Internet online platform plate due to the early internal and external factors resonance showed a more obvious decline, and the recent various factors have improved, the continuous optimization of epidemic policy is expected to bring advertising, recruitment and other industries to recover. However, we must also see that the improvement of the external environment can be quickly perceived by the market, or even over-perceived. In the next step, we recommend that investors pay attention to those targets with more definite growth, which are expected to achieve excess returns in a longer period of time.

Abstract

Duration market: the growth rate of duration continues to slow down, and short videos continue to be strong.We estimate that the total online time of 3Q22 has increased by 6% month-on-month to 31.6 trillion minutes, of which short video and social networking have achieved a 10% increase compared with the same period last year. Under the influence of macro weakness, the relationship between flow growth and commercial realization has been interrupted, and the realization of short-term performance is not obvious; looking forward to next year, we believe that the short-term optimization of epidemic policy may have a negative impact on the online duration, but in the medium term, it is expected to get back on track, and with the improvement of the liquidity efficiency of various platforms after the macro improvement, the current accumulated traffic is expected to help release stronger performance elasticity.

Key track performance: short-term pressure, focus on repair.AdvertisingThe growth rate of the industry has picked up month on month, and we estimate that its 3Q22 growth rate is 4% compared with the same period last year. However, under the continuous background of reducing costs and increasing efficiency in the industry as a whole, the recovery process is slow. Under neutral expectations, we expect the online advertising market to increase by 7.5% in 2023 (3.2% in 2022).GamesIn addition to the macro factors, the regulatory impact continues. The domestic market of 3Q22 fell 19% year on year to 59.7 billion yuan, further expanding the year-on-year decline. In the case of a reduction in the number of edition numbers, we expect that high-quality R & D and going out to sea will still be the main theme of the industry next year.Online recruitmentAffected by the external environment, the year-on-year growth rate is still declining, and the mismatch between supply and demand will take time to digest, but after the economic recovery, the SME side is expected to reflect a more obvious demand improvement.

Reducing cost and increasing efficiency: in 2022, the progress is faster than expected, and the follow-up logic may change from "reducing cost and controlling expenses" to "raising income".This year, various platforms have continued to reduce costs and increase efficiency, among which the sales expenses have dropped significantly. According to our statistics, the overall sales expenses of 1Q22-3Q22 Internet enterprises have dropped by 2%, 12% and 10% respectively compared with the same period last year. Looking forward to next year, we believe that the leverage brought about by income growth may play a greater role in reducing costs and increasing efficiency.

Risk

Macro and epidemic uncertainty; stricter regulatory policies; less than expected progress in reducing costs and increasing efficiency.

Text

3Q22 performance Review: revenue slightly exceeded expectations, cost reduction and efficiency faster than expected

Chart: 3Q22 Internet online platform mainly covers the company's performance review

Chart: 3Q22 platform revenue growth and expense cost decline

3Q22 duration market: the growth rate has slowed down slightly, and the duration has reached a phased peak.

The total online time of 3Q22 reached its peak this year, with a slight increase in the number of users and the number of one-day hours.According to our estimates, the total length of time on 3Q22 is 31.6 trillion minutes, an increase of 6% compared with the same period of last month, and further reached the peak in the past two years. In terms of user scale, according to QuestMobile, as of September 2022, the number of China Mobile Limited Internet users reached 1.196 billion, an increase of 2.5% over the same period last year, maintaining a steady upward trend; in terms of user activity, the average monthly usage time of the whole network increased by 8.1% to 158.7 hours in September 2022, and the growth entered a relatively stable period.

Chart: duration and growth rate of domestic online platform market

Chart: as of September, the number of China Mobile Limited Internet users increased by 2.5% to 1.196 billion.

Chart: the per capita usage time of the whole network increased by 8.1% to 158.7 hours in September 2022.

From the track point of view, short video and social networking are the main drivers of 3Q22 duration growth.Compared with the summer peak since 2018-2022, this growth is mainly driven by social networking and short video, while gaming, one of the main drivers in the past, is relatively lacklustre. In the absence of major operational actions during the summer, the overall duration of 3Q22 maintained a steady growth, increasing by 8% month-on-month and 10% to 9.8 trillion minutes compared with the same period last year. The social circuit mainly benefited from the increase in the duration of Wechat, and the overall duration of 3Q22 increased by 6% to 9.3 trillion minutes from the same period last month.

From the point of view of the branch, the duration of Tencent is still in the lead, with a steady increase in the proportion of bytes and Kuaishou Technology.According to our estimates, the proportion of 3Q22 Tencent (excluding investment companies) / byte beat / Kuaishou Technology is 33.1%, 23.5% and 11.0% respectively. Among them, although the percentage of duration of Tencent department has declined compared with the previous month, the absolute value has continued to increase, and the proportion of core social product duration has remained stable; the proportion of byte and fast-hand duration has benefited from the growth of short video track traffic, maintaining an upward trend.

Chart: the proportion of time spent on the online platform subdividing the track

Chart: the proportion of time spent by major companies on online platforms

The growth of flow slows down but there is still room to pay attention to the marginal impact of epidemic prevention and control optimization and macro warming.From a macro point of view, the duration of the mobile Internet market continues to slow down, indicating that Internet traffic has tended to peak. In addition, the traffic represented by short videos still maintains a rapid growth rate, but due to the weak macroeconomic impact of 3Q22, the relationship between traffic growth and commercial realization has been interrupted, and the performance in the short term is not obvious. But on the other hand, this growing flow and continuous expansion of business forms are also in the long-term development of Xu Li, with the macro-improvement after the recovery of demand, the liquidity efficiency of each platform is expected to gradually improve, and usher in a strong performance flexibility.

Review and Prospect of 3Q22 in key track

Looking back at 3Q22, various tracks, including advertising, games, live streaming, online recruitment and so on, are still under pressure from the macro environment. Among themLive broadcastThe industry gradually digested the impact of regulation in the first half of the year. Although the live broadcast revenue of platforms such as DouYu International Holdings Limited, HUYA Inc. and TME is still declining, the income of head platforms such as Douyin and Kuaishou Technology still maintains the same high growth. We judge that the demand of Internet users for live entertainment is still stable, and there is no obvious shift in demand to other forms of pan-entertainment.AdvertisingThe growth rate of the industry has picked up month-on-month, but under the background of reducing costs and increasing efficiency in the industry as a whole, the recovery process is slow.Online recruitmentAffected by the external environment, the year-on-year growth rate of the industry is still declining, the supply side is more abundant in the short term, but the willingness to pay on the demand side has not yet recovered, and the mismatch between supply and demand will take time to digest.GamesIndustry in addition to macro factors, regulatory impact is still obvious, the domestic market year-on-year decline continues to expand.

Looking to the future, we think that the first thing with greater certainty to restore isOnline recruitment和AdvertisingMainly due to the recovery of demand for marketing and personnel expansion after the economic recovery, small and medium-sized enterprises have greater flexibility in recruitment, and in terms of advertising, we think that advertisements on short video platforms may be more resilient, while brand advertising demand may still have to wait. The second isLive broadcast与GamesAlthough the level of online entertainment consumption of residents may increase to a certain extent after the macro recovery, if more residents return to offline entertainment activities, we think that it will also have a negative impact on the overall online duration; in addition, we think that under the influence of version number, the uncertainty of recovery in the game industry is also greater than that of other races.

Advertising: macro factors lead to slow recovery process

3Q22 Review: revenue growth improved month-on-month, but repair was less than expected

Domestic online advertising improved month-on-month in the third quarter, but by a small margin.According to our statistics, 3Q22 domestic online advertising market (excluding e-commerce and O2O) fell 1% year-on-year, up 5% month-on-month to about 118.4 billion yuan, lower than market expectations after the second quarter report. The market expected to improve month by month from July to September, but the recovery process of the advertising industry was not as expected due to the spread of the epidemic in some cities in September. At the same time, as one of the main advertisers of online advertising, Internet companies themselves were one of the main advertisers of online advertising. Under the background of reducing costs and increasing efficiency, sales costs shrank significantly, and online advertising was difficult to stabilize.

Chart: domestic online advertising scale (excluding e-commerce and O2O)

Chart: the scale of domestic online advertising (including e-commerce and O2O)

On the whole, the impact of the epidemic on the advertising industry can be summarized as follows: external circulation > internal circulation, brand advertising > effect advertising.Under the macro pressure since the beginning of this year, advertisers pay more attention to the transformation effect, so they tend to reduce the delivery of partial long-term effects represented by brand advertising, while retaining advertising with more significant results in the short term. this makes the advertising business resilience of short-term circular short video platforms and transformation-oriented e-commerce trading platforms in the short term will be stronger than other types of content platforms.

Outlook for 2023: the improvement trend is relatively clear, focusing on deterministic income increment

Looking forward to the follow-up development of the industry, the core driving force of the recovery of online advertising growth is still the macroeconomic improvement brought about by the recent optimization of epidemic prevention and control policies, real estate policies from the supply side and other factors.We believe that the growth rate of the advertising market may have hit bottom periodically this year. Reviewing the development path of major overseas Internet advertising companies since the outbreak of the epidemic, during the repeated stages of liberalization and tightening, the growth rate of advertising revenue showed a trend of increasing quarter by quarter, mainly due to the low base during the period of strict prevention and control of the 1H20 epidemic and the great easing at the macro level after the liberalization. If the domestic fiscal side can also help next year, consumer confidence can be boosted, we think that the domestic advertising market may be expected to achieve a steady rebound in growth; but on the other hand, the recovery of the advertising industry usually lags behind the macro recovery, we expect that advertisers in 1H23 will still be relatively cautious, and it is expected that the recovery of the advertising industry will be better shown in 2H23.

Chart: review of major overseas Internet advertising companies since the epidemic

We forecast the market size and growth rate of online advertising in 2023, and the main assumptions are as follows:The overall trend of online advertising scale is roughly consistent with the macroeconomic trend. Considering that the growth rate of online advertising is mainly in the new economy industry, which is faster than that of traditional industries, and further considering the continuous iteration and improvement of online advertising efficiency, we believe that the growth rate of online advertising is expected to be higher than that of domestic GDP as a whole.

► Neutral expectations:We expect GDP to grow by 5.2 per cent year-on-year in 2023 and total retail consumer goods to grow by 6.5 per cent year-on-year (CICC Macro Group expects). In this case, the investment willingness of enterprises (especially in traditional industries) may not improve significantly; from the perspective of consumption, the epidemic prevention and control optimization, consumption scenarios, household income and expectations may improve, but the withdrawal of automobile consumption policy may drag down related consumption; from the perspective of advertisers, the recovery of investment confidence may still take some time, and part of the increase in the budget may be postponed to the first half of 2024.Under this assumption, we expect the scale of online advertising (including e-commerce and O2O) to grow by 7.5% to 968 billion yuan in 2023 compared with the same period last year.

► optimistic expectations:We expect GDP to grow by 6.7% year-on-year in 2023, and total retail consumer goods to grow by 10.0% year-on-year (CICC Macro Group expects). In this case, the endogenous kinetic energy may be significantly improved, the savings accumulated in the previous period may lead to a rebound in consumption, the confidence of advertisers will recover faster, and most of the increase in the budget will be realized in 2023.Under this assumption, we expect the scale of online advertising to grow by 11.0% year-on-year to 999.5 billion yuan in 2023.

Chart: online Advertising scale expected in 2023

Contrary to the extent of the impact, we believe thatUnder the assumption of a mild economic recovery, the external cycle is expected to recover ahead of brand advertising.However, if the macro recovery is stronger, brand advertising is expected to show more flexibility. Beyond the macro levelThe company is actively looking for new increments and active adjustment is also one of the effective measures to counter macro pressure.Even if the macro recovery is not as expected in the future, these companies are expected to achieve a steady rebound in performance through their own subjective efforts, bringing greater certainty.

Game: growth continues to slow, waiting for supply-side warming to boost demand

Industry market: domestic and foreign growth is under pressure, mobile games have declined significantly

On the domestic side, market growth continues to slow.According to the Game working Committee, the actual sales revenue of 3Q22 China's game market was 59.7 billion yuan, down 19% from the same period last year and 13% from the previous month. Among themMobile gamesWeak performance is the main reason for the decline of the overall market. The actual sales revenue of the mobile game market is 41.6 billion yuan, down 25% from the same period last year and 17% from the previous year. Mainly due to macro factors affecting users' willingness to spend, the flow of long-term products continues to decline. At the same time, the performance of new games is not as good as the same period last year.PC gamesThe actual sales revenue increased slightly to 15.6 billion yuan from the previous month, mainly due to the peak season of traditional PC games in the third quarter, and the head product had a better effect in summer, but it was partly offset by the impact of the epidemic on the opening of offline Internet cafes.Web gamesActual sales revenue fell 4 per cent to 1.3 billion yuan from the previous month, mainly due to a decline in the number of online games launched compared with the second quarter.

Chart: 1-3Q22 China game market actual sales revenue fell 7.5% year-on-year to 207.5 billion yuan

Chart: 3Q22 China game market actual sales revenue fell 19.1% year-on-year to 59.7 billion yuan

Chart: actual sales revenue of 3Q22 China Mobile Limited game market fell 24.9% year-on-year to 41.6 billion yuan

Chart: actual sales revenue of 3Q22 China client game market increased 3.2% to 15.6 billion yuan compared with the same period last year.

Demand side: the duration of user use is relatively stable, and the payment level continues to decline due to macro weakness.In terms of the number of users, the number of game users in 1H22 China was basically unchanged at 667 million compared with the same period last year, of which the number of mobile game users fell slightly to 655 million. Compared with the number of domestic Internet users, which is still growing slightly, game user penetration has actually declined in recent quarters, mainly affected by the regulatory side and competition from other pan-entertainment platforms. In terms of user payment, the ARPU of 1H22 Chinese game users was 222yuan / half a year, down 2% from the same period last year, and the ARPU of mobile games fell 4% to 169yuan / half a year, mainly affected by macroeconomic weakness. In terms of user duration, since the release of the juvenile protection policy last year, the duration of minors' games has been better controlled. according to gamma data, the proportion of minors who play less than 3 hours a week has increased to more than 75%. Tencent also said in the third quarter financial report that in July 2022, the underage game market dropped sharply by 92% compared with the same period last year, accounting for only 0.7% of the total game hours in the local market. From the market data, since the beginning of this year, the total length of user games is basically the same as the same period last year, reflecting that users' entertainment needs for games still exist, and the impact of the limited duration of minors on the market is not obvious.

Chart: basic indicators of game users in China

Supply side: version number factors limit the supply of new tourism, the general trend of boutique research and development.In terms of quantity, since the resumption of the release of the edition number this year, the State Press and publication Administration has issued a total of 6 batches of version numbers in 4, 6, 6, 7, 8, and September / November, with a total of 45, 60, 67, 69, 73, and 70, a total of 384, compared with a total of 679 in the seven months before the suspension of the edition last year. The number of new games directly limits the supply of new games. According to gamma data, the number of new games entering the domestic iOS bestseller list Top 200 since 2022 has declined compared with the same period last year, while there are only three new games with more than 500 million yuan in the first month of 2022, and the incremental contribution of new games is weak. In terms of research and development, the reduction of version number forces companies to focus on high-quality research and development. in the past, the success rate of simultaneous research and development of multiple products is facing challenges, the threshold of game research and development is still rising, and companies are still firmly committed to game research and development. According to our statistics on the sales and R & D expenses of domestic listed game companies, we can see that since the beginning of this year, due to the decrease in the number of new games online, the sales expenses of most companies have significantly decreased compared with the same period last year, while R & D expenses have maintained positive growth, and the R & D expenditure rate has remained relatively stable, but the cost growth rate has slowed down. In terms of buying strategy, according to hot cloud data, the domestic mobile game purchase market of 1H22 shows a weak trend, the number of products launched has decreased by nearly 20% to 12000 compared with the same period last year, and the new growth rate of mobile game products has dropped from 44.5% of 1H21 to 39.0%. The growth of new mobile game market is weak.

Chart: the number of version numbers: a total of 384 have been issued since 2022, which is significantly lower than that in 2021

Chart: game R & D: the R & D expenditure keeps growing positively, and the R & D expenditure rate is relatively stable.

Chart: game buying volume: the purchase volume is decreasing, and the market growth of new tourist purchases is weak.

Overseas, the growth of the game market has also slowed down, and the PC and console terminals are more resilient.Recently, Newzoo downgraded its forecast for the size of the game market for the whole year 2022. It is expected that the overall market size in 2022 will decline 4.4% year on year to US $184.4 billion, the growth rate will turn negative for the first time. We believe that this is mainly due to the recent strengthening of overseas residents' willingness to travel and the impact of overseas macro-economy on the level of online consumption and entertainment of residents. Although the overall overseas game market declined slightly compared with the same period last year, SensorTower,3Q22 global mobile game revenue fell 12.7% from 4.5% month-on-month to 19.3 billion yuan, which was significantly larger than the overall overseas market. We judge that overseas PC and console games still maintain good growth, mainly because overseas head manufacturers continue to launch new products to support game revenue performance (such as EA launch "FIFA 23" and "NFL 23"). Activision Blizzard launched the online "call of Duty", "Warcraft" IP series derivatives, etc.).

Looking back at the overseas game market since the outbreak, the overall trend is similar to that of online advertising. at the beginning of the outbreak, it benefited from the growth of online time in 2020, and the growth rate of the game market increased significantly. It slowed down at a high base in 2021, and continued to decline in 2022 due to factors such as a weak macro environment and a slowdown in epidemic prevention and control. We have observed that no matter the upward or downward process, the main flexibility of the overseas game market is focused on mobile games. We believe that it is mainly because overseas game users have more long-term and mature habits of playing PC and mainframe games, and the demand for these two is more rigid, which can play a buffer role in the overall market contraction, but the elasticity after macro recovery is also relatively small. The recovery of the overseas game market in the future also needs to provide a guarantee for the recovery of the mobile game market.

Chart: the global game market is expected to decline 4.4% year on year to $184.4 billion in 2022.

Chart: 3Q22 global mobile game revenue fell 12.7% year-on-year to $19.3 billion

Outlook for 2023: the game will continue to go out to sea, focusing on macro-repair, release of version numbers, and cashing of overseas layout.

The income of self-research games going to sea is under pressure in the short term, but the space is broad in the long term.Combined with the data of the Game work Committee, we expect that the sea revenue of China's self-developed games will decline by about 3% to US $17.51 billion in 2022 compared with the same period last year, mainly due to the decline in head products such as "State of Survival" and "Game for Peace", while the recent launch of new games such as "Magic Tower" has brought a limited increase. Although the overseas revenue of self-research games has continued to decline since the beginning of this year, we believe that it can not be simply attributed to the decline in the competitiveness of domestic manufacturers' overseas products, and the objective impact of the overseas macro environment should also be considered. We estimate that the overseas revenue of Chinese self-developed games will account for 12.2% of the total overseas game market revenue in 2022, which still has much room for improvement compared with Chinese manufacturers' market share of more than 20% in some key overseas markets.

Chart: overseas revenue of 3Q22 China self-developed Games fell 14.2% year-on-year to US $4.26 billion

Chart: we estimate that the overseas revenue of China's self-developed games will account for 12.2% of the total overseas game market revenue in 2022.

Multi-regional layout, multi-track parallel development.On the one hand, under the background of uncertainty in domestic version numbers and policies encouraging games to go out to sea, the number of manufacturers going to sea has increased in recent years, and competition in some key overseas markets has intensified. We have observed that the proportion of income in areas other than the United States, Japan and South Korea is increasing year by year, reflecting that China's game industry is constantly exploring emerging markets and expanding the breadth and depth of overseas markets. On the other hand, the types of going out to sea in China's game industry are gradually diversified, breaking through the limitations of medium and heavy games such as strategic games in the past, and the proportion of light game income represented by elimination and simulation management continues to increase.

Chart: the proportion of income in overseas key areas of self-research games in China.

Chart: the overseas income of self-developed games in China is Top 100type.

Looking ahead, we suggest that we focus on the impact of three variables:1) epidemic prevention and control and macro recovery: with the slowdown of epidemic prevention and control, more residents return to offline entertainment activities, which may have a certain negative impact on the duration of online games, but on the other hand, after macro-recovery, residents' willingness to spend may be enhanced to a certain extent. 2) accelerated release of version numbers: with reference to the performance of overseas game manufacturers in the third quarter, although the macro environment is poor, with the continuous launch of new games, the income of head manufacturers in the third quarter has improved a lot compared with the previous quarter. We think that users' demand for game entertainment still exists, and the supply side still needs to be warmed up to provide help. 3) realization of overseas layout achievements: recently, Tencent and NetEase, Inc's overseas layout has accelerated, and we think it is expected to continue to gain market share by virtue of its advantages in research and development, capital, overseas layout, and so on. But on the other hand, this year and next year is still a relatively "small year" of game output, and the supply side is relatively weak, and we expect a new round of production cycle to come after 2024. It is recommended to pay attention to the relevant companies to set up new projects, version number acquisition, game development and testing.

LVB: the share is concentrated on the head platform, and the proportion is continuously optimized.

Traditional entertainment live broadcast platform 3Q22 revenue growth repair is still not obvious, mainly due to new live broadcast rules, repeated epidemic and other external factors, as well as increased competition in the industry brought about by the growth pressure.In terms of revenue, the live broadcast income of DouYu International Holdings Limited, HUYA Inc. and Tencent Music fell 23%, 22% and 20% respectively on 3Q22. In terms of the number of users, the average MAU growth rate of 3Q22 DouYu International Holdings Limited, HUYA Inc. and Tencent Music was-8%, 1% and 24%, respectively. In terms of duration, the average daily use time of 3Q22 DouYu International Holdings Limited, HUYA Inc. and Tencent Music (take national singing as an example) is 63.7min, 77.5min and 43.6min respectively, which is still slightly lower than that of 2Q22.

Chart: comparison of main financial indicators of live broadcast platform

Chart: live broadcast platform MAU

Chart: per capita daily usage time of live broadcast platform

On the cost side, the proportion of industry share is continuously optimized.The live broadcast industry has been relatively mature after years of development, and has gone through the early stage of attracting anchors with high scores. Since 1H21, with the tightening of regulation and the gradual opening of reduced costs and efficiency by various platforms, the overall competitive environment of the live broadcast industry has eased, and a number of live streaming platforms have begun to reduce their share.

look into the futureWe believe that the revenue side may still be under pressure under the influence of the macro environment and regulation, but in the absence of an obvious recovery in the macro environment, the trend of falling points is expected to continue in the short term, so the profit side may be more flexible. But at the same time, it should also be noted that at present, the general reduction of points in the industry is a kind of consensus reached by everyone at present. in the future, some platforms with higher bargaining power will not rule out the possibility that some platforms with higher bargaining power will take the lead in competing for anchors. such platforms are also expected to receive certain growth dividends in the initial stage.

Content realization and value-added services: continuous transformation of paying users based on high-quality content

The business performance of content realization and value-added services are slightly different due to the factors such as content quality and up-to-date rhythm of each platform in the third quarter:1) Tencent Music: the sales of several specialties are bright, and the number of paid households is in balance with the development of ARPPU. 2) iQIYI, Inc.: the income of members decreased compared with the previous month, and the number of members recovered from the previous month. 3) Bilibili Inc.: affected by the new launch delay, the number of large members declined month-on-month. 4) Zhihu Inc.: high-quality content and creators continue to drive the rapid growth of membership business.

Chart: comparison of main indicators of member business of content platform

Online recruitment: significantly influenced by external environment

The income of China's online recruitment industry is still significantly affected by the external environment.When we look at the income of both KANZHUN LIMITED and fellow hunters, KANZHUN LIMITED's income is down 3% from the same period last year, and that of fellow hunters is down 10% from the same period last year. This shows that the impact of the external environment is still restraining the recruitment and related payment demand of enterprises.

► C terminalThe MAU of online recruitment companies increased compared with the same period last year.At present, the recruitment industry is still in a recession stage affected by the external environment, and the rise in MAU reflects that the previous period is affected by macro disturbances and layoffs, and the supply side (that is, job seekers) is more abundant in the short term, and the market is waiting for a rebound from the demand side (that is, employers).

► B side: demand has not yet reached the inflection point.Take BOSS recruitment as an example, the average number of paying companies on the 3Q22 KANZHUN LIMITED platform reached 3.7 million within 12 months (there were user registration restrictions before 3Q22, as well as macro pressure). We believe that the demand on the B side is in the process of gradually moving from the left to the right with the macro trend.

Chart: revenue and year-on-year growth of listed companies in China's online recruitment industry

Chart: MAU of each recruitment platform

Chart: 2019-number of paid enterprise accounts for each platform of 3Q22

The slowdown of epidemic prevention and control may improve the prosperity of the online recruitment industry.We review the relevant situation of listed companies in the US recruitment market (take ZipRecruiter and LinkedIn as examples). Divided into four time periods, we can see that the third stage is the key point, and the opening time of the epidemic in the United States is about 2Q21, and the driving force of the recruitment market before and after 2Q21 is opposite: before 2Q21, the number of job seekers at C-end is growing faster (because a large number of unemployed people have job-hunting demands), but after 2Q21 The rapid year-on-year growth in recruitment-related revenue in the quarter (ZipRecruiter up 109 per cent year-on-year and 46 per cent on LinkedIn) means a recovery in B-end corporate fees.

But at the same time, the above analysis is only for the United States, and the results may not be applicable to China. China's epidemic prevention and control policy is made according to its own national conditions, so it cannot copy the experience of others.The prevention and control of the United States has always maintained a relatively relaxed attitude, leading to the gradual opening of 2021Q2, there have been a considerable number of infections, the public has also been psychologically adapted. Therefore, after its gradual liberalization, consumption began to pick up obviously, while there was a shortage of labor supply, and the phased mismatch between B-end and C-end of the recruitment industry led to an increase in recruitment expenditure. Considering the intensity and rhythm of the optimization of epidemic prevention and control in China, we expect that the recovery of China's recruitment industry is likely to be a simultaneous recovery of B-end and C-end, so the increase of recruitment price may be a gradual process.

Chart: quarterly operating income and year-on-year growth of listed companies related to the US recruitment industry

Chart: employment in the United States

Reducing cost and increasing efficiency: how is it going?

In 2022, companies will continue to reduce costs and increase efficiency.Reviewing the achievements of reducing costs and increasing efficiency of various platforms since 2022, the promotion speed is slightly different, among which: Kuaishou Technology's income growth resonates with fee control, and the improvement at the profit end is the most obvious; under the pressure of income growth, iQIYI, Inc. and TME also significantly improve the profit side through good control of the cost side. Bilibili Inc. and Zhihu Inc. both reduce costs and increase efficiency slowly, but also partly because the two platforms are still in the growth stage, in the first half of the year is still in the pursuit of user growth, cost control is weaker than other platforms.

Chart: comparison of cost reduction and efficiency improvement among different platforms in 2022

Looking back, we think that reducing costs and increasing efficiency will continue, but the logic will change from "reducing cost control fees" to "raising income".Since the beginning of this year, the absolute value of sales expenses on various platforms has declined significantly compared with the same period last year, but we think that the downward trend of sales expenses may not be simply linear extrapolated, and the short-term rapid decline is also partly due to objective factors such as the slowing down of external competition. however, as the economy picks up, industry competition may intensify again, and companies like Pinduoduo, which first increase sales expenses against the trend, may make a profit instead. Thus drive other companies to passively increase the cost of sales. Looking forward to next year, we think that except for some companies that reduce costs and increase efficiency later this year, there is still some room for decline on the cost side, and the leverage effect brought about by income growth may play a greater role in reducing costs and increasing efficiency.

Market performance and investment advice

Chart: the share prices of some content companies have risen or declined since 2022 compared with the beginning of the year.

Since the end of the second quarterly report, the share prices of companies in the Internet sector have fluctuated greatly, which is reflected in two stages:

► continued to decline since the end of September:On the one hand, under the influence of multiple external factors, such as poor macro data, repeated epidemics, large foreign capital outflows, and Fed interest rate increases, the market has held relatively pessimistic expectations for the upcoming third quarter results; on the other hand, with some companies looking ahead in the third quarter, few companies have been able to significantly exceed expectations in revenue, which further resonates with the previous pessimistic expectations of the market. Under the joint action of internal and external factors, the market continues to be in a negative cycle, resulting in a large decline in the plate. In this process, Tencent, NetEase, Inc, Baidu, Inc. and other companies as a whole to maintain profits and there is no obvious additional investment in other business, valuation compression is more intuitive. However, for Kuaishou Technology, Bilibili Inc. and other companies that are still losing money, in the more extreme capital market environment, profitability is greatly questioned, the valuation boundary is difficult to determine in the process of decline, and the overall downward adjustment is relatively more obvious.

The ► plate has been gradually repaired since the end of October:Since the end of October, the mood gradually warmed up, superimposed after the epidemic period of market consumption recovery is expected, the plate as a whole gradually repaired. Since the beginning of November, due to the active adjustment of epidemic prevention policy, domestic real estate rescue policy and the expected cooling caused by the peak of US CPI, the plate mood has gradually warmed up. In this process, Tencent, NetEase, Inc and other companies' valuation moderated and repaired, while companies with greater doubts and high uncertainty, such as Kuaishou Technology and Bilibili Inc., rebounded more obviously.

Investment advice:

The platform plate on the Internet has shown an obvious decline due to the resonance of internal and external factors, while various factors have improved recently: from an external point of view, the important factor is the continuous optimization of epidemic prevention and control, although there is still uncertainty in the short term, but the long-term trend should be optimistic. We believe that the macroeconomic recovery has a positive incentive effect on online recruitment, advertising, games and so on. We must also see that the improvement of the external environment can be quickly perceived by the market, or even over-perceived. Therefore, we recommend that investors focus on those whose growth is more certain, which is expected to achieve excess returns over a longer period of time.

Risk hint

Macro and epidemic uncertainty:Repeated outbreaks may continue to drag down residents' willingness to spend, the impact of epidemic prevention and control on e-commerce and other supply chains is uncertain, and macroeconomic weakness may further drag on platform advertising revenue.

The regulatory policy is stricter:Online platforms involve games, live streaming and other areas, and there are corresponding policies and regulations. If policies and regulations change, it may have an impact on the operation of online platforms.

The progress of reducing costs and increasing efficiency is not as expected:While the visibility of the external environment is still unclear, the Internet platform may further reduce user growth spending and further affect the rate of short-term income growth; at the same time, although short-term "cost reduction and efficiency" is a more consistent direction for all companies, the fee reduction effect of each platform may be different for the development of normal business.