Shulou(Shulou.com)06/01 Report--

On August 14, Tencent released its second-quarter results. Unfortunately, interest rates on US 2-year and 10-year Treasuries were upside down for the first time since 2007 in European trading, causing market panic about the recession, with all three major indexes of US stocks tumbling 3 per cent.

On August 15, Hong Kong's Hang Seng Index opened 1.41% lower, losing the 25000-point integer mark in intraday trading. Meanwhile, Tencent Holdings opened 3.88% lower, opening at HK $326.8, the lowest since July. Tencent's market downturn on the 15th cannot be said to be without the impact of the general environment, but by the end of the day, the Hang Seng Index was up 0.76%, while Tencent Holdings was down 2.28%. It fell another 1.21% to close at 326.4 yuan on the 16th.

The situation becomes like this, can only show that the power of singing short Tencent is indeed very strong. So why are they so unoptimistic about Tencent?

Transformation hanging in mid-air

According to the financial report, as of June 30, Tencent's revenue in the second quarter was 88.821 billion yuan, an increase of 21% over the same period last year, falling below the market expectation of 93.41 billion yuan, and the growth rate was also lower than the market expectation of 25%. Gross profit was 39.126 billion yuan, up 14% from the same period last year and down 2% from the previous month; profit (net profit) for the period was 24.684 billion yuan, up 33% from the same period last year and down 11% from the previous period.

Judging from the year-on-year figures, Tencent's revenue and profit grew well in the second quarter, but all profits are falling compared with Q1 in 2019. And the year-on-year growth is good, which does not show how good Tencent's performance is. 2018 is the lowest growth rate of Tencent's performance in recent years. Q2 in 2018, Tencent's performance is not bright.

In 2018, the growth rate of mobile Internet users slowed and the demographic dividend peaked. The consensus reached by the industry is that the potential of consuming the Internet is already visible to the naked eye. Tencent is also well aware of this, so in October 2018, it carried out a new round of overall strategic upgrading in order to embrace the development trend of the industrial Internet. Six business groups have been formed: WXG (Wechat), IEG (Interactive Entertainment), PCG (platform and content), CSIG (Cloud and Intelligent Industry), CDG (Enterprise Development), and TEG (Technology Engineering). Among them, CSIG and CDG are both focusing on the B-end business.

Starting from Q1 in 2019, Tencent has independently included the section of "financial technology and corporate services" in the scope of financial statistics. "Industrial Internet" has become the direction of Tencent's efforts in 2019 and for a long time to come.

However, judging from the situation in the first half of 2019, the development of "financial technology and corporate services" can only be said to be less than satisfactory. The revenue brought by Q1 in 2019 was 21.8 billion yuan, an increase of 44% over the same period last year; in 2019, Q2 realized 22.9 billion yuan, an increase of 37% over the same period last year, and the growth rate actually declined.

For the time being, Tencent's strategic transformation is not as expected. And such a transformation strategy, even for a powerful giant like Tencent, is still a challenging and thorny issue, even if you try your best.

The biggest risk comes from Alibaba.

The era of rapid expansion of the scale of mobile Internet users is the dividend period of Internet consumption. During this period, Tencent and Alibaba each became the two largest giants in China's Internet industry by virtue of their stunts and the advantages accumulated from the PC Internet era. Tencent's stunt is social + pan-entertainment, closer to consumers; Ali's stunt is e-commerce + financial technology, for B-end and C-end is both.

Now Tencent wants to build the industrial Internet, mainly to challenge Ali's best financial technology and "to B" field. For Tencent, this is bound to be a road full of hardships.

Tencent has two major foundations for industrial Internet, one is financial technology, and the other is cloud services.

1 financial science and technology

Tencent's revenue from financial technology mainly comes from three aspects: first, charging commercial transaction fees from merchants; second, collecting withdrawal fees and Credit Card Repayment fees from users; and third, charging financial institutions for services for the distribution of financial technology products (such as "WeiLiDai" and wealth management products provided on the "li Caitong" platform).

Ant Financial Services Group's Alipay is also doing these things, and there is a greater discount on some fees, such as cash withdrawal rates. Tencent's new change pass in WeChat Pay is equivalent to Alipay's Yu'e Bao, but it is not more attractive to users than Yu'e Bao.

Financial technology has also become a tuyere in the capital's frenzied pursuit of artificial intelligence. However, compared with the various beautiful blueprints drawn by people for financial technology, the reality is still relatively bony, and we are still very far from the fully intelligent financial technology with thousands of people.

But for Alibaba to take the lead in finding out the financial technology of the Internet financial era, from Alipay's mobile payments to Yu'e Bao's current li wealth, people have begun to take it for granted. Tencent has made rapid progress in financial technology, and with Wechat's social advantage, its market share is also growing rapidly.

But in this respect, Alibaba's financial technology and its own e-commerce ecology complement each other, Ali compared with Tencent, will not fall behind. And Alibaba's strong accumulation makes it easier for people to trust.

2 Cloud Servic

In the field of cloud services, according to IDC research, the most powerful cloud service provider in the world is Amazon's AWS, followed by Microsoft's Azure. Alibaba's Aliyun occupies the world's third shared cloud market share and is also the third strongest in the world. Tencent's Tencent Cloud ranks sixth in the world.

In China, Aliyun ranked first in public cloud market share in 2018, while Tencent ranked second. But the gap between Tencent Cloud, the second and Aliyun, the first. To put it this way, Aliyun was born in 2009, while Tencent Cloud was born in 2013, and the overall gap between them may not have narrowed much with the progress of time.

Tencent Cloud occupies a leading position in the two vertical areas of games and video, and its competitiveness outside the Tencent ecosystem is not significant. At the beginning of its establishment, Aliyun is adept at dealing with complex data problems and providing stable and reliable cloud services in order to deal with the massive data problems of Taobao and Tmall, as well as the continuous transformation and upgrading of Ant Financial Services Group's financial data. are highly competitive around the world.

Now that Tencent Cloud wants to "further strengthen our position in financial and retail services", we may have to consider Aliyun's mood somewhat.

Summary:

Starting from financial technology and enterprise services, Tencent began to develop the Internet industry. Following the "learning" attitude of Tencent's own PC Internet era, learn from Ali. However, from the perspective of reality, Alibaba's performance on the B side has always been very strong, and with the accumulation of advantages, it will become more powerful. In the past, Tencent can always surpass the teacher after learning, can it also beat Ali to death on the beach this time? It seems that there is really no way to be so optimistic.

The deficiency of advertising

In the process of Tencent striving forward to the industrial Internet, its own deficiency has been gradually exposed, and this deficiency is obviously dragging its feet on the progress of the entire Tencent Group.

In the first quarter of 2019, Tencent's advertising revenue rose 25 per cent year-on-year to 13.377 billion yuan, while social and other advertising revenue rose 34 per cent to 9.898 billion yuan, mainly due to growth in ads from WeChat moments, Mini Program and QQ.

In the second quarter, online advertising revenue rose 16% year-on-year to 16.409 billion yuan, while social and other advertising revenue rose 28% year-on-year to 12.009 billion yuan. The growth was also mainly driven by increased advertising revenue on Wechat moments and QQ. But media advertising revenue fell by 7%.

It can be seen that in the second quarter of 2019, the growth rate of Tencent's advertising business is slowing down, with revenue of 16.409 billion yuan much lower than market expectations. If you want to find external reasons, it is easy. After all, in 2019, the overall macroeconomic environment is under downward pressure, and advertising demand must be shrinking; on the other hand, the advertising library of headline products continues to release. The entire Internet advertising industry is under pressure.

However, it is not a recent statement that Tencent's advertising business is dragging its feet.

Before 2017, Tencent was divided into effect advertising and brand display, and for a long time, its contribution to Tencent's overall revenue was not enough, so that game revenue supported the overall situation, and even Tencent was regarded as a game company.

In 2016, Tencent's advertising revenue ability was the farthest away from its competitors. According to data released by eMarKeter, China's total mobile advertising spending in 2016 was $27.31 billion. Alibaba's mobile advertising revenue reached US $11 billion in 2016, accounting for 40.3%; Baidu Mobile's advertising revenue reached US $5.5 billion, and its market share will be close to 20%; and Tencent's mobile advertising revenue was US $3.2 billion, with a market share of 11.6%. It was less than Alibaba's 1max 3 at that time.

From 2017, Tencent's advertising business began to be divided into social and media advertising. Tencent Ads's unclear organizational structure and poor internal coordination have been improved to some extent, and the growth rate of Tencent's advertising revenue has begun to accelerate. However, since October 2018, after Tencent adjusted the overall organizational structure of the group, the advertising resources of various business groups have been integrated into CDG's AMS (Advertising Business Line), which is uniformly deployed by the company, and the revenue growth of the advertising business has begun to decline. This is really a strange thing.

Summary:

The adjustment of Tencent's advertising business in the past 17 years has been fruitful, while the greater adjustment in 18 years has been counterproductive. It can only show that there is still a big problem with Tencent's advertising team itself.

The adjustment action in October 2018 should be in the right direction, because as early as 2007, Ali established Alimama, an advertising marketing platform. The advertising system team has always been one of the core R & D teams with byte beat. The establishment of a unified large advertising distribution platform is the right way that has been fully verified. However, this road seems to be impossible for Tencent.

From a more pessimistic point of view, Tencent's advertising department still can not take the lead in the short term, "financial technology and corporate services" is still in the initial stage of development, the responsibility of revenue has to be handed over to the game.

The threat of the challengers

According to Tencent's 2019Q2 financial report, its main revenue still comes from value-added services, accounting for 54%, with revenue of 48.08 billion yuan. The revenue from online games is 27.307 billion yuan, and that of social networks is 20.773 billion yuan, which is mainly digital content services, such as live streaming and video.

Tencent's core social and gaming field has not yet produced a strong challenger in China. But other areas cannot be so optimistic.

1 online video

At present, the domestic online video industry shows an obvious head effect. Since 2014, iqiyi, Tencent Video and Youku have become the top three regulars in the online video industry. By 2018, Tencent Video, iqiyi and Youku have taken more than 80% of the domestic online video market.

In the "Youai Teng" big three, iqiyi and Tencent Video have opened the gap with the number of users of Youku. However, Tencent Video did not establish an absolute advantage in the competition with iqiyi.

On the contrary, in terms of active users and subscription members, Tencent was overtaken by iqiyi. As of Q2 in 2019, iqiyi's subscription membership has reached 100.5 million and Tencent's subscription accounts have reached 96.9 million. At present, it seems that in the competition of the Big three, iqiyi is temporarily ahead of Tencent.

2 online music

When Tencent merged its QQ Music business with China Music Group (CMC) in 2016, grouping QQ Music, KuGou Music, Kuwo Music and National Karaoke into Tencent Music, Tencent Music has the largest digital music copyright library in China.

As of March 2019, the number of Tencent music libraries has reached 35 million. But because of the three major platforms of Tencent Music, KuGou Music, QQ Music and Kuwi Music are operated separately. By March, the copyright library of NetEase Yun's total number of more than 20 million pieces had tied Kuwi Music. Although the copyright library of KuGou Music and QQ Music Music is still much larger than NetEase Yun Music, since the National copyright Administration promoted the mutual license of Tencent Music and NetEase Yun Music in February 2018, Tencent's copyright advantage is far less significant than it used to be.

NetEyun Music's continuous innovation in the music social field made it have more than 800 million users in August 2019, and the user stickiness also surpassed that of Tencent Music's three major platforms.

3 online literature and cartoons

China Literature Group, owned by Tencent, accounts for half of Chinese online literature. However, as of June 2019, QQ Book, the most active under China Literature, has only exceeded 10 million monthly active users. At this time, it leads the literature reading market, and the number of monthly active users has approached 70 million. The gap is huge.

To make matters worse, the free reading craze since 2018 is causing a continuous impact on China Literature Group, who is mainly based on the paid reading model. By June 2019, the number of monthly active users of the two free reading apps, Seven Cats Free Fiction and Rice Reading Fiction, have also surpassed QQ Book one after another. China Literature's peak share price has fallen to HK $25.40 as of Aug. 20, compared with the peak share price of HK $110on November 30, 2017.

Tencent also attaches great importance to the comic book market. However, in the mobile comic market, Trustdata data show that Tencent Animation and Comic's monthly active users did not exceed 5 million in June 2019, while the number of monthly active users of quick-reading comics has exceeded 15 million, and the top-ranking fast-reading comics has tripled the distance of Tencent Animation and Comic.

4 short videos and information streams

Short video is the most suitable form of entertainment in the pan-entertainment industry in the era of mobile Internet. With the blessing of 4G network and smartphone, short video has developed rapidly in less than five years. It is enough to compete with online video that has been developed for more than a decade. In June 2019, the overall number of monthly active users of the online video industry increased 2.4% from a year earlier to 964 million, while the total number of monthly active users of short videos increased by 32.3% to 821 million, according to QuestMobile. It is clear that the growth potential of short videos is still considerable.

Tencent certainly will not turn a blind eye to the rise of the short video industry. Unfortunately, the short video industry is the home of byte bouncing, not Tencent's. Douyin has 486 million monthly active users, watermelon 131 million and Volcano 106 million. After removing weight, the total number of monthly active users with byte jumps reaches 588 million; Tencent's Weishi and hot pot are 105 million and 11 million respectively. In the strong rise of byte jump, Tencent has struggled to compete for users in the short video industry.

Tencent News, who revolves around social networking (Wechat and QQ), once occupied the top spot in online news and information for a long time, until the rapid rise of Jinri Toutiao. In June 2019, Jinri Toutiao already had more than 210 million monthly active users, while Tencent News had more than 150 million monthly active users.

Summary:

For more than a decade, Tencent has worked hard to create a social-centric content ecosystem covering online games, video, music, literature, comics and news. Social networking, as the core of Tencent, is not for the purpose of realization, but the consumption of social content is the way to realize it.

However, with the evolution of time, people's preference for content consumption is constantly changing under the influence of economy, science and technology, culture and even politics. To take a typical example, the rise of short videos as a form of entertainment is obviously the impact of scientific and technological progress, but also caters to people's fragmented content consumption habits in the new era.

Obviously, if Tencent only focuses on the industrial Internet and slackens on the consumer Internet, especially in the field of pan-entertainment, the drama of a fire in the backyard will be staged immediately.

Write at the end

Scientific and technological progress has never stopped, and people's habits and needs are constantly changing. China's Internet industry is so prosperous because it is always full of vitality. Once the response to change begins to slow down, it is not impossible to weaken or even be eliminated, even for Tencent and Ali. Because, Baidu is a lesson from the past. Judging from its past performance, Tencent is not a very sensitive Internet company to new changes.

From the point of view of the market, Tencent's current situation is at great risk, but in Tencent's own view, this is indeed another way to comply with the changing trend, as long as Tencent takes care of both the consumer Internet and the industrial Internet and blossoms on both sides. It will certainly usher in a broader space for development.

Unfortunately, the capital market is a place of excess risk. From the perspective of behavioral finance, the cognition and response of capital market to risk will not always tend to be rational. People who are pessimistic about Tencent are actually too pessimistic about the transformation process and prospects of Tencent.

(official account of Liu Kuang / tr. by Phil Newell) ID:liukuang110

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