After the market value has shrunk, Tencent and Ali’s valuation repair may start at the end of the year
Compared with the historical highs of stock prices set last year, the current stock prices of Tencent and Alibaba have shrunk by about 54% and 70% respectively, and their valuations have returned to four years ago. Some investors pointed out that there are irrational factors in this valuation level, and expected that by the end of this year or next year, technology “unicorns” represented by Tencent and Ali will embark on the road of valuation repair.
As of August 17, the stock prices of Tencent Holdings, Alibaba’s Chinese concept stocks and Hong Kong stocks closed at HK$303.2, US$89.77, and HK$90.35 (before resumption), respectively. Compared with the historical highs set in the past two years, the cumulative decline was 59.42%, 71.89%, 70.80%. According to the total market value of the company, Tencent has shrunk from HK$7.17 trillion on the highest price day to the current HK$2.92 trillion; the total market value of Alibaba’s Chinese stocks and Hong Kong stocks has also dropped from the highest of US$850.799 billion and HK$6.6 trillion to 2377.23 trillion. billion and HK$1.91 trillion.
Regarding this round of adjustment of Tencent and Ali’s stock prices, Chen Jia, an independent international strategy researcher, said, “Since this year, Tencent and Ali’s annual reports and quarterly reports have been unsatisfactory, but it is not a coincidence that the revenue and net profit of the two leading companies have turned inflection points. According to the time node, in Before the data of this fiscal year was released, both companies had a series of actions, including shrinking financial investment, technological layout and human capital. The market believes that, as a global Chinese-funded enterprise listed overseas, under the condition that there is no major globalization event, This trend is difficult to reverse in the short term, so that market expectations are lowered.”
Ma Zhe, the founding partner of Beijing Zhonghai Fulin Investment Management Co., Ltd., told Red Weekly that from the perspective of the rear-view mirror, Tencent and Alibaba’s stock prices will rise. Deep retracement is reasonable. There have been some issues with reporting on both platforms that have persisted for several quarters. On the micro level, there are threats from ByteDance and Douyin; on the macro level, fluctuations in the economic situation, policy guidance and control have also suppressed the company’s growth.
However, in the process of companies slashing valuations, there is often a phenomenon of overkill. Are there similar phenomena in the current stock prices of Tencent and Alibaba? In this regard, Zhao Jian, dean of the Caesar Research Institute, pointed out to “Red Weekly” that the valuations of Tencent and Ali are far lower than the fundamentals of China’s economic development. “Beast”, the current valuation has irrational factors or is influenced by emotional factors, because the market is over-discounted to its current uncertain valuation. We can see that Tencent’s market value has almost returned to 4 years ago, Ali was 5 years ago, but there are many similar targets in the world that have doubled, which is obviously unreasonable.”
Zhao Jian pointed out, “My thoughts are similar to Duan Yongping’s, that is, China’s economy There is no doubt about the background and development potential, but there are some uncertainties in the process of transformation, and historical experience shows that these uncertainties will always be corrected. My expectation is the end of this year or next year. And once there are no constraints of these factors, technology unicorns represented by Tencent and Ali will embark on the road of valuation repair and re-show their value.”
The chief overseas researcher of a securities research institute also has a similar view. She told “Red Weekly”, “I think these two companies are undervalued, and the current market value does not reflect their value. However, the Hong Kong stock market and the Chinese stock market are a relatively complex market. On the one hand, they are affected by geopolitics and the Federal Reserve. On the other hand, the impact of raising interest rates and shrinking the balance sheet will also be affected by the internal environment. Therefore, their market value does not entirely depend on the fundamentals of the company’s own operations.”
She judged, “I think these two companies may have some more recently. Fluctuations, it is unclear whether the Fed’s interest rate hike and balance sheet reduction have been fully reflected, and the progress of PCAOB audit and supervision negotiations should continue to be tracked. However, in the long run, there will still be a gradual stabilization process. We expect that from the fourth quarter of this year to next year, Hong Kong stocks and The Internet sector may have relatively large opportunities. Because the internal and external environment will become more clear in the future, the implementation of some landmark rectification cases will release some positive signals, and the overall vitality and operation of the company will gradually return to normal. change.”
If it is conservatively calculated according to the company’s cash flow creation level in the next ten years, that is, predict future operating income → predict future net profit through past operating net interest rate (operating income × operating net interest rate) → predict operation through net profit and the weight of past operating cash flow Cash flow (net profit × operating cash flow weight) → predict future non-cash costs through the ratio of past non-cash costs to operating income (operating income × non-cash costs to operating income ratio) → calculate free cash flow through the above (Operating cash flow – non-cash cost), how will the value of Tencent and Ali perform when the price-to-earnings ratio remains unchanged?
”Red Weekly” combined with historical data and found that the average price-earnings ratio of Tencent Holdings was about 39.92 times. As of the close of August 17, the price-earnings ratio was 14.13 times, and the total market value was 2.92 trillion Hong Kong dollars. If the company’s historical average valuation is used for statistics, assuming that the company’s net profit in 2022 reverses the downward trend and only maintains a flat profit, the company is expected to achieve a total market value of about 3.18 trillion Hong Kong dollars. If the annual performance growth rate is 10% (this has only happened in two years in Tencent’s history, and the growth rate in the first five years is set at 10%, and the growth rate in the next five years is set at 5%), the profit scale in the next ten years is calculated. , the company’s profit will reach about 462.114 billion yuan by 2031. Combined with the current price-earnings ratio of 14.13 times, the valuation is also expected to be as high as 6.53 trillion Hong Kong dollars.
Similarly, “Red Weekly” conservatively assumes that Ali’s revenue growth rate will be 10% in the first 5 years of the next 10 years and 5% in the next 5 years, then the company’s operating income in fiscal year 2023 and fiscal year 2032 will reach 10145.35 100 million yuan and 1986.038 billion yuan. Conservatively assuming that Ali’s operating net profit margin will be 10% in the next 10 years, the company’s net profit attributable to the parent in fiscal year 2023 and fiscal year 2032 will reach 101.453 billion yuan and 198.604 billion yuan respectively. Conservatively assume that the proportion of operating cash flow in the same period to the net profit attributable to the parent and the proportion of non-cash costs (depreciation and amortization) in operating income will be 200% and 5% respectively in the next 10 years. The operating cash flow in fiscal year 2032 will reach 202.907 billion yuan and 397.208 billion yuan respectively, and the non-cash costs will reach 50.727 billion yuan and 99.302 billion yuan respectively. Then, Ali’s free cash flow in fiscal year 2023 and fiscal year 2032 will reach 152.18 billion yuan and 297.906 billion yuan respectively, with a compound annual growth rate of 7.75%. It is conservatively assumed that after 10 years, Ali’s free cash flow growth rate will drop to 5%. Combined with the 10% discount rate of stable companies, Ali’s valuation in the next 10 years will be about 3.46 trillion yuan, equivalent to 3.01 trillion yuan. In Hong Kong dollars (calculated at 1 RMB = 1.15 Hong Kong dollars, the same below), the sustainable value is also as high as 2.19 trillion yuan.
According to the calculations of some institutions, the valuation level of Tencent and Ali in the next 10 years will be higher, and the overall conservative valuation will have a room for 1 to 3 times. However, some investors emphasized that the key to investing is to be correct, not accurate.
Tencent releases “steady growth” signal, Ali e-commerce and cloud computing business can support “valuation target”
Tencent executives said this week that the company is on track to grow again in the coming quarters. In terms of Ali, assuming that Ali has only two businesses in China, commerce and cloud, and the operating net profit margin in the next 10 years is still 10%, after calculation, its current valuation is still lower than the actual value of the company.
According to Tencent’s second-quarter financial report released on August 17, in the first half of the year, the company achieved revenue of 269.505 billion yuan, a year-on-year decrease of 1.94%; net profit was 42.032 billion yuan, a year-on-year decrease of 53.48%. Looking at the data of the second quarter, the revenue of 134.034 billion yuan fell by 3.83% year-on-year and 1.06% month-on-month compared with the second quarter of last year; the net profit of 18.619 billion yuan fell by 56.28% year-on-year and 20.48% month-on-month. Looking at the company’s second-quarter financial report, “reducing costs and increasing efficiency” has become the keyword of the full text. The company said that in the second quarter of this year, it will actively withdraw from non-core businesses, tighten marketing expenses, and reduce operating expenses. In the future, the company will focus on improving business efficiency and increasing business efficiency. New revenue streams, including video feed ads, while continuing to drive innovation through R&D (see Figures 1 and 2).
Tencent’s revenue and net profit both fell in the second quarter, mainly due to the downturn in its core business games and advertising, as well as the impact of large investment losses. Among them, game revenue in the international market increased by 1% to 10.7 billion yuan, game revenue in the local market fell by 1% to 31.8 billion yuan, and online advertising revenue fell by 18% year-on-year to 18.6 billion yuan. Other businesses that maintained growth, such as social network revenue increased 1% to 29.2 billion yuan, and financial technology and enterprise services increased 1% to 42.2 billion yuan, but the growth rate of the latter slowed down.
On the company’s conference call on the day of Tencent’s earnings release, company executives made it clear that game-related regulation and approvals are showing positive signs, and investors can look forward to a healthier development of the entire industry in the future. At the same time, by controlling costs and improving efficiency, the company is expected to grow again in the coming quarters.
In this regard, Chen Da, executive director of Hehe Capital (Hong Kong), told the “Red Weekly” that Tencent is likely to present a relatively good data in the third quarter, “because both game data and advertising data have been shown since the end of June. Good sign.”
Tao Xujun, director of Nomura Research Institute’s Digital Competence Center, also has a positive attitude towards Tencent’s game business. He believes that games are related to population. Although China’s total population is declining, the penetration rate of gamers is far from being exhausted. Therefore, it is expected that it will take 10 to 15 years for the overall consumption energy level to decline, which is obviously invisible now. At the same time, Tao Xujun said that in the environment of consumption downgrade, the development of home culture is more obvious to some extent, the reason is that compared with going out for shopping, shopping, watching movies or traveling, the “Krypton Gold” of games is affected. relatively lower.
The well-known blogger @ Yufeng, who focuses on Internet investment, has a relatively conservative view. He told Red Weekly that Tencent is still in the process of bottoming out and stabilizing. He said that there is no problem with Tencent’s foundation, and it can be done slowly to stabilize, but the company may not be in a hurry to stabilize its performance, because it will not easily become the target of public criticism. And judging from the latest interim report, the profit has basically stabilized, which should be a signal that the future revenue and profit levels will remain generally stable or slowly decline, and then fluctuate slightly up and down.
Similarly, Ali’s main e-commerce business also has the problem of peak traffic. “Red Weekly” combed and compared and found that Ali’s Chinese commercial business (including Taobao, Tmall, Taocaicai, Hema, Tmall Supermarket, Sun Art Retail, etc.) ), the performance of its revenue growth rate is highly matched with user activity. The data shows that Ali’s global annual active users, Chinese users, overseas users and global commercial transaction value (GMV) in fiscal year 2021 increased by 17.81%, 14.23%, 33.33% and 15.11% respectively year-on-year. By fiscal year 2022, these figures are 15.83%, 12.79%, 27.08% and 2.44%, all decreased (see attached table).
In this regard, Chen Da pointed out to “Red Weekly” that the dividend of the Internet has reached the ceiling. There are a total of 1.4 billion people in China and 1 billion netizens, and the penetration rate will be difficult to increase after that. Ali CEO Zhang Yong also said, “Ali has achieved the goal of serving 1 billion domestic consumers, and will focus on the growth of the share of different consumer groups in the future, rather than pursuing the absolute growth of domestic users.”
Ali’s revenue in fiscal year 2022 is ranked The second place is the cloud business, which achieved revenue of 74.568 billion yuan, accounting for 9% of the company’s total revenue. In both fiscal years 2020 and 2021, this data is 8%. Against the background of the accelerating expansion of the global cloud computing market, Alibaba Cloud’s growth is also considerable.
”Red Weekly” conservatively calculated, assuming that Ali only has two businesses in China, commerce and cloud, and the operating net profit margin in the next 10 years is still 10%, Ali’s net profit in fiscal year 2032 (assuming it is equivalent to 2031) will be 155.426 billion. Yuan. At present, the latest price-earnings ratio of Ali Hong Kong stocks is 40.4 times, and the company’s valuation should be 7.22 trillion Hong Kong dollars. If calculated according to the static price-earnings ratio of 15.9 times, the company’s valuation should also reach 2.84 trillion Hong Kong dollars, which is also higher than Ali’s current valuation.
ByteDance, Kuaishou, etc. are difficult to subvert the leadership of Tencent and Ali. Actions such as withdrawing funds and laying off employees are actually strengthening the basic market of “Teng’er”
ByteDance has a certain influence on Tencent and Ali, but it does not constitute a threat of overwhelm. And whether Tencent and Alibaba are actively or passively shrinking their fronts, it is likely because of the practical need to shift from investing in the C-side to the B-side.
At a time when performance and valuations are hovering at a low level, the market’s worries actually include that competitors may adjust the industry positions of Tencent and Alibaba, as well as the continuous contraction of these two companies in the past two years, including the sale of some well-known companies. , cut staff and lines of business, etc.
At present, some Internet companies such as ByteDance (Douyin), Mihayou, and Kuaishou are still continuing to gain fans, forming new models such as short video culture and live broadcast delivery. These models have robbed a lot of traffic and also impacted Traditional online advertising and e-commerce business.
In this regard, Ma Zhe pointed out to “Red Weekly” that ByteDance has indeed had a certain impact on Tencent and Alibaba. For Tencent, ByteDance has gradually become China’s largest commercial advertising platform by grabbing traffic; for Alibaba, ByteDance has intervened in live broadcast e-commerce and monetized through live broadcast e-commerce traffic, posing a threat to Taobao and Tmall. But there is no doubt that Tencent and Ali have established a very strong moat. Even if ByteDance has a certain impact on the two companies, it does not constitute a threat of overwhelm. The final result is coexistence and development. “Take ByteDance and Tencent as examples. The essence of the two companies is different. ByteDance connects people and information, similar to Baidu. The difference is that Baidu is a search engine, and ByteDance is a recommendation engine. . And companies that connect people and information will become natural advertising platforms. Advertisements posted by big Vs followed by millions of people on Douyin will soon be seen by all followers. Tencent connects people to people, His stickiness is stronger, but the advertising effect is relatively poor. After all, a few hundred WeChat users are not on the same order of magnitude as the millions of Douyin fans.”
The chief overseas researcher of the aforementioned securities research institute also has similarities. View. She pointed out to “Red Weekly”, “I think the influence of live broadcast e-commerce represented by Douyin and Kuaishou on Ali and other shelf e-commerce is relatively limited, and the future impact will be marginally diminishing. Because from the big logic point of view, they It is the product that finds people, that is, the push of video streams, which actively pushes the corresponding products to users, while traditional e-commerce such as Taobao is more about people looking for products. At the same time, based on the perspective of traffic distribution, Douyin, Kuaishou, etc. The ceiling of live broadcast e-commerce is relatively clear. Looking forward, the e-commerce traffic dividend will gradually decline. Therefore, their marginal impact on Ali is actually declining. We believe that the market share of traditional e-commerce represented by Ali will continue to rise. relatively stable.”
In addition, in the game field, “Yuan Shen”, which was launched by Mihayou at the end of 2020, has become a big dark horse so far. The company has even surpassed Tencent’s overseas sales for some time, which has also caused the market to worry about Tencent’s game business. . Tao Xujun said that Mihayou’s “Yuan Shen” is very different from Tencent’s games. It belongs to heavy-duty games, but heavy-duty games are not the most profitable and best at Tencent. Overlay some small originality. And from the market point of view, the largest market for “Genshin Impact” is in Japan rather than China. Based on the population of 125 million in Japan and the population of 1.4 billion in China, its annual income and paying users are almost the same, so Mihayou’s ” Genshin Impact is just that overseas markets are developing better than Tencent’s games.
Ma Zhe said, “Tencent’s advantage is that it has built a highway for itself. After connecting people, games are its toll booths, and financial services and videos are also its toll booths. Tencent has built an ecosystem. .It is difficult for a small company’s explosive game to compete with Tencent’s entire ecosystem. Their toll booths are isolated. Even if the service is better and more popular for a certain period of time, it is difficult to resist Tencent’s several toll booths. ”
Compared to the external factor of competition, is the business contraction of Tencent and Ali in the past two years the starting point of their recession? Among them, Tencent has changed from an important shareholder of some well-known companies to a general shareholder. For example, Tencent transferred the shares of Heilan Home at a discount of 7.93%, reduced its holdings of 460 million shares of JD.com with dividends, and on August 16, it was announced that it planned to sell all the shares of Meituan.
In this regard, Yufeng said that in the heyday of Tencent, the valuation of the equity part was about more than 2 trillion yuan. If it can be called an investment institution, it basically belongs to the situation where the real business and investment funds each account for half of the country. But now, whether it is domestic policy or the general environment of the global financial market, it is difficult to support this model to continue. Big factories have entered a contraction cycle. At this time, they need to release their equity and shrink their fronts.
Yufeng said, “We must admit that Tencent itself has excellent investment capabilities. The current situation is mostly passive, in order to cope with some external environments. In fact, Tencent and Ali are not short of money. If they can choose, many investment Tencent must be willing to continue to hold it. And if the external environment becomes more relaxed in the future, many things can be done again. Relatively speaking, Ali’s investment performance is relatively average, and it has little positive impact on valuation.
Tao Xujun also believes, “Strategically speaking, holding the equity of these companies is to expand the territory, and once it fails, the first thing to be abandoned must be the periphery of the external network . Walls. Doors and windows are naturally torn down if they are broken, and new ones can be replaced in the future. Ali reduced its holdings of Guangguang Media and Mango Supermedia, but did not completely withdraw from entertainment. Ali Music and Ali Film and Television were all there, but they took away some unfavorable ones. Too profitable sector. After all, it has too many territories. The same is true for Tencent. It acquired Heilan Home for offline scenarios. But if the bleeding point should be abandoned, it will be abandoned.”
Overseas research of the above-mentioned securities research institute The chief told “Red Weekly”, “In our opinion, Tencent and Ali are not shrinking the investment territory, but more in response to the advocacy of less volume in the C-end field. At present, the domestic C-end traffic dividend is Gradually entering the second half, excessive involution is not conducive to social and economic innovation and development. Or based on this background, companies with a pattern such as Tencent and Ali began to switch from invoicing and investment to the direction of enterprise services and technology. It is very likely that Tencent and Alibaba feel that these are already relatively mature projects on the C-side when they reduce their holdings in companies such as JD.com
. Very fast. For example, Alibaba’s cloud is already the leading international manufacturer in China, and its technology can basically compete with international giants. Relatively speaking, Tencent’s layout in this area is weaker. Because Alibaba’s initial positioning is It is more inclined to the B-end, so its entire organizational structure has a very strong execution power on the B-end. Tencent has been doing the C-end, so it still needs to practice for the B-end.” The head of overseas research at the Securities Research Institute further stated.
In addition to this, Tencent and Ali have been laying off employees. In particular, after some emerging business teams that are considered to be “breaking the circle” of Tencent and Ali have been greatly reduced, the market has a view that the growth of these two companies may not be enough. will be damaged. For example, Tencent’s financial report shows that as of the end of June, the number of employees in the company decreased by about 5,500 compared with the end of March, to about 110,000. This is the first time since 2014 that the quarterly number has declined.
Yufeng believes that layoffs may be viewed from both pros and cons. Timely slimming is not a bad thing for the company itself to reduce costs and increase efficiency. It can make employees more motivated to work and prevent them from becoming large nursing homes. This is more positive. aspect. From a negative point of view, in fact, for these large companies, there is always a part of business investment, which is burned to those projects with potential but no short-term results can be seen now. During this wave of optimization, these projects will be prioritized for removal. In the long run, it is actually a blow to the innovation ability of enterprises and the pace of future exploration and experimentation. For the development of the entire Chinese Internet industry, it may not be a particularly good thing.
Duan Yongping “slowly buys” Charlie Munger “locks up” Ali on Tencent’s “fixed investment” Tencent and Alibaba
Regarding the rhythm of “scheduled investment” Tencent and Ali, the methods of well-known investors are very different. Among them, Duan Yongping opened a position in Tencent as early as 2018, and continued to increase his position this year; Charlie Munger’s investment in Ali is in a stable “lock-up” In the second quarter, Hillhouse Capital and Jinglin Assets built new positions or added a large amount of positions to Ali, and the meaning of “buying the bottom” is obvious.
Because the valuation is low and the fundamentals have not changed fundamentally, the above-mentioned investors believe that they can make “scheduled investments” in Tencent and Ali. Chen Da admitted to “Red Weekly”, “Although the valuations of these two companies are too low, I do not recommend investors to ‘buy the bottom’, ‘scheduled investment’ may be more appropriate. Just like in the 2008 global financial crisis, many people In ‘buying the bottom’ stocks, but this bottom is probably not the real bottom, such as Citigroup, etc. are frequently hitting new lows, and they did not improve until the end of 2012. Therefore, as long as you believe that companies such as Tencent will not die, you will decide to invest; If you think Tencent will die, but China’s Internet will not die, you should invest in industry indexes. Fixed investment is suitable for many industries, such as the medical industry, etc. If ordinary investors have confidence in an industry, but feel that this industry is currently affected by various industries Due to the influence of these factors and the valuation is very low, it is a good strategy to diversify the fixed investment index.”
Among the investors of “fixed investment” Tencent, the more well-known investor is Duan Yongping (@大道无形我 Shape). It is understood that Duan Yongping’s first position in Tencent (ADR, the same below) may have been in 2018, and since 2018, Tencent’s average price has been around HK$400 per share. On August 4 this year, according to Duan Yongping, he has increased his positions in Tencent six times in the last three months, and the increase prices were HK$344/share, HK$385/share, HK$377/share, HK$371/share, and 362 HKD/share. HKD/share and HKD310/share. At the same time, Duan Yongping said, “The book has finally started to lose money.” As of the close on August 4, Tencent reported HK$312/share, which means that Duan Yongping’s position cost is likely to be in the range of HK$312/share to HK$400/share.
It should be pointed out that although Duan Yongping’s current position is not high, despite the frequent announcements to increase Tencent’s position, his current position in Tencent is less than 1%. In this regard, Duan Yongping said, “Tencent is indeed a lot less certain for me than Apple, which is why I have not made up my mind to buy more at this stage. However, Tencent is still not for sale to me, and I need to find a business model. A good company is not easy. I guess I will have the opportunity to further increase my position in Tencent in the next few years, and there are indeed some things that I haven’t figured out.”
There are also Southbound Capital who also “favor” Tencent. According to “Red Weekly”, at the historical high of Tencent’s stock price in 2021, Nanxia Fund held 533 million shares of Tencent, accounting for 5.55% of the company’s total share capital. As of the close on August 16, Nanxia Fund held 721 million shares of Tencent, accounting for 7.48% of the company’s total share capital, an increase of 1.93 percentage points.
Among Ali’s well-known investors, Charlie Munger is one of them. When he was managing DailyJournal (Daily Journal Company, hereinafter referred to as “DJ Daily”), he opened a position in Ali. Although he has accumulated a certain amount of floating losses so far, the second quarterly report shows that DJ Daily’s position in Ali is the same as that in the first quarter. Although DJ Daily sold nearly half of Alibaba’s positions in the first quarter of this year, there is a view in the market that it has simultaneously increased its positions in some targets other than the US stock market, and it does not rule out the possibility of increasing its positions in Alibaba’s Hong Kong stocks.
In addition to Charlie Munger, some institutional funds are adding to Ali (US stocks, the same below). According to the US 13F documents, there are currently 1,183 institutions holding Ali. Among them, during the second quarter of this year, 487 companies have reduced their holdings, 525 companies have increased their holdings and new positions (370 companies and 155 companies respectively), and 188 companies have not moved their shares. In contrast, the number of institutions that choose to “stick to” Ali is relatively high. It is worth mentioning that Hillhouse Capital is a member of the new warehouse Ali. As of now, Hillhouse Capital holds 1.89 million shares of Ali, with a market value of $215 million. Jinglin Assets increased its holdings of Alibaba’s 936,000 shares to 1.243 million shares in the second quarter. Jinglin Assets recently stated, “Currently, Internet platform companies are in the ‘three bottoms’ of bottom performance + bottom policy + bottom valuation. Superimposed state.”