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Quo vadis, China Big Tech?

An analysis of what is in store for China´s tech giants as we enter 2021

· technology

{{{Alexander Kremer}}}

As we have entered the new year, China´s Tech Big Five companies look back at a 2020 in which they increased their combined market capitalization by $650 billion (+55%) to reach $1.9 trillion. However, the success as measured in increase of company value was far from evenly distributed. While challenger e-commerce platform Pinduoduo in its third year as a public company added $140 billion to its market cap, an increase of 330%, e-commerce leader Alibaba in its seventh year as a public company added $70 billion, an increase of only around 10%. For the year ahead, each China Big Tech player faces its own respective challenges.

Ever since Tencent and Alibaba (both established around 20 years ago) first appeared in the top-10 of the world´s most valuable public companies’ mid-way through 2017, China´s two dominating tech giants have defended their position on this prestigious list. Yet, during 2020, they were joined by three other internet companies that have clearly established themselves in the ranks of China´s leading internet players.

The Formation of China Tech Big Five

A while ago people referred to China Big Tech as BAT: Baidu, Alibaba, Tencent. However, it is now an undisputable fact that Baidu is no longer part of this list. Following years of poor business performance and failures to succeed in new verticals such as gaming, Baidu experienced a loss in company value in two out of the past three years and was valued at only $65 billion at the end of last year. This is not far from the $60 billion it was valued at 7 years ago.

Other than Tencent and Alibaba, three companies established themselves in 2020 as both, being part of the top-100 global most valuable public companies and having a company value in excess of $100 billion. Namely, those are Meituan (IPO 2018), Pinduoduo (IPO 2018) and (IPO 2014). Not only did all of them succeed in satisfying the above two criteria, but also did they grow faster than Tencent and Alibaba.

Figure 1 (Source: China Tech Blog Analysis)

While Tencent focuses on gaming and social (internet services) and is also one of the best venture capitalists in the world, Alibaba has its major revenues streams in commerce, local services (incl. food delivery) and cloud, while investment activities are strong but weaker than Tencent. Meituan meanwhile is in food delivery and travel bookings, Pinduoduo in e-commerce and in e-commerce, logistics and payments. Thus, with four companies affiliated with e-commerce, it is by far the industry with the strongest representation among China Tech BigFive and highlights once more why the future of commerce is made in China.

Companies like FinTech giant Ant Financial - if it had (as originally planned for 2020) gone public at a $300 billion valuation - and social challenger ByteDance - currently still private but rumored to be worth north of $180 billion - are future contestants to be part of this exclusive club. This shows that the definition of the Big Five remains fluid.

The sector representation among China Big Tech is different from the one of US Big Tech companies, namely Apple, Microsoft, Amazon, Alphabet and Facebook. Obviously, two (Alphabet, Facebook) are in internet services with business models based on monetization through advertisement. Meanwhile, the verticals consumer electronics/services (Apple), e-commerce/cloud (Amazon) and productivity software/services (Microsoft) each are represented by one company. Also, the gap between Facebook (ranked last in terms of company value among US Tech Big Five) and the next challengers like Nvidia, PayPal or Netflix is between $400 billion and $500 billion, showing just how dominating the US Big Tech companies are.

China Tech Big Five market capitalization increased 55% in 2020 - The Fastest in Three Years

Combined, China Big Tech stood at $1.9 trillion in market value as of end of 2020, which is almost 2x the market cap of the German DAX (Germanies top-30 public companies), but only 25% of US Big Tech (Apple, Microsoft, Amazon, Alphabet, Facebook). While China Tech Big Five only accounts for a quarter of US Big Tech, the gap has been slightly narrowing since 2018.

Figure 2 (Source: China Tech Blog Analysis)

The slowly narrowing gap compared to Western peers is the result of strong market cap growth in the past two years due to stronger fundamentals in terms of revenue growth and improved profitability.

Figure 3 (Source: China Tech Blog Analysis)

During the past twelve months, Tencent regained the number one spot among China Tech Big Five for the first time since end of 2018, when it faced new regulation for gaming approvals and the market cap suffered. This is the result of an increased popularity of gaming thanks to Covid-19, a number of successful M&A deals and new partnerships. Meanwhile, Alibaba was set to defend the top spot as China´s most valuable company but lost it during the last few months of 2020 when the Ant Group IPO had to be postponed and an anti-competition probe was launched into Alibaba´s business dealings.

Figure 4 (Source: China Tech Blog Analysis)

Since Meituan and Pinduoduo had their respective initial public offerings over the course of 2017, they have clearly outperformed the other more established companies, namely Tencent, Alibaba and This trend, in fact, accelerated during 2020.

Figure 5 (Source: China Tech Blog Analysis)

As a result, in terms of total market cap of China Tech Big Five, the picture nowadays is much more diversified. As of end of 2020, Tencent and Alibaba make up around 70% of the Big Five market cap combined, down from 90%+ just three years ago.

China Tech Big Five Are Heading Cautiously Into 2021

As we analyzed above, the appreciation in company value in 2020 was far from equal among China´s tech giants.

This can be explained by differences in performance versus market expectations but also by the fact that the companies are in very different stages in their development traction.

Meituan and Pinduoduo are still in rapid expansion stages and have even been growing revenues triple-digits before 2020. Tencent, Alibaba and meanwhile are all much more established, experience slowing revenue growth from a large base, and less likely to surprise markets.

When it comes to profitability though, Tencent and Alibaba (through their wide-ranging impact and unique competitive positioning) are producing US-company-like profit margins between 30% and 25% respectively. Tencent has been relatively stable in terms of profitability but Alibaba has been facing declining profit margins for years. Meituan and are in the mid-single-digits in terms of profit margin but improving their profitability consistently for years. Pinduoduo is yet to turn a net profit on a full-year basis.

The following paragraph provides an overview of the respective challenges each member of the China Tech Big Five is facing in the year ahead.

Tencent: strong growth momentum and capital gains

Source: Sina Technology


Tencent´s market cap rose 50% last year. Revenues have likely grown 30% (estimate).


Gaming: Tencent´s gaming group showed very strong traction last year as regulation around gaming approvals became reliable while usage picked up during Covid-19. As a result, revenues in the gaming group kept growing beyond 40% for most of 2020 (2019: around 10%).

Investments: The company also continued its success as one of the world’s most successful unicorn-hunters since IPOs of portfolio companies like generated strong returns.


Gaming: The competition in Tencent´s core segment, gaming, has been getting tougher as ByteDance increasingly focuses on this area and starts to show successes with new game releases (e.g., launch of Warrior Girl Parkour, development of a new game around Naruto-IP) and improving its distribution capabilities (e.g., in Toutiao and Douyin through mini-games).

Alibaba: the year of regulatory scrutiny

Source: Alibaba Group


Alibaba´s market cap rose 10% last year. Revenues have likely grown 25-30% (estimate).


Retail: Alibaba maintained its dominating position in China´s retail industry through Taobao (C2C) and Tmall (B2C). Tmall, for the first time, is likely to exceed Taobao in GMV. Alibaba also continued its foray into the grocery sector, significantly adding stores for its Hema chain. It also took control of China´s largest traditional grocer, Sun Art, in late fall.

Cloud: Besides, the highlight for Alibaba was certainly the development of its cloud division which continued growth around 60% throughout the year, maintaining 60%+ market share and likely will reach $8 billion in revenues. Cloud now makes up close to 10% of Alibaba´s overall revenues.


Regulator: the canceled Ant Group IPO just kick-started a long and deep restructuring of the business. An IPO in 2021 seems highly unlikely. Shortly following the postponed IPO, an anti-competition investigation was launched into the commerce practices of the group. The outcome of this is unclear but many expect a tough year ahead for Alibaba.

Retail: Alibaba continued the dilemma it has been facing for years. At the higher end of the market, Tmall has been growing slower than Indeed, Tmall even experienced a first-time sales decrease for the Double-11 shopping festival major day itself. At the lower end, Taobao has been growing slower than Pinduoduo. Newly launched service initiatives and deal offerings could not stop this trend from continuing.

Local services: Alibaba has not been able to slow-down or stop the loss in market share to competitor Meituan. Ever since Alibaba acquired, this development has caused the group headache.

Meituan: venturing into grocery commerce and need to recover travel business

Source: Kr-ASIA


Meituan´s market cap rose 180% last year. Revenues have likely grown 15-20% (estimate).


Revenues: Meituan´s diverse revenue streams helped it to deal better with the challenges posed by Covid-19 and it still delivered overall revenue growth of approximately 15-20%.

Profitability: Most likely, Meituan is going to reach another profitable year for 2020.

Groceries: The “new initiatives” segment has been experiencing the strongest growth and is now even bigger than the travel revenue stream. This is the result of Meituan´s continued foray into e-commerce to deliver everything to consumers in an instance. Most notably, those efforts focus on groceries, including a community-based group-buying offering.


Revenues: The revenue growth slowdown from around from 50% to around 15-20% was very significant as Meituan was hit hardest by Covid-19. However, in times where double-digits revenue growth was more than hard to find, investors bought into the Meituan stock like never before. The significant growth in market cap of 180% now makes the stock look expensive. This might limit future increase potential in 2021.

Travel: Of Meituan´s original two large revenue streams (food delivery and travel), food delivery has been the less profitable one. Unfortunately, the share of the highly profitable travel revenue stream (around 90% gross margin) significantly declined from around 25% to less than 20% in 2020.

Pinduoduo: aggressive revenue growth and launch of Duoduo Maicai

Source: Sekkei


Pinduoduo´s market cap rose 330% last year. Revenues have likely grown 70-90% (estimate).


Revenues: Pinduoduo has been surprising many ever since it emerged from 2015 onwards. It has since carved out an ever-larger market share in China´s e-commerce industry which was believed to be under the tight control of Alibaba and The strong growth continued into 2020 with revenues likely to grow at around 70-90% - by far the fastest among China Big Tech.

Profitability: The company also reported the first-ever quarterly profit as a public company of around $70 million in Q3.

Groceries: Furthermore, Pinduoduo launched Duoduo Maicai, its community-based group buying offering. While the grocery commerce space has seen increasingly heated competition, Pinduoduo has all resources available to succeed and can leverage its existing user base of 730 million to push the offering.


Management: The company has been seeing unexpected management restructurings in 2020 as founder Colin Huang stepped down as the CEO.

Stock price: Via the assessment by any standard metric (e.g., P/E, sales-multiple), the stock seems overvalued at the moment after the rapid rally in 2020 and into 2021.

Capital increase: As in previous years, the company had been tapping equity markets for capital increases in order to fund its rapid growth (e.g., $6 billion equity offering in November 2020).

Growth: Despite the rapid increase in revenues for 2020, this still marked a significant slowdown compared to 2019, in which the company grew revenues triple-digits. However, Pinduoduo´s revenue base is still rather small at less than $10 billion. By now, Pinduoduo is also reaching almost all of China´s active e-commerce buyers, thus new-user growth will get closer to low double-digits or even single-digits numbers very soon.

New ventures: The improvements in profitability are significant but with entering the community-based group buying battle, full-year profitability remains an ambitious target. strong momentum and benefiting from incubation strategy

Source: CLBrief

Numbers´s market cap rose 150% last year. Revenues have likely grown 25-30% (estimate).


Revenues: showed strong resiliency in its revenue growth this year, especially in the supermarket category; it even accelerated revenue growth in 2020 over 2019 (25%). As a result, it continued gaining market share against rival Tmall.

Profitability: The company also showed further improvement in profitability and will likely reach a net profit margin of 5%, a new high.

Spin-offs: started to incubate different affiliated businesses some years ago and reaped some benefits of this strategy this year with the IPO of instant-delivery unit Dada Nexus and digital health provider JD Health. It also further prepared JD Logistics and JD Digits for mid-term IPOs, while industrial maintenance group JD MRO and JD Auto are initiatives with long-term IPO potential.

Investments: To keep the momentum in the supermarket segment going, was able to secure a significant minority share in the community-based group buying market leader Xingsheng Youxuan. It also conducted initial and follow-up investments into other traditional retailers such as Guomei und Better Life.


Finance: Since new regulatory pressure rained in on Ant Group, the potential IPO of JD Digits in 2021 might be challenging.

After a low point in 2018 with declining combined market cap, China Tech Big Five look back at 2019 and 2020 as two consecutive strong years.

During this time, China Big Tech got more diversified as Meituan, Pinduoduo and grew faster than the first-generation giants Tencent and Alibaba. However, China Tech Big Five is far from a stable group of companies: Xiaomi is now valued at $100 billion+, NIO is getting closer with a company value of $75 billion, and Kuaishou as well as ByteDance might have a blockbuster IPOs in 2021.

For now, China Tech Big Five maintain a 50%+ faster revenue growth rate compared to its US peers but a 25% lower profit margin, showing a less dominating position in the highly competitive internet space. Looking ahead, 2021 has the potential to become another strong year but regulation (especially for Alibaba Group) is the potential Black Swan.

All numbers are as of December 31st 2020. Respective values for certain years take the year-end value. For financial figures such as Revenues and Profits, last four available quarters were taken (i.e., Q4 2019 – Q3 2020) and extrapolated based on previous years.

All opinions expressed in this essay represent my personal views only.

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