Large Internet companies are slowing down and improving quality

Recently, the 2021 annual reports of Internet companies have entered an intensive disclosure period, and the performance of several large Internet companies such as Tencent, Alibaba, Baidu, JD.com, and Pinduoduo has attracted much attention.

The annual report shows that in 2021, the overall growth rate of Internet companies will slow down, the proportion of traditional core businesses will decline, new e-commerce models will continue to emerge, positive structural adjustments will make people shine, the digital economy will accelerate its layout, and the consumption potential of the sinking market will continue to be stimulated. In the face of the gradual narrowing of the incremental space and the lack of recovery of overseas consumption, Internet companies are actively embracing changes.

Growth slowed

In the past year, the performance growth rate of large Internet companies has slowed down. Tencent achieved revenue of RMB560.118 billion in 2021, an increase of 16% year-on-year, while net profit under non-IFRS was RMB123.788 billion, an increase of 1% year-on-year. JD Group's full-year 2021 net income was RMB951.6 billion, up 27.6% year-on-year, and non-GAAP operating profit for the full year was RMB13.4 billion. Pinduoduo's revenue in 2021 was 93.9499 billion yuan, an increase of 58% year-on-year, and its net profit was 7.769 billion yuan, achieving a turnaround. Baidu's 2021 revenue was 124.5 billion yuan, an increase of 16% year-on-year, and non-GAAP net profit was 18.830 billion yuan, down 14% year-on-year.

Experts believe that the slowdown in the performance growth rate of large Internet companies is not only related to the economic situation at home and abroad, but also related to the adjustment and development strategy of the Internet industry, and many Internet companies are currently focusing on expanding new business, and the initial investment is large, which affects profits.

"The decline in the growth rate of online consumption and the decline in the unit price of customers are also an important reason for the performance of some Internet companies." Zhao Ping, vice president of the China Council for the Promotion of International Trade Research Institute, said that factors such as the slowdown in supply innovation and the problem of rights protection still need to be solved have led to a decline in the growth rate of online consumption, and the growth rate of online retail sales of physical goods in 2021 is 14.1%, which is only 1.6 percentage points higher than the growth rate of total retail sales of social consumer goods in the same period of 12.5%.

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

At the same time, the revenue of large Internet companies has undergone positive structural adjustments, and emerging businesses have made strong efforts. Tencent's financial technology and enterprise service revenue in 2021 was 172.2 billion yuan, an increase of 34% year-on-year, accounting for about 30.7% of the total revenue; among them, the revenue of the financial technology and enterprise services segment in the fourth quarter of 2021 increased by 25% year-on-year to 47.958 billion yuan, surpassing the online game sector for the first time and becoming the business segment with the largest contribution to Tencent's revenue. Baidu Smart Cloud's business will grow rapidly in 2021, expanding in manufacturing, energy, transportation, automotive and other industries, and the revenue of these vertical industries has doubled.

Focus on innovation

As the Internet industry shifts from high growth to steady growth, large Internet companies are more focused on "practicing internal strength", increasing their efforts in research and development investment, and using their brains in business diversification to seek a more stable growth path.

Tencent increased investment in the field of independent innovation, strived to achieve domestic substitution, and gradually improved the self-research ecology, and in 2021, R&D investment reached a new high, an increase of 33% year-on-year to 51.8 billion yuan. In the past five years, JD.com has invested nearly 80 billion yuan in R&D to improve the efficiency of the whole industry chain with technology. Pinduoduo's R&D expenditure in 2021 reached 8.9926 billion yuan, an increase of 30% year-on-year. "Pinduoduo's focus from the past marketing to research and development will lay a solid foundation for the company's long-term development." Chen Lei, chairman and CEO of Pinduoduo, said.

In order to cope with the difficulties and challenges facing the current industry, large Internet companies are also actively deploying new services and constantly tapping new growth points.

On the one hand, we should accelerate the integration of digital technology and the real economy. By opening up its own supply chain capabilities, digital operations and integrated marketing capabilities, JD.com deeply links offline physical retail formats, and more brand merchants and offline physical stores accelerate their digital transformation with the help of JD.com's omni-channel capabilities. In 2021, the total amount of JD.com 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 "East Counting and West Counting".

On the other hand, it is necessary to go deep into the sinking market and fully stimulate the consumption potential of rural areas. In 2021, Pinduoduo will carry out a new round of investment in the fields of agricultural product brands, agricultural talents, logistics and warehousing, and the platform will generate a total of 61 billion orders, an increase of 59% year-on-year, and the increase in agriculture-related orders will be particularly significant. Jingdong fully tapped the consumer demand of the sinking market, driving the per capita number of online shopping pieces 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 in one year, and 70% of the new users came from the sinking market.

"In the past, the Internet industry was competitively driven and invested heavily; now, compared with short-term gains, companies pay more attention to long-term business development and optimize marketing costs, operating costs and labor costs." Tencent President Martin Lau said.

The future can be expected

Looking forward to the future, a number of Internet companies expressed optimism, believing that the current shift 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 increase efficiency, focus on key strategic areas, and make strategic progress, believing that the Internet industry is moving towards a healthier model and returning to the origin of user value, technological innovation and social responsibility." Tencent Chairman and CEO Ma Huateng said.

Baidu Chairman and CEO Robin Li said that this year, Baidu will further improve the safety of L4 level automatic driving, and the effect of investment in the field of artificial intelligence will also be more concentrated in 2022.

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

The continuous growth of active users of large Internet companies also reflects the resilience of enterprises. As of December 31, 2021, the number of annual active consumers in Alibaba's ecosystem 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 number of active buyers in Pinduo for many years was 868.7 million, an increase of 10% year-on-year.

In order to boost investor expectations, in recent times, large Internet companies have launched large-scale repurchase plans. On March 22, Alibaba announced a share repurchase, which increased from $15 billion to $25 billion, with the highest repurchase size of nearly one-tenth of the market value, setting a record for the repurchase scale of Chinese stocks. From March 25 to 31, Tencent Holdings repurchased shares for five consecutive trading days, accumulating HK$1.5 billion.

"For Internet companies to develop healthily and for a long time, they need to continuously optimize their business structure." Zhao Ping said that now that the industry as a whole has entered a period of adjustment, enterprises need to sort out their existing businesses, focus on the main business, highlight their advantages, and thus enhance their core competitiveness. (Economic Daily reporter Li Hualin)