In order to survive, how hard do Internet companies fight?

In the era of stock competition in the Internet industry, the capital market is now paying more and more attention to the reliability of business models and whether it has "self-hematopoietic ability".

On March 24, Tencent (00700. HK) Ma Huateng's "Winter theory" brush screen.

He said that when "wintering", we should consider two points, one is to adjust the posture, reduce costs and increase efficiency due to changes in the external environment, and use bullets in key battles; the other is to strengthen internal coordination, rather than fighting alone.

Recently, the financial reports of major Internet companies have also confirmed this trend. WaterDrop Corporation (WDH. US), Pinduoduo (PDD. US), Reading Group (00772.HK), BOSS Direct (BZ. US) and other Internet companies, through cost reduction and efficiency increase, internal collaboration, increase research and development and other measures, instead show resilience during the "winter" and achieve a turnaround.

In fact, after experiencing the changes in the capital market in 2021, the Internet industry has gradually moved to the stage of stock competition. Compared with the previous model of investment for growth and focusing on scale and market share, the capital market is now paying more and more attention to the reliability of the business model and whether it has "self-hematopoietic ability".

The industry believes that several Internet companies that turned losses into profits in this earnings season are quite typical, and they also have the correct posture of how to "survive the winter".

Internet "winter", there are also "cold plums"

"Live", Vanke (000002.SZ) Yu Liang's warning to the real estate industry in the past has also become a portrayal of the Internet industry.

In the past decade, the vigorous wave of the Internet has contributed a large number of bull stocks and excess returns to the capital market. With the end of the user dividend and the tightening of regulatory policies, the ebb and flow of the Internet is obvious.

In this round of Internet ebb and flow, many people in the industry believe that strict regulatory policies are one of the main reasons, which is actually inaccurate. Lu Jiu Finance and Economics found that the supervision of the Internet by the regulatory level focuses on monopoly, games, live broadcasting, community group buying, etc., and these areas have more or less had a negative impact on society.

"The community group buying of the Internet giants' melee has been criticized by the official media as a struggle for profit with the people's livelihood, which is a typical disorderly expansion." Mr. Yang, an Internet observer, believes that the tightening regulatory policy is a bone-scraping cure for the Internet, and the short-term pain is for long-term benign development.

This benign development has already highlighted its signs in the March earnings season. Incomplete statistics, Waterdrop Company, Pinduoduo, Yuwen Group, BOSS Direct Employment and other Internet companies have achieved a turnaround.

The Internet is receding, but some companies such as "hanmei" bloom? It is not difficult to comb through carefully and find that most of these enterprises that have achieved a turnaround in the "cold winter" belong to the head players in the vertical category, why are they ushering in a new round of golden period under strict supervision?

In fact, the reason is not difficult to boil down.

First, the Internet business returns to the basic logic.

A few years ago, many investors looking at the project would ask entrepreneurs a question: "If you have this business, what if Tencent does it?" Ali (BABA. US) did what to do? And the answer they get is nothing more than two, one is "this business, the giants can't see it", and the other is "they do it themselves, it is better to buy me.". It is this logic, the previous "not bad money" Internet manufacturers crazy investment, so that the projects are like drumming flowers, each valuation rise has benefited the previous round of investors.

With the ebb and flow of the Internet, the previous investment for growth, focusing on the scale and market share of the model, are facing whether there is "self-hematopoietic ability" soul torture, when the "takeover man" becomes prudent, the business will also return to the basic logic.

Second, the Internet business should take the pulse of the era proposition.

In recent days, DingTalk has held a press conference with the theme of "science and technology to reality, all things grow", from the "science and technology to good" advocated a few years ago to the current "science and technology to reality", is a wind direction - the Internet should do practical things for society and industry.

Pinduoduo All in Agriculture is to differentiate with other e-commerce giants, but also to help rural revitalization; Waterdrop Company's water drop protection, water drop chip for the people to solve the "difficult to see a doctor" just need people's livelihood; BOSS direct employment is to solve the problem of social employment...

The direction of these Internet companies is consistent with the context of the times, and in a more benign regulatory environment, they are also highlighting their respective values.

Reducing costs and increasing efficiency, and throttling are also productivity

As Ma Huateng said, when "wintering", we must consider two points, one is to adjust the posture, reduce costs and increase efficiency due to changes in the external environment, and use bullets in key battles; the other is to strengthen internal coordination, rather than fighting alone.

In this earnings season, these companies that turned losses into profits were almost all compressed in the market and marketing, and they also became one of the key factors in turning losses into profits. In other words, when "wintering", throttling is also productivity.

According to Pinduoduo's financial report for the fourth quarter and full year of 2021, it has been profitable for three consecutive quarters. In Pinduoduo's financial report, the most obvious change is that it began to control costs, especially operating costs and marketing expenses - Pinduoduo's sales and marketing expenses in the fourth quarter were 11.366 billion yuan, down 23% year-on-year.

After the storm of suspending new user registration last year, BOSS Direct Employment has reduced the expenditure on marketing expenses accordingly. For the whole year of 2021, the marketing and sales expenses of BOSS direct employment were 1.943 billion yuan, accounting for a decrease of 24% of revenue.

It is worth noting that in the Q4 quarter of last year, the sales and marketing expenses of The WaterDrop Company fell by 69.2%, and the total operating costs and expenses fell by 47.5%, and the effective management of costs also became one of the reasons for the early turnaround of the Waterdrop Company.

"Internet companies should follow a flat, convenient and efficient operation model, but in the past few years, Internet companies have preferred to use capital to open the way and crush the industries they are stationed in." The above-mentioned Internet observer Mr. Yang believes that when the business model of forming a monopoly closed loop by burning money to "run around" fails, the Internet industry is returning to relying on the refined operation of science and technology.

For example, Pinduoduo's overall focus has shifted, shifting from marketing to technology research and development, pursuing long-term high-quality development, especially continued investment in agriculture.

Waterdrop is also generous in terms of R&D investment. In 2021, the R&D expenditure of Waterdrop Company was 379 million yuan, an increase of 55.2% year-on-year. It is understood that Waterdrop has focused on strengthening its investment in artificial intelligence, and has greatly improved its short-term insurance renewal rate by continuously improving the service combination process of 'dialogue robot + customer service + online operation'.

In the whole year of 2021, boss direct employment R&D expenditure reached 822 million yuan, an increase of 60.1% year-on-year, and R&D increased by more than 60%.

In the financial report, many responsible persons also expressed their determination to invest in scientific and technological research and development.

Yang Guang, co-founder, director and general manager of Waterdrop, also said that by changing the growth model, effectively operating existing users, and improving long-term scientific and technological innovation capabilities, the quality of Waterdrop users and various efficiency indicators have been significantly improved.

Zhao Peng, chairman and CEO of BOSS Direct, also said in the earnings report, "In 2022, we will adhere to the technology investment strategy and continue to empower our users, especially valuable employment groups and limited resources of enterprises, because we strive to provide long-term value to shareholders."

Enhance product strength, through user thinking to do the market

Another aspect of Internet enterprises in the stage of stock competition to achieve efficiency is strategic differences and user thinking. How to make differentiated products with friends and how to identify user pain points are particularly important at present.

More commonly speaking, the more cold the winter, the more prominent the product power is king. Previously, Taobao, JD.com (JD. E-commerce represented by the US) is one of the hallmarks of the Internet era. However, the rising star Pinduoduo has broken through with the marketing of weChat ecology. When marketing takes a back seat, Pinduoduo will find its own advantage area like Taobao's retail and Jingdong home appliances - Pinduoduo finally chose agriculture.

Compared with the advantages of the first two is standard products, the non-standard product of agriculture is also accompanied by many thresholds such as circulation efficiency and high loss, but this strategic difference is aimed at the trillion market, which is a difficult and correct thing for Pinduoduo.

The advantage of Waterdrop is the Internet gene, but the opponent he faces is the traditional insurance company with tens of thousands of pushing "iron army". How to get started with traditional insurance companies? Waterdrop also revealed the "secret" in this quarter's earnings report.

As of December 31, 2021, Waterdrop offers 364 insurance products on its platform, of which products customized exclusively with insurers contribute more than 90% of the first-year premium. In addition, about 394 million users donated more than 48.4 billion yuan to nearly 2.4 million patients with serious illnesses through Waterdrop Fundraising last year.

The insurance products of Waterdrop Company are different from many insurance products circulating on the market, and are more in line with the pain points and needs of users, and the social welfare of Waterdrop Chip and Waterdrop Insurance form a brand synergy. The combination of product power plus public welfare attributes also allows its business to maintain high growth.

Reading Group, which turned a profit last year, also used "content is king" to conquer consumers. In 2021, its online reading business MAU increased by 8.6% year-on-year, a net increase of 19.7 million visits, and hit a record high of 248.6 million visits, thanks to the strong response of film and television dramas such as "Son-in-law", "Douluo Continent", "Hello, Li Huanying", and "Knife In the Snow" and "The World" at the beginning of this year, contributing to the promotion of performance.

"In fact, Internet companies' winter is nothing more than a 'three-plate axe', that is, to cut marketing expenses, reduce labor costs, and improve operational efficiency." Several industry insiders concluded that several companies that turned losses into profits in this earnings season basically followed this logic.

Compared with the former two, improving operational efficiency is obviously more challenging, which is a "combination fist" of many factors such as enterprise technology research and development, team management, and product strength.

"Internet companies that can survive the 'cold winter' must be enterprises that plant 'seeds' in the coming year." An industry insider who did not want to be named told Lu Jiu Finance that this financial reporting season is an industry inflection point, and the above-mentioned companies that turn losses into profits are a signal, that is, there is no need to be overly pessimistic about the future of Internet companies, and now it is just a process of eliminating the essence.

In the future, Internet companies focusing on games, live broadcasting and other fields may decline, but Internet companies such as insurance, employment, and agriculture, which are closely related to people's livelihood, will rise - as long as the strategic direction and business model of enterprises are in line with mainstream values, the rest only need to wait for the flowers to blossom.