商业模式/竞争壁垒重新成为焦点

Internet Business model/competitive barrier back in focus Most internet companies’ 1Q25 earnings met or exceeded market expectations,while concerns are mainly around over reduced earnings visibility due to intensifyingcompetition among marketplace platforms. Expanding quality supply, reducingmerchant costs, and increasing core user transaction frequency are the priorities.Looking ahead, we believe subsectors and companies having strong businessmodel moats and less vulnerable to subsidy-driven competition may outperform,while firms with established ecosystems/network effects, higher margins, andsubstantial absolute profits will likely have stronger competitive positioning.Nearterm, we recommend: 1) Defensive online entertainment plays with stablecompetition and content-driven engagement-Kuaishou (1024 HK) for steady adgrowth/AI monetization potential, NetEase (NTES US) for reaccelerating gamesrevenue, and TME(TME US) for steady profit growth on subscriber/ARPPUexpansion; 2) OTA plays such as Trip.com Group (TCOM US) for their resilientdomestic demandand relative immunity to geopolitical risks; 3) platforms like BossZhipin (BZ US) which have higher barriers and operating leverage, and could seerapid profit growth/valuation upside as policy/macro improve.Longer term, focuson two threads: 1) high-tech + broad applications + superior business model, e.g.,tech leaders with better-than-expectedcloud revenue driven by AI or benefitingfrom AI advantages, such as Alibaba (BABA US) and Tencent (700 HK); 2) serviceexport players in gaming, local services, OTA, and software/cloud services. China Internet Sector Saiyi HE, CFA(852) 3916 1739hesaiyi@cmbi.com.hk Ye TAO, CFAfranktao@cmbi.com.hk Wentao LU, CFAluwentao@cmbi.com.hk Joanna Ma(852) 3761 8838joannama@cmbi.com.hk Recent report1.Kuaishou(1024 HK):Inline 1Q25results;AI monetizationaccelerating–28 May2.Pinduoduo(PDDUS):Investment to enhance platformecosystem,userretentionimpacted ST earnings–28 May3.Meituan (3690 HK): Proactivelyrespondingto competition infood delivery market–27 May4.Trip.com Group (TCOM US)：Resilientrevenue growth withinvestment on track for overseasexpansion–21 May5.NetEase (NTES US)-Strong1Q25results on solid gamesbusiness and disciplined opexcontrol–16 May6.Alibaba(BABA US)-Coreearningsa nice beat;Cloudrevenuegrowthhasthepotential to accelerate further–16 May7.Tencent (700 HK)-1Q25 resultsbeat;AI accelerates businessgrowth–15 May8.TME (TME US)-Inline 1Q25results; online music businessmaintains solid momentum–14May9.互联网-短期关注防御属性及政策 托底下有 望受益 的公司–8Apr10.AI主题报告-模型调用成本下降，应用生态有望逐步繁荣–26Feb11.互联网2025展望：逆风前行，但可以有更多期待–12 Dec Focuson high-barrier and high-margin companies.Under macrouncertainty and intensifying competition, they are better positioned to sustainsteady earnings growth and command valuation premiums. 1) Tencent: solidadvantages in SNS/gaming/advertising, with rapid growth in high-marginbusinesses driving resilient overall profitability; 2) NetEase: gaming businessremains relatively insulated from macro and consumption headwinds, withstrongFY25E earnings supported by evergreen titles and optimizedcost/sales expenses; 3) TME: a stable competitive landscape and resilientFY25E profit growth on rising paying users and ARPPU growth; 4) Kuaishou:resilient core commerce growth and incremental revenue opportunities forlong-term growth thanks to AI-driven improvements in monetizationefficiency.Local services & instant retail:Near-term earnings visibility has weakened; focus on long-term sustainable competitive advantages.All e-commerceplayers are optimistic about instant retail and aim to secure a spot in the high-frequency food delivery market. JD.com's strategy of leveraging "nationalsubsidies" to strengthen its instant retail market presence has introducedshort-term disruptions to the landscape. We expect industrycompetition tointensify over the next few quarters, with limited visibility on the scale ofincremental investments and their precise impact on profitability in near term,due to rapidly changing dynamics. However, we expect competition toeventually rationalize, amid concerns about declining group-level profits, thetransition from rapid growth to a plateau phase, and further regulations toensure healthy development of the industry. We suggest investors lookbeyond near-term disruptions and focus more on long-term sustainablecompetitive advantages when selecting stocks. Sustainableshareholderreturnsandstablecash-generatingcapabilitiessupport valuation.As core businesses mature,beyondexploringnew growth drivers,providing sustainable and attractiveshareholder returns may help maintain stock valuation. This sustainabilitystems from stable competitive positioning and steady growth prospects incore operations. We continue to recommend companies likely to maintainhigh shareholder returns.. Content Internetsector: 1Q25 results, full-year forecast update and 2H25investmentstrategies........................................................