I have written several in-depth articles for Tencent vs. Alibaba, two of the largest and representative technology giants in contemporary China, on my blog, and they have received enthusiastic responses from many friends. This article is going to explore a deeper level and the reasons behind the major differences in the operations of the two companies.
For the basic introduction and differences between the two major Chinese stocks, I suggest you refer to the description of my other blog article “Alibaba vs. Tencent, part one“.
Different levels of emphasis on investors
Alibaba Jack Ma once said that “customers first, employees second, investors third.” If companies cannot rely on shareholders to survive and cannot blindly please investors, it has caused an uproar (Acer’s principles are similar).
Tencent’s Pony Ma once said that he vowed not to disappoint investors.
There is no proof in the mouth, which is shown in the following two facts:
- Tencent shares pay dividends with a yield of 0.34%. But Alibaba, even if it has too much cash in its account (Tencent has USD 33.597 billion cash on hands in its account. As of the second quarter of 2021, Alibaba has USD 80.565 billion in cash, which is more than Apple’s 62.639 billion, With increased by 42.06%, cash continues to explode), and it is still not stubborn. Alibaba never pay dividends. Remember: Dividends are the most direct benefit of retail small shareholders.
- The stock returns of the two in the past seven years: A comparison chart of the performance of the two companies’ stock prices since the listing of Alibaba (September 2014) to 10/21/2021; Tencent’s total return is 336%, and Alibaba’s total return is only 101.38% .
Extreme differences in the personality of the founders
The personalities and backgrounds of Jack Ma and Pony Ma are very different. Jack Ma was educated in the Western style (his major is English, although he did not study abroad), he himself has had a lot of foreign friends for a long time, and he was deeply influenced by Joe Tsai, CFO of Alibaba group, and the company went public in the United States, so he has a foreign style.
Jack Ma is a strategist and he likes to brag. Jack Ma likes to express his views to the media and travel around the world to give full play to his and Alibaba’s influence. He only looks at the long-term vision and general direction, and ignores immediate interests.
Pony Ma is a software engineer (he likes others to introduce him as a programmer). He has a few words and is shy by nature. He likes to have long meetings all day long, his personality is cautious, and he thinks about everything (this is a typical technical engineer thinking and logic), he can hardly speak English (Xiaomi’s Lei Jun’s English is even poor, so he must find foreigners help him on business trips and hold presentations), Pony Ma rarely interviewed in English.
Before Liu Chiping (PresPresident of Tencent, aka Chief Strategy Officer) of Goldman Sachs joined, the company was almost a Chinese native company. In the early days, because the company’s main income relied on the backing of telecom companies and TomTom (ticker: TMOAF) support in the very beginning, it learned the basic skills that must be in-depth with all telecom company executives (this is very different from Alibaba, Telecom companies is less important to e-commerce), and later engaging in QQ and WeChat has become China’s indispensable national communication platform. It is impossible to say that the government does not supervise and the relationship is not good.
If you are an investor interested in Tencent, before buying its stock, I suggest that you must first read the book “Tencent Biography” written by Wu Xiaobo.
Company management culture
Tencent’s business is relatively loose, and it authorizes each business entity or subsidiary to operate according to its own culture, without intervening in details, as long as the business results are handed over and the parent company’s business direction can be aligned. But Alibaba is completely different. It adopts a centralized and militarized management. All personnel, culture, and backgrounds; the whole world is forced to be consistent with the parent company, and there is no room for compromise. This is also the main reason why the company’s foreign subsidiary and affiliates runs into a wall.
Significant differences in investment methods
In section 5-1 of the book “The Rules of Super Growth Stocks Investing”, I mentioned that two companies have almost monopolized the investment of Chinese startups.
Tencent basically only invests in stocks and will not intervene in the operation of the investee company, but Alibaba will definitely intervene in the operation of the investee.
This is reflected in the number of investors willing to accept investment from Tencent than Alibaba. This is human nature, no one wants to get stuck in the neck and guide you behind your back.
Differences in cash handling
As mentioned earlier, there are currently US$33.597 billion in cash in Tencent’s account. As of the second quarter of 2021, Alibaba has 80.565 billion U.S. dollars in cash, which is more than Apple’s 62.639 billion, and cash continues to explode. Both are typical cash cow companies, but this also reflects a different thinking in the use of long-term cash; Alibaba prefers to accumulate cash, and the only possibilities are:
- Caused by non-distribution of dividends; Alibaba’s non-distribution of dividends resulted in too much cash piled.
- Business turnover: The two oligopoly China’s payment market. The only explainable difference is that the e-commerce business requires a larger turnover, but this seems not to be a big deal, because Alibaba is different from JD.com (ticker: JD) or Amazon.com (ticker: AMZN). It is an asset-light route, which requires much less capital than the two.
- Alibaba prefers large-scale mergers and acquisitions that are as fast as lightning and require immediate cash, which is more likely.
Investors should not be too happy because of Alibaba’s large amount of cash, because too much cash piled indicates poor use of corporate capital utilization, which is not a good phenomenon for listed companies in the long run.
Where is the importance?
Investors must have finished reading this article. Some people will subconsciously say that I only invest in its stocks and why should I deep dive like this. There is no need to spend time and effort to read such in-depth and brain-burning articles! This is not the case.
- Investor’s direct return: The impact of these things has been shown in the return of the two companies to investors in the past 7 years. Tencent’s total return is 336%, while Alibaba’s total return is only 101.38%.
- Companies and people have the same inertia: unless the company is reorganized or goes bankrupt, as long as the two companies continue to exist for one day, these general directions will not change significantly, because these are the company’s culture, fundamental principles, and business methods– it is impossible to change .
- Influence the future: These things are the guidelines for the general direction of the company’s operations and will continue to affect the end of the company’s delisting. Of course, it will affect the rate of return of future investors.
The purpose of this article
It is impossible to predict the future, but if it is based on facts, especially the long-term business history that cannot be changed in the past, plus your reasonable inferences, you can make the final correct and wise investment judgment. This way the probability of success is much higher, and the purpose of this article is here.
- “Tencent vs. Alibaba, part one“
- “Tencent vs. Alibaba, part two“
- “The biggest risk to hold Chinese stocks, taking Alibaba and Tencent as examples“
- The content of this site is the author’s personal opinions and is for reference only. I am not responsible for the correctness, opinions, and immediacy of the content and information of the article. Readers must make their own judgments.
- I shall not be liable for any damages or other legal liabilities for the direct or indirect losses caused by the readers’ direct or indirect reliance on and reference to the information on this site, or all the responsibilities arising therefrom, as a result of any investment behavior.