As the three Chinese internet giants B.A.T. (Baidu, Alibaba, Tencent) expand their businesses, infiltrating into every section of the industrial chain, a comparison of the three companies in a financial point of view would be illustrative account of the situation.
The Overall Picture
Alibaba’s net profit in Q4 2013 was absolutely impressive. While Baidu and Tencent achieved a quarterly revenue of $1.573 billion and $2.783 billion respectively, with net profit of $459.9 million and $641 million, Alibaba’s performance outshone both of its rivals with $3.058 billion of revenue and $1.363 billion of net profit. Alibaba’s net profit increased by 110% compared to the last quarter of 2012’s $650 million.
Tencent is leading the run by annual sales. The company’s total sales hit $9.913 billion in 2013, driven by its core product WeChat, which, as it further commercializes, will bring considerable increase to the company’s revenue from mobile games and e-commerce. In addition, the company’s investment in JD.com and Dianping.com are also potential boosts for its revenue.
By net profit, Alibaba dwarfed the other two giants with a rocketing net profit of $3.558 billion in 2013, and was expected to keep this dominance in the future. Tencent’s net profit in 2013 was $2.543 billion. But the figure was expected to ameliorate significantly as Tencent outsourced its e-commerce business to JD.com in the following years.
As for Baidu, the net profit of 2013 was slightly distasteful with $1.689 billion, increasing only 1% from the previous year, lagging far behind Tencent and Alibaba. The company is currently undergoing a painful transition to keep up with the changes as users gradually switch from the age of PC internet to mobile internet.
Alibaba’s Distinctive Sales Figures
One thing to be noted about Alibaba is its seasonal fluctuations in sales. Thanks to shopping binges boosted by promotions on festivals such as “double 11“, the company embraces a surge in sales in Q4 every year. In 2013, Alibaba’s Q4 sales achieved a 66% YoY growth, and a QoQ growth of 72%.
The most remarkable change that can be observed from the comparisons above is no doubt Alibaba’s swift and overwhelming rise. In 2012, the company’s annual net profit was still less than that of Baidu. But in just one year, the figure more than doubled. This enormous growth was largely attributed to Alibaba’s e-commerce platforms such as Taobao and Tmall. Lv Bowang, CEO and chief consultant at Beijing Zhengwang Consulting Company, observed that the major part of Alibaba’s income relied on Taobao and especially Tmall. For Tmall, there are two sources of earnings. One of them is Taobao Zhitongzhe, which provided a whole package of marketing services including SEO for sellers on Taobao. The other is the transaction commission Tmall charges according to the merchandise volume of each transaction, which usually ranges from 3% to 5%, and sometime even higher. As long as Tmall’s GMV keeps growing, Alibaba’s sales will also keep increasing.
Tmall will certainly see its GMV grow in the foreseeable future. But the growth could not be limitless. Once Tmall’s GMV hit the ceiling, Alibaba will also suffer a spell of stagnancy. In the mean time, the revenue generated by Taobao Zhidongzhe also has its limit. Mr. Lv remarked that, if too many businesses start to use Zhitongzhe, the ROI might fall, which will certainly disappoint the users. For Tmall, the increase of sales will not be consistent with the increase of its traffic.