伯恩斯坦-中国互联网：铭记死亡——二季度后的思考-20250912【42页】

China Internet: Memento mori - thoughts post Q2 Narrative shift on food delivery… and AI.We usually try to identify some kind ofoverarching theme for these quarterly look-backs: Q2 2025 brought a perceived turningpoint in the ongoing food delivery conflict… while Tencent and Alibaba both deliveredpositive data points on AI driving growth. In this note, we’ve summarised some latestthoughts on sector risk-reward. Robin Zhu+852 2123 2659robin.zhu@bernsteinsg.com Charles Gou+852 2123 2618charles.gou@bernsteinsg.com If you had a billion dollars…there’s a catalogue of things one could buy. But if you hadtwobillion dollars, turns out it’s possible to push back decade-long business moats. Alibabanow claims 300mn monthly active customers for its food delivery business - to Meituan’s500mn or so, and 80mn daily orders… to Meituan’s 90mn. Alibaba’s food delivery positionhas been assembled at great expense, and one can debate whether consumers stay whensubsidies fall, where cross-selling rates settle, etc. But the fact that, in a few short months,food delivery has become a contested extension of the e-commerce market is hard toignore. Balance sheet strength wins if competition becomes scorched earth. Min-Joo Kang+852 2123 2644minjoo.kang@bernsteinsg.com Charlie Peng+81 3 6777 6993charlie.peng@bernsteinsg.com Do you have a nano banana?Tencent talked up a “long and lengthening” runway forstrong ads growth. With room to run on Video Accounts ad load, and search now takingoff, we expect the recent strength to continue. Alicloud revenue growth reached 25.8%this quarter, and guidance for further acceleration has the street going to 3-handle growth.The top Chinese models have shown solid performance, and we expect low token costs toremain a differentiator. More broadly, differentiated data corpora and established (in-houseand consumer) use cases remain key to effective AI monetisation, in our view. 2021 redux for Meituan?When will Meituan act upon its “whatever it takes” pledge? Weincreasingly worry the company is staring at a set of developments similar to Alibaba’sloss of e-commerce dominance in 2021. The outlawing of exclusivity arrangements backthen meant merchants multi-homed prolifically. Food delivery merchant depth and userstickiness will take time for Alibaba to refine. But a return to 2021 levels of food deliveryprofits wouldn’t surprise us for Meituan. What does PDD do next?The stocks we cover performed strongly after Alibaba reported,helped by AI optimism, and hopes for waning food delivery competition. It’s not hard tosee why, but the structural implications of competition converging across food delivery,e-commerce, and local services are not positive. Tactically, what PDD does in response toslowing engagement and GMV growth (backed by the biggest cash pile in the sector) isprobably the most consequential question for our coverage. Tencent, Alibaba, then the rest.Tencent remains our top pick in the sector by a distance.All the arrows pointed up in Q2, and the stock remains moderately valued. Alibaba is seeingAI drive Cloud acceleration, winning in food delivery makes it easier for valuation to offsetthe impact of competitive spend, and the Amap expansion to local services creates newoptionality. With Alibaba and perhaps Meituan now raising new capital, our best guess isgreater competitive intensity - and greater investor focus on earnings damage - will drive anopportunity to buy. BERNSTEIN TICKER TABLE PRICE TARGET CHANGE / ESTIMATE CHANGE IN BOLD INVESTMENT IMPLICATIONS Q2 reporting was the first glimpse we got at the impact of the ongoing food delivery fight in China. Collectively, we believe thetrio of Meituan, Alibaba, and JD spent at least RMB35bn combined. Year to date, the convergence of e-commerce and fooddelivery competition has led to investors avoiding the group altogether. In this context, the size of the Alibaba earnings reactionwas a demonstration of what can happen when positioning becomes very offside, and prevailing narratives shift. Tencent remains our top long-term pick in the sector. Structurally, we expect the plateauing of Internet traffic to meanwhattoplay or watch becomes more important. Delta Force continues to look strong, and a “long and lengthening” runway for strongads growth is about as bullish as we’ve heard from Tencent management. We expect the combination of Cloud acceleration andAmap optionality to support Alibaba valuation in spite of ongoing competition in food delivery and e-commerce. Elsewhere, the resolution of Boss Zhipin’s cash offshoring issues opens the doors to ex-cash valuations, even if macro remainslukewarm. For PDD, the combination of lower H2 profit comps and tariff normalisation in the US should help, but what it doesin response to decelerating user engagement (e.g. DAUs, time spent) and slowing GMV growth in recent weeks is probably themost consequential question in the sector right now. JD remains a call option on competitive normalisation. “Not