Mobile continues to be an important factor in the growth of internet companies, and it appears as if Alibaba, Qihoo and Baidu are executing well in this area. Stifel analysts George Askew and Zim Yin released a report looking at broader trend in Chinese internet stocks.
Alibaba continues mobile momentum
Coho Capital 2Q20 Commentary: Podcasts, The New Talk Radio
Coho Capital commentary for the second quarter ended June 30, 2020. Q2 2020 hedge fund letters, conferences and more Dear Partners, Coho Capital returned 46.6% during the first half of the year compared to a loss of 3.1% in the S&P 500. Many of our holdings, such as Netflix, Amazon, and Spotify, were perceived beneficiaries Read More
The Stifel team continues to rate Alibaba Group as a Buy, emphasizing the importance of mobile monetization in the company’s momentum. The analysts studied how the use of big data plays an important role in Alibaba’s future, particularly through the Chinese e-commerce giant’s strategic minority investments.
Alibaba has investments in several public and private companies, including Weibo, Youku Tudou and others. Stifel analysts think Alibaba is putting together a major data strategy using the companies it invests in to share data from their users. When combined, that data offers “a more 360 degree view” of consumer behaviors, the analysts believe.
Currently the data Alibaba and its investees bring together is anonymous, but the analysts think that together, they will be able to push more personalization for individual consumers while also keeping their privacy. This will enable Alibaba to push greater returns on investments for its advertisers and partners by improving targeting capabilities. The Stifel team thinks Alibaba is in the early stages of this process.
At first, they don’t think Alibaba will see much revenue benefit from this big data strategy, although down the road after the increase in return on investment, they think Alibaba will start to see value.
The Stifel team noted that Alibaba continues to show momentum in mobile as mobile gross merchandise volume hit a new record of 42.6% on Single’s Day.
Baidu tries to improve mobile stickiness
The analysts say Baidu is currently using all of its businesses to make its mobile search offerings stickier and monetize mobile advertising. They think Baidu’s expense mix will shift a bit next year and that revenue will drive upside to the Chinese search giant’s margins.
The Stifel team notes that Baidu seems to be focusing on the build-out of its mobile ecosystem. The result will be a stickier experience for users and increase the company’s opportunities for monetization. Baidu is leveraging its Search and Connect in addition to its 91/Wireless mobile app store to create mobile identities for merchants without an online presence.
They say Baidu is using its Wallet, Maps and Nuomi to maximize mobile monetization as well, as it wants users to be able to not only find businesses but also contact them, interact with them and make purchases from them.
Qihoo executes well
The Stifel team reports that Qihoo’s fundamental drivers remain strong, as its PC web browser makes up half of internet time in China. As a result, the company intends to secure a 35% to 40% share of the PC search market. Qihoo is already nearly there, as data from CNZZ indicates that the company already has a more than 32% share of the PC search market.
Qihoo wants to see one-quarter of its overall search traffic in the current quarter to come from mobile devices. Management intends to start monetizing mobile search early next year. The Stifel analysts say features will drive Qihoo’s mobile search share growth without keeping the company overly dependent on pre-installations. In the long term, they think the company’s challenge is to get as close to users in mobile as it is in PC search.
The Stifel team notes that mobile search is more complicated because third-party hardware and software gets between users and Qihoo’s technology. They think Qihoo may need partners to solve this challenge.