How Rich Would You Be If You Had Invested US$100,000 In BAT Stocks Five Years Ago?

Investing

How Rich Would You Be If You Had Invested US$100,000 In BAT Stocks Five Years Ago?

Shares of Baidu, Alibaba, and Tencent have been surging recently. Here we reveal how much you could have pocketed if you had invested in these Chinese tech giants five years ago.

Published on 29 November 2017

In recent years, China’s three home-grown internet giants have provided investors with stellar returns. Baidu, Alibaba, and Tencent – collectively referred to as the BAT stocks – have made huge gains over the last five years.

Each of them is highly profitable and has benefitted from the massive home market in China. Of course, the fact that the Great Firewall of China keeps potential competitors away – as Facebook and Google are banned in the country – helps. Also, Amazon recently sold off the hardware from its public cloud business to its Chinese partner to comply with local regulations regarding cross-border data transfers.

Some analysts say that Baidu, Alibaba, and Tencent have prospered because they are successful copycats of Western tech firms. But, even if that is true, the BAT companies are leaders in the spheres in which they operate and are rapidly gaining ground and even overtaking their competitors from the US.

Consider the fact that the recently concluded “Singles Day” saw Alibaba, which is China’s answer to Amazon, selling goods worth US$25 billion in a 24-hour period. Last year, the company clocked sales of US$17.8 billion during the annual event. Tencent’s WeChat, a messaging, social media, and e-commerce platform, has 963 million users.

An investor who bought shares worth US$100,000 in one of the BAT stocks five years ago would have garnered significant gains. Here we reveal the just how much you could have made.

Baidu

Note – Baidu is listed on NASDAQ

Baidu is China’s foremost internet search engine with a market share of about 75%. It offers news, video, and internet TV and has an ad revenue system that is similar to Google’s. The company also has a presence in the language translation, mapping technology, and food delivery industries.

Another similarity that Baidu has with Google is its interest in driverless cars. Waymo, Google’s self-driving car project, has gained a lot of public attention. But Baidu’s autonomous driving platform, Apollo, has also made rapid progress, and has signed up 50 partners to help it commercialise the technology that it has developed.

Baidu’s Apollo is currently collaborating with local auto companies, ridesharing giant Grab Taxi, and foreign companies like Ford and Intel.

Baidu invests heavily in research and development and is a leader in artificial intelligence. Chief executive officer, Robin Li, says that at US$1.5 billion per year, Baidu’s R&D budget is “probably the highest among Chinese tech companies.”

Recently, Netflix has tied up with Baidu’s iQiyi, a video portal that has 500 million monthly viewers. This association could bolster Baidu’s already significant presence in China’s video-streaming market.

Alibaba

Note – Alibaba was listed on the New York Stock Exchange in September 2014

Jack Ma, a former English teacher, started Alibaba in 1999 with an investment of US$60,000. His apartment was the firm’s first office. In a little less than two decades, the company has grown into an e-commerce giant. China has the largest number of internet users in the world and online purchases are becoming increasingly popular.

Alibaba’s Taobao and TMall are the world’s largest e-commerce sites. But the company’s activities are not restricted to this segment alone. It has interests in digital media and entertainment and has also made a foray into cloud computing. Alibaba also owns the South China Morning Post, a Hong Kong-based English language newspaper.

Last year, Alibaba Pictures made an investment in Steven Spielberg’s production company, Amblin Partners. Alibaba will collaborate with Amblin in marketing and distributing films in China.

In 2012, Alibaba’s gross merchandise volume (GMV) – the total sales dollar value of goods sold on its various platforms – stood at US$160 billion. By 2016, GMV had risen to US$450 billion, and Ma predicts it will hit US$1 trillion by 2020.

Alibaba currently has 423 million active buyers who use its sites. It plans to raise this number to two billion by 2036.

The company is confident about its continued rapid expansion in the Chinese market. CEO Daniel Zhang explains that there are 600,000 villages in China, a majority of which do not have more than 1,000 families living in them. Manufacturers cannot access these consumers through traditional channels, so e-commerce is the best option for them. In an effort to capture this market, the company has entered into partnerships with local entrepreneurs. Zhang says, “They buy on behalf of others, pay on behalf of others, and receive on behalf of others.”

Tencent

Note – Tencent is listed on the Hong Kong Stock Exchange

Tencent is essentially a social media platform that also offers its users a host of other functionalities. These include a news feed, search functions, and gaming. Tencent has become the world’s largest gaming company – ahead of Sony, Activision Blizzard, and Nintendo. Its success in gaming is helped by its ability to reach a massive audience through its messaging app, WeChat, and Ying Yongbao, an Android app store.

In the third quarter of this year, Tencent reported blowout results:

  • Revenues rose 61% compared to the third quarter of last year to US$9.83 billion.
  • Daily messages on its app rose to 38 billion, representing a 25% year-on-year increase.
  • Revenues from smartphone games increased to US$2.74 billion, a whopping 84% increase.

Last week, Tencent’s market capitalisation (market cap) surpassed that of Facebook. The Chinese internet giant’s share price hit 439.6 Hong Kong dollars (US$56.34) on 21 November, bringing its total market capitalisation to US$534.5 billion – topping Facebook’s market cap of US$519.4 billion.

Tencent still has plenty of potential to increase its sales and profits. It makes only US$1.3 per user in advertising revenues. Facebook, which has a similar business model, receives over US$4 in ad revenues from every person who regularly logs on to its platform.

The bottom line

Can BAT stocks continue to provide investors with high returns? Kinger Lau, chief China equity strategist and managing director at Goldman Sachs, seems to think so. He expects earnings per share at Baidu, Alibaba, and Tencent to rise at a compound annual rate in the mid-to-high teens for the next ten years.

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