Internet Investment Strategy during Economic Slowdown

26 Pages·2008·0.28 MB·English

Chinese Internet Industry
Internet Investment Strategy
during Economic Slowdown
Analyst: Zhu Wei
Contents
1. Internet: attractive long term trend
2. Online Gaming: Most Defensive to Slowdown
3. Online Advertising: Gaining Market Share From
Traditional Media
2
Industry : Growth As A Long-Term Trend Unchanged
3
Going Digital, a Long-Term Trend Nothing Can Reverse
Internet has already
Hour Consumption of leisure time on different media by age group, Global
replaced TV as the 18 Information Communication
16
most important
14
media Globally. 55+ 36~54
12
18~35 Under 18
10
8
Chinese Internet 6
Population more 4
2
indulgent than global
0
peers. TV Radio Newspapers Magazines Cinema Digital
Hour China Leisure Time on Internet
25
21.5 21.0
A time for ubiquitous Services Entertainment
20
Internet. 16.7
15.8
15
10
7.0
5
Age
0
<18 18~24 25~30 31~40 >40
Source: CICC Research
4
Going Digital, a Long-Term Trend Nothing Can Reverse
A digital world closely
Function Penetration Rate In China
interwoven with real life. 13.0% China USA
Stock trading
In China, the 14.1% Information
digitalization is just News 77.30%
43.0%
beginning while the most Banking Search Engine 74.80%
20.9%
used internet Communication
applications are mainly 63.0% Instant Messaging 69.80%
Travelling
information and 3.9% E-Mail 55.40%
Blog 19.10%
entertainment related.
15.0% Entertainment
Distribution
4.3% Online Music 68.50%
Online Video 61.10%
Future growth driven by 71.0%
Shopping Online Gaming 47.00%
Internet user population 25.5%
Services
growth and proliferation
Online-Recruitment 15.20%
of new applications. Education E-Learning 24.00%
24.0%
Online-Shopping 25.50%
46.0% E-Business 4.30%
Job hunting
15.2% Online Travelling 3.90%
Internet Banking 20.90%
-10% 10% 30% 50% 70% 90%
Online Stock Trading 14.10%
Source: CICC Research
5
Strong Foreseeable Internet Population Growth
The largest Internet 300 Million people Internet population Growth rate 80%
75.4% 253
population in the
72.8% 70%
250
world at 253mn but Jun 02-Jun 07 CAGR=28.9% 210
60%
56.2%
19.1% Internet 200 53.3%
48.5% 162 50%
penetration rate still
137
150 123 40%
below the 21% world 111 31.7%
34.5% 103
average. 100 80 8727.9%94 23.4% 30%
59 68 18.2% 18.4% 18.1% 19.4%
46 20%
50
10%
Poor Internet 0 0%
Literacy is the Jun-02 Dec-02 Jun-03 Dec-03 Jun-04 Dec-04 Jun-05 Dec-05 Jun-06 Dec-06 Jun-07 Dec-07 Jun-08
biggest barrier to
Poor Internet Literacy 48.90%
improving internet
penetration. No Spare time 25.50%
No Internet Devices 20.80%
Not interested 15.10%
Too Young/Too Old for Internet 14.50%
Access Costs too High 4.40% Major Barriers for
Internet Penetration
No Internet Access 2.50%
Growth
Parents Control 2.10%
Access Speed Too low 0.10%
0.00% 10.00% 20.00% 30.00% 40.00% 50.00% 60.00%
Source: CICC Research
6
Learning and Aging Raise Penetration
Internet literacy can be
2005 2007 2010E 2012E 2016E
sustainably improved in
90%
China not only by learning
but also by aging. 80%
70%
Younger generations are
e
t 60%
a
quicker to learn, older r

n
generations slower. o
ti 50%
a
r
t
e
n 40%
e
P
Younger generations with
higher internet 30%
penetration will grow
20%
older to boost low
penetration among older
10%
age groups.
0%
0-17 18-24 25-30 31-35 36-40 41-50 51-60 61-100
Age group
Source: CICC Research
7
Proliferation of New Applications
The rise of Web 2.0.
Many 2.0 applications
have been widely
accepted by Chinese
internet users and huge
traffic generated.
More than 500mn
mobile users represents
a potential user base for
mobile internet much
greater than fix-lined
Popularity of some Web2.0 Apps Others
Internet. Telecom Blog 72% Windows Live 9.6%
restructuring introduced WAP 49% 4.0%
RSS 34% Baidu
more competition
Bookmark 22% 4.5%
among telecom
Tag 20% Sohu
operators and may free Podcast 16% 7.8%
mobile internet from SNS 14%
Qzone
Tradeback 14%
captivity. 54.7%
Wiki 14%
Traditional Leaders such Moblog 12%
Ajax 9% Sina
as Sina or Tencent
19.4%
UBBCODE 8%
maintain leadership in
Never heard of it 5%
Chinese blog market
new applications.
0% 10% 20% 30% 40% 50% 60% 70% 80%
Source: CICC Research
8
Online Gaming: Most Defensive to Slowdown
9
Strong Growth Outlook
Very defensive to
economic slowdown since
it is extremely cheap 100 mn Total MMOG Game players Growth rate 30%
90
entertainment. One
80 70
month cost = 3 big Macs 70
59 25%
= 1 movie ticket. 60
48
22.9%
50 41
2007, the total number of 40
20%
30
MMOG game players
20 18.6%
reached 48mn, 17.1%
10
representing 17.1% YoY 0 15%
growth. It is expected 2006 2007 2008E 2009E
that total game players 20 RMB bn Total revenue Growth rate 100%
17.0
will grow 23% to 59mn
in 2008 and 18.6% to 15 80%
13.0
70mn in 2009.
9.4
10 60%
Online gaming is still the 57.0%
biggest sub-sector in the 6.0
internet industry and in 5 39.1% 40%
30.8%
2007, total revenue
reached Rmb9.4bn and 0 20%
will grow 39% in 2008 to 2006 2007 2008E 2009E
Rmb 13bn and 30.8% to
Rmb17bn in 2009.
Source: CICC Research
10