1、 Disclosures&Disclaimer This report must be read with the disclosures and the analyst certifications in the Disclosure appendix,and with the Disclaimer,which forms part of it.Issuer of report:The Hongkong and Shanghai Banking Corporation Limited View HSBC Global Research at:https:/ Click here to vot
2、eAsiamoneyGlobalRMBPoll 2020Votingopens2nd27thMarch2020If youvalueourserviceandinsight,pleasevote Tencent remains most resilient given diversified base of advertisers;saw 20%-plus yoy rise in 1Q amid falls for peers Initial signs show recovery for e-commerce platforms in March with smaller merchants
3、 and OTAs likely to follow in 2Q Tencents premium ad inventories on WeChat helping it to weather headwinds and Bytedance and Kuaishou competition Expert call reaffirms ad recovery post COVID-19:We turn more positive on ad recovery after our investor call with the general manager of the largest ad ag
4、ency for Tencent and Bytedance on performance-based ads,which we understand might depict trends of just part of the industry.The expert suggested that ad demand from e-commerce platforms and online travel agencies(OTAs)will recover sooner to capture the business volume growth post-COVID-19.The exper
5、t believes Tencent will fare better vs peers from the impact of COVID-19 because in the experts view Baidu is likely to see flattish revenue growth and Weibo is likely see further declines.In our coverage,we like Tencent given 1)its more diversified advertiser base and 2)the higher ROI for its WeCha
6、t properties;we expect Tencents ad revenue to rise by 20%yoy in 2020e on healthy 26%yoy growth in social ads but offset by flattish growth in media ads.Investment implications:Tencents social ad business remains the most resilient,in our view,as 1)some of its key account advertisers,such as Pinduodu
7、o,are increasing their 2020 ad budgets despite weaker top-line growth;2)performance ad demand from KA advertisers impacted by COVID-19(like OTAs)will likely resume first;and 3)engagement is increasing in WeChat with the daily average time spent rising to 93 minutes in February 2020.Baidu is likely s
8、ee soft ad revenue growth in 2020 as weak search demand(down 10-15%yoy per the expert)offsets growth in news feeds.Yet,a potential catalyst for Baidu is that the company is refocusing its resources into search,according to the expert.Performance by verticals:The expert noted that gaming and K-12 onl
9、ine education ad demand has increased in the first two months of the year on better ROI from the increase in traffic to social media platforms.Also,the expert is seeing initial signs of a recovery in ad demand from e-commerce platforms with recoveries for smaller e-commerce merchants and the travel
10、industry likely to come later in April and May,respectively.Bytedance and Kuaishou remain structural challengers:Bytedance and Kuaishou has gained shares of social ad budgets on the increasing popularity of the short video apps(16.7%time share in February).Kuaishous total revenue reached RMB50bn(USD
11、7bn)in 2019,of which ad revenue reached RMB13bn(USD2bn),already surpassing Weibo.The growing supply of ad inventories has led to pricing pressure,but Tencent is weathering the competition better than peers with stable pricing on its WeChat properties.For 2020,we expect Bytedance and Kuaishou to furt
12、her tap into e-commerce vertical by leveraging on the live streaming and KOLs they have for better user conversion.13 March 2020 Binnie Wong*Head of Internet Research,Asia Pacific The Hongkong and Shanghai Banking Corporation Limited .hk+852 282 22590 Carson Lo*Associate,Internet Research The Hongko
13、ng and Shanghai Banking Corporation Limited .hk+852 2822 4337 Cleo Zhang*Associate,Internet Research The Hongkong and Shanghai Banking Corporation Limited .hk+852 2914 9935 *Employed by a non-US affiliate of HSBC Securities(USA)Inc,and is not registered/qualified pursuant to FINRA regulations China
14、online advertising Equities Internet Software&Services China Expert call reaffirms signs of advertising recovery Equities Internet Software&Services 13 March 2020 2 Exhibit 1:Ad platforms are guiding for weak 1Q20 in general Source:Company data,HSBC estimates for Alibabas customer management revenue
15、 Exhibit 2:Traffic growth of Kwai and TikTok outperformed during the outbreak Source:QuestMobile.Data as of the week ending 1 March 2020.Exhibit 3:Daily average time spent for TikTok and Kwai have already ramped up Source:QuestMobile -13%-18%2%-20%-42%-5%-5%-10%8%-15%-30%3%-9%-14%5%-18%-36%-1%-5%-50
16、%-40%-30%-20%-10%0%10%20%Baidu overallBaidu coreiQIYIWeiboSohus brandadSogouAlibabas CMR1Q20 company revenue guidance(y-o-y)and HSBCe for Alibabas CMRLow-endHigh-endMid-pointHSBCeWeChat,7%TikTok,106%Kwai,131%Weibo,-5%Baidu,45%Tencent Video,22%-50%0%50%100%150%5-Jan12-Jan19-Jan26-Jan2-Feb9-Feb16-Feb2
17、3-Feb1-MarY-o-Y growth in weekly time spentWeChatTikTokKwaiWeiboBaiduiQiyiTencent VideoWeChat,93TikTok,97Kwai,80Weibo,55Baidu,48iQiyi,78Tencent Video,73405060708090100110Jan-19Mar-19May-19Jul-19Sep-19Nov-19Jan-20(mins)Daily aveage time spent per userWeChatTikTokKwaiWeiboBaiduiQiyiTencent Video 3 Equ
18、ities Internet Software&Services 13 March 2020 Exhibit 4:Alibabas and Tencents social ads have been more resilient amid macro headwinds Source:Company data,HSBC estimates Exhibit 5:despite of the high base they have achieved Source:Company data,HSBC estimates -40%-20%0%20%40%60%80%100%-60%-40%-20%0%
19、20%40%60%80%100%120%Alibaba onlinemarketingMeituanTencent socialadsWeibo KAWeibo SME Tencent mediaadsiQIYI adsSogou searchadsBaidu coreadsNetEase eCommerceSocialMediaSearchGamesVerticalsAd revenue YoY and%of total revenue3Q184Q181Q192Q193Q194Q191Q20e2Q20e3Q20e4Q20eAd revenue as%of total revenue(last
20、 reported,RHS)-10,000 20,000 30,000 40,000 50,000 60,000 70,000 80,000AlibabaBaidu coreTencent-SocialAdvertisingPinduoduoTencent-MediaAdvertisingMWeiboiQIYIAds revenue by platform,absolute dollar(RMBm)1Q182Q183Q184Q181Q192Q193Q194Q191Q20e2Q20e3Q20e4Q20e Equities Internet Software&Services 13 March 2
21、020 4 Exhibit 6:Time shares of Bytedance and Kuaishou remain on upward trajectories Source:QuestMobile Exhibit 7:thanks to the increasing time share of short video Source:QuestMobile 50.8%51.7%51.2%51.4%50.8%49.6%49.0%49.0%49.6%49.6%48.1%47.7%47.1%47.4%47.8%48.2%48.1%47.0%46.3%45.9%46.3%45.6%45.1%45
22、.8%44.8%46.0%7.3%7.2%7.1%7.1%7.1%7.1%7.0%6.9%7.0%7.0%7.1%7.2%7.2%7.3%7.4%7.2%7.2%7.6%7.5%7.5%7.6%7.5%7.9%7.8%7.3%6.8%7.5%8.3%9.0%9.3%10.2%11.2%11.4%11.4%11.5%11.8%12.2%13.0%12.8%12.3%12.2%12.3%12.8%12.9%12.9%13.2%13.7%13.9%13.6%13.2%14.7%14.8%10.2%9.9%9.7%9.5%9.3%9.5%9.6%9.9%9.2%9.0%9.0%9.1%9.3%9.1%
23、8.9%8.7%8.3%8.4%8.6%8.4%8.4%8.3%8.3%8.3%8.6%8.2%7.3%6.7%7.2%7.1%7.1%7.0%6.9%6.7%6.9%7.1%7.5%7.0%7.2%7.4%7.1%6.9%6.8%7.1%6.9%6.9%7.0%7.3%7.6%7.2%6.1%6.3%2.7%2.6%2.5%2.2%2.2%2.4%2.5%2.6%2.5%2.7%2.6%2.6%2.9%2.9%2.9%3.0%3.4%3.5%4.1%4.0%4.0%4.3%4.5%4.7%5.1%5.2%3.7%3.7%3.8%3.9%4.0%3.8%3.9%3.9%4.1%4.1%4.2%
24、4.0%4.0%4.1%4.1%4.1%3.9%4.0%4.1%4.2%4.0%4.0%4.0%3.9%4.3%3.8%10.4%10.0%9.4%9.5%9.2%9.4%9.7%9.5%9.2%8.8%9.3%9.3%9.4%9.6%9.7%9.6%9.5%9.4%9.6%9.9%9.0%9.2%9.0%9.2%9.1%9.0%0%10%20%30%40%50%60%70%80%90%100%Jan-18Feb-18Mar-18 Apr-18May-18Jun-18 Jul-18 Aug-18Sep-18Oct-18Nov-18Dec-18Jan-19Feb-19Mar-19 Apr-19M
25、ay-19Jun-19 Jul-19 Aug-19Sep-19Oct-19Nov-19Dec-19Jan-20Feb-20OthersSina/WeiboKuaishouAlibabaBaiduBytedanceInvestees of TencentTencent34.0%33.5%33.7%33.7%33.7%32.3%31.0%31.1%32.6%32.0%31.6%31.0%29.6%29.9%30.7%30.6%30.4%29.5%28.0%28.0%30.3%29.3%29.3%29.8%28.0%27.1%7.7%9.9%8.2%8.1%7.1%7.7%8.6%8.6%7.1%7
26、.7%6.6%7.1%8.5%9.0%7.5%7.8%7.8%7.5%8.8%9.0%6.7%6.9%6.3%6.4%8.4%9.7%9.9%9.5%9.3%9.3%9.3%9.7%10.2%10.0%9.3%9.0%9.0%8.7%8.9%8.7%8.8%8.5%8.6%8.9%9.3%9.1%8.2%8.4%8.1%8.4%8.3%9.0%6.5%7.3%7.9%8.0%8.6%9.8%10.3%10.3%10.1%10.7%10.8%11.7%12.1%12.0%11.5%12.0%12.8%13.3%14.1%14.4%14.5%14.9%15.2%15.0%16.7%16.7%8.6
27、%7.7%8.1%8.2%8.5%8.3%7.9%8.0%8.6%8.3%8.9%8.6%8.5%8.2%8.7%8.7%8.3%8.1%7.7%7.5%7.9%7.7%7.5%7.5%7.9%7.7%4.2%4.2%4.2%4.1%4.2%4.3%4.2%4.3%4.3%4.2%4.3%4.2%4.2%4.0%4.1%4.0%4.1%4.3%4.1%3.9%4.0%4.1%4.1%4.1%3.8%5.0%3.2%3.2%3.3%3.4%3.5%3.3%3.5%3.5%3.7%3.6%3.7%3.5%3.5%3.6%3.6%3.6%3.4%3.5%3.5%3.6%3.5%3.5%3.5%3.3
28、%3.5%3.0%2.9%1.9%3.0%2.9%3.1%3.2%3.1%3.1%3.3%3.6%4.0%3.5%3.4%3.1%3.3%3.3%3.3%3.7%3.4%3.4%3.7%3.9%4.8%4.3%3.1%2.6%8.1%7.9%7.7%7.5%7.2%6.7%6.5%6.4%6.6%6.5%6.6%6.8%6.7%6.7%6.8%6.4%6.3%6.6%6.5%6.3%6.5%6.1%6.5%6.5%6.3%5.9%3.0%3.0%2.8%2.7%2.7%2.8%2.7%2.6%2.5%2.4%2.5%2.6%2.5%2.7%2.6%2.6%2.5%2.4%2.3%2.5%2.8
29、%2.9%2.8%2.7%3.1%3.2%11.4%11.4%11.3%11.5%11.4%11.2%11.5%11.6%11.4%11.5%11.5%11.7%11.7%11.7%11.9%11.9%11.9%11.7%11.8%11.7%11.4%11.8%11.4%11.5%10.3%9.4%0%10%20%30%40%50%60%70%80%90%100%Jan-18 Feb-18 Mar-18 Apr-18 May-18 Jun-18 Jul-18 Aug-18 Sep-18 Oct-18 Nov-18 Dec-18 Jan-19 Feb-19 Mar-19 Apr-19 May-1
30、9 Jun-19 Jul-19 Aug-19 Sep-19 Oct-19 Nov-19 Dec-19 Jan-20 Feb-20OthersLive show streamingGame live streamingSearch&downloadKeyboardGeneral e-commMicroblogBrowserGeneral NewsShort VideoLong VideoGamesInstant Messaging 5 Equities Internet Software&Services 13 March 2020 Key takeaways from the expert c
31、all Industries with increasing ad demand during COVID-19 outbreak Gaming:The ROIs for gaming companies was enhanced due to the increases in traffic on social media platforms during the extended holiday and quarantine measures in January and February 2020.Ad demand has returned to levels before Chine
32、se New Year(CNY)as ROIs have normalised following the resumption of work.And the expert flagged the potential risks of stricter banhao(license for monetisation)requirements being adopted by ad platforms,see the section“Ad platforms likely to impose stricter requirement for gaming ad”of this report f
33、or more details.K-12 online education:Ad demand has risen to promote the free trial courses during the outbreak vs the historically low season during CNY.Insurance:Insurance companies are increasing their budgets in performance-based ads to acquire new users in 2020,following the successful results
34、of Shuidi Insurance(水滴保险)and Zhongan Insurance(众安保险)in 2019.Ad demand from e-commerce and travel industries were negatively impacted by the COVID-19 outbreak Demand from e-commerce platforms is picking up lately as logistics companies have resumed 70-80%of their capacity.Yet,ad demand from smaller m
35、erchants still need time to resume as they still face production bottlenecks,with a recovery likely to start in April at the earliest,according to the expert.CNY has historically been a high marketing season for the travel industry,but the majority of the ad demand has been suspended during the COVI
36、D-19 outbreak.The expert expects that ad demand for domestic travel could resume to normal levels in May at the earliest and that more time will be needed for overseas travel.Tencent should fare better during the COVID-19 outbreak as its advertiser base is more diversified vs.those of peers like Bai
37、du and Weibo,which both provided weak guidance for 1Q20.Ad budget allocations between Tencent and Bytedance Ad budgets would theoretically allocated evenly to Tencent and Bytedance,but in practice,advertisers allocate more ad dollars to Bytedance as it has been more proactive in approaching advertis
38、ers.WeChats back-end ROI(i.e.paying ratio for acquired users)is higher(paying ratio for K-12 online education could reach 96%);while Bytedances strength is on the front-end ROI(i.e.app downloads,user activation,etc.),especially on TikTok.Experts view on the growth of major platforms in 2020 The ad p
39、ricing of major platforms remains largely stable with the exception of TikTok for which its pricing has been bid up by the ramping up of ad demand from gaming companies.Rebate rates from Bytedance,Tencent and Weibo are likely to be lower y-o-y in 2020 while that for Baidu should be similar to 2019.T
40、encent Social ad growth could be 20%or more in 2020 and key accounts(KA)could grow better than those of small-and medium-size enterprises.The fourth ad slot on WeChat Moments has been under small scale beta testing since December 2019 and is not likely to be rolled out in the near future as the thir
41、d ad slot added in 2019 has not been fully filled in lower tier cities.Equities Internet Software&Services 13 March 2020 6 Baidu:News feed ads should continue to record y-o-y growth in 2020,but the ROI for Baidus new feeds is lower than those for Bytedance and Tencent.The expert expect search ads to
42、 see 10-15%y-o-y declines in 2020 given 1)the negative impact from COVID-19 for its major customer verticals,such as medical,adult education and franchising,and 2)the search ROI has no advantages over feed ads.Pinduoduo spent RMB17bn-plus in 2019 vs its original budget of RMB10bn 30%of the ad budget
43、(i.e.RMB5.1bn)are spent in 4Q.The expert believes Pinduoduos ad budget will rise to at least RMB20bn in 2020.Pinduoduos aggressive ad spending has been accompanied by a measured and flexible approach to spend effectively on ad inventories with higher ROIs,and the majority of Pinduoduos ad budget is
44、allocated to Tencents properties.Please refer to the section Detailed transcript of expert call below for more details on the discussions during the expert call.7 Equities Internet Software&Services 13 March 2020 Market pricing in weaker near-term outlook We believe that the market is mostly pricing
45、 in the negative impact of the COVID-19 outbreak on the ad industry.We note that advertising stocks have underperformed the market since the number of infections started to ramp up in mid-January 2020.The average decline has been 18%(or 20%ex-Alibaba and Tencent)since 14 January compared with the S&
46、P500 index declining by 16%over the same period.This is contrary to the first half of January,when these stocks outperformed the market(+15%vs+2%for S&P500)on rising expectations for a recovery for the ad market in 2020e.Given the significant share price declines since COVID-19 outbreak and the lowe
47、red earnings expectations following multiple weak guidance announcements,we believe the negatives from the COVID-19 impact have been mostly priced in and any incremental positive news(like resumption of business activities and ad budget deployment)will serve as positive catalysts for the advertising
48、 names.However,competition for the ad wallet will remain intense as we note that both Bytedance and Kuaishou are ramping up their monetisation and ad inventories to gain market shares.In this context,we prefer Tencent given its diversified businesses and its better targeting capabilities thanks to t
49、he large user bases within the WeChat and QQ ecosystems.Exhibit 9:Alibaba:price vs consensus Exhibit 10:Tencent:price vs consensus Source:Bloomberg.Data as of 9 March 2020.Source:Bloomberg.Data as of 9 March 2020.40424446485052100120140160180200220240Jan-19Apr-19Jul-19Oct-19Jan-20RMBUSDShare priceCo
50、nsensus 2020e non-GAAP EPS(RHS)11.511.711.912.112.312.512.7250300350400450Jan-19Apr-19Jul-19Oct-19Jan-20RMBHKDShare priceConsensus 2020e non-GAAP EPS(RHS)Exhibit 8:The market has mostly priced in the COVID-19 impact on the weaker near-term ad outlook Source:Bloomberg -40%-30%-20%-10%0%10%20%30%Secto
