小程序能成为互联网巨头的重要增长动力.docx

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1、China Internet SectorCan mini programs become a significant growth driver for Internet giants?Mini programs are catching on and can become significant revenue drivers Tencent first launched mini programs in January 2017, which are simple apps in WeChatthat users can open without first installing. Th

2、is unique Chinese innovation got off to a slow start, but platforms/developers are now enthusiastically adopting it.Tencent and Alibaba/Ant each have over 200mn daily active users (DAUs) fortheir mini programs, and Baidu, Bytedance, etc. are launching their own. In 2019, we estimate WeChat mini prog

3、rams will generate Rmb12bn of revenues from ads and payments (3.1% of total revenue), and that could grow 5x by 2022 (7.5% of total). We see potential upside for Ant in Alipay and Baidu in search and feed.Mini programs can help developers acquire users cheaply and boost usageFor mid- to low-frequenc

4、y use cases, mini programs are a good way for developers to reach users (e.g. Tongcheng-eLong in travel), especially as customer acquisition costs (CAC) for apps soar. Our industry checks indicate CAC for mini programs can be as low as 1/10 of apps. For high frequency use cases, WeChat mini programs

5、 can improve engagement, leveraging social connections (e.g. Pinduoduo in e-commerce). In WeChat, users on average use 10 mini programs (+2.9% YoY) and spend over 15 mins per day. Games are the most popular use case, followed by life services and shopping.Tencent: mini programs are underappreciated

6、ads and payments driversWe estimate Tencent can generate Rmb4bn of revenues from mini program payments in 2019 or 6% of its Fintech and Business Services (FBS) revenues based on new top down industry and bottom up apps/company analyses. By 2022, we expect revenues to increase 3x to Rmb11bn, and see

7、Rmb18.5bn in revenues in our upside case. We estimate another Rmb8bn of revenues from mini program ads or 11% of total ad revenues in 2019. By 2022, we see potential revenues of Rmb45bn or 33% of total ad revenues. We believe mini programs have surpassed official accounts to become the second larges

8、t ad product in Tencent, behind Moments.Alibaba and Baidu: significant growth opportunities from mini programsAnt can leverage mini apps to improve its Alipay use cases, and Alibaba use it to give brands, merchants, product categories more exposure, and in enterprise scenarios with DingTalk. Baidus

9、smart mini program generated high interest from developers at its recent Al conference and could drive ad growth in 2020, as it becomes a highly attributable ad unit with improved conversion rate in search and feed use cases.Figure 1: Mini programs for Tencent, Alibaba and BaiduSource: Reuters, UBS

10、estimates. Note: price data as of Jul 17, 2019.CompanyPrice(LC)Mkt cap (USD m)Rating Price target(LC)PEInvestment thesis in min programs2020E2021ETencent363.2433,600Buy45024.1x19.4xFrontrunner in mini programs. We expect mini programs to become a key driver for Tencent ads and payment revenues, and

11、contribute to games revenues.Alibaba174.8454,357Buy21020.5x15.9xAlipay mini apps use base has caught up with WeChat mini programs. Alipay is more focused on transactions and services, and has synergies with Alibabas ecosystem.Baidu113.639,651Neutral13116.6x11.OxWe see Baidus mini programs as a new a

12、d format, which can boost its ad revenues due to better ad conversion and attribution.This report has been prepared by UBS Securities Asia Limited. ANALYST CERTIFICATION AND REQUIRED DISCLOSURES BEGIN ON PAGE 25. UBS does and seeks to do business with companies covered in its research reports. As a

13、result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision.enterprises at low cost while giving developers a way to accumulate data

14、 for users across their lifecycle. Some examples list as below:Cloud services: Tencent Cloud launched cloud development service* for mini program developers in Sep 2018, and announced it will invest Rmblbn in 2019 to provide storage, database and other resources to subsidize and encourage mini progr

15、am developers.Smart retail: merchants utilize mini programs to achieve marketing, user acquisition, transaction, logistics, customer service, etc., and the user profile data gathered within mini programs further help with dynamic business decision-making and seamless online-to-offline integration.Di

16、gital healthcare: the company is also testing a Tencent Healthcare mini program to consolidate offline healthcare resources and provide online consulting services, online appointment booking, healthcare related content, etc., which improve the efficiency of offline institutions and user experience.G

17、overnment and public services: a number of national, provincial and municipal authorities have set up their mini programs to reach and serve users. Tencent also offers its own mini programs for certain public services, such as the Chengche QR code, which enables users to pay bus/subway fares with a

18、mini program linked to WeChatPay.Figure 17: Tencents industrial internet strategySmartsolutionsSmartsolutionsSmartretailSmarthealthcareSmartfinanceSmarteducationSmarttourismSmarttransportHigh-DAUplatformsHigh-DAUplatformsWeChatMiniprogramWeChatPayWeChatWorkQQBrowserYingYongBaoSource: Company datapro

19、gramsprogramsTechnologies2018, WeChat mini programs have covered over 200 vertical industries. AccordinggIncreasingly importantto-brandsandto Aladdin, the number of WeChat mini programs exceeded 2.3m by the end of 2018 (more than the total number of apps in Apples App Store), and could reach 5m by 2

20、019.Figure 18: Vertical breakdown for WeChat mini programs with over 1m MAU0%20%40%60%0%20%40%60%Mar-2019Source: Questl/lobile44.4%80%100% QmesLife services ShoDDinQ10.4%For insta ice, Pinduoduo has gained substantial user traction andstrengtherfrom the s(strengtherfrom the s(ed their competitivenes

21、s via the WeChat minia(51roqram. Apart,whiams procial sharing function in the mini prog ranuaintances45.2%te themini programs and Pinduoduo. We believe mini progtier cities fipromotes shopping gra曲触of WeChat enetration into lower-as aneffective channel for its user acquisition.Tongcheng-eLong is ano

22、ther successful example of leveraging mini programs for business growth. Tongcheng-eLong has been executing its mini program strategy for user acquisition and online booking, and is even more committed to WeChat than Pinduoduo, Meituan Dianping, JD and other Tencent partners. Tongcheng-eLong*s mini

23、program ranked first in Aladdin*s Monthly Top 100 WeChat Mini Programs from September to December 2018, and won the Best Mini Program of the Year award by Aladdin. Thanks to mini programs, Tongcheng-eLong is able to improve its penetration in lower-tier markets. According to the company, 61.1% of th

24、e newly acquired users from WeChat in 2018 came from lower-tier cities.Tier 1 New Tier 1 Tier 2 Tier 3 Tier 4 and below Mini-program Pinduoduo30%31%Tongcheng-eLongPinduoduoJun-201941May-201932Apr-201923Mar-201923Feb-201923Jan-201921Dec-201812Nov-201812Oct-201813Sep-201818Source: AladdinGeographic de

25、mographics of mini program and Pinduoduo users35%30%25%20%16%15%10%.5%.0%Source: QuestMobile, KukeduoRank in Aladdin Monthly Top 100 WeChat Mini ProgramOur analysis indicates significant monetization potential for mini programsWe believe Tencent can monetize mini programs mainly in three ways. Accor

26、ding to QuestMobile, over half of the WeChat mini programs with MAU over 1m are related to games and online shopping.1. Payment fees charged on transactions that go through mini programs and processed by WeChat Pay.2. Advertising in mini programs and in particular mini games, which have been gaining

27、 traction.3. In-program purchases, again a popular feature in mini games.Figure 21: Frequently used mini-program categoriesSource: Users.QQE-commerce has become a key use case for mini programs, leveraging the strong social nature on WeChat for marketing and user acquisition, which is attractive for

28、 many social e-commerce players and small and medium businesses (SMBs). See our recent note on social e-commerce here. Merchants increasingly value mini programs and official accounts to build a closed-loop transaction model within WeChat, from product display, promotional events, order placement, t

29、ransaction and payment, order status tracking to aftersales services. According to iiMedia, there were over 100m users who shopped in mini programs in 2018.Figure 22: Number of users that shopped in WeChat mini programs (in m)Social e-commerce market size in China (in Rmb bn)353201720182020Fzloeoe U

30、.65CXJ LL85CXJ 二。CXI 9SCXJ gse WON 85N2782.6LLLLMhCXIN22sl.2 SSource: iiMediaAbove Rm1322019F240r of WeChat minin per usLess than Rmb200 %Rmb500-1,0 33%Rmb200-50037%Figure 24: Month programs in 201Rmb1,0C0- 1,500 WXrWeChat miniQ7 7 vx a1748.6Source: Frost & Sullivan1332967.2ion onistribut17%4%Transp

31、ortatio32%Clothing and shoesHousehold appliances 4%Electronic 5%EducationFigure 25: User consump优自11% a* Articles ol use 10%I fl1%Source: Frost & SullivanSource: Frost & SullivanWe forecast mini programs could generate over Rmb800bn GTV (gross transaction value) in 2019, and grow further to over Rmb

32、2trn in 2022. We derive our forecast based on third-party data of mini program MAUs and the market size of the consumer services e-commerce market, and the average GTV per MAU for leading mini programs in e-commerce, local services and tourism, which are the key verticals for mini programs. Accordin

33、g to company data, WeChat mini programs created over Rm500bn commercial value in 2018, up 600% YoY. We expect the strong growth momentum to continue as Tencent allocates more resources to enhance the mini program ecosystem and more merchants join.Figure 26: Mini program GTV forecast for 2019Source:

34、QuestMobile, Company data, UBS estimateseCommercePinduoduoJDVipshopIndustryApp MAU (in m)272.5227.475.0Mini program MAU (in m)86.683.531.9399.8-Mini program MAU as % of total MAU24.1%26.9%29.8%2019E total online GMV (in Rmb bn)909.41,423.0150.19,586.42019E Mini program GMV (in Rmb bn)90.9113.837.547

35、9.7-Mini program GMV as % of total GMV10.0%8.0%25.0%5.0%Average GMV per mini program MAU (in Rmb)1,050.01,363.51,178.31,199.8TourismTongcheng-eLongCtripIndustryApp MAU (in m)34.673.6Mini program MAU (in m)140.654.0231.4-Mini program MAU as % of total MAU80.3%44.9%2019E total online GTV (in Rmb bn)17

36、1.0893.91,774.72019E Mini program GTV (in Rmb bn)137.244.7216.2-Mini program GTV as % of total GTV80.3%5.0%12.2%Average GTV per mini program MAU (in Rmb)975.7827.2934.5Local servicesMaoyanMeituanDianpingIndustryApp MAU (in m)93.6127.750.2Mini program MAU (in m)40.1214.752.1425.7-Mini program MAU as

37、% of total MAU30.0%62.7%50.9%2019E total online GTV (in Rmb bn)38.3372.2202.41,076.02019E Mini program GTV (in Rmb bn)11.537.220.295.7-Mini program GTV as % of total GTV30.0%10.0%10.0%8.9%Average GTV per mini program MAU (in Rmb)286.5173.4388.6224.7Transportation servicesIndustryMini program MAU (in

38、 m)183.72019E total online GTV (in Rmb bn)316.02019E Mini program GTV (in Rmb bn)20.6-Mini program GTV as % of total GTV6.5%Average GTV per mini program MAU (in Rmb)112.4Total mini program GTV (in Rmb bn)812.2Transaction fee revenue (assuming 0.5% take rate) (in Rmb bn)4.1Our sensitivity analysis sh

39、ows that revenues from processing mini program GTV on WeChat could reach Rmb2-8bn in 2019 and Rmb6-19bn in 2022. WeChat Pay is the only payment method allowed in mini programs. According to company data, WeChat Pay charges 0.6-1 % of transaction value as a service fee for merchants under most catego

40、ries (with a few exceptions with lower rates, such as education and utilities). However, WeChat Pay often provides discounts or subsidies to incentivize merchants and strengthen collaboration (e.g. Pinduoduo only pays about 0.3-0.4%), so we believe the actual rate it earns is likely to be lower than

41、 the listed rates.Figure 27: Sensitivity analysis of WeChat mini program payment revenue opportunity (2019E)Figure 28: Sensitivity analysis of WeChat mini program payment revenue opportunity (2022E)8.4%0.3%3.20.4%4.30.5%5.30.6%6.40.7%7.5Mini program GMV as7.4%2.83.84.75.66.6% of consumer services6.4

42、%2.43.24.14.95.7e-commerce market5.4%2.12.73.44.14.84.4%1.72.22.83.33.98.4%0.3%3.20.4%4.30.5%5.30.6%6.40.7%7.5Mini program GMV as7.4%2.83.84.75.66.6% of consumer services6.4%2.43.24.14.95.7e-commerce market5.4%2.12.73.44.14.84.4%1.72.22.83.33.9Transaction processing feeSource: UBS estimatesTransacti

43、on processing fee0.3%0.4%0.5%0.6%0.7%13.0%7.910.613.215.818.5Mini program GMV as12.0%7.69.712.214.617.1%of consumer services11.0%6.78.911.213.415.6e-commerce market10.0%6.18.110.112.214.29.0%5.57.319.111.012.8Source: UBS estimatesMini program ad revenues reached Rmb5bn in 2018 and could grow to Rmb1

44、50bn in 2022, according to Aladdin, and games and e-commerce are the top advertiser verticals. Mini program ad formats are mainly banner ads and promotional video ads, and we expect Tencent to enrich ad formats over time. Tencent has also gradually increased the revenue share for mini program develo

45、pers over the past year, and currently takes 30-50% of the total ad dollars.We estimate mini programs could generate Rmb5-10bn ad revenue for Tencent this year. Tencent only started to add ad inventory in mini programs in early 2018 and is only slowly increasing its ad load, but mini programs have b

46、een a major driver of Tencent ad revenues in the past few quarters. We expect further upside from mini programs ads as Tencent makes more inventory available and improves the fill rate and conversion rate. However, mini program ads could potentially cannibalize official account ads to some extent.We forecast mini programs to become an important driver for Tencenfs ad and fintech revenue. Based on our forecasts, mini program ads cou