PowerPoint Presentation
1
Who’s Winning the Artificial Intelligence Race between PRC & US:
Alibaba, Tencent, Ping An, Baidu & Zhong An VERSUS
Alphabet, Amazon, Apple, Facebook & Microsoft
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Artificial Intelligence Described on a Single Chart
Source: Schulte Research Estimates
Physical
Data
IoT
Digital
Data
Infra.
Neural
Networks:
Machine
Learning
AI
1. Financial Services
2. Cognitive Services
3. Lifestyle/ Health
4. Autonomous cars
5. Robotics
6. Advertising
Cloud
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tin
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5bn
Mobile
Devices
40bn
Sensors
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Source: Schulte Research Estimates, Zenith
a. AI Financial Services Comparison:
Alibaba way ahead. Ping An and Tencent also dominate
Company Payment Insurance Personal
Loans
SME
Loans
Credit
Rating
Money
Market
Wealth
Mgmt
Crowd-
funding
Currency
Exchange
Alibaba AliPay
(400mn)
(51.8% ms)
Ant
Zhong An
Personal
loans – Ant
SME loans
– Ant
SME
Service
Zhima
Credit
Yue’bao
(CNY1.2tn)
Ant
Financial,
AliPay
ANTSDAQ AliPay
Tencent WePay
(300mn)
(38.3% ms)
Zhong An Weilidai Weilidai WeBank / WeBank JD.com /
Ping An Ping An
Bank
Ping An
Insurance
Ping An
Bank
Ping An
Bank
Ping An
Insurance
Ping An
Asset
Mgmt
Ping An
Asset
Mgmt
/ Ping An
Bank
Baidu Baidu
Wallet
(100mn)
/ / / Yes / Yes / /
Amazon / Electronic
Damage
Insurance
(UK)
/ USD$3bn
SME loans
(Amazon
Lending)
/ / / / /
Microsoft MSFT
Wallet
/ / / / / / / /
Google Google
Wallet,
Android
Pay
/ / / / / / / /
Apple Apply Pay
(85mn,
450%YOY)
/ / / / / / / /
Facebook Messenger
Pay
/ / / / / / / /
MISSED
OPPORTUNITY
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b. AI Data Source Comparison.
Alibaba may leapfrog all with PAI, Ding Talk, and Tmall Genie. This puts Alibaba in its own league with Tencent very close.
Source: Schulte Research Estimates
Company Intentional Data Un-intentional Data IoT/Car Cognitive Service Cloud
Alibaba AliPay, Taobao, Tmall,
Alibaba.com, Alibaba
Express, Yue’bao, Tmall,
Alibaba Cloud (750mn)
Youku, Weibo, UCWeb, Cainiao
Logistics, Yahoo! China, SCMP,
AliWangWang, LaiWang, PAI,
Ding Talk
”Connected Car” with
SAIC, AutoNavi, Ali
Health, KFC
Platform for
Artificial
Intelligence (PAI
2.0), Tmall Genie
Ali
Cloud
Tencent WeChat Pay, 3rd Party
Providers (JD.com, Didi,
etc.)
WeChat (938mn), QQ (700mn),
Qzone, WeChat Ecosystem,
Gaming
Didi, Dianping review
site
WeChat Voice/
Image, Tencent
Video
Tencent
Cloud
Ping An Ping An Bank, Ping An
Insurance, Ping An Asset
Mgmt (350mn)
Ping An Health, Ping An
Securities
Ping An Auto Owner,
Wanjia Clinics
Facial recognition,
Voice print
Ping An
Health
Cloud
Baidu Baidu Search, Baidu
Wallet
Baidu Search Food Delivery Service,
Project Apollo
Little Fish Baidu
Cloud
Amazon E-commerce (B2C, C2C) Shopping search Echo, Kindle, Whole
Foods, Amazon Books,
Logistics
Alexa, Rekognition,
Polly, Lex, Amazon
Video
AWS
Google Google Play Store,
Google Search
Google Search, Android OS, G-
mail, Maps, Chrome, Snapchat
(166mn MAU), Youtube,
Waymo
Android OS, Waymo Health, Translation,
Google Assistant,
Google Face, Deep
Mind
Google
Cloud
Apple iTunes (800mn), Apple
Music, Apple Pay (85mn)
iOS, Safari iPhone (1bn), iPad,
iPod, Mac, Apple Watch
Siri, Face
Recognition
iCloud
Microsoft Xbox, Microsoft Wallet
(small)
LinkedIn, Office, Skype, Bing, IE Kinect, Microsoft
Surface, Windows
Phone
Zo, Computer
vision/ Speech/
Language API
Azure
Facebook Messenger Pay Facebook, Facebook Messenger
(1.96bn), Whatsapp (1.3bn)
Oculus, Project Titan Deep face, Deep
text, Translation
/
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c. AI Cloud Comparison:
Amazon Big Winner. Alibaba Leader in Asia.
Source: Schulte Research Estimates, HostUCan, Skyhighnetworks
Company Market Share
(in respective
markets)
Comments
Alibaba 41% Leader in Asia, >100 newly developed AI services
Services in storage, networking, healthcare, logistics, lifestyle, media, business
enhancements, and etc.
Tencent 7% #3 in Chinese Market, services in public/private storage for personal/business use
Baidu 1% Small cloud service
Amazon 47% Amazon AWS: Global & US leader
Microsoft 10% Fastest Growth Rate, 97% YOY
Azure & Office 365
Google 4% Fast growing, 45 teraflops of data (45 trillion bytes/second)
Services include AI APIs’, storage, search history, e-mail, etc.
71,000 searches/second
New quantum computer
Apple 1% Small cloud service, primarily strong in private data collection
Services in location, storage, and security
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Source: Schulte Research Estimates, Zenith
d. AI Cognitive Services Comparison: Microsoft Winner.
There is a “me too” attitude. Microsoft has made a wide and deep mark. But, Alibaba PAI is deeper and broader than anyone else.
Company Image Recognition Facial Recognition Voice
Natural Language
Understanding
Video
Alibaba Document recognition,
image search+, PAI
Identity
authentication, Alipay
Customer service
AI, voice->text
service, etc., PAI
Real-time translation
services, PAI
Video
analysis,
broadcast
service, PAI
Tencent Fashion trend analysis Identity
authentication
WeChat
Voice/Image
Translation Tencent
Video
Baidu xPerception, Pixlab API,
WICG Shape Detection
API
Baidu Facial
Recognition (99.7%
accuracy)
Voice Search,
Text-Speech
Converter, Deep
Voice (97% accu.)
Translation, Speech
Recog., Kitt.AI,
RavenTech
/
Amazon Amazon Rekognition Emotion recog., Face
Comparison
Alexa, Lex Alexa, Echo, Polly Amazon
Video
Microsoft Image understanding,
Celebrities/Landmark
recog.
Face API, Emotion,
Verification,
Detection
Speech
Verification, Text-
Speech Converter
Translation, Text
Analytics, LUIS
Video
analysis,
Video
Indexer
Google Image searching Google Face Google assistant Translation AI, Text
Analytics
YouTube
Apple Classification/
Detection/ Checking
Facial Rec. Siri Siri /
Facebook Text recognition,
translation
Deep Face Oculus VR Voice
Recog.
Translation, Deep Text /
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Source: Schulte Research Estimates, Zenith
e. AI Lifestyle Comparison:
Tencent + Alibaba Winner. Microsoft + Baidu falling behind.
Company Media Food Travel Entertainment Interaction Search Education Health
Alibaba Live media,
news
production,
media
interaction,
etc.
KFC
China,
Koubei,
Ele.me
Air/train
tickets,
hotel
booking
Audio/video
solutions, video
game services, e-
commerce, Youku,
AGTech
Online
shopping
support
Personalized
search, direct
marketing
service, big
data analytics
Media
education
services
Utilities
payment,
Hospital-
patient comm.,
smart diagnosis
Tencent QQ music,
Joox, Tencent
Video/ News
Meituan
Dianping
LY.com E-commerce, video
games
WeChat WeChat
Search, Sogou
Koo Learn,
Ke.qq
WeChat
Intelligent
Hospital
Baidu Book recomm. / Ctrip / / Search engine
(76% market
share),
personalized
search, data
marketing
Baidu
Education
(Jiaoyu)
Health Search
Amazon Books, music,
TV streaming
Whole
Foods,
Amazon
Fresh
/ TV streaming,
Amazon Studio
/ Search
recomm.
Amazon
Inspire
/
Microsoft / / / X-box/gaming Skype,
LinkedIn
Bing MSFT
Education
MSFT Health
Google Google Videos / Google
Flights
YouTube Snapchat,
Gmail,
Google+
Search engine,
personalized
search, data
marketing
Google for
Education
Google Health,
Google Fit
Apple ITunes / / Apps, App Store,
Game
development kits
Messages / / Health apps
Facebook Facebook
newsfeed
/ / Facebook games Facebook,
Whatsapp,
Instagram
Internal Search
Function
/ /
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Alibaba: E-commerce + the fullest AI ecosystem of any company on earth.
And, it has achieved this while being the most profitable of any company.
B2B
C2C
B2C
Cloud Computing
IoT
Artificial Intelligence/ PAI 2.0
Source: Alibaba Website, Schulte Research
Investment
Management
Audio/Video
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Alibaba AI: a truly common man’s bible – access to virtually
any and all data dumps of all of China.
Source: Alibaba Cloud Website, Schulte Research
Artificial Intelligence/
PAI 2.0
A. Financial Services N. Government
E. Online-To-Offline
M. Environment
B. E-Commerce
D. Manufacturing
G. Websites/Apps
J. Audio/Video
L. Health
F. Logistics
C. Cyber-Security
I. Video Games
K. Energy
H. Media
AI
Government
Services
AI
Lifestyle
Services
AI
Banking
Services
AI
Business
Services
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Source: WeChat, Schulte Research
Cloud Computing
IoT
Tencent Holdings Progression
Gaming
Tencent: from social media network to the use of unintentional
data to create a full ecosystem
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Ping An has made greater strides into becoming an
autonomous financial ecosystem than any other company
Insurance
Golden Butler
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Facial Recognition
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Artificial Intelligence
Finance
Healthcare
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Zhong An: only 3 years old, the largest pure online, cloud-based
insurance company globally.
Returns
Agent
Management
Credit Rating
D
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P
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Artificial Intelligence
Lifestyle
Enterprise Solution
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Baidu: stumbled in its transition from search engine to AI;
regaining momentum after widescale mngt. shakeup, and are
pursuing risky strategy of acquisition
Search
Autonomous Driving
Baidu Progression
Source: Baidu Website, Schulte Research
Cloud Services
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Amazon: online bookstore for 3 years to #1 global player in
almost everything, including Cloud, Enviable execution +
impressive global ambition.
Books
NLP
Life style
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Everything..
W
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F
o
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d
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Artificial Intelligence
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Google: from #16 in search engine, Google has used AI to become
advertising behemoth. But, it is not on the radar screen in finance.
Translation
Analytics
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Artificial Intelligence
Services
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Microsoft: started as dominant PC operating system but failed in the
all important transition to mobile, trying to recover by its Azure
Cloud. Why is Microsoft not a dominant leader in SME lending?
Windows
IE
Language
Understanding
V
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A
P
I
Chatbot
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Artificial Intelligence
Lifestyle
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Apple: this is a hardware company with awesome marketing,
unimpressive AI and seem to have stumbled in the progression.
Too late to the game?
Apple Inc
Siri
Artificial Intelligence
Devices
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Facebook: the greatest 1 trick pony ever. They control the social
network + people think this is important – but for it’s own sake? One
of the worst scores.
Deep Face
IO
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x
t A
I
Artificial Intelligence
Lifestyle
FAIR labs
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Chinese firms have implemented quicker and jettisoned quicker. China dropped
duds & created financial empires. US firms stopped their efforts.
Company Duds Successful Replacements
Alibaba Lai Wang, Alibaba.com (HK) Ant Financial, AliPay, Taobao, Tmall, Alibaba Cloud, PAI 2.0,
Zhima Credit, ANTSDAQ, Yue’bao, Youku, Weibo, etc.
Tencent Pai Pai, E-commerce WePay, Weilidai, WeBank, JD.com, WeChat, Didi, Tencent
Cloud, etc.
Ping An Ping An Good Car Ping An Bank, Ping An Insurance, Ping An Asset Mgmt, Ping An
Health, etc.
Baidu O2O Wai Mai Baidu Wallet
Microsoft Microsoft Wallet Skype
Google Google Hangout Android Pay
Facebook Messenger Pay /
Apple Apple Pay /
Amazon Amazon Lending
Amazon Insurance
/
*China had duds but morphed quickly and pivoted effectively
Duds with no
replacement
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Project Conclusions
General Conclusions
The Cloud is the foundation of AI strategy. Alibaba dominates in Asia.
Amazon dominates in US.
Cognitive services are the foundation of AI development -> voice, image,
face, video, language. However, there is a “me too” and, surprisingly, a
feeling that AI is already commoditized.
SMEs and corporates can access cheap AI tools which allow them to access
new forms of credit & offer new products. This is the age of the SME.
Firms, especially in China + other GEMS, are leap-frogging banks rapidly.
They are using AI to analyze vast amounts of integrated data in order to
offer new financial services to billions of unbanked people and millions of
unbanked SMEs.
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Project Conclusions
Chinese Firms Conclusions
PRC firms are better at monetizing technology for mass use.
PRC has a long term, coherent plan for AI. The US has no plan.
Chinese are more willing to surrender data.
Alibaba and Ping An are much further into new territory than anyone else.
Integration of finance and lifestyle is welcomed and encouraged by PRC.
PRC has a clear national policy of proliferating credit to individuals and SMEs.
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Project Conclusions
Reasons for China’s Success over US
US heavily entrenched incumbents & lobbying groups have impeded progress to protect cartels.
Multiple regulators who were on the warpath after the devastation of the GFC (US$300bn of fines)
discouraged new consumers credit products.
Many of the Chinese companies learned to “eat dirt”. They were toughened by a highly
competitive environment.
China succeeded since there was no “there there”. Banking and regulatory structure were absent
and monetary infrastructure was very immature. The only way to win was with “new”.
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Robot installations in China are 1/3 of global total
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Master Summary: Financial, Operational, Artificial Intelligence Analysis
First Second Third Laggard
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a
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ce Operational Health Facebook Alibaba Tencent Amazon
Revenue Diversification Microsoft Alibaba Tencent Facebook
Valuation Ping An Apple Google Tencent
Credit Health Google Apple Tencent Baidu
A
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if
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l I
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ll
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P
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a
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Fintech Alibaba Ping An Tencent Facebook
Insurtech Ping An Alibaba Tencent Facebook
Healthtech Ping An Alibaba Amazon Baidu
Cloud Amazon Microsoft Alibaba Facebook
Data Source Alibaba Ping An Tencent Baidu
Cog Services Google Alibaba Microsoft Facebook
Lifestyle Tencent Alibaba Amazon Baidu
Securities Ping An Alibaba Tencent Microsoft
Overall
Winners/Losers
Ping An Alibaba Tencent Baidu/Facebook
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Overall Rankings: Ping An and Alibaba dominate in all categories
Ranking of each company’s performance across all three areas: Artificial Intelligence Services, Financials, and Valuations. (1st is
best, 9th is worst)
AI Scorecard Financials Valuation Average
1. Ping An 2 4 1 2.3
2. Alibaba 1 2 7 3.3
3. Google 5 4 3 4.0
4. Apple 6 5 2 4.3
5. Tencent 3 3 8 4.7
6. Facebook 8 1 6 5.0
7. Microsoft 7 6 4 5.7
8. Baidu 9 7 5 7.0
9. Amazon 4 8 9 7.0
Note: “1” is best, “9” is worst
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Artificial Intelligence Scorecard:
Chinese firms have diversity and consist of a full menu. US firms tend to specialize through 1 brand. This age
of AI requires diversified ecosystem. Specialist firms lose out.
Source: Schulte Research Estimates
*Scoring from 1 (worst) to 10 (best)
1
Alibaba
2
Ping An
3
Tencent
4
Amazon
5
Google
6
Apple
7
Microsoft
8
Facebook
9
Baidu
FinTech 10 10 9 7 6 7 4 4 5
InsureTech 9 10 9 6 4 4 4 4 4
HealthTech 9 10 8 8 7 7 7 5 4
Cloud 8 5 7 10 8 6 9 4 5
Data source 9 8 9 8 8 8 7 7 6
Cognitive
Services
9 8 7 8 10 7 9 7 8
Lifestyle 9 8 10 9 9 9 7 9 6
Securities 9 10 9 4 5 6 4 5 5
Average 9.0 8.6 8.5 7.5 7.1 6.8 6.4 5.6 5.4
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Financial Rankings:
Facebook/Alibaba best in operations; Baidu/Amazon worst. Microsoft also mediocre.
*Ranking from 1st (best) to 9th (worst)
*ROE/ROC/ROA are next 4Q estimates
*Detailed numbers on Page 15/16
1
Facebook
2
Alibaba
3
Tencent
4
Alphabet
5
Apple
6
Microsoft
7
Baidu
8
Amazon
Retained Earnings
(US$mn)
3 5 4 1 2 8 6 7
Gross Margin (%) 1 2 5 4 7 3 6 8
Net Margin (%) 1 2 3 6 5 4 7 8
Revenue CAGR
(5yrs) (%)
2 1 3 6 7 8 4 5
Cash/Total Asset 4 1 3 5 6 8 7 2
Tangible Leverage 1 3 5 2 6 8 4 7
ROE (%) 2 5 3 6 1 4 7 8
ROC (%) 3 6 2 5 1 4 7 8
ROA (%) 3 2 1 4 5 6 7 8
Average 2.3 3.1 3.3 4.6 4.6 6.2 6.3 7.2
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Valuation Rankings:
Ping An cheapest; Amazon most expensive
*Ranking from 1st (best) to 9th (worst)
1
Ping An
2
Apple
3
Alphabet
4
Microsoft
5
Baidu
6
Facebook
7
Alibaba
8
Tencent
9
Amazon
P/E 1 2 4 3 5 6 7 8 9
P/B 1 4 2 6 3 5 7 8 9
PEG 2 7 6 8 3 1 4 5 9
Price/ Free Cash
Flow
1 2 4 3 5 7 6 8 9
EV/EBITDA NA 1 2 3 5 4 7 8 6
EV/EBIT NA 1 2 3 5 4 6 7 8
Average 2.4 2.8 3.3 4.3 4.3 4.5 6.2 7.5 8.5
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Strategy Directions: The key is integrated ecosystems. Specialization in
IOT + AI is a liability. Google/Facebook have thrown away spectacular
opportunities.
Source: Schulte Research
Hierarchy of
Product
Development
Time
Microsoft
High P/E
Low P/E
Right direction
Wrong
direction
Alibaba, Tencent, and Ping An have IOT/AI plus fully integrated systems. Baidu
dropped the ball.
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Advertisement: Facebook is leading, other data rich
firms have the potential to expand the revenue source
97.0%
91.4%
89.0%
55.0 %
17.7%
7.1%
2.2%
0.0%
10.0%
20.0%
30.0%
40.0%
50.0%
60.0%
70.0%
80.0%
90.0%
100.0%
Facebook Baidu Google Alibaba Tencent Microsoft Amazon
Advertisement revenue as % of total revenue
Source: Schulte Research Estimates, Bloomberg
1 trick ponies?
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Advertisement: Facebook is leading, other data rich
firms have the potential to expand revenue sources
Source: Schulte Research Estimates, Bloomberg
0
50
100
150
200
250
Apple Amazon Ping An Alphabet Microsoft Facebook Alibaba Tencent Baidu
Total Revenue (US$bn)
Other
Advertising
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Chinese Companies Revenue Breakdown
China much more diversified than the US: PRC has a deeper, more integrated ecosystem
58%
28%
12%
1% 1%
Ping An Revenue Breakdown
Life insurance
Property and casualty
insurance
Banking
Trust business
Securities business
55%
17%
4%
3%
4%
1%
5%
9%
2%
Alibaba Revenue Breakdown
Advertising
C2C/B2C
B2B
International commerce retail
International commerce
wholesale
Other commerce
Cloud computing
Digital media and entertainment
Innovation initiatives and others
47%
24%
18%
11%
Tencent Revenue Breakdown
Online games
Social networks
Advertising
Other
41%
4%
8%
47%
Baidu Revenue Breakdown
Search service
Transaction service
iQiyi
Advertising
Source: Schulte Research Estimates, Bloomberg, Company filings
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63%
7%
11%
13%
6%
Apple Revenue Breakdown
iPhone
iPad
Mac
Services (Apple
Pay, AppleCare,
etc.)
Other (Apple TV,
Watch, Beats,
accessories, etc.)
87%
12%
1%
Google Revenue Breakdown
Advertising
Other
Other bets
(Google Fiber,
Calico Labs,
Nest, Verily,
etc.)
98%
2%
Facebook Revenue Breakdown
Advertising
Payments and
other fees
US Companies Revenue Breakdown
These 5 companies are essentially specializing. I think the US companies have moved away from the
conglomerate model at the wrong time?
29%
27%
44%
Microsoft Revenue
Breakdown
Business
Computing
(Office, Skype,
etc.)
Cloud (Azure,
SQL, etc.)
Personal
computing
(Windows,
Surface, Xbox,
etc.)
63%
18%
6%
11%
2%
Amazon Revenue
Breakdown
Retail Products
C2V
Subscriptions
AWS
Other
Source: Schulte Research Estimates, Bloomberg, Company filings
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Research Directions: US Firms
All companies have a similar vision of the future. AI, Big Data, and Language!
Source: Schulte Research
Companies Research Direction Unique Point
1.Facebook AI Research (FAIR) – semantic analysis, sentient analysis, etc.
2.Natural Language Processing and Speech – translation services, word sense disambiguation, etc.
3.Applied Machine Learning – streamline content delivery, connect users w/ desired content
4.Data Science – human interaction analysis, market intelligence, etc.
5.Virtual Reality – augmented reality experiences
Virtual Reality
Microsoft
1.Artificial Intelligence
2.Computer Vision
3.Human-computer Interaction
4.Human Language Technologies
5.Search and Information Retrieval
Human-computer
interaction
Apple
1.Apple Car/ Autonomous Driving
2.Augmented Reality
3.HealthTech – Health functions within Apple watch
4.Chips – Hardware improvement
Chips
Amazon
1.Image/Face Recognition
2.Voice Recognition
3.ChatBot AI
4.Drone Delivery
5.Warehouse Robotics
Drone, Robotics
1.Machine Translation System
2.Deep Learning Algorithms – detection of diabetic retinopathy
3.Quantum Computing
4.Big Data Analytics
5.Machine Intelligence/Perception
Quantum
Computing
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Research Directions: Chinese Firms
All companies have a similar vision of the future. Chinese firms show higher degree of diversification.
Source: Synergy Research, Schulte Research
Companies Research Direction Unique Point
Alibaba
1.Financial Securities Exchange Core
2.Customer Service AI
3.Intelligent Manufacturing – Cloud computing/big data analytics
4.Health Data Platform – Integration of patient data, image analysis, diagnosis
5.Commercial Vehicle Networks – logistics enhancement & optimization
Securities Exchange,
Intelligent Manufacturing
Tencent
1.Artificial Intelligence
2.Machine Learning – stock picking, HFT, portfolio management
3.Big Data – trend analysis
4.Cloud Computing
Portfolio Management
Ping An
1.Data Mining – social media user behavior, engagement rates
2.Computational Algorithms
3.Big Data Analytics – purchasing patterns, WMPs
WMPs
Zhong An
1.Financial Platforms/Cores – E-commerce platforms, insurance cores, finance cores
2.Data Analytics/ Risk Management Modelling
3.AI – Transaction decision-making
4.Blockchain – Digitalize off-chain assets, data storage, secure ID
5.AI – Customer service ChatBot
Blockchain
Baidu
1.Artificial Intelligence – image/speech recognition
2.High Performance Computing/Big Data Analytics
3.Natural Language Processing
4.Deep Learning
5.Augmented Reality
High performance
computing
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Major Acquisitions: US Firms
US firms invest heavily in acquiring smaller firms that do not necessarily operate in their industry.
Source: Synergy Research, Schulte Research
Company Acquisition Amount (US$) Year Description Comment
WhatsApp 19bn 2014 Messaging
Consolidation of social
network industry
Oculus 2bn 2014 VR
Instagram 1.01bn 2012 Social Network
LiveRail 500mn 2014 Video ad.
Microsoft
LinkedIn 26.2bn 2016 Social Network
Failed hardware attempt
on Nokia. LinkedIn is the
new bet on professional
network.
Nokia 8bn 2013 Phone
Skype 8.5bn 2011 Messaging
Mojang 2.5bn 2014 Game developer
Yammer 1.2bn 2012 Corp communication
Apple
Beats Electronics 3bn 2014 Headphone
Lifestyle + Health
HopStop.com 1bn 2013 Transit guide
Lattice 200mn 2017 AI
Gliimpse 200mn 2016 Health
Amazon
Whole Foods Market 13.7bn 2017 Supermarket
O2O bet on Whole Foods
Twitch 970mn 2014 Game streaming
Souq.com 580mn 2017 E-commerce
Elemental Technologies 500mn 2015 Mobile video
Annapurna Labs 37mn 2015 Chip maker
Motorola Mobility 12.5bn 2012 Phone
Another failed case of
acquiring phone company
Waze 1.3bn 2013 Map
Apigee 625mn 2016 API platform
DeepMind 500mn 2014 AI
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Major Acquisitions: Chinese Firms
All companies have a similar vision of the future. Chinese firms show higher degree of diversification.
Source: Synergy Research, Schulte Research
Companies Acquisition Amount (US$) Year Description Comment
Alibaba
UCWeb 4.7bn 2014 Mobile browser
Contents + data
Youku 3.5bn 2015 Chinese Youtube
AGTech Holdings 2.39bn 2016 Lottery
SCMP 262mn 2015 Media
Wandoujija 200mn 2016 Android app store
Tencent
Supercell 8.6bn 2016 Game developer
Consolidation of
game industry
China Music Corp 2.7bn 2016 Music
Riot Games 400mn 2011 Game developer
Miniclip SA na 2015 Game developer
Sanook na 2016 Thai web portal
Baidu
91 Boyuan Wireless 1.9bn 2013 Android app store
Diverse
Beijing Huanxiang Zongheng Chinese
Literature
31.3mn 2013 Online publisher
TrustGo 30mn 2013 Mobile security
Ping An Autohome 1.6bn 2016 Auto website Auto insurance
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Market Cap:
Tech companies are a gathering force in market cap. They dominate capital markets now. Banks can’t
hold a candle to tech spending
0
100
200
300
400
500
600
700
800
900
Apple Alphabet Microsoft Facebook Amazon Alibaba Tencent Wells
Fargo
CCB HSBC Ping An Goldman
Sachs
Baidu Deutsche
Bank
Market Cap (US$bn)
Source: Schulte Research Estimates, Bloomberg
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Retained Earnings:
Alphabet and Apple are sitting on mountains of cash. Much of it as untaxed offshore cash.
105
96
27
22
20
16
12
5
3
0
20
40
60
80
100
120
Alphabet Apple Ping An Facebook Tencent Alibaba Baidu Amazon Microsoft
Retained Earnings (US$bn)
Un-sustainable cash pile
Finally profitable Stock buybacks
Source: Schulte Research Estimates, Bloomberg
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Free Cash Flow:
Cash flows from operations – investment in operating capital (mostly fixed assets)
Tech companies blow away banks in cash flow (‘different’ numbers but you get the
point!)
0
10
20
30
40
50
60
Apple Ping An Microsoft Alphabet Citi (pre-tax
profit)
Facebook Amazon Alibaba Tencent HSBC (pre-
tax profit)
Baidu
Free Cash Flow (US$bn) (2016)
Source: Bloomberg, Citi Annual Report, HSBC Annual Report
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Investment Cash Flow
(net spending in Prop Plt & Eqpt, Capex, M&A)
US$300bn in “conduct costs” for banks is that much more that can’t be used for
investment. Plus, current R/D spending is woefully under invested.
Source: Bloomberg
0
5
10
15
20
25
30
35
40
45
50
Microsoft Apple Alphabet Lloyds
(fines)
RBS (fines) Deutsche
(fines)
Facebook Alibaba Tencent BNP (fines) Amazon Baidu
Investment Cash Flow (US$bn) (2016)
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Chinese Companies Liquidity (1.2 * Working Capital / Total Assets)
0
0.1
0.2
0.3
0.4
0.5
0.6
FY 2012 FY 2013 FY 2014 FY 2015 FY 2016
Alibaba Liquidity
0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
0.8
FY 2012 FY 2013 FY 2014 FY 2015 FY 2016
Baidu Liquidity
0
0.05
0.1
0.15
0.2
0.25
0.3
FY 2012 FY 2013 FY 2014 FY 2015 FY 2016
Tencent Liquidity
5 year deterioration
Source: Bloomberg
*Dotted line represents NASDAQ average
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US Companies Liquidity (1.2 * Working Capital / Total Assets)
0
0.05
0.1
0.15
0.2
FY 2012 FY 2013 FY 2014 FY 2015 FY 2016
Amazon Liquidity
0
0.1
0.2
0.3
0.4
0.5
0.6
FY 2012 FY 2013 FY 2014 FY 2015 FY 2016
Microsoft Liquidity
0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
0.8
0.9
FY 2012 FY 2013 FY 2014 FY 2015 FY 2016
Facebook Liquidity
0
0.02
0.04
0.06
0.08
0.1
0.12
0.14
0.16
0.18
0.2
FY 2012 FY 2013 FY 2014 FY 2015 FY 2016
Apple Liquidity
0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
FY 2012 FY 2013 FY 2014 FY 2015 FY 2016
Google Liquidity
Source: Bloomberg
*Dotted line represents NASDAQ average
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Chinese Companies Capital Structure (1.4 * Retained Earnings / Total Assets)
-0.5
-0.4
-0.3
-0.2
-0.1
0
0.1
0.2
0.3
0.4
FY 2012 FY 2013 FY 2014 FY 2015 FY 2016
Alibaba Capital Structure
0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
0.8
FY 2012 FY 2013 FY 2014 FY 2015 FY 2016
Tencent Capital Structure
0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
0.8
FY 2012 FY 2013 FY 2014 FY 2015 FY 2016
Baidu Capital Structure
Source: Bloomberg
*Dotted line represents NASDAQ average
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US Companies Capital Structure (1.4 * Retained Earnings / Total Assets)
0
0.01
0.02
0.03
0.04
0.05
0.06
0.07
0.08
0.09
0.1
FY 2012 FY 2013 FY 2014 FY 2015 FY 2016
Amazon Capital Structure
0
0.02
0.04
0.06
0.08
0.1
0.12
0.14
0.16
FY 2012 FY 2013 FY 2014 FY 2015 FY 2016
Microsoft Capital Structure
0
0.05
0.1
0.15
0.2
0.25
0.3
0.35
0.4
0.45
0.5
FY 2012 FY 2013 FY 2014 FY 2015 FY 2016
Facebook Capital Structure
0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
0.8
0.9
FY 2012 FY 2013 FY 2014 FY 2015 FY 2016
Apple Capital Structure
0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
0.8
0.9
1
FY 2012 FY 2013 FY 2014 FY 2015 FY 2016
Google Capital Structure
Stock buybacks
Stock buybacks
Source: Bloomberg
*Dotted line represents NASDAQ average
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Chinese Companies Profitability (3.3 * EBIT / Total Asset)
0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
0.8
FY 2012 FY 2013 FY 2014 FY 2015 FY 2016
Alibaba Profitability
0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
FY 2012 FY 2013 FY 2014 FY 2015 FY 2016
Tencent Profitability
0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
0.8
0.9
FY 2012 FY 2013 FY 2014 FY 2015 FY 2016
Baidu Profitability
5 year deterioration
Source: Bloomberg
*Dotted line represents NASDAQ average
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US Companies Profitability (3.3 * EBIT / Total Asset)
0
0.05
0.1
0.15
0.2
0.25
0.3
0.35
0.4
FY 2012 FY 2013 FY 2014 FY 2015 FY 2016
Amazon Profitability
0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
FY 2012 FY 2013 FY 2014 FY 2015 FY 2016
Microsoft Profitability
0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
FY 2012 FY 2013 FY 2014 FY 2015 FY 2016
Facebook Profitability
0
0.2
0.4
0.6
0.8
1
1.2
FY 2012 FY 2013 FY 2014 FY 2015 FY 2016
Apple Profitability
0
0.05
0.1
0.15
0.2
0.25
0.3
0.35
0.4
0.45
0.5
FY 2012 FY 2013 FY 2014 FY 2015 FY 2016
Google Profitability
Source: Bloomberg
*Dotted line represents NASDAQ average
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Chinese Companies Debt Structure (0.6 * Market Cap / Total Liabilities)
0
2
4
6
8
10
12
FY 2014 FY 2015 FY 2016
Alibaba Debt Structure
0
1
2
3
4
5
6
7
8
9
10
FY 2012 FY 2013 FY 2014 FY 2015 FY 2016
Tencent Debt Structure
0
1
2
3
4
5
6
7
8
FY 2012 FY 2013 FY 2014 FY 2015 FY 2016
Baidu Debt Structure
Deterioration
Source: Bloomberg
*Dotted line represents NASDAQ average
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US Companies Debt Structure (0.6 * Market Cap / Total Liabilities)
0
0.5
1
1.5
2
2.5
3
3.5
4
4.5
FY 2012 FY 2013 FY 2014 FY 2015 FY 2016
Amazon Debt Structure
0
0.5
1
1.5
2
2.5
3
3.5
4
4.5
FY 2012 FY 2013 FY 2014 FY 2015 FY 2016
Microsoft Debt Structure
0
5
10
15
20
25
30
35
40
FY 2012 FY 2013 FY 2014 FY 2015 FY 2016
Facebook Debt Structure
0
1
2
3
4
5
6
FY 2012 FY 2013 FY 2014 FY 2015 FY 2016
Apple Debt Structure
0
2
4
6
8
10
12
14
FY 2012 FY 2013 FY 2014 FY 2015 FY 2016
Google Debt Structure
Source: Bloomberg
*Dotted line represents NASDAQ average