Baidu, Alibaba, and Tencent (BAT)

November 18, 2014 12:59 ET

Do You Really Understand BAT Q3 Earnings?

NEW YORK, NEW YORK--(Marketwired - Nov. 18, 2014) - Baidu, Alibaba, and Tencent (BAT), announced their Q3 earnings reports for the year 2014, proving the report to be a "Dream of Red Mansions" where different analysts propose various views towards the results. While some perceive Tencent to have the highest revenue and profit, others believe that Alibaba has the highest market value. While others may contradict my views and opinions, I will try to analyze the secrets of the BAT earnings reports for the public to understand.

The question is, at the core of the mobile Internet industry, which company among the BAT three is the strongest?

BAT Q3 earnings at a glance: When accounting for mobile revenue, which company is superior?

First, take a look at the data released by Baidu. Baidu's third quarter total revenues of 13.52 billion yuan from mobile terminal traffic continued throughout the quarter. This exceeded revenues from the PC side. This means that mobile terminals experienced internet traffic flow ratio of more than 100%. Overall, total mobile revenues made up 36% of total income.

Next, examine Alibaba's Q3 revenue of 16.829 billion yuan. Alibaba's China retail GMV reached RMB 5,556.7 billion, of which mobile end GMV was RMB 1,990.5 billion, accounting for 35.8%; mobile terminal revenue reached 3.719 billion yuan, accounting for 22%.

Finally, observe Tencent's Q3 total revenue of 19.808 billion yuan. QQ smart terminals reached 542 million monthly active accounts, accounting for 66.10% of the mobile terminal. The combined monthly number of active accounts on micro-channel and WeChat reached 468 million, an increase of 39% over last year; Qzone reached 629 million active accounts, and Qzone intelligent terminals monthly active accounts reached 506 million, accounting for 80.44% mobile terminal. But so far, Tencent has not disclosed its revenue for mobile terminals and mobile games, but industry professionals estimate that it accounted for about 15-18 percent range.

Overall, BAT mobile internet performance showed substantially linear mobile revenues for all three companies. From the earnings data, Baidu's mobile terminal revenues are nearly 4.87 billion yuan, Alibaba's mobile revenues are 3.719 billion, and Tencent's mobile revenues are comparably smaller (Tencent's Q3 earnings report revealed revenue of 2.6 billion yuan hand travel, and advertising revenue of 2.44 billion yuan, 45% of which comes from the mobile terminal). Analyzing market layout of the three companies, although Alibaba spent a lot of energy in purchasing smaller companies like UC and AutoNavi, while simultaneously pushing the development of other applications like Taobao mobile app, Alibaba's mobile income is still significantly lower than Baidu's mobile revenue, proving that the Baidu mobile layout to be more solid.

User mobility rate: Who will be first to reach the 100% milestone?

In the mobile internet era, one of the core indices used to measure competitiveness is the user mobility rate, a comparative ratio of mobile internet traffic over internet traffic. We can see from the above indicators, Baidu's mobility rate has exceeded 100%. Tencent also performed well, QQ reached 66%, micro-channel/QQ reached 57.03%, and mobile Qzone/Qzone reached 80.44%. For Alibaba, using GMV instead flow indicators, the ratio of mobile terminal GMV /Internet GMV was 1990.5: 3566.2, which is 55.82%.

If achieving 100% user mobility rate represents a milestone for mobile platforms, then in the mobile internet marathon, Baidu is the first to reach the finish line. Most users have completed the conversion from PC to mobile, which also makes Baidu the most pure of the BAT mobile stocks.

Percentage of mobile income of total revenue:

If the user and runoff are concepts in a capitalist market, then revenue would be the performance benchmark. For Baidu, most of its revenue comes from marketing, 36% of which is mobile revenue. Tencent is a little strange; since QQ /micro-letters are basically free services, Tencent's main income still comes from gaming revenue thus only 16.5% revenue came from mobile income, while Alibaba's mobile revenue stood at 22%.

Therefore, when measuring performance based on revenue, Baidu and Alibaba are the winners, since Tencent accounts for much less. Focusing on mobile performance in the capital market, Baidu definitely comes out on top.

Who's the boss? Ultimate analysis of BAT

Everyone wants to stand up and come on top, but this is easier said than done. From 2014 Q3 mobile Internet earnings reports display of both capitalist concepts and performance indicators, Baidu is most definitely the strongest player.

Among BAT, which company has the most stamina? Why?

The development of mobile terminals for BAT is important as this technology allows consumers to access their services anywhere and in small time fragments, accruing to "convenience" dividends. However, if mobile terminals are just a substitute for the PC side, its prospects of mobilization only stands at a capped 100% conversion rate. The most fundamental thing is to analyze mobilization patterns and hidden potential in the market.

When carefully considering the three companies' main sources of revenue, it is evident that each of the companies utilizes a different model of development. Baidu utilizes the Pattern Search method in which the income is in concert with the runoff, while Alibaba utilizes the e-commerce business platform model, where revenue is proportional to turnover; Tencent, who relies heavily on its games and QQ members, shows that its revenue is in concert to the number of subscriptions.

What is the difference between these three mobile internet models? From a human point of view, we can see that their potentials are all very different.

The "search model" was derived from the natural curiosity of the human brain. We have ability to search thousands of keywords and find any information we are looking for, bottlenecked only by mental development. On the other hand, the "electrical business platform model" stems from people's cravings for certain items. However, purchasing ability depends on income, and so this model is bottlenecked by each individual's financial situation. Lastly, the paid subscription model is inspired by people's leisure time, during which they can choose to engage in various activities to quell their boredom. The bottleneck of this model is people's energy.

So, the fact that Tencent still relies on gaming to support its earnings strongly limits its prospects in the mobile internet era. This is because there has been a turning point in China's demographic - as the total idle time of young people decreases, limited energy is available for expenditure on gaming, meaning that Tencent's growth is bound to encounter a problem. However, the company may have bought itself some time with the development of micro-letters. Utilizing this app requires much less time and energy than QQ, and so it leaves consumers with plenty of residual energy to invest in Tencent's games.

Alibaba's mobile platform will continue to erode the traditional business position, relying on the transfer effect to grow. But once it reaches a limit proportional, growth will slow as it synchronizes with per capita disposable income growth. Alibaba's mobile GMV contribution rate shows that this situation is already happening.

Incorporating tools such as PayPal provides people with credit, which in turn increases their "disposable income." Though this income is simply magnified by banks' credit leverage, it still expands consumer spending potential.

As for Baidu, the biggest winner in the mobile Internet era, the rapid development of mobile terminals and convenient voice and image input, will allow people to explore the world as much as possible anytime, anywhere. And so, everyone will contribute to more traffic, synchronizing Baidu to "Brainwave Speed," i.e. limitless growth in the short term. Compared to an individual's energy or financial resources, the brain is infinite, endlessly curious, and capable of hundreds of thousands of thoughts without tiring.

Thus, when Baidu launched its "@" direct service accounts, more than 400,000 traditional business vendors signed up. Because it makes them settled in business, has become a very common outlet of a standing, sharing "brainwave speed" growth. This can also be seen from the Baidu mobile search growth curve in recent years, not only did it not appear slow down, but there was also an acceleration phenomenon.

Using the direct service account "Yun Jia Zheng" as an example, an account that was made at the end of September, the business has already reached a 20% ring growth through mobile platform, which is 3 times the rate of previous ring growths. Simultaneously, second-time purchases increased by 40% which is a 30% increase when compared to traditional PC and mobile channels. At the same time, Apple retailing Zhang Jie who is located in Aksu Tibet, made over 3.25 million yuan through utilizing Baidu's online retail platform.


Years ago, the proposed 3Com founder established Metcalfe's Law, defining the rules of the game in the Internet Age - the number of users in a network is proportional to the square of growth. Whichever company of the BAT major players that steps ahead of the game and occupy a larger base of mobile users (merchants), will have the last laugh in the fierce competitive market.

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