Your capital is at risk if you invest. You could lose all your investment. Please see the full risk warning here.
“Internet companies” – once exotic and cutting edge choices for investors – are pretty par for the course these days.
But “internet companies” function in a wide variety of business areas nowadays and it can often be misleading to consider them as being comparable. This article will take a look at the activities and present an outlook on three giants often described as “internet companies” – Alphabet (ticker: GOOG) from the U.S., Baidu (ticker: BIDU) from China and Sea Limited (ticker: SE) from Singapore.
“Internet Companies” Explained
The term “Internet company” originally applied to upstart firms that presented their services to the general public primarily via a website – a concept that directly challenged the brick-and-mortar model that was then the norm. Initially replacing the telephone directory – and going on to represent much, much more – was the simple search engine. In this regard, Google – the parent company of which is Alphabet – is an early innovator and long-standing market leader. While Google doesn’t share its search volume data, it has been estimated that the company processes approximately 63,000 search queries every second, which translates to 5.6 billion searches per day and approximately 2 trillion global searches per year. It is also estimated that the average person conducts around 3 or 4 searches each day. The company controls a little over 92% of the search engine market share worldwide – including an estimated 72% of the desktop market and 92% of the mobile market.
Google’s nearest competitor is Bing with a paltry 2.5% market share, while Yahoo accounts for 1.5%. The market share among these rival companies has hovered around these percentages over the past several years.
Baidu – widely touted as China’s Google – is estimated to average around 1.2% of all searches worldwide. In China, however, Baidu rules the roost while Google is relegated to obscurity.
While Google has been operating in China since 2006, the company faced numerous run-ins with the Chinese government over searches running afoul of censorship policies, leading the search engine to be available only in Hong Kong as of 2010 and the country banning Google search sites in all languages in the mainland. In 2010, Google had a market share of 29% in China. Now, with it being limited to Hong Kong alone, it averaged about 2.8% of the total Chinese market in the past 12 months.
But when considered across the entirety of Asia – which includes China – the results firmly indicate that Google rules the roost.
This dominance – especially in light of the China revelation – could be attributable to two factors:
“Search” is an important source of revenue for Google and Baidu since ads for various fee-paying companies will receive priority placement on top of search results based on the user’s query. In 2020, over 80% of Alphabet’s $183 billion in revenue – $147 billion – came from Google’s ads business. Similarly, 70% of Baidu’s $18.7 billion in revenue for 2020 – $13 billion – came from ads.
Like Google’s YouTube, Baidu has a video/streaming service – iQIYI – with content at both free and subscription models along with revenue generated for the company via online advertising. Unlike YouTube, however, iQIYI offers TV shows and movies, thus making it analogous to the likes of Netflix and Amazon Prime.
In terms of technology, the increasing component of AI in Baidu’s offerings is likely to help drive up pricing of its ads, since it promises to offer more intuitive ad serving. In the past, Google has consistently claimed competitive victory thanks to its detailed search results, in-depth analytics, and evolving service offerings. If AI helps the company’s business to evolve better, it’s very unlikely that Google would be far behind Baidu in this regard.
Like Alphabet and Baidu, Singapore-based Sea Limited is described – and officially describes itself – as an internet platform operating across Southeast Asia and Taiwan. However, the term “internet platform” doesn’t describe all of it. Sea Limited – simply put – is an influential conglomerate that owns a number of online businesses, the Lion City Sailors FC (a football club), Indonesian bank PT Bank Kesejahteraan Ekonomi (BKE), Hong Kong-based hedge fund Composite Capital Management and a host of other companies.
The main drivers of Sea’s revenues – however – are two of its online properties – Shopee and Garena.
Shopee is a shopping app operating across Singapore, Malaysia, Thailand, Taiwan, Indonesia, Vietnam, the Philippines, Brazil, Mexico, Chile, and Colombia under both consumer-to-consumer (C2C) and business-to-consumer (B2C) models. Meanwhile, Garena operates in a powerful and growing online space: gaming.
A massive metric of interest is that the number of gamers in the world is estimated at 3 billion with the Asia-Pacific region home to the largest contingent and the Middle East and Africa showing the highest Year-on-Year growth.
In 2021, it is forecasted that, despite contractions on spending due to the pandemic, the gaming market will be worth about $175 billion globally. It bears noting that the forecast for 2020 was $159.3 billion, which was 9% lower than actual revenue earned.
Once solely the domain of desktops and expensive consoles, it is now forecasted that 52% of gaming revenue will be from games on mobile phones. Mobile games typically operate on the “freemium” model: they’re free to play, albeit with game experience enhancement options behind a paywall.
In terms of growth, it was forecasted in 2020 that Southeast Asia and Europe will show the highest revenue growth for mobile gaming companies over the next three years. Despite the dip caused by the pandemic, this upward march can be expected to continue in 2021.
These forecasts are particularly encouraging to Garena, an online game developer and publisher of free games that’s particularly active in Southeast Asia. One of its games – Free Fire – was downloaded 500 million times on the Google Play Store by February 2020. Also, by no means was all of its success limited to Southeast Asia: in Q1 2021, Free Fire generated $100 million in turnover in the United States.
“Internet companies” service a rich and diverse set of areas, thus making this categorization rather broad. However, the fact remains that their point of sale and service being firmly in the digital domain makes these companies paradigm shifters in the way business used to be conducted. A comparison of stock performance versus the benchmark S&P500 (SPX) reveals a few fascinating aspects about the companies being covered.
Google’s success in beating the benchmark validates – in a fashion – that “Search” could very well be the most resilient sector of the “internet company” space. Well-entrenched and practically an alternative word for search in itself, Google proves itself a champion among the “internet companies”. Baidu, however, has been suffering a steady decline for the reasons already listed as well as possibly the current geopolitical tensions between China and the rest of the world. Whether iQIYI turns out to be the company’s saving grace over the next few quarters or not remains to be seen.
Sea Limited is a fascinating company to watch. Annual revenues have consistently been in the red over the past few years since the company has been on an expensive multi-year acquisition spree to bolster and support its shopping and gaming properties. Nonetheless, investor confidence in the management’s vision for the company remains sky-high – bringing its stock performance nearly par with Alphabet by the end of Q2 2021. Whether the company continues to go from strength to strength, of course, remains to be seen.
Your capital is at risk if you invest. You could lose all your investment. Please see the full risk warning here.
Sandeep joined Leverage Shares in September 2020. He leads research on existing and new product lines, asset classes, and strategies, with special emphasis on analysis of recent events and developments.
Sandeep has longstanding experience with financial markets. Starting with a Chicago-based hedge fund as a financial engineer, his career has spanned a variety of domains and organizations over a course of 8 years – from Barclays Capital’s Prime Services Division to (most recently) Nasdaq’s Index Research Team.
Sandeep holds an M.S. in Finance as well as an MBA from Illinois Institute of Technology Chicago.
Violeta joined Leverage Shares in September 2022. She is responsible for conducting technical analysis, macro and equity research, providing valuable insights to help shape investment strategies for clients.
Prior to joining LS, Violeta worked at several high-profile investment firms in Australia, such as Tollhurst and Morgans Financial where she spent the past 12 years of her career.
Violeta is a certified market technician from the Australian Technical Analysts Association and holds a Post Graduate Diploma of Applied Finance and Investment from Kaplan Professional (FINSIA), Australia, where she was a lecturer for a number of years.
Julian joined Leverage Shares in 2018 as part of the company’s premier expansion in Eastern Europe. He is responsible for web content and raising brand awareness.
Julian has been academically involved with economics, psychology, sociology, European politics & linguistics. He has experience in business development and marketing through business ventures of his own.
For Julian, Leverage Shares is an innovator in the field of finance & fintech, and he always looks forward with excitement to share the next big news with investors in the UK & Europe.
Oktay joined Leverage Shares in late 2019. He is responsible for driving business growth by maintaining key relationships and developing sales activity across English-speaking markets.
He joined LS from UniCredit, where he was a corporate relationship manager for multinationals. His previous experience is in corporate finance and fund administration at firms like IBM Bulgaria and DeGiro / FundShare.
Oktay holds a BA in Finance & Accounting and a post-graduate certificate in Entrepreneurship from Babson College. He is also a CFA charterholder.
Terms and Conditions
If you are not classified as an institutional investor, you will be categorised as a private/retail investor. At this time, we cannot send communications directly to private/retail investors. You are welcome to view the contents of this website.
If you are an ‘Institutional investor’, you affirm either that you are a Per Se Professional Client, or that you wish to be treated as an Eligible Counterparty Client, both as defined under the Markets in Financial Instruments Directive, or an equivalent in a jurisdiction outside the European Economic Area.
The value of an investment in ETPs may go down as well as up and past performance is not a reliable indicator of future performance. Trading in ETPs may not be suitable for all types of investor as they carry a high degree of risk. You may lose all of your initial investment. Only speculate with money you can afford to lose. Changes in exchange rates may also cause your investment to go up or down in value. Tax laws may be subject to change. Please ensure that you fully understand the risks involved. If in any doubt, please seek independent financial advice. Investors should refer to the section entitled “Risk Factors” in the relevant prospectus for further details of these and other risks associated with an investment in the securities offered by the Issuer.
This website is provided for your general information only and does not constitute investment advice or an offer to sell or the solicitation of an offer to buy any investment.
Nothing on this website is advice on the merits of any product or investment, nothing constitutes investment, legal, tax or any other advice nor is it to be relied on in making an investment decision. Prospective investors should obtain independent investment advice and inform themselves as to applicable legal requirements, exchange control regulations and taxes in their jurisdiction.
This website complies with the regulatory requirements of the United Kingdom. There may be laws in your country of nationality or residence or in the country from which you access this website which restrict the extent to which the website may be made available to you.
United States Visitors
The information provided on this site is not directed to any United States person or any person in the United States, any state thereof, or any of its territories or possessions.
Persons accessing this website in the European Economic Area
Access to this site is restricted to Non-U.S. Persons outside the United States within the meaning of Regulation S under the U.S. Securities Act of 1933, as amended (the “Securities Act”). Each person accessing this site, by so doing, acknowledges that: (1) it is not a U.S. person (within the meaning of Regulation S under the Securities Act) and is located outside the U.S. (within the meaning of Regulation S under the Securities Act); and (2) any securities described herein (A) have not been and will not be registered under the Securities Act or with any securities regulatory authority of any state or other jurisdiction and (B) may not be offered, sold, pledged or otherwise transferred except to persons outside the U.S. in accordance with Regulation S under the Securities Act pursuant to the terms of such securities. None of the funds on this website are registered under the United States Investment Advisers Act of 1940, as amended (the “Advisers Act”).
Exclusion of Liability
Certain documents made available on the website have been prepared and issued by persons other than Leverage Shares Management Company. This includes any Prospectus document. Leverage Shares Management Company is not responsible in any way for the content of any such document. Except in those cases, the information on the website has been given in good faith and every effort has been made to ensure its accuracy. Nevertheless, Leverage Shares Management Company shall not be responsible for loss occasioned as a result of reliance placed on any part of the website and it makes no guarantee as to the accuracy of any information or content on the website. The description of any ETP Security referred to in this website is a general one. The terms and conditions applicable to investors will be set out in the Prospectus, available on the website and should be read prior to making any investment.
Leverage Shares exchange-traded products (ETPs) provide leveraged exposure and are only suitable for experienced investors with knowledge of the risks and potential benefits of leveraged investment strategies.
This website is maintained by Leverage Shares Management Company, which is a limited liability company and is incorporated in Ireland with registered offices at 2 Grand Canal Square, Grand Canal Harbour, Dublin 2.
By clicking you agree to the Terms and Conditions displayed.