Taking a look at internet companies

“Internet companies” – once deemed exotic and cutting-edge by investors – function in a wide variety of business areas nowadays and it can often be misleading to consider them as being comparable. While at first glance the likes of Google, Baidu and Sea Limited, for example, may operate in similar spaces with rival offerings, the outlook for each is very different.

Search Engines and Beyond

Initially replacing the telephone directory, Google went on to represent much, much more than a simple search engine.  An early innovator and market leader here, 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. Google controls a little over 92% of the search engine market share worldwide.

Search Engine Share: Worldwide

Source: StatCounter

 

 

Search Engine Share : China

Source : StatCounter

 

Its nearest global competitors are Bing and Yahoo! with a paltry 2.5% and 1.5% market share respectively.

Conversely, while Baidu – widely touted as ‘China’s Google’ might rule the roost in China it is estimated to average just 1.2% of worldwide market share.

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 made available only in Hong Kong from 2010. In 2010, Google had a market share of 29% in China. Over the last 12 months, it averaged about 2.8% of the total Chinese market.

But when considered across the entirety of Asia, the results put Google back on top.

Search Engine Share : Asia

Source : StatCounter

 

This dominance could be attributable to two factors:

  1. Google currently holds an average 98.7% market share in India – with similar numbers estimated in many other parts of Asia;
  2. Chinese users are reportedly stepping away from using search engines in favour of searching within one-stop apps more tailored to their queries. This hurts Baidu.

“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. In 2020, over 80% of Alphabet’s $183 billion in revenuecame from Google’s ads business. Similarly, 70% of Baidu’s $18.7 billion in revenue for 2020came from ads.

Like Google’s YouTube, Baidu has a video/streaming service – iQIYI – structured like YouTube, with 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.

Internet Conglomerate or Something Simpler?

Singapore-based Sea Limited officially describes itself as an internet platform operating across Southeast Asia and Taiwan. However, the term “internet platform” doesn’t describe all of its business. 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 online properties – Shopee and Garena.

Sea Limited Revenues

  2018 2019 2020 % Change
Total Revenue $1.05 Billion $2.2 Billion $4.4 Billion 101%
Garena 63% 51% 45% 78%
Shopee 28% 37% 40% 116%

Shopee is a shopping app operating across Southeast Asia and Latin America under both consumer-to-consumer (C2C) and business-to-consumer (B2C) models. Meanwhile, Garena operates in a powerful and growing online space: gaming.

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

2021 Global Players

Source : Newzoo Global Games Report 2021

 

Shopee is a shopping app operating across Southeast Asia and Latin America under both consumer-to-consumer (C2C) and business-to-consumer (B2C) models. Meanwhile, Garena operates in a powerful and growing online space: gaming.

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.

2021 Global Players year-on-year

Source : Newzoo Global games Report 2021

 

In 2021, it is forecast that, despite contractions on spending due to the pandemic, the global games market will be worth about $175 billion. It bears noting that the forecast for 2020 was $159.3 billion, which was 9% lower than actual revenue earned.

Global games market revenue

Source : Newzoo Global Games Report 2021

 

Once solely the domain of desktops and expensive consoles, it is now forecast that 52% of gaming revenue will be from games on mobile phones, which typically operate on the “freemium” model: they’re free to play, albeit with game experience enhancement options behind a paywall.

Revenue growth by region

Source : Sensor Tower

 

These forecasts are particularly encouraging to Garena. 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.

In Conclusion

“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.

See also: Are we on the brink of the golden age of technology?

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