The two companies also have many similarities, such as Apple is a consumer goods company dressed in a technology guise, and Tencent can also be regarded as a consumer goods company dressed in an Internet guise.

2025/04/2215:37:13 hotcomm 1039

Picture source @Visual China

Text | Weiwei Kunlunxia

Tencent and Apple are two companies I like very much, and they are also the two money printing machines companies with the strongest certainty and the best business model.

There are many similarities between the two companies, such as Apple is a consumer goods company dressed in the guise of technology, and Tencent can also be regarded as a consumer goods company dressed in the guise of Internet.

Furthermore, both families rely on their strong ecological power to build a solid moat. Apple's ecosystem is based on iOS system, and Tencent's ecosystem is based on WeChat. As for the better ecosystem of iOS and WeChat, it is up to the wise to see.

Due to various reasons, Tencent's stock price has experienced a continuous decline of one and a half years. The stock price is more than 50% lower than the high level, and its valuation is at a historical low. The situation at this time reminds me of Buffett when he bought Apple in 2016, and there are many similarities.

Because Tencent has a large number of businesses and its business model is relatively complex, this article mainly conducts a comprehensive and in-depth analysis from the following angles (a long, ten thousand words hard-core article, recommended to collect and read), and compare it with the situation that Buffett faced when he bought Apple in 2016:

01 The reasons behind the amazing historical stock price return

Tencent Holdings was listed on the Hong Kong main board in June 2004, and it has been 18 years since then. Open the homepage of Tencent’s prospectus and it seems like I’m reading the time travel novel. In an instant, I was shocked by a number, with an issue price of HK$3.7 per share! Yes, read it right, it's 3.7 yuan. Last year, Tencent's stock price was close to 800 yuan.

Considering the previous distribution shares, the current share price is 360 yuan (halved from the high level) according to the later re-rights calculation is equivalent to 1,900 yuan. If an investor buys at the price of 3.7 yuan at the time of IPO (the lowest price of 3.4 in that year), he will not sit still for 18 years, and the annualized return rate of stock price rise is as high as 41.4%, not including dividends. What a terrifying rate of return!

Tencent Holdings IPO in 2004, raising HK$1.55 billion. The company's total shares before the IPO was 1.26 billion shares. The shares issued in this IPO accounted for approximately 25% of the total shares after the issuance (total 1.68 billion shares). The company's post-investment valuation was HK$6.2 billion, corresponding to a net profit of 320 million in 2003, and the issuance price-to-earnings ratio was 19.4 times.

From the perspective of the entire company's fundamentals: the company's market value has increased from 6.2 billion at the IPO in 2004 to 3.5 trillion in April 2022, an increase of 565 times, with an annualized rate of return of 42.2% over the past 18 years!

has been decomposed, and the company's net profit has increased from 320 million in 2003 to 224.8 billion in 2021, an increase of 703 times; the company's price-to-earnings ratio has dropped from 19.4 times at the time of issuance to 15.6 times at the current level, a decrease of 20%. In terms of dividends from

, the company has raised a total of 2.2 billion yuan since its listing and 70.2 billion yuan in cash dividends. In addition, the 102.5 billion JD stocks sold at the end of last year, a total dividend of 172.7 billion yuan. Considering that the IPO issued 25% of new shares, which means that secondary market investors as a whole can get 1727*0.25=43.2 billion yuan, far higher than the 2.2 billion yuan that the company has "circled" over the years.

From this we can draw at least the following conclusions:

02 Company Profile

Tencent was founded in 1998 and is headquartered in Shenzhen, China. It is a company that mainly produces and sells digital content. Its products and businesses can be roughly divided into two categories: individual users (To C) and enterprises and institutions (To B/G).

is aimed at individual users. Tencent connects more than 1.2 billion people around the world through free WeChat and QQ communication and social services, helping them connect with relatives and friends and enjoy convenient shopping, travel, payment and entertainment life.

Tencent has released a number of popular electronic games and other high-quality digital content, bringing rich interactive entertainment experience to global users.

Tencent also provides a series of enterprise services such as cloud computing, advertising, financial technology , etc., to support partners to realize digital transformation and promote business development.

Tencent achieved revenue of 560.1 billion yuan in 2021. Its products and services mainly cover four major areas: value-added services (including games, social networks), online advertising, financial technology and enterprise services, and the sales share tends to be balanced.

Among them, games were the largest source of income in previous years, accounting for half of the market in 2016. By the end of 2021, the revenue contribution has dropped to 31%, of which 23% of domestic games and 8% of foreign games.

social network mainly includes member service revenue such as Tencent Video , QQ Music , and its revenue share has remained above 20%.

Online advertising revenue is mainly divided into social advertising and media advertising. Since Tencent has always been relatively restrained in advertising considering its user experience, its revenue share has always fluctuated between 15% and 20%.

Financial technology and enterprise service revenue are mainly divided into payment business, cloud computing and enterprise service revenue. It is the fastest-growing sector in recent years, and its revenue accounts for about 30%.

03 Is Tencent a foreign company or a Chinese company

The major shareholder of Tencent is the foreign-funded company MIH, which currently holds 2.769 billion shares of Tencent. MIH is a wholly-owned subsidiary of Prosus, a listed company listed in Dutch , and the controlling shareholder of Prosus is the South African newspaper group, which is often mentioned in the media.

So after the equity penetration, South Africa's media group Naspers is Tencent's actual largest shareholder, holding 28.82% of Tencent's shares (as of the end of the first quarter of 2022).

. Tencent's major shareholder has been in a hot topic recently and is not MIH that has betrayed his promise to reduce his holdings in Tencent shares, but the South African newspaper group Naspers (listed in South Africa) and its holding subsidiary Prosus (listed in the Netherlands).

Previously, there was a very widely circulated saying in China that , Industrial and Commercial Bank of China, , is Tencent’s largest shareholder, which is a rumor. ICBC initially invested in a South African bank with US$5 billion, called South African Standard Bank , and is currently the largest shareholder of South African Standard Bank. However, Standard Bank of South Africa is not a shareholder of the South African Press Group.

and Xiaoma Ge , Ma Huateng is one of the main founders of Tencent Company, currently the chairman and CEO of the board of directors, and is fully responsible for the company's strategic planning, positioning and management. Xiao Ma Ge currently holds more than 800 million shares of Tencent shares through a wholly-owned company, accounting for 8.39%, ranking as the company's second largest shareholder.

So why is Tencent Holdings a major shareholder a foreign company? Is Tencent’s actual controller MIH or Ma Huateng from South Africa? This has caused many people to ask whether Tencent is a foreign company or a Chinese company? The problem of

is actually a common phenomenon in Chinese Internet companies. The largest shareholder behind Tencent is the South African company MIH, while Alibaba's largest shareholder is Japan's SoftBank Group.

This is mainly due to the business model of Internet companies. The network effect of the Internet industry causes the value of the company to be proportional to the square of the number of users. Only when the number of users reaches a certain order of magnitude will it have obvious value and profitability.

This also leads to the fact that most Internet companies are in a situation where users make money but not money in the early stages of their entrepreneurship. The capital chain is very tight and external capital transfusions are needed to survive.

Tencent’s history can be traced back to the company “Tencent Computer”. Tencent Computer was established in China in November 1998 and was founded by Ma Huateng and Zhang Zhidong , Zeng Li Qing , Xu Chenye , Chen Yidan , and Chen Yidan . This is also what the people later called Tencent Five Tigers, all of which are Chinese.

After a year, in November 1999, the number of QQ registered users reached 1 million, which was a gratifying development, but also faced the dilemma of making money from users but not making money. The founder team still had to keep paying money to the company, and the capital chain was extremely tight. By then, the Internet will be a new thing in the country, but in the Nasdaq market in the United States, it will be very popular.

In 1999, Hong Kong Yingke Telecom, controlled by Li Ka-shing 's eldest son Li Zekai , obtained 20% of Tencent's equity for US$2.2 million. Then, due to the Internet investment bubble in 2000, Li Zekai chose to sell 20% of Tencent's equity, and South Africa MIH acquired part of Tencent's equity for more than US$12 million.

Then MIH purchased part of the equity from another investment institution IDG and its founder team. Before going public in 2004, MIH and Tencent’s management team each held 50% of the shares, and MIH became the single largest shareholder.

So why did Tencent adopt the worst equity structure of 5:5? Because Tencent’s founding team and MIH have a control agreement.

At that time, Chinese law did not allow foreign-invested enterprises to provide telecommunications and Internet value-added services in China, so Tencent carried out business restructuring and established "Tencent Holdings" overseas as the group's holding company, indirectly achieving the purpose of operating domestic telecommunications and Internet value-added services.

also passed a series of agreements (VIE structure) signed with the major shareholder MIH. The Tencent management team led by Ma Huateng has the right to nominate the CEO and the seat on the board of directors cannot be lower than MIH. MIH mainly appoints the financial director to supervise the company's operations. This also means that Brother Ma is actually still in control of Tencent.

To sum up, Tencent Holdings is a management team led by Ma Huateng who has achieved control over the company through the "VIE architecture" (rather than equity). Tencent is a Chinese company with foreign shareholders involved.

At the same time, VIE, a model of evading some domestic supervision by establishing overseas holding companies has been in a vague state in the domestic legal community for many years.

On December 24 last year, China Securities Regulatory Commission released a draft of the draft for overseas listing management measures, which clearly recognized the legitimacy of the protocol control architecture (VIE) model. This is good news for Tencent and other companies that want to go public overseas.

04 Analyze Tencent’s business model and business attributes

Although there is no distinction between high and low work, business is really divided into different levels. Some businesses are naturally easier to make money than other businesses. The goal of a good investor is to find those top-notch businesses and then join the company at a reasonable price.

Tencent’s business model is mainly to obtain massive C-end personal users by providing free Internet social products WeChat and QQ, and then achieve commercial monetization through games, Internet advertising, payment and cloud services. The business model of

is actually the third-stage rocket model, which is widely used in the Internet industry (first proposed by Zhang Yunfan, director of Perfect World Holdings Group and CEO of Zongheng Literature). Whether it is the foreign Google , Facebook, Amazon , or Chinese Internet giant BATJ, the shadow of the third-stage rocket model can be seen.

three-stage rocket mode is usually divided into 3 steps: the first stage, build high-frequency head traffic; the second stage, accumulate business scenarios for certain types of users; the third stage, complete the business closed loop and monetize.

Take the example of Chinese Internet giant BATJ. They do search, e-commerce, social networking, and news respectively. From a business perspective, the above is not BATJ's "product". We have never paid for searching, selecting products, socializing, and watching news.

Because search, e-commerce, social networking, and news are just BATJ's "traffic products". The purpose is to obtain the same resource: traffic. That is the time for Internet users. BATJs make money by selling traffic, but their respective traffic-driving products [First-class Rockets] are different.

Baidu 's profit products are bidding rankings and advertising, etc.
Alibaba's profit products are e-commerce advertising and search rankings, etc.
Tencent's profit products are games and advertising, etc.
headlines' profit products are advertising,

This is their second and third-level rocket, which has found the scene of precipitating users and created a business closed loop.

Back to Tencent’s third-stage rocket:

Tencent’s first-stage rocket: is a free online communication product WeChat and QQ.

is absolutely high frequency and urgent need. Using this rocket to become the national social product with the largest number of users across the PC era and the mobile Internet era. It has acquired a large number of users, although users cannot sell money directly.

Tencent’s second stage rocket launches QQ space and WeChat Moments.

has been upgraded from a free communication product to a social network platform, effectively accumulating a large number of users through content socialization.

Take WeChat as an example. Since we have had WeChat Moments, many people have changed their purpose and methods to use WeChat. They have begun to post their own photos and life insights, and browse the Moments posted by friends.

WeChat started with communication tools and started with content. This content is produced spontaneously by users. The more users, the more content it has, the more it has. This content creates user stickiness and generates information accumulation.

was originally a social software, but its sociality, stickiness, and user's virtual self-feeling are not that strong. With the circle of friends, the situation became different.

At this stage, Tencent launched a third-level rocket: making money from digital content such as games and music, and the most famous one is games. Games are still the most powerful way to monetize on the entire Internet so far, no doubt about it. It is very difficult to directly push games with WeChat on

, and using social games through the circle of friends, especially light casual games, is very suitable for this platform. Since then, Tencent has embarked on the path of the king of digital entertainment content.

I wonder if you still remember a few years ago, the built-in "airplane masturbation" game " Airplane vs. " when the WeChat version 5.0 was released, it attracted the attention of many players. The casual gameplay in the game and the fun of competing scores between players in fair mode were a wave of people masturbation at that time.

Tencent’s third-stage rocket is the commercial closed loop it ultimately carries. It uses the huge traffic of WeChat and QQ to obtain operating profits from games, Tencent music/video membership services, advertising, etc.

So the question is, why do you need to do the third-stage rocket? Is the first-stage rocket possible?

Regarding this, I have seen a very interesting point in a public account called Operation Research Society. Let me share: the third-stage rocket model looks very powerful, but if I describe it like this, it feels a little problem:

first makes a money-loss product, then extends the second money-loss product, and finally transitions to a scene where you can make money.

In other words, in order to make money in the end, I have to make 2 money-lossing products first. The logic of

is quite suspicious. I think there are at least 2 questions that need to be discussed:

) I don’t do the first 2 money-losing products, can’t I just find a profitable project to do it?

answer is: It's hard.

Because once you start making money, it will attract a lot of people to compete with you. In homogeneous competition, unless your product is much better, there will be no chance of success. What's more fatal is that once you verify that this is a money-making business, someone will definitely use free tactics to beat you - his purpose is not to make money, but to kill you.

You can only learn from Lei Feng when you come up and do something that is not profitable (such as QQ and WeChat). Others think this is a money-losing product, so they will let you go and give you room to develop.

is waiting for you to achieve the second-level Rockets, and you are not sure that you can make money.

You can't start making money until you reach the third stage Rockets, and you can make money with more confidence. Why

Because you have laid a solid foundation in front and the user needs are transitioned very clearly, others cannot copy your third level directly.

For example, if you are jealous of WeChat, you have also formed a team to create one, claiming that it is easier to use than WeChat. Can it be done? Can't make it. WeChat's network effect has been formed, and the conversion cost of users is too high.

In fact, the Mi Chat launched by Xiaomi had a complete chance to defeat WeChat, but in the end it missed the best opportunity.

Because through WeChat and QQ, two money-losing products, Tencent has established a huge social network of 1.2 billion people, and you can't shake it at all.

The following figure is the important financial information of Tencent in the past four years that I have counted. Through the financial statements, we can see how this business is.

. In the past four years, operating income has basically maintained a growth level of 20%+, and has shown a downward trend year by year. The growth rate of non-net profit excluding non-issuance is slightly higher than the growth rate of revenue, with a little exception in 2021. Combined with its excellent free cash flow status, it reflects the characteristics of an industry leader and a company close to maturity.

. The company's gross profit margin is 40%+, and its non-net profit margin is 20%+, which seems to be a little different from the huge profit-making business we imagine. In fact, this is related to the changes in the company's business structure in recent years.

Looking back a few years ago, Tencent's gross profit margin was at the level of 60%+ and 40%+, mainly because Tencent's main business was mainly high-profit games and advertising.

In 2018, Tencent began to focus on the cloud computing business, with low gross profit margin and still in the loss stage, which greatly lowered the overall gross profit and net profit margin performance.

. More than 70% of the expenses are management expenses, which generally means higher R&D expenses and expenses. This shows that the company's products have certain technology-intensive characteristics and require continuous and high-intensity R&D investment.

. The company's debt-to-asset ratio remains at 40%+ for many years, and the company's leverage ratio is nearly twice as high as , , which shows that the company's debt is relatively high, which is a bit inconsistent with our impression of being not short of money.

This is mainly because the company issued about 300 billion long-term overseas bonds. Because the company's cash flow and excellent credit, the interest rates of these bonds are only about 3%, and the maturity is also very long. This actually reflects the company's high operating level and capital use efficiency.

looks for about 3% of long-term low-cost funds, and then invest it in a business with an annualized return of about 12%. This is the secret to making money in Buffett's Berkshire Empire. Therefore, Tencent is also nicknamed Tencent by some investors as Tencent Hasa "Geese".

. The company's fixed assets only account for about 5% of the total assets, which is a typical asset light model. It also reflects the operating characteristics of high profit margin and low turnover.

. The company's net cash ratio is above 140% per year, and the proportion of accounts receivable is very low, which means that the company's profit content is very high; and the annual free cash flow and net profit are not much different, which means that there is no need to add too much capital investment to maintain its current profitability. The net profit earned every year can be taken away.

leverage

Overall, the company has excellent business model, light assets, strong profitability, abundant free cash flow, no additional large amount of capital investment, and strong industrial competitive advantages.

also noticed that the company's revenue and profit growth slowed down, approaching the characteristics of a mature company. We must check whether there is still a lot of room for expansion in the business space.

05 Industry development space and competitive landscape

In the above analysis, we see that Tencent’s business model is still good, but another important aspect that determines its intrinsic value is its growth potential. If it has a broad space for growth and combined with its excellent business model, then this is a good investment target.

Of course, the development space is a long-term general qualitative character. Think about where the ceiling of the company is? What level of growth will be compared with the current revenue and profit scale in the future? 1x or 10x? This determines whether we regard it as growth stocks or value stocks. It can also help us determine what stage of the business cycle it is in. If

is a value stock, its investment value is more due to falling, and cheap is the most important thing; if it is a growth stock, then cheap is not the most important factor. It is even more important to further analyze how much incremental value it can create.

Due to Tencent’s three-stage rocket business model, we need to examine the future development space and competitive landscape from the two dimensions of users (providing traffic) and customers (revenue source).

In Tencent’s basic platform (first-class rocket) social communication software field, Tencent has an absolute monopoly position in China and its moat is very solid, thanks to its national-level applications, WeChat and QQ, as well as the powerful ecosystem derived.

, 2022 first quarter report shows that WeChat (including overseas version) has 1.288 billion monthly active users, an increase of 3.8% year-on-year. Although the number of users is close to the ceiling, its domestic dominance is unshakable.

Combined with the total population of 1.4 billion in my country and the changes in the monthly active users of WeChat QQ in recent years, it is not difficult to see the absolute advantages of WeChat and QQ in social products, as well as the judgment that it has entered the mature stage of operations, it is difficult to see a large increase in the number of users in the future.

There is not no domestic manufacturer that has ever taken the idea of socializing as a golden track. Whether it is ByteDance’s “ multi-flash ”, “Flying Chat”, or the flashy “bullet text message”, it has never posed a substantial threat to WeChat from beginning to end.

In this regard, Jin Yechen, the founder of Red Sofa, once gave a view: in the history of Chinese social networking, the successful migration of social overlords only occurred once, that is, from QQ to WeChat. The reason why this migration was successful was because QQ opened its relationship chain to WeChat without reservation.

However, from the perspective of global competitive landscape, there are about 4.6 billion Internet users worldwide. With the natural advantages of English and mergers and acquisitions, Facebook has formed a luxurious combination of Facebook+Ins+WhatApp+Messenger, with more than 3 billion global users and is an absolute global leader in the social field. Tencent’s nearly 1.3 billion users can only be the second, but it also accepts all Chinese-speaking users.

Due to the strong network effect of social software, it is impossible for users to easily change social software. In addition, due to information security reasons, it is impossible for foreign-funded enterprises to master personal sensitive information at the national level. Therefore, it is difficult for Facebook or WeChat to grab each other's business. In the future, the global social field will be a dual-oligarch situation formed by Facebook and Tencent. The biggest variable of

may be caused by ByteDance and Tiktok. At present, as WeChat video accounts gradually become stronger, Tiktok may have a greater threat to Facebook, but it is also difficult to shake the current competitive landscape.

In addition, from the perspective of the revenue that brings actual revenue to Tencent, Tencent’s product line is very wide. According to the official perspective, it can be divided into three major areas: value-added services, online advertising, financial technology and enterprise services. In terms of subdivisions, it can be divided into: online games, social services, online advertising, financial technology, and cloud computing services. In addition, there is a huge industrial investment business, so it is also jokingly said that buying Tencent is equivalent to buying the entire Chinese Internet industry.

Tencent’s value-added services mainly include member service revenue such as online games, Tencent videos, music, etc., of which game revenue accounts for about 70%, making it Tencent’s largest revenue and profit source for a long time. Therefore, we mainly analyze the development space and competitive landscape of the game business.

online games, as an important entertainment method in modern life, can bring players a sense of accomplishment and pleasure, which is in line with human nature of playing. At the same time, some games also have strong social attributes and addictiveness, and users have a high willingness to pay. They are the business form with the strongest monetization ability in digital economy , no doubt about it.

From 2016 to 2020, the global game market size continued to grow. According to preliminary estimates from Newzoo, the global game market size reached US$93.2 billion in 2021, an increase of about 7.2% over 2020.

In 2021, the actual sales revenue of the Chinese game market was 296.513 billion yuan, an increase of 17.826 billion yuan from last year, a year-on-year increase of 6.4%. Although revenue still maintains growth, the growth rate has shrunk by nearly 15% year-on-year compared with last year's year-on-year under the influence of the gradual decline in the home economy and the decline in the number of hot products.

In 2021, the number of domestic game users was 666 million, an increase of 0.22% year-on-year. From 2014 to 2021, the user scale has increased continuously in single-digit growth. The number of users is gradually becoming saturated. In addition, other entertainment products such as live broadcasts and talent shows are also very fierce in competition for users' attention. Therefore, the demographic dividend of the domestic game market is close to the top, and it has entered the stock era from the incremental era.

Next, let’s take a look at the logic of industry growth.

Since the number of game users has entered the era of stock, price increase has become the core driving force for the market's growth. The industry's professional term is ARPU value (average income per paid user).

According to NEWZOO data, the ARPU of gaming in North America in 2021 is US$16.7 per month, the global average is US$5.0, and the ARPU of mobile gaming in China is US$4.4, which still has some room for improvement.With the improvement of economic level brought about by the improvement of production efficiency, people's demand and expenditure for entertainment will increase.

With the trend of increasing per capita disposable income of and increasing game quality, users' willingness to pay will further increase. It is expected that the growth of the game market in the future will continue to rely on the growth of user spending.

Therefore, as far as the industry is concerned, focusing on improving the content quality and cultural value of game products, so that users are willing to pay and are willing to pay more are the key to development.

In addition, in the long run, we have to pay attention to the significant impact of the meta-universe concept on the gaming industry.

, Microsoft

The metaverse can be favored by companies like Facebook and Tencent. First, the metaverse is a product form that represents the future recognized by the Internet and the game industry. It is in line with everyone's common understanding of future usage scenarios and can greatly improve the user experience of existing games and social products.

Second, the product form of the metaverse is more favorable to Internet giants like Tencent and Facebook, which have both game platforms and social platforms, game distribution business and even game research and development capabilities.

Although the metaverse is still in the early concept stage, the game, as the business form closest to the metaverse, is expected to benefit first. In the movie "The Number One", which was very popular a few years ago, there is a virtual world called "Oasis". Players can experience the most realistic gameplay in this virtual world, as if they have gone to another world.

In March 2021, Roblox, known as the first stock in the metaverse, was officially listed on New York Stock Exchange. Its only game, Roblox, is considered to be the prototype of the metaverse game, with more than 100 million monthly active players worldwide, which is extremely popular.

In the medium and short term, the growth of the game market will continue to be driven by the growth of user spending. In the long run, more meta-universe games are expected to appear in the future. At that time, the online game industry will usher in a new era. Games will no longer be exclusive to the male group, the user group will be greatly expanded, and the ARPU value brought by the game duration will also increase significantly.

From the perspective of market size, the mobile game market size in the Asia-Pacific region accounted for more than 60% in 2021, ranking first, and North American ranked second with a market size of US$16.4 billion, accounting for 18%.

China's mobile game market size is the world's largest

China's mobile game market size in 2021 exceeds US$30 billion, twice the size of the US mobile game market, and occupying a dominant position in the global market.

According to the data of Guohai Securities , in 2021, the market concentration of of the top five mobile games in the world was close to 11%, and the overall market was relatively scattered.

Tencent has the highest market share of mobile games in the world in 2021, with more than 20%, followed by NetEase 7%. The leading European and American mobile game manufacturers Activision Blizzard and Zynga accounted for 3.4% and 2.9% respectively.

In contrast, the domestic game market is a different scene, with a very high market concentration. Data from Guohai Securities shows that Tencent’s domestic mobile games account for around 40% in the past three years, and its leading position is stable. NetEase's market share is less than 20%, followed closely by CR2, with a total share of up to 60%, and the market share of other companies' gaming businesses is less than 10%.

Since most of the leading companies have strong development capabilities, operation capabilities and strong capital reserve research and development, they have obvious advantages in the competition in the era of game stocks and have the logic that the strong will always be strong. Small and medium-sized game teams are an important driving force for industrial innovation and can bring opportunities to break through by focusing on segmented tracks.

The global game market is vast, and going overseas has become a must-fight place

In 2021, the number of global game players is close to 3 billion, far exceeding the number of domestic players.We believe that thanks to the good payment habits of players in mature markets and the gradual cultivation of considerable game paying players in emerging markets, the global layout of Chinese game manufacturers has become a clear trend.

According to gamma data , the actual sales revenue of China's independently developed games in the overseas market reached US$18.01 billion in 2021, an increase of 16.6% year-on-year, and the growth rate continued to be higher than the domestic market, and the proportion of overseas revenue/domestic revenue reached 45.4%, close to half of the domestic market size.

Considering that the overseas game market is large in scale, relatively scattered in concentration, and relatively loose policies, going overseas has become a must-fight place for domestic game manufacturers. The contribution of overseas market revenue to Chinese game companies will continue to increase.

version number review is becoming stricter and accelerates the survival of the fittest in the industry, and the company is gone.

National Press and Publication Administration

mihayou

Changyou

"Let small and medium-sized game companies have more room to move around first, which is an inevitable tilt to restart the version number." After all, because large companies have games that continue to operate and have a lot of revenue, the new games brought by the distribution of version numbers are mostly just icing on the cake for their development.

However, there are also "lucky people" who have been approved for game version number before the release of the version number. Many small and medium-sized game companies have fallen into abnormal operations or changes in their main business before obtaining the version number.

More than a thousand game companies in Guangdong have been cancelled since July last year. -day eye check data shows that from July 2021 to the present, more than 3,500 online game-related companies have been cancelled. Guangdong Province has the largest number of related enterprises, with more than 1,200 related enterprises cancelled, accounting for more than 35%, with Zhejiang and Hunan ranking second and third respectively; more than 66% of enterprises have registered capital below 2 million.

"Restarting the version number and tightening the distribution quantity are a catalyst for the survival of the fittest for the entire game industry." Small and medium-sized game companies are often too extensive in R&D and operation capabilities, and occasionally hot products may not be able to obtain more benefits. At the same time, as the game industry is becoming increasingly boutique, the strength of R&D and innovation capabilities, the number of game products, and whether the operational capabilities meet user experience have put most of the small and medium-sized game companies that are single products to conquer the world and hit popular products face great pressure.

The game industry is actually the core of two aspects: one is the research and development of games, and the other is the distribution of games. undoubtedly, Tencent has the strongest competitiveness in both aspects.

game development belongs to the cultural and creative industry, and the individual project has extremely high uncertainty. The success of a game is accidental, and no one can predict where the next popular game will come from.

is aware of this. Tencent has introduced internal competition and horse racing mechanisms very early in the field of game research and development. Tencent has five game studio groups: Tianmei, Photon, Northern Lights, Rubik's Cube, and Boston. In addition to building its own teams, it also acquires some high-quality domestic and foreign teams through investments, such as investments in Riot, EPIC, Suprecell, etc. Most of the world's top game studios are either internal to Tencent or invested in Tencent. By maintaining competition and diversification between teams, Tencent currently has the world's strongest game R&D team.

Tencent's great success in the game field is inseparable from the management's deep understanding of the game industry. Tencent has nearly 20 years of experience in the game industry. Whether it attaches importance to the game business or the understanding of all links of the game industry chain (know-how), Tencent is far better than most competitors.

Tencent’s entire management team is playing games in large quantities.

For example, Tencent CEO Ma Huateng is a master of racing games and music games, and he also plays chicken and kings. A popular music game, he can even compete with professional players and is a real player.

Tencent President Liu Chi-ping is the top 100 players in the world rankings of "War of Royal Family", but the two above are not the most powerful. Tencent's most powerful player is actually Tencent's general legal counsel (Tencent Vice President Brent Irvin). He once ranked second in the world rankings of "War of Royal Family".

, and Tencent Games Head Ma Xiaoyi (Senior Vice President of Tencent) also plays many games, including playing more than 2,500 games in "League of Legends". After the advent of the mobile game era, mobile games and social interaction are closely connected. The currently popular "Honor of Kings" and "Chicken Eating" mobile games all have strong social genes, and Tencent's social platform is undoubtedly the most effective source of this gene. Its own social matrix is conducive to competitive products completing social fission.

social products have a significant driving force on competitive categories, which can be clearly seen from the 2017 Spring Festival fission of "Honor of Kings". As a Tencent-based product, "Peace Elite" is conducive to the promotion of game through Tencent's own interface, thereby causing fission in acquaintance social interactions.

is backed by two major social platforms: WeChat and QQ, and Tencent Games has obvious advantages in social channels. Players can directly log in to Tencent’s games with WeChat and QQ accounts. They can not only view friends’ dynamics and rankings, but also invite friends to join the game through WeChat and QQ. They can also get game rewards when interacting with friends and family in the game. Such social attributes in the game help increase the duration of players' gaming, stimulate player consumption, and improve user retention and stickiness.

In April 2022, the approval of the version number, which had been interrupted for 10 months, was restarted again, with the first batch of version numbers of 45, a significant decrease from the previous number of 80 per batch. Behind the tightening of game regulatory signals, regulators’ expectations for effective supply of high-quality and high-level games. According to Sensor Tower data, Tencent ranked first in China's mobile game publisher revenue in January 2022. Tencent has sufficient resources in terms of talent and game IP.

Tencent has the ability to actively innovate the core gameplay of the game, and at the same time it can invest high R&D funds and wait for a long development cycle to produce high-quality games, which relatively reduces the possibility of violations such as "skin replacement", and provides solid guarantees for Tencent in legal and standardized operations.

In June 2022, the second batch of game version numbers will be issued. A total of 60 games have been approved, and there are still no games from Tencent and NetEase. However, the launch of the second batch of version numbers proves that game approval has returned to the normalization process, which is a favorable message for the industry. As a game promotion platform Tencent will also benefit from it.

Given that there are many applications in the previous area, it is reasonable for regulatory authorities to give priority to small factories that can wait for money to save their lives. However, some media reported that a certain company's game was approved for approval this time, but unfortunately the company had closed down three months ago.

As domestic games enter the era of stock competition, in order to attract more users to pay, the quality and large-scale games have become a trend, which is beneficial to leading manufacturers such as Tencent and NetEase with strong R&D capabilities and strong funds.

The advertising industry is a barometer of the national economy, and the growth rate of the advertising market remains fluctuating in the same direction as GDP. Since the advertising market is mainly introduced by advertisers from all walks of life in the national economy, the overall growth rate of the advertising market is highly synchronized with the GDP growth rate.

According to Group M's forecast, it is expected that the annual compound growth rate of the global advertising market in the next five years will be around 5%, entering a low-speed steady growth range, slightly higher than the global GDP growth rate. In terms of share, Internet advertising will continue to seize the share of other forms of advertising, and the growth of Internet advertising will exceed the growth of the advertising market.

From the perspective of advertising revenue share, e-commerce advertising maintained its market share in 2020. Display advertising saw a decline of 6.58% for the first time in the past five years, and its market share also fell from 34% last year to 29% this year; search advertising continued to be weak, and its market share fell to 11.9% for three consecutive years; due to the continued popularity of the video live broadcast market, video advertising continued to grow strongly, with the market share reaching 20.4%, and the annual growth rate also further increased compared with the previous year, reaching 52.68%.

competitive landscape - Why does Tencent’s traffic do not match advertising revenue?

The current time point, the growth rate of Internet user scale and user duration slowed down, the mobile Internet traffic dividend gradually faded, and the growth is expected to enter a low-speed range and enter a stage of stock competition. Various platforms are accelerating internal conversion, and their business scope is gradually approaching the transaction conversion end. The competition among leading platforms for brand owners may become more intense.

Affected by the epidemic and overall economic situation, the concentration of advertising market has not decreased but increased in 2021. The market share of the top ten companies in the industry rebounded from 92.42% in 2020 to 94.85%, while the market share of the top four giant companies in the industry further increased to 78.2%; among the top four companies in the industry, the growth rate of the top three is slowing down. Affected by market supervision and anti-monopoly trends, Alibaba's advertising business revenue growth has further slowed down; although ByteDance's growth rate has slowed down, its market share has further expanded, and it is gradually narrowing the gap with Alibaba, with a trend of catching up;

Tencent's advertising revenue growth has also slowed down, stabilizing in the third place, but from the perspective of traffic, Tencent is still the leader in China, and its advertising monetization ability is positively correlated with the size of traffic, and Tencent has the potential to tap.

According to Quest Mobile, Tencent ranked first in the 2021 mobile Internet enterprise traffic ranking, with traffic of 1.105 billion, followed by Alibaba, with traffic of 1.066 billion. In terms of user time proportion, affected by the rapid rise of short videos by Byte and Kuaishou, Tencent has shown a slight downward trend, but the user time proportion is still ranked first, accounting for 35.7% in December 2021, and the second-ranked Byte system is 21.0%

Tencent's traffic and user usage time are leading, and its life scenarios cover a full range. However, in the past five years, Tencent's advertising revenue has hovered at 15% to 20%, which is lower than Weibo, Pinduoduo, Baidu, Alibaba, and Kuaishou.

This is mainly because product logic affects the efficiency of advertising monetization, and Tencent is more restrained in its attitude towards advertising monetization. Tencent’s traffic is mainly concentrated in social communication volume, which belongs to private domain traffic, and has a large limit on loading rate. Alibaba's e-commerce and ByteDance's short videos all focus on public domain traffic and have high advertising loading rates. Therefore, Tencent’s advertising monetization efficiency is not as efficient as Alibaba and ByteDance.

In addition, in order to ensure the product's user experience, Tencent has actively restricted the advertising loading rate. For example, for WeChat Moments advertisements, since they were launched in 2015, they have only increased to 5 items per day. Moreover, the advertising review in the circle of friends is relatively strict, and the advertiser types are mainly high-end brands and luxury goods.

While Tencent holds huge traffic, Tencent Advertising has not fully tapped its advertising monetization capabilities. For example, the vast traffic pool of Video Account has not yet achieved large-scale monetization. The mini-program ecosystem is still in the development stage and has more open-ended advertising spaces. Enterprise WeChat can realize the combination of advertising and enterprise services. After such advertising monetization processes gradually mature, it is expected to release the monetization potential of Tencent traffic.

Tencent Financial Report's business is actually composed of two independent businesses: financial technology and enterprise services. Tencent only disclosed cloud service revenue in its 2018 and 2019 financial reports, which were 9.1 billion yuan and 17 billion yuan respectively. From this, it can be estimated that the financial technology business revenue in 2018 and 2019 was approximately 64 billion yuan and 84.4 billion yuan respectively. It is expected that the revenue share of the two is roughly 8:2 now.

Tencent’s financial technology business mainly includes payment, financial management, credit and insurance businesses. Most of the revenue comes from payment business. So we mainly look at the market space and competitive landscape of payment business.

The third-party mobile payment market has experienced a period of rapid growth, and the market has gradually matured. The year-on-year growth rate gradually fell back to about 20% from 2018 to 2021.From the perspective of quarterly transaction scale, except for the decrease in quarterly transactions due to the epidemic in 2020Q1, the quarterly transaction scale of third-party mobile payment market has maintained a trend of increasing month-on-month.

As third-party mobile payment institutions continue to expand users and cooperative merchants, the continuous development of digital technology and the continuous upgrading of the network, the third-party mobile payment market is expected to grow steadily.

payment market structure: WeChat and Alipay each have their own advantages, and the WeChat payment market share is expected to increase

The overall market structure of China's third-party mobile payment is stable. WeChat Pay and Alipay form a double-oligarchical structure, with Alipay exceeding 50%, and WeChat Pay close to 40%. The third place is Yi Wallet, a subsidiary of Ping An. In the third quarter of 2021, the market share was only 1.19%.

According to the 2019 iMedia Consulting Research results, there are the following differences between WeChat Pay and Alipay in different application scenarios: in the small payment scenario (50 yuan and below), more than 70% of users tend to use WeChat payment, and in the large payment scenario (50 yuan or above), nearly 60% of users tend to use Alipay payment. In the online consumption scenario of

, about 60% of users use Alipay, while in the offline consumption scenario, about 65% of users use WeChat payment. In terms of commercial payments, the average daily payment of WeChat payments reached about 1.5 billion, exceeding Alipay. Compared with Alipay, WeChat still has traffic advantages and more active users. Although Ant Group's current market share of payment business is slightly higher than WeChat Pay, given the existing advantages of WeChat Pay, including user traffic, payment ecosystem, etc., the market share of WeChat Pay is expected to increase slightly in the future.

Internet companies usually expand their business with traffic monetization as their core business logic, and cloud services seem to be a business unit that is separated from the mainstream. In fact, they are all derived from the maturity and overflow of their main business capabilities. Amazon's AWS, Alibaba's Alibaba Cloud, etc. are all like this, and Tencent Cloud is no exception.

Internet companies will involve a large amount of data calculation, storage and transmission during their business development. Taking Alibaba as an example, its IT system needs to solve the high explosion demand during the peak season of Double 11 e-commerce, and redundancy will occur in the off-season. In order to solve the problem of idleness, public cloud services have been expanded through the form of renting.

Tencent Cloud was the predecessor of the QQ Space team's Tencent open platform. At that time, QQ, as the largest social software in China, had the ability to serve a large number of users. It began to provide cloud services (including CDN, etc.) to the outside world in 2010.

So we see that most of the world's Internet giants carry out cloud computing business, and its essence is to efficiently utilize and monetize the IT resources and technologies accumulated through business development.

The epidemic in early 2020 accelerated the process of digital transformation of traditional enterprises, and the new infrastructure policy further set off a wave of digital transformation of traditional enterprises, building a digital economy and improving GDP The proportion requires the comprehensive support of cloud computing. Coupled with the natural cost reduction and efficiency improvement and elastic scaling characteristics of cloud computing, the demands of the times are intertwined, setting off this wave of comprehensive cloudization.

iMedia Consulting data shows that the scale of China's cloud computing market reached 233.06 billion yuan in 2021, and is expected to reach 298.34 billion yuan in 2022. Affected by policies such as new infrastructure and the increase in demand for digital transformation of enterprises, enterprises' demand for cloud computing services continues to grow, and will continue to maintain a rapid growth of more than 20% in the next 3-5 years, and the industry has huge room for development.

In addition, according to the "Cloud Computing White Paper" of the Academy of Information and Communications Technology, from 2017 to 2020, China's cloud computing market maintained accelerated growth, especially the strong demand for cloud access brought by the epidemic in 2020, recording a year-on-year growth of 57% that year, 2016-2020 In five years, the CAGR reached 42%, twice the CAGR of the global cloud computing market size during the same period.

The cloud penetration rate of domestic enterprises in 2019 was 6%, and 8.8% in 2020. There is still a lot of room for growth, especially the sinking market outside first- and second-tier cities that have not yet been widely covered, as well as small and medium-sized enterprises with SaaS demand. At present, there is still a rich digital demand in various industries to promote the development of China's cloud computing market.

The second quarter report of China's cloud computing market released by Canalys, an authoritative market research company, shows that China's cloud infrastructure market grew by 54% to US$6.6 billion in the second quarter of 2021. As China's three major cloud computing giants, Alibaba Cloud has a 33.8% share, making it the well-deserved leader. Tencent Cloud and Huawei Cloud are in line with each other, ranking second and third, with the three giants accounting for 70% of the total cloud computing expenditure.

From the perspective of business focus, Alibaba Cloud focuses on enterprise-level and industry cloud computing, Tencent Cloud focuses on social, games, live broadcast and other fields, and Huawei Cloud has more advantages in the government and enterprise fields. At present, the leading domestic cloud computing manufacturers mainly provide IaaS services with low profit margins, with serious homogeneity of products and little differences.

, especially Huawei, is not good at PaaS and SaaS, while Tencent has an advantage in the latter. It is expected that the two companies will maintain their current growth trend and develop steadily.

Overall, this is different from some games, advertising and other markets that have entered the stock competition. Since the entire plate continues to grow, the ceiling of the industry leader is very high, and the opponent's obstacles encountered by growth will not be particularly strong, and the certainty of growth is high. As long as the company can maintain or increase its market share, growth is a natural result.

06 Tencent's evolution - core competitive advantage

WeChat is a typical product with network effect. For a user, the more friends they use WeChat, the greater the value of WeChat to it, and it will attract more people to use WeChat.

According to the latest financial report, WeChat's monthly active users in the first quarter of 2022 have reached 1.288 billion, which is a national-level product. It can be said that WeChat has built an extremely solid castle for Tencent, which is difficult to defeat and replace. According to Aurora Big Data, the monthly retention rate of WeChat users has reached an astonishing 98%.

For users, the good user experience and social relationships are all on WeChat, so the replacement cost is too high. The network effect that the free strategy + the huge user group has formed is enough to discourage competitors.

The power of WeChat can be proved from another aspect. On August 6, 2020, then-US President Trump issued a decree prohibiting all individuals and businesses within Tencent's US jurisdiction from participating in "any transactions related to WeChat." After the ban on

was issued, a survey was conducted on Weibo asking whether users would change their phones or continue to use their iPhone without WeChat on the App Store. The result is that of the 1.3 million respondents, 1.2 million responded that they were willing to give up using iPhones for WeChat. The respondents said that losing an iPhone would not have any impact on life, but that you cannot survive without WeChat.

After that, more than a dozen American giants including Apple, Intel, Disney, Walmart, Goldman Sachs, and Ford have clearly expressed their opposition to the government for the above-mentioned WeChat executive orders, and Apple expects its sales to plummet by more than 30%. The Chinese-American community living in the United States also sued the U.S. government, and the ban ended in vain.

If WeChat is just a social product, then you can’t rest assured. After all, from a global perspective, there is also Facebook, the global social leader. If Facebook is allowed to enter China one day, it will still be a great threat to WeChat.

However, Tencent did not stop there, but moved forward on the road to enriching and extending WeChat functions, connecting various modules in the WeChat ecosystem such as mini programs, video accounts, public accounts, corporate WeChat, Tencent meetings, etc., and has formed a huge ecological system covering all aspects of work, life, entertainment, etc.

It is no exaggeration to say that Tencent-based products are ubiquitous in the lives of Chinese people. It has become a super app that provides users with all basic life service facilities and connects online and offline. User stickiness has been greatly enhanced and it is difficult for competitors to break from the outside.