巴克莱169正式版重磅报告-抄底中国科技行业！-巴克莱-2021.11.2-169正式版

CORE

Restricted-Internal

EquityResearch

2November2021

ChinaTechnology

TooImportanttoBeIgnored;

InitiatingCoverage

WeareinitiatingcoverageoftheChinaTechnologysectorwithaPositiveview.

AsChinaisthesecondlargesteconomyintheworld(thelargestifusingPPP),investorscannotignoreornotinvestinChina,inourview.ChineseinternetandtechcompanieshavepermeatednearlyeveryaspectoftheChineseeconomy,partlydrivenbytheabsenceofalegacyofflineeconomy,soanyinvestorkeentoinvestinChinashouldnotoverlookthissector.

WebelievetheChinesegovernmentaimstomakeitshome-growninternetandtechcompaniesstrongernotweaker,particularlyinmarketsoutsideofChina.Thus,webelievetherecentnewregulationsfromthegovernmentaremeanttostrengthenthecompetitivenessandlongertermgrowthprospectsforthesecompanies,whileimprovingthesector’soverallhealth.Wewouldviewtheregulationsasbeingabitterpillfor“shorttermpainbutlongtermgain.”

TherecentselloffofChinainternetandtechcompanieshasdriventheirvaluationstothemostattractivelevelsinrecentmemory,whichwebelieveoffersagoodentrypointforpatientinvestors.WeareinitiatingcoverageofAlibaba,Tencent,Baidu,JD,KEHoldingsandSEAwithOverweightratings,PDDatEqualWeight,andMeituanatUnderweight.OurTopPickisBABA.

ThereareseveralriskfactorswheninvestinginChinesetechandinternetcompaniesincluding:1)geopoliticalrisks–internationally,regionallyinAsiaorwithinChina–whichhavebeentopofinvestors’minds;2)recentgovernmentregulationstargetedatthesectorwhichcouldnegativelyimpactcompaniesandthesectorintheshortterm,sometimesseverely(egthecrackdowninafterschooltutoring);and3)therapidpaceofinnovationandchangingcompetitivedynamicscanalteracompany’spositioninginasectorquitemeaningfully,andwithoutwarning.

BABA(OW)–significantlybelowintrinsicvaluewithcloudandAntstakefreeoptions

BEKE(OW)–ItiseffectivelyChina’sMLSanddominantpositioninginworld’sbiggestrealestatemarket

BIDU(OW)–alltheexcitingnuggetsoverlookedbymarket–AI,AD,cloud,IoT,chips

JD(OW)–thelargestretailer(online&offline)inChinagettinglarger

MPNGF(UW)–furtherupsideinmonetizationmaybeachallengeplusexpensepressure

PDD(EW)–incredibleinnovatorintransitiontomoveup-market

SE(OW)–thecomboofTencentandAlibabaforotheremergingmarkets

TCEHY(OW)–investmentportfoliointertwinedwitheveryfiberofChina’sdigitalfabric

BarclaysCapitalInc.and/oroneofitsaffiliatesdoesandseekstodobusinesswithcompaniescoveredinitsresearchreports.Asaresult,investorsshouldbeawarethatthefirmmayhaveaconflictofinterestthatcouldaffecttheobjectivityofthisreport.Investorsshouldconsiderthisreportasonlyasinglefactorinmakingtheirinvestmentdecision.

PLEASESEEANALYSTCERTIFICATION(S)ANDIMPORTANTDISCLOSURESBEGINNINGONPAGE162.

Barclays|ChinaTechnology

SummaryofourRatings,PriceTargetsandEarningsEstimatesinthisReport

Company

Rating

Price

PriceTarget

EPSFY1(E)

EPSFY2(E)

Old

New

01-Nov-21

Old

New

%Chg

Old

New

%Chg

Old

New

%Chg

ChinaTechnology

NR

Pos

AlibabaGroupHoldingLtd.(BABA)

N/A

OW

170.17

N/A

275.00

-

N/A

56.11

-

N/A

69.09

-

Baidu,Inc.(BIDU)

N/A

OW

170.32

N/A

243.00

-

N/A

66.33

-

N/A

77.01

-

JD.com,Inc.(JD)

N/A

OW

82.50

N/A

98.00

-

N/A

8.11

-

N/A

6.42

-

KeHoldingsInc.(BEKE)

N/A

OW

19.66

N/A

29.00

-

N/A

2.19

-

N/A

5.14

-

MeituanDianping(MPNGF)

N/A

UW

35.72

N/A

32.00

-

N/A

-2.72

-

N/A

-2.13

-

PinduoduoInc.(PDD)

N/A

EW

93.48

N/A

103.00

-

N/A

2.37

-

N/A

1.65

-

SEALtd.(SE)

N/A

OW

354.04

N/A

427.00

-

N/A

-2.90

-

N/A

-1.84

-

TencentHoldingsLtd.(TCEHY)

N/A

OW

61.93

N/A

84.00

-

N/A

13.83

-

N/A

15.72

-

Source:BarclaysResearch.SharepricesandtargetpricesareshownintheprimarylistingcurrencyandEPSestimatesareshowninthereportingcurrency.

FY1(E):CurrentfiscalyearestimatesbyBarclaysResearch.FY2(E):NextfiscalyearestimatesbyBarclaysResearch.

StockRating:OW:Overweight;EW:EqualWeight;UW:Underweight;RS:RatingSuspended

IndustryView:Pos:Positive;Neu:Neutral;Neg:Negative

2November2021 2

Barclays|ChinaTechnology

CONTENTS

CHINATECHNOLOGY–TOOBIGORTOOIMPORTANTTOBE

IGNORED

4

GRAPPLINGWITHVALUATION–ANEW,BUSINESSMODELFOCUSED

APPROACH

6

ALIBABAGROUPHOLDING(BABA)–TOPPICK;PT$275

7

KEHOLDINGS(BEKE)–OVERWEIGHT;PT$29

24

BAIDU,INC.(BIDU)–OVERWEIGHT;PT$243

38

JD.COM–OVERWEIGHT;PT$98

55

MEITUAN(MPNGF)–UNDERWEIGHT;PT$32

68

PINDUODUO,INC.(PDD)–EQUALWEIGHT;PT$103

83

SEALTD.:OVERWEIGHT;PT:$427

97

TENCENTHOLDINGS(TCEHY)–OVERWEIGHT;PT$84

116

INDUSTRYOVERVIEW

134

GAMING

140

ONLINEADVERTISING

144

2November2021 3

Barclays|ChinaTechnology

CHINATECHNOLOGY–TOOBIGORTOOIMPORTANTTOBEIGNORED

WeareinitiatingcoverageoftheChinaTechnologysectorwithaPositiverating.ThedevelopmentoftheChinaTechnologysectoroverthepast15-20yearshasbeenremarkable.WhenAlibabawasfoundedin1999,ithadambitionstobecometheEbayofChina,andTencentwasafledglingonlinegamingcompanywhenitlistedin2004,butrecallSouthAfricanmediaconglomerateNasperspurchased+40%ofthecompanyformerely$100mnfromHongKongtycoonRichardLi’sPCCWin2001.NowbothTencentandAlibabaareamongthelargestandmostinfluentialInternetcompaniesintheworld,boastingmarketcapscloseto$1trillioneachasrecentlyasofFebruary2021.TheChinaInternetindustryhasseentremendousgrowthjustinthelast10yearswithseveralcompaniesintheselective$100bnmarketcapclubofInternetcompaniesaroundtheworld.AlmosthalfofthelargestinternetcompaniesintheworldarefromChina.Inaddition,thesecompanieshaveestablisheddominantpositionsinwide-rangingeconomicsectorsfromecommerceandsocialmediatofooddeliveryandridesharing.ThereisnostonethathasbeenleftunturnedbyInternetentrepreneursinChina.

Therewasacleartailwindthatdrovethisimpressivegrowth.Chinaneverhadamodernofflineeconomy,andwasabletoskipthesubstitutionphase(onlinesubstitutesoffline)experiencedbyothercountriessuchastheUSeg.howAmazonbeatBarnes&Noblewhenitwasjustanonlinebookseller.China’sofflineretailhadlimitedpresencewhenecommercearrivedatthescene20yearsago,whichiswhyittookofflikearocket.Unlikeothercountries,ChinaneverhadaconsolegamingmarketandwentstraighttoPCgames,andmorerecentlytomobilegames,andnowTencentisthelargestgamingcompany,notjustinChinabutglobally,onanymetric.ThesearejustsomeexamplesofwhyChinaappearstohaveleapfroggedintothedigitaleconomymuchfasterthansomeofthemoredevelopedwesterncountries.

Fastforwardtotoday,theChinesegovernment'srecentavalancheofregulationsonthesectorhavemademanyinvestorswary,promptingthemtoreducetheirexposuresignificantlytoChinaTechandInternetstocks.Indeed,wethinksomeinvestorsmayhaveexitedcompletelyfornow,untilthedustsettles.Whiletechregulationsandtechpolicieshaveincreasinglybecomeafocusforgovernmentsaroundtheworld,wewouldstillrecommendthatinvestorsstartbuildingneworaddingtoexistingpositionsintheChinaTechnologysector.Ourbullishstanceisbasedonthefollowingkeypoints.

First,webelievethattheChinesegovernmentfundamentallywantstohavestrongernotweakerInternetandtechcompanies.Acountry’sinfluenceintheworldtodaypartlydependsonthecompetitivenessofitshome-growncompanies.WithcompanieslikeTencenthavinginvestedinmanyinternetcompanies,notjustinChinabutoverseas,orevenChinaEVcompaniessellingEVstoothercountriessuchasGermanyandNorway,itwouldbestrategicallyimportantfortheChinesegovernmenttohelpthembecomemorecompetitiveglobally.Therecentregulationsseemdesignedasa“short-termpainforlong-termgain”bitterpillforthesectorandtheleadingplayersshouldemergestrongerattheend.

Second,thegovernment's

“commonprosperity1

initiativeshouldunderpinbothgrowthandvaluecreationforChinatechandinternetcompaniesovertime.TechandInternetcompaniesaroundtheworldhaveoftenbeenthetargetofireofthegeneralpublicandpoliticiansbecausetheyareoftenperceivedasmakingoversizedprofitswithlittleconsiderationofthesocietalimpactofsomeoftheiractions.Google’s“donoevil”mantraseemstohavebeenforgottenbymanyintheindustryandrecentrevelationsaboutFacebook’sallegedpursuitofprofitsabovesocialresponsibilitiesreportedinthe

news

arejustthelatestexamplesofthat.

What‘CommonProsperity’MeansandWhyXiWantsIt

(Bloomberg,

9/3/21)

2November2021 4

Barclays|ChinaTechnology

InChina,thesituationisnodifferent.Chinesetechandinternetcompanieshaveraisedbillionsfromcapitalmarkets,orgeneratedbillionsinprofitsfromtheirhighlyprofitableoperations.Enormouswealthhasbeencreatedfortheirfoundersandearlyinvestors.Butontheflipside,manyworkersorsmallbusinessesintheirorbitsarestrugglingwithfewsafetynets(aliteralexample,accidentalinsuranceisnotprovidedformanyfooddeliveryriders).Toavoidexacerbatingthesocialdivide,theChinesegovernment's“commonprosperity”initiativeisaimedtoalleviatesocialtensionsandbuildahealthierindustrythatwouldbenefitthewidersociety.

Third,wearenotoverlyconcernedaboutthevariableinterestentity(VIE)structure.Weunderstandtheinherentrisksanditsambiguouslegalnature.Thebreakdownofthisstructurewouldbeunpalatableforinvestors,tosaytheleast,asithaslongbeentheworkingmodelforforeigncapitalinvestmentinChina'sregulatedareas,suchasInternet.Anddespitetheheadlines,webelieveChinacontinuestowelcomeforeigncapital.Becausewithoutit,thelikesofAlibabaorTencentprobablywouldnothaveexistedtodayoratleastnotintheircurrentdominantform.

Last,sincetherecentselloff,Chinatechandinternetcompanyvaluationshavefallentoextremelycompellingrisk-rewardlevels,inourview.Forexample,Alibaba’senterprisevalueisaround$350-400bn,withGMVinthelastfiscalyearendingMarch2021atover$1trillion(morethan2xAmazon's).BABAtradesatanEV/GMVmultipleof~0.3x,afractionofitsglobalpeers(3.6xforAmazon),butwitharguablyabettercompetitivepositioningandexecutiontrackrecordthansomeofthesesamepeers.Itscloudbusinessranks#1inChinaand#3intheworldaccordingtoGartner,andweestimateitshouldgenerateabout$12bninrevenuethisfiscalyear,butthereseemslittlevalueattributedtoitbythemarket.ThecompanyalsoownsaboutathirdofAntFinancial,whichaccordingtoNewYorkTimes,waseyeinga$225bnvaluationforitsIPOin2020,maybeworthbillionsofdollars.ThebottomlineisChinaislikelytoremainthe#2economyintheworld(closelybehindtheUS)inthenextfewyears(it'salreadythe#1economybasedonPurchasingPowerParityaccordingtoworldbankestimates),andwebelieveChinashouldbeameaningfulpartofassetallocationinanyglobalinvestmentportfolio,mandatespermitting.

Inthenear-term,weacknowledgeweakerconsumptiontrendsin3QinChinaascertainregionsimplementedlockdownsfollowinganotherwaveofCovidoutbreaks,alongsideapotentiallysofteradvertisingmarketdrivenpartiallybybusinessshutdownsfrompowershortages.However,weconsiderthisnear-termnoiseandadviseinvestorstofocusonintermediatetolongertermfundamentalswheninvestinginChina'stechandinternetcompanies.WeareinitiatingcoverageofAlibaba,Tencent,Baidu,JD,KEHoldingsandSEAwithOverweightratings,PDDwithanEqualWeightrating,andMeituanwithanUnderweightrating.OurTopPickisBABA.

2November2021 5

Barclays|ChinaTechnology

GRAPPLINGWITHVALUATION–ANEW,BUSINESSMODELFOCUSEDAPPROACH

Valuingtechandinternetcompanieshasalwaysbeenmoreofanartthanscience.ConventionalwaystovaluethesecompaniesincludeDCF,PE,PS,EV/Sales,EV/EBITDA,orEV/GMV,tonameafew.Firstoff,wearescepticalaboutusingDCFtovaluetechandinternetcompanies,asoftentimes95%ofthevalueisdrivenbytheterminalvalue10to15yearsfromnowwhilethesecompaniesandtheirrespectiveindustriescanchangedramaticallyfromoneyeartothenext.Fewcompanies,ifany,wouldlookthesame10yearsfromnow.

Butthereareanumberofissueswhenusingconventionalmultiples.First,internetcompaniesoftendon’tyethaveearningsorEBITDA,soPEorEV/EBITDAmultiplesmaynotworkforthem.UsingsalesorGMVmultiplescanbeequallychallenging.NotallthesalesorGMVsarecomparablebecauseoftheirprofitmarginprofiles.Forexample,theGMVfor1Pecommerceplayersisquitedifferentfrom3Pecommercemarketplaces,asaretheirprofitmargins,(whetheroperating,EBITDAornet).Forexample,theEBITDAmarginsof1Pecommercecompaniesareoftenlowsingledigitbutthatof3Pecommerceplayerscouldeasilybeinthe20-30%range,sometimesevenhigher.Thesamelogicappliestothesalesmultiple.Ourover-archingconclusionisthatconventionalvaluationmultipleshaveseveralsignificantdrawbacks,makingitvirtuallyimpossibletocomparevaluationacrossdifferentbusinessmodelsorcompanieswithverydifferentmarginprofiles.Forexample,oneshouldnotcomparetheGMVorPSmultiplesofJDandAlibaba.

Weintroduceabusinessmodelfocusedvaluationmethodology.Itusesnominalmarginsorprofitsforaparticularcompany’sbusinessmodelinitsaddressablemarket,asopposedtoactualexpectedmarginsorprofits.Forexample,weestimatea3Pecommerceplayershouldhaveroughly25%EBITDAmarginsinthelongrun,afigurewhichhasbeenvalidatedbymatureoperatorssuchasBABA.Evenifacompanyisn'tEBITDApositiveatthemomentoranytimesoonbecauseofheavyinvestmentexpenditures,wecalculateEBITDApotentialwhenithasreachedasteady-state,basedonitsnominalEBITDAmargin.OncewehavethenominalEBITDA,wecanassignatargetmultiple,takingintoaccountdifferentfactorssuchasgrowthrateandcompetitivepositioning,toreachamoreinformedvaluationestimate.Thismethodologywouldallowinvestorstoconsistentlyvaluecompaniesindifferentsub-sectorsatdifferentgrowthstages,withdifferentnear-termprofitoutlooks.Wehaveusedthismethodologytovalueallthestocksthatweareinitiatingcoverageoninthisreport.

2November2021 6

Barclays|ChinaTechnology

ALIBABAGROUPHOLDING(BABA)–TOPPICK;PT$275

AlibabaGroupHoldingLtd.(BABA):QuarterlyandAnnualEPS(CNY)

BABA

2021

2022

2023

Changey/y

StockRating

FYMar

Actual

Old

New

Cons

Old

New

Cons

2022

2023

OVERWEIGHT

IndustryView

Q1

14.82A

N/A

16.61A

16.60A

N/A

17.96E

16.96E

12%

8%

POSITIVE

Q2

17.97A

N/A

11.15E

12.41E

N/A

14.58E

15.26E

-38%

31%

PriceTarget

Q3

22.03A

N/A

16.79E

19.61E

N/A

21.75E

21.78E

-24%

30%

USD275.00

Q4

10.31A

N/A

11.57E

11.20E

N/A

14.79E

13.55E

12%

28%

Price(01-Nov-2021)

Year

65.12A

N/A

56.11E

58.87E

N/A

69.09E

67.70E

-14%

23%

USD170.17

P/E

16.7

19.4

15.8

PotentialUpside/Downside

Source:BarclaysResearch.

+61.6%

ConsensusnumbersarefromBloombergreceivedon01-Nov-2021;12:50GMT

WeareinitiatingcoverageofBABAwithanOverweightratingandpricetargetof$275

WebelieveBABAoffersoneofthemostcompellingvaluationsnotjustamongChineseADRsbutglobalpeersunderBarclays’coverage.WithGMVofover$1tn,2xAmazon’s,andwithnetcashbalanceofover$51bnandinvestmentportfolioworth~$75bn,thecurrentBABA’senterprisevalue(whichdoesnotincludeinvestmentportfolioinourcalculation)of~$350-400bnseemstosignificantlyundervalueitsbusinesses.Plus,themarketappearstobegivingalmostnovaluetobothitscloudbusiness(#1inChinaand#3intheworldwithannualrevenueof$12bnthisyear,inourestimates)andtoitsstake(33%)inAnt.

Despitesomemarketsharelosstocompetitorsinrecentyears,BABAretainsadominantpositionintheChina'secommercemarket,whichstillprovidesmeaningfulgrowthpotentialatthecurrent25-30%penetrationrate.Inadditiontoitscloudinfrastructurebusiness,thecompanyismakingsignificantinroadsintheenterprisecloudSaaSmarketwithDingDing,BABA’senterprisecollaborationoffering,boastingover500mnusersatalmost20mnenterprisesandschools.

OutsideofChina,BABAhasmadesomegoodprogressinrecentyearswithecommerceoperationsinSoutheastAsia(Lazada),TurkeyandEasternEuropean(Trendyol).WebelieveBABAispoisedtoexpanditseffortstofurtherpushitsecommercebusiness,aswellasitslogisticsandcloudbusinessesbeyondChina’sborders.BABAcanleverageitstechnologicalandoperationalexpertisetotapintothesignificantgrowthopportunityoftheinternationalmarkets.Ourpricetargetis$275,basedon15xFY23EnominalcorecommerceEBITAplusitscashandinvestmentwithitscloudbusinessandAntstakebeingfreeoptions.

2November2021 7

Barclays|ChinaTechnology

InvestmentThesis

ThegrandentranceintotheMiddleKingdom

WeareinitiatingcoverageofAlibabawithanOverweightratingand$275pricetarget.

Alibabahasaverydifferentcorporatestrategyfromitsmainplatformrival,Tencent.Alibabahasexpandeditsscopeofecosystemprimarilyby“doingitonitsown”modelwithaprimaryfocusoncommerce-relatedindustrieswiththeexceptionofitscloudbusiness.Inourview,AlibabahasoneofthebestexecutiontrackrecordsamongChina’sdigitalcorporations.ThisisparticularlyimpressivebecausemanyinternetcompaniesinChinaandgloballytendtostrugglewhentheyexpandintonewermarketsoroperateoutoftheircomfortzone.Overthelast10-15years,AlibabahassuccessfullyaddedontopofprimarilyaC2Cmarketplace:aB2Cvirtualshoppingmall,anasset-lighttech-drivenlogisticsbusiness(Cainiao),the#1cloudservicebusinessinChina(#3intheworld).Andthelistgoeson.UnlikeitsmainecommercecompetitorJD,Alibabaownsalmostallofitssubsidiaries,soitsshareholdersownalmostallofitssubsidiariesaswell.Weconsiderthisashareholderfriendlycapitalmarketstrategyormodel.

Withinecommerce,despitetheemergenceofsomenewerplayerssuchasPDD,Alibabahasmaintaineditsdominantpositioninthemindsofthebrands.Alibaba’splatformnowhasbeenmostlycleansedoffakeproducts,andbothbrandsandconsumershavebuiltenoughtrustintheplatform.Thistrustisverydifficultforcompetitorstoemulateorreplicate,atleastintheshortterm.TaobaoandTmallhavebecomeawayoflifefornearlyalltheChinesecitizenswhoshoponlineorshopanywhereatall.Despitesomerecentregulatorychallenges,weareconfidentinAlibaba’sabilitytocontinuetoexecuteeffectivelywithitsbattlehardenedseniormanagementplusadeepbench.

OnesuggestionwewouldmaketoAlibaba'smanagementis:don'tworryaboutmarginsandprofitsintheneartermbutinvestmoreheavilyinareassuchaslogistics,includingbuildingastrongin-houselogisticsoperation.WeunderstandAlibaba'scorestrategyhasbeentostayasset-light.But,ifthecompanyhadaggressivelyinvestedinin-houselogisticsorcustomeracquisitionsinlowertiercities,someofitscompetitors(JD,PDD,amongothers)wouldprobablynothavebeenasstrongastheyaretoday.Itsarchrivalinecommerce,JD,canprovidewhiteglovedeliveryservicessincetheyownthedeliveryoperation,butAlibabaisunabletooffersuchaservicesinceitreliesonthird-partylogisticspartnersinstead.Thecapabilitiesinlogisticsgoesbeyondgettingthegoodsintoconsumers'hands;itisacustomerservicesandcustomerretentionissue.

Inourview,Alibabashouldhavemadefarmoresignificantinvestmentsandforgonepartofitsprofitsinrecentyears,tobuildamoatsowidethatwoulddeterpotentialcompetitors.Instead,competitorshavebeenslowlychippingawayAlibaba'smarketsharewithlowercostsolutions(noannualplatformfeestomerchants,forexample)orfree&fastdeliveryservices.Wethinkitisnottoolatetomakethenecessaryinvestmentstominimizefurthermarketshareerosion.Overall,inChinaandinmanypartsoftheworld,forinternetcompaniestomaketoomuchprofitissomethingcriticizedbynearlyeveryone-governments,regulators,consumers,merchantpartners.Investorssometimesdon'tevenseemtorewardthecompaniesfortheirprofitseither.

Overall,weconsiderBABA'svaluationoneofthemostcompellinginourChinatechandinternetcoverageinviewofits:1)dominantindustrypositioning,2)currentEV/GMV

2November2021 8

Barclays|ChinaTechnology

multiplebeingafractionofglobalpeers(BABA'sGMVismorethantwicethatofAmazon'sbuttradesatonetenthofitsEV/GMVmultiple),3)abilitytogenerateprofitswithhighlyattractivemarginprofiles(adjustedEBITAmargin20%lastquarter),4)avaluablecloudbusiness(#1inChinaand#3intheworld),whichweexpectwillgenerate$12bninrevenuesthisfiscalyear,and5)itsone-thirdstakeinAntFinancial.ItisourviewthatBABA’ssharepriceissignificantlybelowitsintrinsicvalueandthattheStreetcurrentlygivesalmostnovaluetoitsnon-ecommercebusinesssuchascloud,oritsholdinginAnt.

BusinessOverview

Businesssegmentation

BABAisthelargestecommerceplatforminChina,andhasbeenabigcontributortotheoverallgrowthofChina'secommercemarket.From2016to2020,BABA'sonlineGMVincreasedataCAGRofroughly20%accordingtocompanyreportsDuringFY21(Marchyear-end),BABAhad891mnannualactiveconsumersinthedomesticmarketand240minternationally.TotalGMVinFY21wasRMB8.1tn($1.3tn),amajorityofwhich(RMB7.5tn)arefromitsChinaretailmarketplaces(TaobaoandTmall).BABAdividesitsbusinessintocorecommerce,cloudcomputing,digitalmediaandentertainment,andinnovationinitiativessegments,withrespectiverevenuecontributionsof87%,8%,4%,and1%inFY21.

Corecommerce–China

Onlineretail

BABA’sretailcommercebusinessinChinaconsistsofitstwolargestmarketplaces–TaobaoandTmall,contributingroughly66%ofBABA’stotalrevenuesinFY21.TaobaoisBABA’soriginal3Pbusinessinwhichsmallmerchantsselltoretailconsumers.Tmallisamarketplaceinwhichhigher-endbrandsandretailersoperatevirtualflagshipstores.AsofFY21,over250,000brandsandmerchantsopenedtheirstoresonTmall.Duringthe11.11shoppingfestivalin2020,GMVonTmallincreased26%y/yto$74.1bn.

FIGURE1

FIGURE2

BABAonlineretailGMV(RMBbn)

BABAChinaretailannualactivebuyers(mn)

8,000

40%

900

25%

7,000

35%

800

20%

6,000

30%

700

5,000

25%

600

15%

500

4,000

20%

400

3,000

15%

10%

300

2,000

10%

200

5%

1,000

5%

100

0

0%

0

0%

FY2018

FY2019

FY2020

FY2021

FY2018

FY2019

FY2020

FY2021

ChinaretailGMV(RMBbn)

y/ygrowth

Annualactivebuyers

y/ygrowth

Source:CompanyReports,BarclaysResearch

Source:CompanyReports,BarclaysResearch

2November2021 9

Barclays|ChinaTechnology

FIGURE3

FIGURE4

TmallApp-focusesonbrandsandhigherticketgoods

TaobaoApp-anentrypointforBABA’svarious

offerings

Source:TmallApp,BarclaysResearch Source:TaobaoApp,BarclaysResearch

Inaddition,AlibabaoperatesTaobaoDeals,ane-commerceplatformtargetinguserswhoaremoreprice-sensitive,asmostitemsonTaobaoDealsarepricedlowerthansomewhatsimilaritemsonTaobaoandTmall,andaresourceddirectlyfrommanufacturers.SimilartoPDD,TaobaoDealsincludesminigameswhichuserscanplaytowincashrewards,bringinggamificationandsocializationtothee-commerceexperience.AsofendofJune2021,TaobaoDealshadanannualactivecustomerbaseof190mn,upfrom150mnatend-March2021and100mnatend-December2020.TaobaoDealsisoneofAlibaba’sfastestgrowingapps.

2November2021 10

Barclays|ChinaTechnology

FIGURE5

TaobaoDealsApp-focusesonheavily-discounteditemsandgamifiedcontent

Source:TaobaoDealsApp,BarclaysResearch:

CustomerscannowalsoaccessAlibaba’ssecond-handmarketplacecalledIdleFish,inwhichmostsellersareindividualssellingpre-owneditemstoconsumers.In2019,AlibabalaunchedtheIdleFishSelect,onwhichconsumerscanpurchaseauthenticatedsecond-handgoodsfromverifiedsellers.

InthequarterendedJune2021,therewere925mnmobileMAUsonBABA’sChinaretailplatforms,andannualactiveconsumersreached811mninFY21.WithBABA’spushintolowertiercities,70%ofnewactiveconsumerscamefromtheselessdevelopedregions.

InFY21,annualaverageGMVperconsumeronBABA’sChinaretailplatformswasRMB9,240(~$1,400),andover200mnChineseconsumersspent>RMB6,500onBABA’sretailplatforms.WealsohighlightthesuccessofTaobaoLive,onwhichGMValmostdoubledtooverRMB500bninFY21.Today,TaobaoLiveistheNo.1ecommercelive-streamingplatforminChina.

2November2021 11

Barclays|ChinaTechnology

FIGURE6

GMVperChinaretailannualactivebuyer(RMB)

10,000

8,716

9,076

9,240

9,000

7,534

8,000

7,000

6,000

5,000

4,000

3,000

2,000

1,000

0

FY2018

FY2019

FY2020

FY2021

GMVperAAB-Chinaretail(RMB)

Source:CompanyReports,BarclaysResearch

Offlineretail(The"NewRetail"model)

Overthelastfiveyears,BABAhasbeengraduallybuildingupitsofflineretail