小程序能成为互联网巨头的重要增长动力

1、China Internet SectorCanminiprogramsbecomeasignificantgrowth driver for Internetgiants?Mini programs are catching on and can become significant revenue drivers Tencent first launched mini programs in January 2017, which are simple apps in WeChatthatuserscanopenwithoutfirstinstalling.ThisuniqueChines

2、einnovationgot off to a slow start, but platforms/developers are now enthusiastically adopting it. TencentandAlibaba/Anteachhaveover200mndailyactiveusers(DAUs)fortheirmini programs, and Baidu, Bytedance, etc. are launching their own. In 2019, we estimate WeChat mini programs will generate Rmb12bn of

3、 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 andfeed.Mini programs can help developers acquire users cheaply and boost usageFormid-tolow-frequencyusecases,miniprogramsareagoodway

4、fordevelopersto reachusers(e.g.Tongcheng-eLongintravel),especiallyascustomeracquisitioncosts (CAC)forappssoar.OurindustrychecksindicateCACforminiprogramscanbeaslow as 1/10 of apps. For high frequency use cases, WeChat mini programs can improve engagement, leveraging social connections (e.g. Pinduodu

5、o in e-commerce). In WeChat,usersonaverageuse10miniprograms(+2.9%YoY)andspendover15mins perday.Gamesarethemostpopularusecase,followedbylifeservicesandshopping.Tencent: mini programs are underappreciated ads and payments driversWeestimateTencentcangenerateRmb4bnofrevenuesfromminiprogrampayments in201

6、9or6%ofitsFintechandBusinessServices(FBS)revenuesbasedonnewtop downindustryandbottomupapps/companyanalyses.By2022,weexpectrevenuesto increase 3x to Rmb11bn, and see Rmb18.5bn in revenues in our upside case. We estimate another Rmb8bn of revenues from mini program ads or 11% of total ad revenuesin201

7、9.By2022,weseepotentialrevenuesofRmb45bnor33%oftotalad revenues. We believe mini programs have surpassed official accounts to become the second largest ad product in Tencent, behindMoments.AlibabaandBaidu:significantgrowthopportunitiesfromminiprogramsAntcanleverageminiappstoimproveitsAlipayusecases,

8、andAlibabauseittogive brands,merchants,productcategoriesmoreexposure,andinenterprisescenarioswith DingTalk. Baidus smart mini program generated high interest from developers at its recent AI conference and could drive ad growth in 2020, as it becomes a highly attributableadunitwithimprovedconversion

9、rateinsearchandfeedusecases.CompanyPrice Mkt cap Rating CompanyPrice Mkt cap Rating PricetargetPEInvestment thesis in minprograms(LC)(USD m)(LC)2020E2021ETencent363.2433,600Buy45024.1x19.4xFrontrunner in mini programs. We expect mini programs to become a key driver for Tencent ads and payment revenu

10、es, and contribute to gamesrevenues.Alibaba174.8454,357Buy21020.5x15.9xAlipay mini apps use base has caught up with WeChat mini programs. Alipay ismorefocused on transactions and services, and has synergies with Alibabas ecosystem. Baidu113.639,651 Neutral13116.6x11.0 xWe see Baidus mini programs as

11、 a new ad format, which can boost its adrevenues duetobetteradconversionandattribution.Source: Reuters, UBS estimates. Note: price data as of Jul 17, 2019. HYPERLINK /investmentresearch /investmentresearchThisreporthasbeenpreparedbyUBSSecuritiesAsiaLimited. ANALYSTCERTIFICATIONANDREQUIREDDISCLOSURES

12、BEGIN ONPAGE25. UBSdoesandseekstodobusinesswithcompaniescoveredinitsresearchreports.Asaresult,investorsshouldbe 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 investme

13、nt decision.ChinaInternetsectorUBSResearchUBSResearchTHESISMAP aguidetoourthinkingandwhatswhereinthisreportOUR THESIS INPICTURESMOSTFAVOREDLEAST FAVOREDTencent,AlibabaNAPIVOTALQUESTIONSQ: Could mini programs become a significant growth driver forTencent?Yes. Mini playing an vital role in as they hel

14、p usageonWeChat,andbringinandprofitsthroughand WeminicouldRmb12bnofforfromadsandin2019andRmb56bnby2022.Longterm,webelieveminiwillbea keyofTencentssuchashelpingbuildandmaintain Q: Can Alibaba and Baidu replicate Tencents success with mini programs?Yes but every platform is implementing this idea diff

15、erently. Tencents WeChat mini program still leadstheindustryintermsofuserbase,userrecognitionandengagement,andservicecoverage. However, mini programs have attracted more investments from several major internet and technology companies, and we think the market is large enough for multiple winners. We

16、 are positive in particular on Alibaba and Baidus mini programs, and expect them to play a vital role in theirrespectiveecosystems.UBSVIEWWebelieveminiprogramshavebecomeakeypartoftheecosystemforinternetleaderstoacquire users,enrichservicecapabilities,andimproveuserexperience.WearemostpositiveonTence

17、nts WeChat mini programs, and expect them to help Tencent drive its industrial internet strategy, and increase revenue contribution in ads and fintech businesses. We are also positive on Alibaba and Baidus efforts in mini programs, each with different focuses andstrategies.EVIDENCEAccordingtoAladdin

18、,WeChatminiprogramsexceeded250mDAUinJun2019.Ouranalysisbased on third-party data and company/expert interviews indicates significant monetization potential for WeChatminiprograms,forecastingoverRmb12bnofforfromadsandin 2019andoverRmb56bnby2022.AlibabaandBaidutheirversionofminiin2018 and their user b

19、ases have been growing very has 1/10 the number of mini to but its active users is close to Tencent. At Baidus in 2019, we saw in mini more than any BaiduWHATSPRICEDIN?Investors are generally positive on WeChat mini programs but have not priced in the long-term potential because they lack visibility

20、 into the operating and financial implications for Tencent. InvestorsalsoassignverylittlevalueforAlibabasandBaiduseffortsinminiprograms.Comparison of BATs mini programsSource: UBSChinaInternetSectorUBSResearchOURTHESISINPICTURES HYPERLINK l _bookmark0 return Operating metrics of BATs mini programsCo

21、mpanyMiniCompanyMini programnitial launchActive usersNumber ofmini programsTencentWeChat, QQJan-2017DAU 250mover 2.3mAlibabaAlipay,Taobao,Sep-2018DAU 230m over200,000Tencents WeChat mini programs lead the industry with the largest user base, highest user engagement and largest number of mini program

22、s availableAutoNavi, DingTalkBaiduMobileBaiduJul-2018MAU 270m over150,000AutoNavi, DingTalk100%70%60%50%40%30%20%10%Easy touseEasy touseDownload not neededMost frequently used WeChat function88%76%66%34%27%20%ChatMomentsOfficial AccountMini-programThird Party ServiceReasons for using mini programs88

23、%76%66%34%27%20%ChatMomentsOfficial AccountMini-programThird Party Service31%28%14%12%7%Doesnt take up storageEasy tosharePromotional activities31%28%14%12%7%Doesnt take up storageEasy tosharePromotional activitiesAfter its launch over 2 years ago, mini program has become one of the most frequently

24、used WeChat functionsUse lessdataNoUse lessdataNosimilarappsEntertainmentGames,lifeservices,ande-commercearethetop verticals for WeChat miniprograms8.511.217.530.045.08.0Revenue forecast for WeChat mini programs8.511.217.530.045.08.02018We forecast WeChat mini programs to generate Rmb12bn of revenue

25、s from ads and payments in 2019, growing to Rmb56bn by 2022Revenue from mini program ads Revenue from payment processingChinagamesmarketsizebreakdown(inRmbbn)11.253.760.860.058.361.260.927.551.580.9122.1145.06.011.253.760.860.058.361.260.927.551.580.9122.1145.0Mini games market size was Rmb6bn in 20

26、18, and could grow to Rmb20bn this year, according to Aladdin20132014201520162017WebgamesPCgamesMobilegamesMini gamesDaily user time spent (in mins)15.513.611.6Alipay and Baidu mini programs have shown fast growth since launch, but still lag behind WeChat in user stickiness15.513.611.612.7

27、1.92.1Jan-18Mar-18May-18Jul-18Sep-18WeChatminiprogramAlipay miniprogramBaidu mini programWhich mini programs do users feel most positive aboutToutiao Others2%8%as well as user recognition, but we believe they can narrow the gap over time and contribute to their respective ecosystemAlipay 25%WeChat 5

28、9%Sources for exhibits above: Company data, QuestMobile, Users.QQ, Aladdin, Jisu App, UBS estimatesChinaInternetSectorUBSResearchPIVOTALQUESTIONSreturn Q:Couldminiprogramsbecomeasignificant growth driver forTencent?UBS VIEWYes. Mini programs are playing an increasingly vital role in Tencents ecosyst

29、em,astheyhelpincreaseusageonWeChat,andbringinincremental revenuesandprofitsthroughadvertising,paymentsandin-programpurchases. We forecast mini programs could generate about Rmb12bn of revenues for Tencent from ads and payment in 2019 and about Rmb56bn by 2022. Long term, we believe mini programs wil

30、l be a key component of Tencents industrial internet strategy, such as helping retailers build and maintain customer relationships.Miniprogramsaregainingtractionbecausetheyoffermanydevelopersanew way of acquiring users at relatively low cost. This is especially important for mid- to low-frequency us

31、age apps, where user acquisition and engagement tend to be harder and/or more expensive. The rich closed-loop capabilitiesin WeChat also make it easy for developers to convert users through actions, such as purchases, subscriptions,etc.EVIDENCETencent launched WeChat mini programs in January 2017 an

32、d in June 2019 dailyactiveusers(DAUs)exceeded250mwithgrowinguserretentionandtime spent, according to Aladdin and Jisu App.Mini programs covered over 200 verticals, and generated over Rmb500bn of commercial value in 2018, according to Tencent. The company is increasing penetrationinlowertiercitiesand

33、olderusers,andoneofitsstrategicfocuses this year is to improve the functionality, quality and monetization of mini programs.MiniprogramshelpsTencentexecuteitsindustrialinternetinitiativesincloud, smart retail, healthcare, etc. to help digitalize enterprises. Pinduoduo and Tongcheng-eLong are example

34、s of mini programs power, as they have successfullyacquiredusersandconvertedthemintotransactions.WHATS PRICED IN?InvestorsaregenerallypositiveonWeChatminiprogramsbuthavenotpriced in the long-term potential because they lack visibility into its operating and financial implications to Tencent.Mini pro

35、grams drive new users for developers and engagement for TencentWeChat mini programs have become essential to acquiring users on WeChat in the 2 years since their launch. Users do not need to download or install mini programs. Typically, they just search for mini programs in the general search box, c

36、lick on the program they want, and the program will pop open right in WeChat. This low-friction, download-free nature of mini programs help attract users that stand alone apps cannot reach.Figure 2: Most frequently usedWeChatfunctionFigure 3: Reasons for using miniprograms88%76%66%34%27%20%100%88%76

37、%66%34%27%20%ChatMomentsOfficial AccountMini-programThird Party ServiceEntertainmentChatMomentsOfficial AccountMini-programThird Party ServiceEntertainment70%60%50%40%30%20%10%0%31%28%14%12%7%60%57%31%28%14%12%7%Easy touseDownload notneededDoesnt take up storageEasy tosharePromotional activitiesUse

38、lessEasy touseDownload notneededDoesnt take up storageEasy tosharePromotional activitiesUse lessdataNosimilarappsOur recent discussions with industry experts revealed that mini programs offer lower customer acquisition cost (CAC) than many other channels, which is especially appealing given slowing

39、internet user growth and the general riseinCACinChina.Insomecases,theCACforminiprograms/minigamescanbe 1/10th of other channels. WeChat mini programs have an easy user registration process(justuseWeChataccount),andenjoyseamlessintegrationandredirection with other WeChat assets such as official accou

40、nts, which results in better efficiencyinuseracquisitionandconversion.ThesocialsharingonWeChatfurther helps to promote mini programs among family andfriends.WeChat mini programs have gained undisputable traction. Following its initial launch in 2017, there was some uncertainty as to whether mini pro

41、grams would catch on and whether they are necessary. It took some time for them to gain traction, and they really took off in part due to mini games. According to Aladdin,WeChatminiprogramsexceeded250mDAUinJune2019.QuestMobile data shows that as of March 2019, there were 838 WeChat mini programs wit

42、h over 1m MAU.Figure 4: Wechat mini program monthlyuserretentionFigure 5: Wechat mini program daily user timespent13.3%15.9%17.3%17.7%19.5%15.5Jan-18 Mar-18 May-18Jul-18Sep-18 Nov-18Wechat mini program monthly userretentionSource: Aladdin.Note:monthlyretentionisthepercentageofusersfromlast month tha

43、t remain active this month.13.612.711.211.610.1Jan-18Mar-18May-18Jul-18Sep-18WeChatminiprogramdailyusertimespent(inmins)13.612.711.211.610.1Source: Jisu App9.9+2.9%10.2Figure6:AveragenumberofWeChatminiprogramsused per user permonth9.9+2.9%10.2Dec-2018Mar-2019Figure 7: Number of WeChat mini programs

44、with over 1m MAU776+8.0%838776+8.0%Dec-2018Mar-2019Source: QuestMobileSource: QuestMobileLateadoptersarestartingtogetonminiprograms.Miniprogramshavebeen adopted by more users in lower tier cities and among older users, showing an expanding and diversifying user base. This mirrors a similar trend we

45、are seeing across China Internet.55%50%48%43%2%3%Figure8:WeChatminiprogramuserdistributionbyageFigure 9: WeChat mini program user distribution bycity55%50%48%43%2%3%39%34%28% 27%16% 17%13%8% 9%9%Below age 20 Age 20-29 Age 30-39 Age 40-49 Above age 50 Dec-2017Dec-201834%28% 27%16% 17%13%8% 9%9%T1/2ci

46、tiesT3/4citiesOthers/Overseas Dec-2017Dec-2018Source: 2019WeChatOpenClassSource: 2019 WeChat Open ClassWeChat has been improving the accessibility and functionality of mini programs to nurture user habits. According to Jisu App, there are now a total of64entrypointsforminiprogramsonWeChat,improvingt

47、heiraccessibilityand convenience.WeChathomepagedrop-downlisthasbecometheprimarywayto access mini programs (enabled in a recent app update), suggesting users are gettingusedtoactivelyusingminiprograms,whichwethinkhelpsincreaseusage frequency.In2019,Tencentaimstofocusonimprovingthesearchfunctionalitie

48、s and location-based recommendations of miniprograms.Figure 10: Major function upgrades of mini programsSource: Company data, UBSMini games helped drive adoption and usageMini games are improving user engagement and stickiness. Aladdin data shows that daily opening times and time spent recorded grad

49、ual improvement over 2018, which we attribute to the growth of mini games quantity (over 7,000 by the end of 2018) and quality, and the better user awareness and adoption aided by marketing and social sharing. However, a user survey from Users.QQ Researchsuggeststhatonly17%ofusersplayminigamesoneorm

50、oretimesper day,suggestingroomtofurthergrowusagefrequency.Tencentannouncedbetter revenue sharing terms and traffic support to encourage the development of innovative games and improve gamesquality.Figure11:Dailyusetimesperuserforappgamesand minigames50%45%40%35%30%25%20%15%10%5%0%Figure 12: Daily ti

51、me spent per user (in mins) for app games and mini games35%30%25%20%15%10%5%0%Twiceor3-4times5-6 times 7-10timesOver105 mins or 6-10mins 11-1516-3031-60Over 60fewertimesfewerminsminsminsminsAppgamesMinigamesAppgamesMini gamesSource: AladdinSource: AladdinFigure13:Dailyopeningtimesperuserforminigames

52、Figure14:Dailytimespentperuser(inmins)forminigames17.414.312.7 13.2 12.3 13.110.6 6.04.64.914.312.7 13.2 12.3 13.110.6 6.0Source: AladdinSource: AladdinMini games also have been effective in expanding and diversifying Tencents gamer base. Tencent disclosed that there are more than 400m mini games us

53、ers, and different from traditional games, 50% of mini games users are female and 58% are above age 30., Aladdin data shows that compared to app games, users play mini games more times a day but spend less time,suggesting minigamesaremoresuitabletoplaywithsparetime.Inaddition,minigamesalso have majo

54、rity of users from lower tier cities.Figure15:MinigamesuseragedistributionFigure 16: Frequency of playing minigames31%31%27%24%20%21%16%11%11%6%35%31%31%27%24%20%21%16%11%11%6%Multiple timesBelow17Age 18-24 Age 25-29 Age 30-35 Above age4020172018Less than once per week 34%Once per week 15%day 11%Onc

55、eday6%Multiple times per week 34%Jan-18Feb-18Mar-18Apr-18May-18Jun-18Jul-18Aug-18Sep-18Oct-18Nov-18Dec-18Jan-18Feb-18Mar-18Apr-18May-18Jun-18Jul-18Aug-18Sep-18Oct-18Nov-18Dec-18Jan-18Feb-18Mar-18Apr-18May-18Jun-18Jul-18Aug-18Sep-18Oct-18Nov-18Dec-18Jan-18Feb-18Mar-18Apr-18May-18Jun-18Jul-18Aug-18Sep

56、-18Oct-18Nov-18Dec-18Source: 2019WeChatOpenClassSource: Users.QQMini programs are a key part of WeChat and Tencents industrial internet ambitionsWe believe mini programs fit well with Tencents long term strategic focuses. Aswepointedoutinour HYPERLINK /shared/d256D24YqAJ earliernote,Tencentisincreas

57、ingitseffortsin digitalizingenterprisesandindustrialinternetinitiatives,suchascloud,smartretail, healthcare, security, etc., and mini programs could effectively connect userswithenterprisesatlowcostwhilegivingdevelopersawaytoaccumulatedataforusers across their lifecycle. Some examples list asbelow:C

58、loud eve: Tenent Coud aunhed oud deelopment erce for mini program developers in Sep 2018, and announced it will invest Rmb1bn in 2019 to provide storage, database and other resources to subsidize and encourage mini programdevelopers.Smartretail:merchantsutilizeminiprogramstoachievemarketing,user acq

59、uisition, transaction, logistics, customer service, etc., and the user profile data gathered within mini programs further help with dynamic businessdecision-makingandseamlessonline-to-offlineintegration.Digital healthcare: the company is also testing a Tencent Healthcare mini program to consolidate

60、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.Governmentandpublicservices:anumberofnational,provincialand municipalauthoritieshavesetuptheirmi