The Plunge Is Over 30%. Where Does The Share Price Go?

In July 26th of 2018, I was invited to the first financial television station in Shanghai to comment on the company as a network guest of many listed companies.

The first item I got was from a lot of products, or when the host gave me a pair of socks bought on the Internet.

At the time, for many comments, my view was that the rise of many companies benefited from the last dividend of China Mobile Internet, but the market value of that time was over 30 billion US dollars.

Nearly a year later, the first annual report of its listing was released in March 13, 2019, and it was considered a "mid-term exam".

From the data results, many GMV growth and weak user growth have raised market doubt, and the share price has been adjusted 1/3 after the annual report.

From the perspective of the future, I still believe that the market value of a lot of US $25 billion is overestimated.

Looking at the company's tracking and data analysis over the past year, we are still cautious in the long and medium term.

Differences between traffic and users

We have done an analysis of the electricity supplier, and think that some platforms really have users.

These users are very sticky to the platform. Not all price and subsidy are important for platform shopping.

An important feature of platform based Internet enterprises is the high cost of users leaving the platform.

While some platforms do not own users, they only have traffic. Users are subsidized in platform shopping, and there is no long-term loyalty.

We look at the latest annual reports. A shocking statistic is that the number of annual buyers has exceeded 418 million. This figure exceeds 305 million of Jingdong, after Alibaba's 636 million year buyer.

If we just look at this figure, we will find that many companies have gone beyond Jingdong and become the second largest electricity supplier in China.

In fact, there was a time when the market value exceeded Jingdong.

However, we need to analyze, whether we really need to know more about real users or traffic, and then we can analyze from earnings. If the number of users grows so much, shouldn't we make a lot of money? The fact is that a lot of losses are increasing, and Non-GAAP's losses have reached 3 billion 900 million.

After the earnings came out, almost all investment banks in the market were cutting down on the 2019 earnings forecast.

So where did the cost of money go?

The answer is that marketing has a huge cost.

In the three quarter of 2018, the marketing fee was 92% of the total revenue. By the four quarter of 2018, the marketing fee reached 104% of the revenue.

From the absolute amount, sales expenses of promotional activities and brand promotion in the fourth quarter of 2018 were up to 6 billion, up 699% from the same period last year.

Of course, there are still a lot of optimistic opinions on the market. Many foreign banks believe that the growth of marketing fees will be slower than the growth of revenue, and eventually the platform will still achieve better profitability.

Historically, a large number of e-commerce platforms which rely on subsidies to purchase GMV for a long time can not be sustained.

We also did a lot of questionnaire surveys and grassroots research. We found that the users of Alibaba are mainly based on quality and brand. Jingdong users are based on logistics experience, and many users are based on absolute cheap.

When your users go all the way to cost performance, these users are very sticky.

The quality of more than 400 million users is not very high.

How deep is the barrier of multiple channels?

When we wrote a lot of IPO, we wrote a report: "those who study Internet applications every day in Lujiazui financial circle belong to a small group in China. 80% of Chinese families earn less than 3000 yuan per month.

From the beginning, he understood the problem. He wanted to understand who the target customers were and how to catch them.

From the rapid rise of many, we see many simple and crude traffic methods, many large-scale advertising methods that existed ten years ago.

These methods are still effective for many users.

And other Internet applications through the city and then downward penetration of the dimension reduction attack method is different, many more aim at the last volume of gold mine: four or five line city and our countryside.

The network coverage of the entire mobile Internet operators is basically from the first tier and second line, and then continues to sink.

These people have not been fully covered by Taobao and Jingdong, and even the logistics system of these big business providers has not sinks in.

In fact, today's rural and four or five tier cities are just repeating the story of yesterday's first tier cities.

The whole Chinese consumption is stratified. Many people doubt that no one is using a lot before listing too many shares. But at that time, we pointed out that many users were not typical users of the first tier cities, but a large number of them in the four or five line cities and our countryside.

China is a developing country with an average low income, rather than a first tier city that is widely represented by the north.

But when we understand this problem, we think about how deep the barriers are.

From the nature of commodities, it is often the developed areas that radiate from underdeveloped areas.

Why do we drink Starbucks from the United States, eat McDonald's in the United States, or even see the Disney superhero movie in the United States? Behind the United States, as the most developed country in the world, its culture can be exported to the less developed areas.

Commodities also radiate from cities to rural areas, rather than rural areas encircling cities.

In the long run, if we think that China's urbanization will continue, the channel of Ali Taobao will continue to sink, and many barriers will be fragile.

From the past few years, the "three or four cities" of "shed change monetization", has promoted the income of these urban residents greatly improved.

After income rises, price is no longer the most important purchase factor.

From the latest research report of Analysys International, we can see that the 345 line urban residents are concerned about the quality and quality of consumption.

End of the electricity supplier: there is no dislocation competition.

If we add up the annual buyers of Ali, Jingdong and many three companies, it has surpassed the total population of China.

Many people say that the electricity supplier can have dislocation competition, and different platforms can solve the needs of different users.

However, from the perspective of the evolution of physical retailing in the past few decades, it is difficult to see dislocation competition in demand.

The rise of WAL-MART in the past decades has led many other similar entity retailers to fail.

Users choose large and full rather than vertical business quotient.

The convenience stores that survive are more based on scenarios.

Users find it convenient to buy a newspaper and milk at the convenience store outside the door.

Coscto, which can survive, relies on another business mode: membership payment plus independent commodity selection.

In the same business mode, if there is no physical scenario, the user will eventually choose one.

In the United States, Amazon has almost formed an exclusive supplier of e-commerce, and has not contended with its volume.

In China, it is difficult to form dislocation competition in the long run.

We throw away the brand and quality problems of many platforms. From the development path, it is hard to copy Alibaba.

The rise of Alibaba is accompanied by the upgrading of the Chinese generation's consumption, from the earliest pursuit of cheap Taobao to the Tmall behind.

The Taobao platform itself is also pforming itself into quality and brand.

It can be said that Alibaba is growing along with the rapid development of China's economy and the growth of the Chinese people's disposable consumption power.

From the perspective of user overlap, the overlap between many users and Taobao is very high, reaching 80%.

Then we need to think whether this part of the users will choose two platforms in the long run, or will eventually turn to a platform. From the above analysis, we mentioned that it is almost impossible to copy Alibaba successfully, and at the same time, the product similarity is much higher than that of Taobao.

From the perspective of overlap, only 70 million of the 420 million active users are not installed Taobao.

In the long run, these users will still choose Taobao.

A lot of channels promote users' online shopping habits through channel misplacement, but most users still choose Taobao with better product quality, product quantity and better service experience.

In the long run, how to price an enterprise? Whether Internet or consumer company, from the viewpoint of value investment fundamentalism, it is based on the ability of enterprises to create cash flow in the long run.

Although Amazon has fluctuated earnings, its free cash flow has continued to grow.

Alibaba also has a strong cash flow.

We look at a lot of companies. From a short-term and long-term perspective, it is very difficult for a company to obtain strong free cash flow.

We believe that a good company must have a reasonable valuation.

In the market value of US $25 billion, we believe that there is still room for further compression of valuations. The medium-term dimension still holds that stock prices have only one direction: goingsouth (down).