         • Userrelationsh...
GOODMONETIZATIONMODEL• Closer   to action, more profitable• Sales   budget outweighs marketing budget
WHEN IT COMES TOMONETIZATION MODEL...• Charge   for products > Traffic conversion• Core   services > Value-added services• ...
Good industryGood productGood monetization modelMONOPOLY                  PLATFORMS                          Usually growt...
WHERE TO PUTYOUR MONEY?
Operating income                              Revenue (in $thousands)                          1,300                      ...
IMAU            Revenue                                  800                            30,000                            ...
Operating profit            Revenue                              400                               3,000ALIBABA            ...
Risky business modelPOTENTIAL            Questionable monetization schemePLATFORMS                    Not a platform
VERTICALPLATFORMS
SOFTWARE/APPDEVELOPERS
CIGAR BUTTS• Portal• Gaming• E-commerce• Search• Video
China Internet Users (m)WHY THE                            600INTERNET SECTOR                                   450• Large...
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The Mindset Behind Buying into China Internet

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Transcript of "The Mindset Behind Buying into China Internet"

  1. 1. INVESTING IN CHINA:THE INTERNET SECTOR
  2. 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. 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 GAMEData: imeigu.com, as of market close April 20 Big price-gainers since 2012
  4. 4. HOW TO FINDTHESE STOCKS?• Good industry• Good product• Good monetization model
  5. 5. Housing RelationshipGOODINDUSTRY• Large potential user scale Investment Education• Growing markets• Lifelong/Frequent demands House Maintenance Marriage
  6. 6. • Open & InteractiveGOOD • User, not trafficPRODUCT • UGC, not PPC2.0 products, of course • Personality, not universality • Long tail
  7. 7. • UX enhancementWHAT DOES • UGC re-org & re-use2.0 DO? • Userrelationships asThe runner-up is bound to die an asset • Monopoly (platform)
  8. 8. GOODMONETIZATIONMODEL• Closer to action, more profitable• Sales budget outweighs marketing budget
  9. 9. WHEN IT COMES TOMONETIZATION MODEL...• Charge for products > Traffic conversion• Core services > Value-added services• Commission-based > Ad services• Performance ad > Brand ad
  10. 10. Good industryGood productGood monetization modelMONOPOLY PLATFORMS Usually growth guaranteed...
  11. 11. WHERE TO PUTYOUR MONEY?
  12. 12. Operating income Revenue (in $thousands) 1,300 3,000 975 2,250BAIDUUnlimited market growth 650 1,500Simple business modelProblematic governance 325 750 0 0 2009 2010 2011 Data: Baidu (in $million)
  13. 13. IMAU Revenue 800 30,000 600 22,500TENCENTDeep moat built on social graph 400 15,000Monetization model less ideal 200 7,500 0 0 2007 2009 2011 Data: Tencent (in RMB million)
  14. 14. Operating profit Revenue 400 3,000ALIBABA 300 2,250GROUP 200 1,500Good product & governance 100Monetization has just begun 750Valued at $32b (Sep. 2011) 0 -100 0 2009 2010 2011 Data: Yahoo 20F (in $million)
  15. 15. Risky business modelPOTENTIAL Questionable monetization schemePLATFORMS Not a platform
  16. 16. VERTICALPLATFORMS
  17. 17. SOFTWARE/APPDEVELOPERS
  18. 18. CIGAR BUTTS• Portal• Gaming• E-commerce• Search• Video
  19. 19. China Internet Users (m)WHY THE 600INTERNET 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
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