Alibaba and Tencent have done it again. They’ve delivered record-breaking profits that blew past analysts’ forecasts, signalling just how healthy China’s consumer market remains, particularly for the digital sphere. Alibaba’s profit almost doubled to ¥14 billion ($2.1 billion) and Tencent’s grew 70% to a handsome ¥18.2 billion ($2.7 billion). The results have seen their respective stock values soar into the $400 billion-plus-club, which was formerly the sole domain of American tech giants Apple, Google, Facebook, Microsoft and Amazon.
Alibaba’s rise was mainly on the back of its ecommerce business whose active shoppers grew 33 million from a year ago – a third more people than live in Scandinavia, yet a modest 7% increase. Their average spend is what shifted the dial – around $41 – over a third more than this time last year, representing a maturing online shopper. Alibaba’s constant innovation continues to pay off, which has seen a host of new AI and marketing capabilities and investment in an ever-wider breadth of online and offline touchpoints, all held together with some impressive tech infrastructure and a wealth of data.
A comparison of the world’s two largest ecommerce companies, Alibaba and Amazon, shows some stark differences in operating models. Amazon’s end-to-end fulfilment model saw it earn $197 million in the same quarter Alibaba earned $2.1 billion. For every dollar of revenue Amazon made 0.5 cents; Alibaba took home 63 cents. Both companies are chasing the less tapped online shoppers of emerging markets, it will be interesting to see which business model is more sustainable.
Over at the Tencent campus, we are seeing a potent convergence of gaming and social media. On the back of 963 million active WeChat users – 19.5% more than a year ago, mobile gaming has drawn in some 200 million players. Smash hit game Honour of Kings allows users on WeChat to discuss strategy, pull in other friends, see each other’s scores and work together in competing for gaming glory. Its social nature has attracted a record number of female players for a game of its type. The game generated about $828 million in revenue in the first three months of this year, making it the biggest money making smartphone game in the world.
Tencent’s profit was just 69% of its closest global equivalent Facebook. Yet with 2 billion users, Facebook is making significantly less per user than Tencent. Revenue is also much more one-dimensional, with 98% coming from advertising. Of Tencent’s ¥56.6 billion ($8.5 billion) revenue, just ¥10.1 billion came from advertising – ¥6 billion from WeChat, offering plenty of scope for growth. For the majority of its income, Tencent has done a remarkable job of squeezing small payments from many of its users, from games, to digital add-ons and personalisation, to gifting, all enabled by the penetration of mobile payments.
The takeaways from Alibaba and Tencent’s results are not that they make a lot of money, but how China’s most successful consumer-facing businesses have quite different business models to what we know in the West. Understanding what makes their models unique provides invaluable insights into what appeals to Chinese consumers and how successful brands are serving them – many of which can be replicated on smaller scales for foreign brands. Pyramid schemes are out, entertainment and mobile micro-payments are in. Agencies such as China Skinny can assist with such insights and analysis.
On the subject of ecommerce: for our readers in Melbourne, China Skinny’s Mark Tanner will be joining AustCham and the Victorian Government next Monday 28 August at noon to discuss how to navigate and harness China’s ecommerce opportunity. Register for the event here. Go to Page 2 to see this week’s China news and highlights.