Liquidity, policies and fundamentals jointly affect the performance of the Internet sector. Since February 2021, the Internet has experienced significant adjustments. We believe that the influencing factors include liquidity (fluctuation of US dollar interest rate, conflict between Russia and Ukraine, delisting crisis between China and Ukraine, etc.), Fundamentals (short-term concern about the impact of repeated epidemic and weak consumption in China 21h2-22h1, medium and long-term concern about the peak dividend of China’s mobile Internet), and China’s Internet regulatory policies. China Securities Regulatory Commission plans to revise the overseas listing rules of enterprises, and the delisting crisis of zhonggai is expected to be alleviated.
China’s regulatory policy: the basic framework is established. Although it has not been reversed, there is a bottom signal. Follow up attention will be paid to the game version number, mutual fund rectification and data security rules (conclusion of didi incident, etc.); Listed companies buy back and reconfirm at the bottom. At the end of 2020, the central economic work conference will “strengthen antitrust and prevent disorderly expansion of capital”, at the end of 2021, “strengthen antitrust and unfair competition” and “correctly understand and grasp the characteristics and behavior laws of capital”. Since 20h2, a number of regulatory measures have been implemented for antitrust (one out of two penalties, punishment of illegal mergers and acquisitions, protection of workers’ rights and interests, interconnection, adjustment of service fee of guidance platform in special period), data security (implementation of network security law and personal information protection law), protection of teenagers (prevention of game addiction, double reduction of education, rectification of fan economic chaos, etc.) and content audit. Follow up attention has been paid to game version number, mutual fund rectification Data security rules (didi incident conclusion, etc.). Since 21h2, many Internet companies have carried out large-scale repurchase, and the average repurchase price is still lower than the current price, and the bottom is re established.
The fundamentals of 1h21-1q22 are weak, and 2h22 is expected to improve. Although the competition is intensified, the social networking and takeout leaders have a high moat, and the competition of short video games is differentiated. In the context of slowing online penetration, the Internet is more affected by macro factors. Advertising, takeout, online wine travel, e-commerce and other businesses (more short video revenue comes from advertising and e-commerce) are affected by the repeated epidemic and weak consumption, the growth rate of 21q3 and 21q4 is down, and 22h2 is expected to improve; Since game 21q4, the impact of juvenile anti addiction has appeared, and the suspension of version number approval has affected the launch of new products. The 22-year growth comes from going to sea, and the release time of version number affects China’s growth expectation in 23 years; The growth of public cloud slowed down. In terms of competition, the social network effect of acquaintances, winner take all and takeout are based on the local distribution network, and the “three seven” pattern is stable; The game is based on product differentiation competition rather than vicious competition; Short video has a bilateral network effect, but there is a possibility of dislocation competition in the differentiated positioning of the community; E-commerce competition is fierce, and the differentiation of channel brands is gradually established, but it still takes time.
In the medium and long term, going to sea, digitization and innovation are the driving forces. The market is worried about the end of mobile Internet traffic dividend and the bottleneck of growth. We believe that the medium and long-term growth points come from:
1) going to sea, the dividend of mobile Internet is still on the global scale, especially in terms of short videos and games. Chinese enterprises have global competitiveness. 2) Tob contributes to the digital upgrading of manufacturing and agriculture, and there is still a large space for b-end services such as cloud computing. 3) Technological innovation is still the driving force for the long-term development of the industry. The virtual reality integration of more scenes such as AR / VR and metauniverse is expected to further improve the digital level.
It is recommended that the competition pattern, business mode and cash flow be steady, which will benefit from Tencent holdings, Wuhu 37 Interactive Entertainment Network Technology Group Co.Ltd(002555) , Kwai -W, NetEase, bubble Matt and the digitalized logical Beijing United Information Technology Co.Ltd(603613) and Guangzhou Shiyuan Electronic Technology Company Limited(002841) of policy improvement and basic repair. Pay attention to BiliBili, G-Bits Network Technology(Xiamen)Co.Ltd(603444) , Zhihu, Mango Excellent Media Co.Ltd(300413) , Yuewen group, which are expected to benefit from the gradual implementation of policies and better competition pattern.
