Asia Internet and Media:Conference takeaways

Event

We hosted our flagship Asia Internet and Media Conference in Shanghai andBeijing between June 13th and June 17th. Thirty-eight corporate and 11industry experts attended the event.

Impact

E-commerce: a convergence of strategy. Alibaba shared the evolvingecosystem and monetisation of its marketplace, and how different businessunits and associates will help achieve these strategic goals: globalisation,rural expansion and cloud computing/big data. Alibaba will also buildwarehouses in central locations to facilitate its logistic network. JD, on theother hand, is turning lighter asset by utilizing Dada’s crowd-sourced deliveryplatform and encouraging the logistic service adoption of third-partymerchants. Both companies are also converging in their internet financestrategy and product lines. In the Japanese internet space, Rakuten remainsour top pick.

Travel: Integration amid changes. Ctrip’s robust 2Q guidance suggestsminimal impact from recent air commission policy changes and robust volumegrowth. Ctrip remains confident about synergies with Qunar/eLong and crosssellingamong different product lines. Meetings with hotel chains suggest thatRevPar has picked up nicely in 1Q16 and hotel chains see positive impactfrom Disney opening continuing to play out.

Search: short-term pain. Baidu revised down its 2Q revenue guidance by 10%citing medical ad spending delays caused by regulatory uncertainty andreduction in sponsored links as the two main reasons. The revised guidancereflected two months of revenue impact. The company also mentioned thatthey have already witnessed a gradual recovery. While some medicalcustomers will be permanently gone, we believe this event will not havematerial long-term impact on the company’s business. We now estimatesearch revenue to increase 19% in 2016 and 27% in 2017.

Advertising: social ads will take time to pick up. Total Chinese online adspending is expected to grow 21% in 2016 and mobile already accounts forover 50% of online ad budget. Mobile is expected to reach 80% of total onlinead budget by 2020. The market is dominated by BAT, which controls 9 out ofthe top 10 apps in China. Ad dollars will ultimately follows user time spend.Wechat moment ads are in early stage and have good potential. However, it’sstill not the top choice in advertisers’ budget allocation yet.

Education: expansion and centralized contents. The education industrycontinues to expand. New Oriental plans to open 4-5 new centres per year,targeting 10-15% revenue growth and 4-5% capacity expansion. TALeducation is expanding at a more aggressive pace, targeting 30-40% revenuegrowth. Content is centralized. New Oriental has a centralized team to reformthe content, of which 70% are standardized. Internet-based teaching is thenew engine. Online education size is expected to reach over US$30bn in2018E, of which K-12 at US$5.4bn with CAGR of 30% in the next three years.BAT have all made investments in the space, online education is the newtrend.