Ali + Tencent =? Win-win in the new competitive landscape! In recent years, the competition between Ali and Tencent has become increasingly fierce. Both companies have their own strengths and advantages, and their competition has been a hot topic in the industry. However, with the changing market dynamics and the emergence of new technologies, the traditional competition between Ali and Tencent is gradually evolving into a new pattern of cooperation and win-win. Ali, as a leader in e-commerce and cloud computing, has a strong foundation in the consumer market. Its e-commerce platforms, such as Taobao and Tmall, have a large user base and a wide range of products. In addition, Ali's cloud computing business, represented by Alibaba Cloud, has also achieved remarkable results in recent years. With its advanced technology and comprehensive services, Ali has become the preferred partner for many enterprises in the digital transformation process. On the other hand, Tencent, as a giant in the Internet industry, has a strong presence in social networking, gaming, and digital content. Its social platforms, such as WeChat and QQ, have a large number of active users, and its gaming business, represented by Tencent Games, has a wide range of popular games. In addition, Tencent's digital content business, including video streaming and music streaming, has also achieved rapid growth in recent years. With its rich content and strong user stickiness, Tencent has become an indispensable part of people's daily lives. In the face of the changing market dynamics and the rise of new technologies, Ali and Tencent have realized that cooperation is the key to success. They have gradually shifted their focus from competition to cooperation, and have actively explored new business models and opportunities for collaboration. For example, in the field of cloud computing, Ali and Tencent have both made significant investments and achieved remarkable results. They have built a comprehensive cloud computing ecosystem, providing a wide range of services such as infrastructure, platform, and industry solutions. By leveraging their respective strengths and resources, Ali and Tencent have been able to provide customers with more comprehensive and competitive cloud computing services. In addition, Ali and Tencent have also explored cooperation in the fields of e-commerce, finance, and entertainment. They have jointly launched innovative products and services, such as online payment platforms, digital wallets, and online entertainment platforms. Through these collaborations, Ali and Tencent have been able to leverage their respective advantages and create new value for their users. In the new competitive landscape, Ali and Tencent are no longer just competitors, but also partners. They have realized that by working together, they can achieve win-win results and create more value for their users. With their complementary strengths and resources, Ali and Tencent are well positioned to seize the opportunities brought by the digital economy and continue to lead the industry. In conclusion, the combination of Ali and Tencent in the new competitive landscape is a win-win situation. Through cooperation and collaboration, they can leverage their respective strengths and resources to create more value for their users and achieve mutual success. As the industry continues to evolve, Ali and Tencent will continue to explore new opportunities for cooperation and innovation, and lead the way in the digital economy.

This article is sourced from: Guangda Securities Fu Tianzi

Event:

1. On September 25th, the "Alimama UDx Tencent Advertising Deep Communication Conference" was held, and both parties announced further deepening of cooperation to achieve full direct connection of WeChat and Taobao advertising traffic. They also launched the "Double 11 Super Explosion Plan" to upgrade the traffic and system. WeChat video accounts, Moments, and mini-program advertising traffic can be directly connected to Taobao and Tmall through Alimama UD effect delivery.

Unlike the eve of the "618" promotion, Tencent has added the opening of video accounts and mini-program traffic channels this time, which may greatly increase the increment of Double 11.

1. According to Sensor Tower, "Honour of Kings" and "Peace Elite" ranked 2nd and 8th respectively in the global App Store and Google Play mobile game revenue rankings for July and August. In August, "Honour of Kings" generated a global revenue of $238 million, a YoY increase of 7% (excluding exchange rate fluctuations, the same below); "Peace Elite" experienced a 28% YoY decrease in revenue for Q2, but achieved a reversal in July with a 5% YoY increase, followed by a 10% YoY decrease in August.

Comments:

Interconnection is expected to achieve win-win results in the new internet competition landscape.

1. Interconnection continues to cooperate with regulatory guidance. In September 2021, the Ministry of Industry and Information Technology announced the start of a rectification campaign for the internet, guiding internet platforms to lift restrictions on external links and achieve interconnection between platforms. Alibaba and Tencent also partially connected in the same month, with Taobao and Xianyu integrating WeChat Pay.

2. For Tencent, traffic interconnection can significantly increase the advertising revenue of the Taobao system within WeChat, and is expected to help video accounts introduce more merchants in the medium to long term, expand GMV scale, and enhance Tencent's enterprise service revenue. The number of daily active creators and daily uploads of video accounts in 2022 both increased by over 100% YoY.

The earnings report shows that the advertising revenue of video accounts in Q2 2023 exceeded 3 billion yuan, driving Tencent's advertising business growth rate above the industry average. In the current weakened internet traffic dividend, the increment of video account traffic has shown impressive performance, and interconnection may fully unleash the potential for advertising revenue growth.

1. We believe that Alibaba's demand for interconnection may be even stronger than before. Currently, Tmall and Taobao face fierce competition from e-commerce platforms such as Pinduoduo, Douyin, and Kuaishou. Pinduoduo's operating profit in Q2 2023 increased by 46% YoY, while the pre-tax profit of the Taobao Group only increased by 9% YoY. After the cooperation during the "618" event, the effectiveness of Alibaba's UD advertising has been proven. Further opening up this cooperation can bring Alibaba even greater exposure and provide merchants with guaranteed supply and bidding.

The gaming sector faces strong competition, but the long-term healthy operation of flagship games maintains an ideal commercial rhythm.

In the first month, NetEase's new game "Nishuihan Mobile" generated revenue of over $110 million, while miHoYo's "Honkai Impact: Star Rail" generated over 1.2 billion yuan in the first month. Tencent's gaming revenue growth in Q2 2023 slowed down due to a conservative release schedule for commercial content. However, in the third quarter, more content will be released. This aligns with Tencent's long-term commercial rhythm for the gaming sector, alternating between quarters with higher and lower levels of commercialization, to maintain high popularity even after a long period of operation.

In the third quarter, "King of Glory" increased the number of skins, while "Peacekeeper Elite" collaborated with Bilibili dance UP hosts to launch themed props. With increased commercialization efforts, revenue growth is expected to accelerate marginally in Q3. The overseas market continues to perform well, with "PUBG Mobile" seeing a MoM revenue increase of 27% in June and 15% in July.

Share repurchases will continue, partially offsetting the pressure from major shareholders reducing their holdings at the transaction level.

From May 22 to September 25, 2023, Tencent repurchased shares for a total of 63 trading days, accounting for 0.8% of the total shares (based on 9.556 billion shares, the same below), with a total amount of 24.17 billion HKD and an average price of 329.2 HKD. Since the reduction of holdings by major shareholder Prosus in April 2021, Tencent has repurchased a total of 66.95 billion HKD, accounting for 2.1% of the shares.