Market review: good release of superimposed short covering, leading to rapid valuation repair.

Since November, driven by the expected adjustment of epidemic prevention and control policies, the international macro environment and industry policies have continued to release positive signals, and investor sentiment has improved significantly, leading to a rapid repair of plate valuations, with the China Internet Index up 37.8%. The valuation of companies such as Tencent has been restored to about 10 per cent of the five-year quantile.

In terms of short selling, the share of short selling volume in Hong Kong stocks fell rapidly from 19.2% on October 21 to 8.1% on November 18, and has since risen slightly to 9%, 10%, but is still at a phased low. In addition, since mid-late October, southbound capital inflows into Hong Kong stocks have increased significantly, and the proportion of Hong Kong shares held by major Internet companies has increased. From a trading point of view, the market's pessimistic expectations for industry uncertainty have improved, and the overall valuation of the sector has gone out of the bottom range.

External environment: under the background of policy optimization, the expectation of performance repair is better, and the suppressing factors of Internet sector valuation are gradually alleviated.。

In the past two years, the external pressure to suppress the Internet sector mainly comes from: 1) economic expectations affect the discount numerator; 2) interest rate environment affects the discount denominator; 3) regulation affects the risk premium of the plate. At present, the repressive factors of the Internet plate are gradually alleviating.

In terms of performance, since the announcement of the 20 measures to optimize epidemic prevention and control, the progress of policy landing in major domestic cities has continued to exceed expectations, and the gradual restoration of production and life order has also boosted the expectation of the overall recovery of the consumer Internet sector. In terms of the interest rate environment, according to the Fed bitmap and market consensus expectations, interest rates are expected to peak in the first half of 2023, easing valuation pressure.

At the regulatory level, the supervision of Internet companies at home and abroad continues to release positive signals. On the domestic side, since 2022, industry supervision tends to be normalized, which not only promotes the landing of regulatory policies, but also takes into account the smooth operation of the industry. Since November, the official media on the recognition of the value of the game industry, the release of the game version number, the promotion of ant rectification and other multiple positive concentrated release of further clear policy signals. Overseas, according to Bloomberg, the early conclusion of PCAOB's censorship in Hong Kong in November also allayed market concerns about ADR delisting. On the whole, the regulatory policies for the Internet industry at home and abroad tend to be stable, and the valuation suppression caused by the policy is also expected to gradually improve.

Performance review: reducing costs and increasing efficiency continues to be eye-catching, sub-track performance differentiation

2022Q3, major Internet companies still continue to reduce costs and increase efficiency strategy, continue to optimize the profit side by optimizing staffing, streamlining non-core business lines, tightening content costs, and reducing advertising and marketing investment, and show a strong profit release capacity, 22Q3 Non-GAAP net interest rates are significantly improved compared with the same period last year and month-on-month.

While the income end is subject to macroeconomic pressure, scattered epidemic disturbance, relatively weak consumption and other multiple factors, short-term continuous pressure. Molecular industry:

• E-commerce: Q3 quarter-on-quarter repair, Pinduoduo and live e-commerce growth is bright.

Thanks to the relatively stable epidemic control of 22Q3 and the repair of the market brought about by a more smooth logistics environment, the performance of the major e-commerce platforms Q3 has improved on a month-on-month basis. The cumulative revenue of China's major e-commerce platforms increased by 6.3% compared with the same period last year, with a month-on-month increase in 4.3pcts.

Among them, Pinduoduo's income grew strongly (yoy+65%), benefiting from the trend opportunities of consumption degradation and the improvement of monetization ability. Live e-commerce continued to maintain a high boom. Kuaishou Technology's GMV e-commerce revenue increased by 26.6% and 39.4% compared with the same period last year. Douyin e-commerce GMV (payment caliber) increased by more than 50% year-on-year. At the profit end, the contraction of marketing expenses and the substantial reduction of losses in new business have driven profits to substantially exceed market expectations.

• Advertising: short-term continuous pressure, effect advertising shows growth resilience。

Advertising reflects the enterprise marketing expenditure budget expenditure, in the economic upward cycle, advertising demand rebounds significantly; and in the macro pressure stage, the contraction of marketing demand is also more obvious.

In September 2022, overall spending in the advertising market fell 11.5% from a year earlier. Under the trend of tightening the budget of advertisers, effect advertising shows growth resilience in the countertrend due to stronger certainty of delivery, 22Q3 e-commerce platform advertising revenue is significantly warmer than the previous month, while the flow platform dominated by brand advertising will still be under pressure in the short term.

• Online recruitment: C-side growth trend is good, B-end recruitment demand is weak to restrict income growth.

22Q3Boss direct hiring / hunting revenue year-on-year-2.8% Pure 5.9%. Among them, C-end users still maintained steady scale growth and high activity. After KANZHUN LIMITED's registration resumed, users grew rapidly. In the off-season of Q3 recruitment, MAU still rose to 32.4 million, an increase of 12.5% over the same period last year. The number of registered individual users reached 81 million, an increase of 13.1%. At present, the main factor restricting the company's revenue growth is still the sluggish demand for enterprise-side recruitment. The number of users of 22Q3gravity boss directly hired and paid enterprises was 3.7 million, which decreased for the first time compared with the same period last year; the number of users of hunting and verification enterprises reached 1.1 million, an increase of 16.8% over the same period last year. The customer structure dominated by the middle and high end shows a certain anti-cyclicality in the macro headwind.

Performance outlook: short-term pressure has been expected to focus on performance repair in 2023.

Although in the short term, the factors that depress the revenue growth of Internet companies still exist, the market has shifted its focus to the realization of performance repair in 2023. The landing of the prevention and control optimization policy is expected to promote the recovery of production and life and enterprise economic activities, and the performance of Internet companies is expected to be more significantly improved under the trend of macro and consumption recovery.

According to Bloomberg's consensus forecast, the cumulative revenue of major Internet companies is expected to grow by about 12% year-on-year in 2023; profitability is expected to increase steadily, and the cumulative Non-GAAP net profit of major Internet companies is expected to grow by about 25% year-on-year in 2023.

On a quarterly basis, 22Q4-23Q4, the sample company's cumulative income growth is expected to be 6.3%, 8.5%, 12.8%, 12.6%, 12.8%, respectively, and the cumulative Non-GAAP net profit growth is expected to be 20.7%, 21.7%, 21.7%, 15.0%, 22.6% respectively. Cumulative Non-GAAP net interest rates are expected to be 12.2% / 11.6% / 12.1% / 14.0% / 13.3% respectively.