Morgan Stanley · NYSE:MS
Morgan Stanley — Investor Presentation (April 2004)
42 slides from Morgan Stanley's investor presentation, April 2004
Slide 1: The China Internet Report
The China Internet Report Discussion Points – April 2004 Mary Meeker Internet – US & Global Lina Choi Telecommunications – China Yoshiko Motoyama Internet – Japan Full report online at http://www.morganstanley.com/institutional/techresearch/2004_China_Report.html Morgan Stanley does and seeks to do
Slide 2: Contributors
Contributors Andy Xie Stephen Roach Economics – China Economics – Global Andy.Xie@morganstanley.com Stephen.Roach@morganstanley.com Mark Shuper Viktor Ma Telecommunications – China Technology – China Mark.Shuper@morganstanley.com Viktor.Ma@morganstanley.com Eric Wen Brian Pitz Technology – Asia Inte
Slide 3: Key Points
Key Points • 80MM+ Internet users – China is 2nd largest market. Likely largest in 5 years • Fertile environment for evolution of Internet – owing, in part, to historical governors on media, communication and expression • Leadership in wireless messaging and online gaming • Online advertising and eC
Slide 4: Internet as Change Agent for China
Internet as Change Agent for China • Most populous country – 1.3B people (21% of world) − 1850 – 33% of global GDP − 1991 – <2% of global GDP − 2003 – 4% of global GDP (or 13% using PPP) • Top priority for China’s leaders is long-term, sustainable economic growth with relatively high levels of emplo
Slide 5: Technology Adoption Shows Potential for Global Market / Innovators
Technology Adoption Shows Potential for Global Market / Innovators • China Internet – 80MM+ users • S. Korea – Broadband usage, on a relative basis, would be higher than any other country • Shanda Networking – 236MM registered online gamers (non-unique) in China • Ringtones – $3B+ annual market • Pi
Slide 6: Emerging Markets Represent New Opportunities
Emerging Markets Represent New Opportunities • Internet is growing very rapidly, and opportunities for setting new standards in emerging areas are still on drawing boards • A lot of folks around the world have their markers on their virtual white boards • It is an irony that a few years ago some fol
Slide 7: Internet Technology/Service Leadership
Internet Technology/Service Leadership South North Category Korea Japan Europe America China Internet Users Broadband Adoption eCommerce Online Advertising Messaging (SMS…) Online Gaming Legend Source: Morgan Stanley Research. Strong Weak 7 Please see analyst certification and other important disclo
Slide 8: China Internet Industry Landscape
China Internet Industry Landscape 1. Number of Internet users is significant / growing rapidly 2. Relative Web site momentum is strong 3. Younger users active on Internet 4. Online media development still in early growth stages 5. Wireless messaging services linking mobile phones with the Internet r
Slide 9: Number of Internet Users Is Significant / Growing Rapidly
1 Number of Internet Users Is Significant / Growing Rapidly China Global China China TMT Category Ranking 2002 Units (MM) 2002 Growth Mobile Phones 1 207 43% Cable TV Subscriptions 1 100 10 Telephone Lines 1 214 20 Internet Users 2 59 75 Installed PCs 4 29 21 Source: Morgan Stanley Global Market Siz
Slide 10: Relative Web Site Usage Momentum Is Strong
2 Relative Web Site Usage Momentum Is Strong Alexa — Global Web Site Traffic Rankings Rank Site Name Country Rank Site Name Country 1 Yahoo! USA 14 baidu.com China 2 MSN USA 15 Tom.com China 3 Google USA 16 Newsgroup.com.hk HK 4 daum.net Korea 17 Amazon.com USA 5 Sina China 18 Sayclub.com Korea 6 Na
Slide 11: Younger Users Active on Internet…
3 Younger Users Active on Internet… China – Internet User Demographics Ages Ages Ages 51-60 60+ Ages 41-50 Under 18 3% 1% 36-40 6% 19% Ages 8% 31-35 12% Ages 18-24 34% Ages 25-30 17% 70% under 30 53% under 24 Source: CNNIC, 13th Statistical Survey Report on the Internet Development in China, Jan 200
Slide 12: Younger Users Active on Internet: Number of Friends
…Younger Users Active on Internet… 10 Average Number of Online Friends Never Met in Person 8 7.7 Number of Friends 6 4 3.3 3.2 3.3 2.6 2.8 2 1.1 0 Japan USA Singapore Korea Hungary Macao China (Urban) Source: UCLA World Internet Project, UCLA Center for Communication Policy, 1/04. 12 Please see anal
Slide 13: Younger Users Active on Internet: Access Location
…Younger Users Active on Internet Percentage of Internet Users by Access Location 80% 66% 60 44% 40 20% 18% 20 0.5% 0.6% 0.1% 0 Others Public Mobile School Internet Office Home Library Access Café Includes data gathered on 12 previous surveys; The survey uses multiple survey methods including automa
Slide 14: Online Media Development Still in Early Growth Stages
4 Online Media Development Still in Early Growth Stages • Historical governors on media (from TV to print to entertainment) have created especially fertile environment for emerging online media • Internet (with / without mobile phones) is able to deliver information that simply couldn’t be sent, rec
Slide 15: Wireless Messaging Services Linking Mobile Phones with Internet
5 Wireless Messaging Services Linking Mobile Phones with Internet Ramping Quickly, Although Transitions Occurring… Leading Markets for Mobile Phones & Internet Users at YE2002 Mobile Mobile Internet Phone to Installed Phones Users Internet PCs Country (MM) (MM) User Ratio (MM) China 207 59 3.5 : 1 2
Slide 16: Mobile Phone Subscribers by Leading Country
…Wireless Messaging Services Linking Mobile Phones with Internet Ramping Quickly, Although Transitions Occurring… Mobile Phone Subscribers by Leading Country (US$ and Subscribers in Millions) CQ4:03 Market Company Country Subscribers Capitalization China Mobile China 173 $68 Vodafone UK 129 170 Chin
Slide 17: SMS Messages Sent in China
…Wireless Messaging Services Linking Mobile Phones with Internet Ramping Quickly, Although Transitions Occurring… Estimated Number of SMS Messages 200 SMS Messages Sent in China (B) 200 150 100 90 50 16 1 0 2000 2001 2002 2003 Source: Morgan Stanley Research 17 Please see analyst certification and o
Slide 18: Wireless Services Margin Spectrum
…Wireless Messaging Services Linking Mobile Phones with Internet Ramping Quickly, Although Transitions Occurring High Margin Mobile Commerce Location- smart Mobile Applications Banking Collaboration Medium Content A/V Margin Margin Distribution Streaming Conferencing MMS SMS Voice Low Margin WAP Foc
Slide 19: Broadband Acceptance Is Growing Rapidly
6 Broadband Acceptance Is Growing Rapidly… China — Estimated Broadband Users 50,000 43,817 Broadband Users (000s) 40,000 32,906 30,000 20,000 17,400 10,000 3,280 780 0 2001 2002 2003 2004E 2005E Source: CNNIC, Lina Choi. E = Morgan Stanley Research Estimates. The ratio of broadband subscribers to us
Slide 20: Broadband Acceptance and Shanda Networking Growth
…Broadband Acceptance Is Growing Rapidly… • Online gaming may benefit from and drive broadband adoption • Younger demographic interest is quite high Shanda Networking 2001 2002 2003 Revenue (US$ '000) $550 $39,414 $72,490 Y/Y Growth % 92% 7067% 84% Registered Accounts 1,900,000 88,000,000 236,000,00
Slide 21: eCommerce in Very Early Stages and Governors Exist
7 eCommerce in Very Early Stages and Governors Exist… China lags in eCommerce for five reasons: 1) Poor credit / payment systems 2) Inefficient logistic / distribution / transportation systems 3) Low levels of trust 4) Low PC installed base 5) Low income levels 21 Please see analyst certification an
Slide 22: Percentage of Internet Users Who Make Online Purchases
…eCommerce in Very Early Stages and Governors Exist… Percentage of Internet Users who Make Online Purchases 100% 75 48% 50 41% 38% 34% 31% 31% 25 21% 15% 11% 13% 6% 6% 8% 3% 0 ) an (U y le SA n n n ao ea an ry e na al y rb en ai pa ai hi or an hi It or ga ac U iw rit Sp C ed Ja ap m K M un B Ta Sw e
Slide 23: Asia/Pacific Online Purchasing Payment Methods
…eCommerce in Very Early Stages and Governors Exist… Asia/Pacific — Online Purchasing Payment Methods 100% 75 50 25 0 g e a ia a na ea an on or si di al hi or ay w ap In K tr C i K us al Ta g ng on M A Si H Credit Card Do Not Pay Immediately Other Source: CNNIC, 2003. 23 Please see analyst certifica
Slide 24: eCommerce Governors, Continued Landscape Points
…eCommerce in Very Early Stages and Governors Exist… 8. Challenges for multinational companies create opportunities for Chinese companies 9. 3rd generation Internet entrepreneurs impressive, though broad-based experience/leadership still not abundant 10. Sustainability of Internet-related revenue an
Slide 25: Challenges for Multinational Companies Create Opportunities for Chinese Companies
8 Challenges for Multinational Companies Create Opportunities for Chinese Companies • Chinese market is complex, especially for non-China companies • Foreign investment is very restricted • Internet in China is highly regulated • Investors must deal with complex structuring schemes and legal jurisdi
Slide 26: 3rd Generation Internet Entrepreneurs Are Impressive
9 3rd Generation Internet Entrepreneurs Are Impressive, though Broad-based Experience/Leadership Still Not Abundant • Chinese Internet leaders have proven to be fast followers relative to their global peers • When will we see China’s Bill Gates, Michael Dell or Larry Ellison? 26 Please see analyst c
Slide 27: Sustainability of Internet-related Revenue and Profits Still Unproven
10 Sustainability of Internet-related Revenue and Profits Still Unproven, but Market Opportunity Is Large… • Wireless messaging has been a blessing for the Internet pure-plays • What’s next blessing? − MMS? − Interactive Voice Response (IVR)? − Online gaming? − Advertising and eCommerce? 27 Please s
Slide 28: China Internet Portal Revenue Breakdown
Sustainability of Internet-related Revenue and Profits Still Unproven, but Market Opportunity Is Large… China Internet Portal Revenue Breakdown (US$ in Millions) CQ4:03 Company Revenue % Advertising % Messaging % Gaming Sina $38 34% 60% 6% Sohu 25 39 58 4 NetEase 20 16 40 44 Tom 18 3 82 15 Source: C
Slide 29: China Macro Landscape for Internet
China Macro Landscape for Internet 11. Government focused on ramping Internet users 12. Government’s strategy, in part, reflects need to boost domestic (urban to rural) as well as global trade 13. Economic momentum is strong, though slowing 14. Capital markets have been robust 29 Please see analyst
Slide 30: Government Focused on Ramping Internet Users: Installed PC Base
11 Government Focused on Ramping Internet Users… China — Installed PC Base (in Millions) 80 60 39 40 27 18 20 11 6 1 3 0 1998 1999 2000 2001 2002 2003 2004E Source: IDC; CNNIC 13th Statistical Survey Report on the Internet Development in China,1/04; Morgan Stanley Research, Lina Choi and Mark Shuper
Slide 31: China Internet Users
…Government Focused on Ramping Internet Users… China — Internet Users (in Millions) 100 80 75 59 50 32 25 17 9 2 0 1998 1999 2000 2001 2002 2003 Source: IDC; CNNIC 13th Statistical Survey Report on the Internet Development in China, 1/04; Morgan Stanley Research. 31 Please see analyst certification
Slide 32: China Mobile Phone Subscribers
…Government Focused on Ramping Internet Users… China — Mobile Phone Subscribers (in Millions) 500 419 400 376 325 300 269 207 200 145 85 100 43 24 0 1998 1999 2000 2001 2002 2003 2004E 2005E 2006E Source: IDC; CNNIC 13th Statistical Survey Report on the Internet Development in China, 1/04; and Morga
Slide 33: Internet Users Concentrated in Coastal Regions and Major Metropolitan Areas
12 Government’s Strategy, in Part, Reflects Need to Boost Domestic and Global Trade… Internet Users Concentrated in Coastal Regions and Major Metropolitan Areas 2.8 % Beijing 5.0% 1.8 % 1.0 % 3.7% 1.5 % Tianjin 1.8 % 3.6% 0.4 % 1.9% 7.9 % 0.3 % 1.5 % 2.8% 7.7% 2.5 % Shanghai 0.1 % 4.8 % 2.3% 5.4% 7.
Slide 34: eBay EachNet, Alibaba and Taobao Listings
…Government’s Strategy, in Part, Reflects Need to Boost Domestic and Global Trade eBay EachNet Alibaba Total Listings 567,969 Total Listings 251,141 M/M Growth 16% M/M Growth 2% Top Categories Top Categories Cosmetics 106,507 Home Supplies 31,425 Jewelry 54,561 Apparel & Fashion 23,308 Clothing 41,1
Slide 35: Economic Momentum Strong, though Slowing
13 Economic Momentum Strong, though Slowing • Steve Roach observes that China’s economic growth remains strong, but needs to slow and has begun to do so • Given impact of China on global economy, changing dynamics in the market will affect many players • China aggressively trying to do right things
Slide 36: Capital Markets have Been Robust
14 Capital Markets have Been Robust • $550B has been invested, mainly in Chinese manufacturing for exports over past 20 years. Andy Xie expects FDI could rise further by US$100B per year, within the next ten years • High debt-to-equity levels in Chinese economy and high level of non- performing loan
Slide 37: China Internet Company Risks
China Internet Company Risks • Messaging-related revenue – sustainability / consistency • Intramural competition – differentiation is key • Emerging business segments -- competition / monetization • Online advertising / eCommerce – nascent • Content development – nascent • Online billing/payment and
Slide 38: Global Internet Company Comparables
Global Internet Company Comparables Revenue Op. Income (US$) % Price Change 4/9/04 Mkt. Cap. C03A C03A Company Ticker Price ($MM) ($MM) ($MM) 2003 2004 YTD China Sina SINA $41 $2,380 $114 $41 419% 22% NetEase NTES 57 1,850 66 39 222 53 Sohu SOHU 26 1,100 80 32 367 (13) Chinadotcom CHINA 9 903 89 (0)
Slide 39: Summary…
Summary… • Internet serving important role in helping modernize China • But, small revenue / profit levels for China Internet companies • Like US in mid-1990s, we are just at beginning • But, in many respects, for China, impact may be greater • Lots of opportunity • Lots of risk 39 Please see analys
Slide 40: …Summary
…Summary • We maintain that investors still underestimate the impact the Internet will have in changing business process and consumer behavior on a global basis • eBay – ‘makes markets more efficient…’ • Google – ‘makes finding and creating information more efficient…’ • At its core, the Internet is
Slide 41: Disclaimer
Disclaimer Analyst Certification The following analysts hereby certify that their views about the companies and their securities discussed in this report are accurately expressed and that they have not received and will not receive direct or indirect compensation in exchange for expressing specific
Slide 42: Disclaimer
Disclaimer Other Important Disclosures For a discussion, if applicable, of the valuation methods used to determine the price targets included in this summary and the risks related to achieving these targets, please refer to the latest relevant published research on these stocks. Research is availabl