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Overview of Major Chinese Tech Stocks

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Overview of Major Chinese Tech Companies

In this article we provide a summary of major Chinese tech companies that are the dominant players domestically and have broad reach globally. Chinese tech giants have the largest market capitalizations in China (and some of the largest in the world) and will become increasingly relevant equities for global institutional investors with China, emerging markets and global benchmarks.

Chinese equity capital markets are hot, with many private companies such as Bytedance, Didi Kuaiche and Kuaishou poised to go public via IPOs either on the NASDAQ or via the Hong Kong Stock Exchange. Deteriorating Chinese-U.S. relations has also led to a plethora of secondary listings of Chinese tech companies on Chinese bourses.

Available information on Chinese tech companies are sourced from publicly available investor presentations from their investor relations channels.

Tencent Company Overview (SEHK: 700)

Tencent is a major technology investment holding company that is most well known for its WeChat / WeiXin app – one of the largest social media platforms in the world and utility like super-app in China (WeChat is as essential as an ID). Tencent is also one of the largest gaming companies in the world. 3Q 2020 revenue was RMB 125 billion.

Tencent separates its business segments into Value Added Services, Online Advertising, and FinTech and anchored around WeChat and QQ. Almost all revenues are in some way associated with the WeChat ecosystem. WeChat in itself permeates across multiple industries including retail, healthcare, education, finance and transportation.

WeChat / WeiXin is the largest smart phone community with 1.2 billion monthly average users (MAU). WeChat becomes a commercial app through WeiXin Pay or WeChat Pay, its Mini Programs for businesses (app within an app) and Official Accounts (businesses and influencers). The legacy app QQ has over 600 million MAU.

Tencent has consistently enjoyed an operating margin of approximately 30%.

Tencent Value Added Services

Value added services includes their social networks and online games. Tencent is both a developer and a major franchise publisher of the most popular games in the world.

Tencent’s social networks include sales from livestreaming and in-game item sales. Tencent’s gaming franchise is the largest by users in China and has the largest gaming revenue in the world. VAS subscriptions grew to 213 million as of 3Q 2020.

Major Tencent gaming franchises (as owner or publisher) include Valorant, CrossFire, Honour of Kings/Arena of Valour, Peacekeeper Elite, PUBG Mobile and League of Legends: Wild Rift.

Tencent Online Advertising

Tencent online advertising includes ads on Weixin, video ads, and advertising via all of Tencent’s media channels. Tencent uses algorithms to assist ad buyers. Major media channels include hit shows such as Nothing But Thirty.

Tencent Fintech and Business Services

Fintech services include wealth management on Tencent’s platforms, commercial payments, microlending and other mini program transactions.

Business services include Tencent Cloud (number 2 cloud in China after AliCloud). Tencent is a major cloud player in China across Infrastructure as a Service (Iaas), Platform as a Service (PaaS) and Software as a Service (SaaS).

Tencent SaaS businesses include Tencent Meeting, Tencent Docs and WeCom.

Major Tencent Investments

Tencent takes relationship investments / large minority stakes in various private and public technology companies with market beating returns, making it effectively one of the biggest venture capital firms in the world.

Major Tencent investments include:

  • Snapchat
  • Epic Games (Unreal Engine, Fortnite – Tencent 40% Tim Sweeney >50%)
  • Spotify and Tencent Music
  • Riot Games (owns most popular MOBA gaming franchise League of Legends and their associated eSports platforms)
  • Huya
  • Didi Kuaiche
  • Weimob
  • JD.com
  • Douyu/Huya
  • China Literature
  • PinDuoDuo
  • Kuaishou
  • SEA
  • WeBank
  • Meituan Dianping
  • Supercell

Alibaba Company Overview (SEHK: 9988 / NYSE: BABA)

Hangzhou based Alibaba is the other preeminent Chinese tech company alongside with Tencent. It provides e-commerce businesses in the PRC and internationally and also is the leader in Chinese cloud. Alibaba has 881 million mobile MAUs and 757 million annual active customers. Alibaba has one of the biggest e-commerce platforms in the world with their annual November 11th Singles Day event most recently generating RMB 498 billion or US$74 billion in gross merchandise volume in 2020.

Alibaba Cloud has experienced 60% year over year cloud computing revenue growth.

Alibaba segments their business units into Core Commerce, Cloud Computing, Digital Media / Entertainment and Innovation (Dingtalk and others).

Alibaba Core Commerce Overview

Alibaba’s Core Commerce division includes its major China Commerce Retail platforms, including Taobao.com, Tmall.com, Alimama, Freshippo, and Kaola. These are massive B2C franchises that dominate in China, with Taobao being small B2C and C2C and Tmall being a massive Chinese online department store. Freshippo is tech infused brick and mortar retail.

Internationally, their retail arms include Aliexpress and Lazada (dominant in Southeast Asia).

Food delivery ele.me is the primary competitor to Meituan for food delivery.

Alibaba.com and its Chinese equivalent are the massive B2B international and domestic commerce wholesale businesses.

The logistics platform Cainiao is also in the Core Commerce division.

Alibaba Cloud Computing

Alibaba Cloud or Ali Cloud is one of the largest cloud providers in the world and the runaway leader in China.

Alibaba Digital Media and Entertainment

Alibaba’s digital media platforms encompass Alibaba Pictures (Film), Toudou, Youku, TMALL TV

Major Alibaba Investments

Alibaba is a major shareholder of, and inextricably linked to, Ant Group.

Other major Alibaba investments include:

  • Farfetch (with Richemont)
  • Cainiao
  • Alibaba Health / AliHealth
  • XiaoHongShu / Little Red Book / Red
  • Bilibili
  • Kaola
  • YTO Express
  • STO Express
  • Best Express
  • Sun Art Retail Group
  • Easyhome
  • XPENG Motors
  • E-House China
  • Sina Weibo
  • Suning.com
  • DiDi Kuaiche
  • Tokopedia
  • Health 100

Ant Group (Private)

Meituan Dianping (SEHK: 3690)

Meituan is the preeminent food delivery super app in China while Dianping is a super Groupon / Expedia / Yelp combination.

As of mid-year 2020, the Meituan platform had approximately 500 million transacting users and over six million active merchants. The average number of transactions per year on Meituan was 26. However, like Tencent’s WeChat and Alibaba’s Taobao, Meituan has permeated into every day life for the average Chinese citizen with potential for global expansion. Many people order delivery through Meituan every day. Similar to trends elsewhere around the world, acceptance of Meituan accelerated rapidly due to changing consumption patterns during Covid-19.

Meituan Food Delivery Business Segment

Meituan is a major intermediary between restaurants or kitchens and consumers, with a daily average number of food delivery transactions in excess of 25 million. Meituan routinely engages with reputable restaurants and brands to provide consumers with options across the day – guided by algorithms and data analysis to provide discounts and incentives to keep customers ordering at all times in the day (including late night snacks).

On the merchant side, Meituan has accelerated the migration of restaurants online for delivery through an aggressive sales team in getting restaurants to sign up and unlock new revenue streams. Meituan provides online marketing services to promote restaurants.

However, much of the value comes from having an efficient, timely and reliable delivery system.

Dianping In-store, Hotel & Travel Business Segment

Dianping’s travel and leisure segment decreased during covid-19 as a function of decreased brick and mortar retail consumer spending in China.

However, Meituan has Safe Consumption initiatives and is stimulating consumption using e-vouchers while continuing to be a trusted user guide for food, hotels and all other travel and leisure elements.

Meituan apps can be used to book planes, trains and hotels.

Meituan New Initiatives and Others Segment

Meituan has a host of new initiatives including Meituan Instashopping, Caidaquan and Meituan Grocery. There is also Meituan Selected service brand. Most Meituan apps are rolled out through WeChat/WeiXin.

Meituan Bikes is the new bike sharing service, including electric bikes.

Tencent owns 20% of Meituan.

Meituan has released its own version of the Michelin Guide with the Black Pearl Restaurant Guide.

Bytedance (Private Company)

Pinduoduo

JD.com

Netease

Didi Chuxing

Xiaomi

Kingdee

SaaS and PaaS

Kingdee is a leader in China enterprise application software.

TechnologyOverview of Major Chinese Tech Stocks · Coding and Finance · Internet Platforms and Network Effects · How Platforms Disrupt Different Industries · Introduction to Internet Platform Companies · 10 Implications of the Coronavirus on the Chinese Economy · Chinese Technology Stocks in the 2020s · Food delivery feeding friends and investors alike · Salesforce making moves in the CRM industry with recent acquisition of Tableau · Can Technology Sector Stocks Keep Rising? · The Upcoming Tech Unicorn Parade · Cloud Computing Primer · Trends in Chinese Technology Stocks · Reacting to the bifurcation ·
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Matt
ex investment banking associate
https://www.linkedin.com/in/matt-walker-ssh/

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