Return to User Value and Scientific and Technological Innovation

Large Internet Enterprises Reduce Speed and Improve Quality

Recently, the annual reports of Internet companies in 2021 have entered an intensive disclosure period, and the performance of several large Internet companies such as Tencent, Alibaba, Baidu, Jingdong and Buy Together (Pinduoduo) has attracted much attention.

According to the annual reports, by 2021, the overall growth rate of internet enterprises will slow down, the proportion of traditional core business will decrease, new e-commerce models will keep emerging, the positive structural adjustment will make people's eyes bright, the layout of the digital economy will accelerate, and the consumption potential of subsiding markets will continue to be stimulated. Facing the situation of gradual narrowing of incremental space and sluggish recovery of overseas consumption, the Internet enterprises are actively embracing the changes.

Slowdown in growth

Over the past year, the performance growth of large Internet enterprises has slowed down. Tencent achieved a revenue of 560.118 billion Chinese yuan in 2021, a year-on-year increase of 16%. The net profit under non-IFRS was 123.788 billion Chinese yuan, a year-on-year increase of 1%. Jingdong Group's annual net income in 2021 was 951.6 billion Chinese yuan, a year-on-year increase of 27.6%. The annual operating profit under non-US GAAP was 13.4 billion Chinese yuan. Buy Together's revenue in 2021 was 93.949 billion Chinese yuan, a year-on-year increase of 58%, and its net profit was 7.769 billion Chinese yuan, turning losses into profits. Baidu's revenue in 2021 was 124.5 billion Chinese yuan, a year-on-year increase of 16%. The net profit under non-US GAAP was 18.830 billion Chinese yuan, a year-on-year decrease of 14%.

Experts believe that the slowdown in the performance growth of large Internet enterprises is not only related to the economic situation both in and outside of China, but also related to the adjustment and development strategy of the Internet industry. At present, many Internet companies focus on expanding new businesses and invest a lot in the early stage, which affects the profits.

"The decline in the growth rate of online consumption and the decline in customer unit price are also an important reason affecting the performance of some Internet enterprises." Zhao Ping, vice president of Academy of China Council for the Promotion of International Trade, said that factors such as the slowdown in supply innovation and difficulties in safeguarding rights led to the decline in the growth rate of online consumption. In 2021, the growth rate of online retail sales of physical goods was 14.1%, only 1.6 percentage points higher than the growth rate of 12.5% of the total retail sales of social consumer goods in the same period.

The weakness of traditional core business also affected the performance growth. Take Tencent and Baidu advertising business as an example. In 2021, Tencent's revenue from online advertising business was 88.6 billion Chinese yuan, a year-on-year increase of 8%, compared with 20% in 2020. Similarly, the proportion of Baidu advertising revenue in the overall performance has also decreased.

At the same time, the income of large Internet enterprises has undergone positive structural adjustment, and emerging businesses have gained strong growth. Tencent's financial technology and enterprise service revenue in 2021 was 172.2 billion Chinese yuan, a year-on-year increase of 34%, accounting for about 30.7% of the total revenue. Among them, the revenue of financial technology and enterprise services in the fourth quarter of 2021 increased by 25% year-on-year to 47.958 billion Chinese yuan, surpassing the online game sector for the first time and becoming the business sector with the largest contribution to Tencent's revenue. Baidu Intelligent Cloud business grew rapidly in 2021, expanding in manufacturing, energy, transportation, automotive and other industries, and the income of these vertical industries doubled.

Focus on Innovation

As the Internet industry turns from high growth to steady growth, large Internet enterprises focus more on "internal skill training", increase investment in R & D, use their brains in business diversification, and seek a development path of more steady growth.

Tencent has increased investment in the field of independent innovation, striving to achieve domestic substitution and gradually improve the self-research ecology. In 2021, Tencent's R & D investment reached a new high, with a year-on-year increase of 33% to 51.8 billion Chinese yuan. Over the past five years, Jingdong has invested nearly 80 billion yuan in R & D to improve the efficiency of the whole industrial chain with technology. In 2021, Buy Together's R & D expenses reached 8.9926 billion yuan, a year-on-year increase of 30%. "Buy Together has shifted its focus from marketing to R & D, which will lay a solid foundation for the long-term development of the company." Chen Lei, chairman and CEO of Buy Together, said.

In order to cope with the difficulties and challenges faced by the current industry, large Internet enterprises actively deploy new businesses and constantly explore new growth points.

On the one hand, the enterprises promote the accelerated integration of digital technology and the real economy. JD deeply links offline physical retail formats by opening its own supply chain capability, digital operation and integrated marketing capability. More brand merchants and offline physical stores accelerate the digital transformation with the help of Jingdong's omni-channel. In 2021, the total volume of Jingdong omni-channel commodity transactions increased by nearly 80% year-on-year. Tencent actively embraces the industrial Internet, vigorously invests in new digital infrastructure and participates in the construction of channeling more computing resources from the eastern areas to the less developed western regions.

On the other hand, the enterprises deepen small-town and rural markets to fully stimulate the consumption potential of rural areas. In 2021, Buy Together made a new round of investment in the fields of agricultural product brands, agricultural talents and logistics and warehousing. The platform generated 61 billion orders, a year-on-year increase of 59%, especially the increase of agricultural orders. Jingdong has fully explored the consumer demand of small-town and rural markets, driving the per capita number of online purchases in rural areas to increase by 4.3 times in two years. As of December 31, 2021, the number of active purchase users in the past 12 months was about 570 million, a net increase of nearly 100 million a year, and 70% of the new users came from small-town and rural markets.

"In the past, the Internet industry was competition-driven and required a relatively high investment. Now, compared with short-term gains, enterprises are paying more attention to long-term business development and optimizing marketing costs, operating costs and labor costs, "said Liu Ziping, president of Tencent.

Future expectation

Looking forward to the future, many Internet enterprises expressed optimism that the current is a temporary shift and speed reduction. Through strategic adjustment and business innovation, the future of the industry is still worth looking forward to.

"In the face of industry challenges, we actively embrace change, reduce costs and enhance efficiency, focus on key strategic areas, and make strategic progress. I believe that the Internet industry is moving towards a healthier model, returning to its roots of user value, technological innovation and social responsibility." Ma Huateng, chairman and CEO of Tencent, said.

Li Yanhong, chairman and chief executive of Baidu, said that this year, Baidu will further enhance the safety of L4 level automatic driving, and the effect of investment in the field of AI will be more concentrated in 2022.

"Looking forward to the future, Jingdong will always focus on creating value for users and partners to make a long-term business development strategy and investment layout." Xu Lei, president of Jingdong Group, said.

The growing number of active users of large Internet enterprises also reflects the tenacity of enterprise development. As of December 31, 2021, the number of Alibaba ecology global annual active consumers reached 1.28 billion, and the number of consumers in overseas markets exceeded 300 million for the first time. By the end of 2021, the annual number of active buyers of Buy Together is 868.7 million, a year-on-year increase of 10%.

In order to boost investor expectations, large Internet enterprises have launched large-scale repurchase plans in recent times. On March 22, Alibaba announced a stock repurchase, which increased from 15 billion US dollars to 25 billion US dollars. The highest repurchase scale is nearly one tenth of the market value, making a record for the repurchase scale of Chinese Companies’ shares. Tencent holdings repurchased shares for five consecutive trading days from March 25 to 31, accumulating 1.5 billion Hong Kong dollars .

"For the healthy and long-term development, internet enterprises still need to continuously optimize their business structures." According to Zhao Ping, the whole industry has entered an adjustment period and enterprises are required to sort out their existing businesses, focus on their main business and highlight their advantages so as to enhance their core competitiveness.