Who's Winning the Artificial Intelligence Race between PRC & US:

Alibaba, Tencent, Ping An, Baidu & Zhong An VERSUS

Alphabet, Amazon, Apple, Facebook & Microsoft

1
 Artificial Intelligence Described on a Single Chart

1. Financial Services

2. Cognitive
40bn Services
Sensors 3. Lifestyle/ Health

Computing
Neural

Quantum
Physical Digital Networks:
IoT Infra. AI 4. Autonomous cars
Data Data Machine
Learning
5bn 5. Robotics
Mobile
Devices 6. Advertising
Schulte Research

Cloud

Source: Schulte Research Estimates

 a. AI Financial Services Comparison:
Alibaba way ahead. Ping An and Tencent also dominate

Company Payment Insurance Personal SME Credit Money Wealth Crowd- Currency
Loans Loans Rating Market Mgmt funding Exchange

Alibaba AliPay Ant Personal SME loans Zhima Yue’bao Ant ANTSDAQ AliPay
(400mn) Zhong An loans - Ant – Ant Credit (CNY1.2tn) Financial,
(51.8% ms) SME AliPay
Service

Tencent WePay Zhong An Weilidai Weilidai WeBank / WeBank JD.com /

(300mn)
(38.3% ms)

Ping An Ping An Ping An Ping An Ping An Ping An Ping An Ping An / Ping An

Bank Insurance Bank Bank Insurance Asset Asset Bank
Mgmt Mgmt

Baidu Baidu / / / Yes / Yes / /

Wallet
(100mn)

Amazon / Electronic / USD$3bn / / / / /

Damage SME loans
Insurance (Amazon
(UK) Lending)

Microsoft MSFT / / / / / / / /
Wallet

Google Google
Wallet,
/ / / / /MISSED
/ / /
Android Pay
OPPORTUNITY
Schulte Research

Apple Apply Pay / / / / / / / /

(85mn,
450%YOY)

Facebook Messenger / / / / / / / /
Pay

Source: Schulte Research Estimates, Zenith

 b. AI Data Source Comparison.
Alibaba may leapfrog all with PAI, Ding Talk, and Tmall Genie. This puts Alibaba in its own league with Tencent very close.

Company Intentional Data Un-intentional Data IoT/Car Cognitive Service Cloud

Alibaba AliPay, Taobao, Tmall, Youku, Weibo, UCWeb, Cainiao ”Connected Car” with Platform for Ali
Alibaba.com, Alibaba Logistics, Yahoo! China, SCMP, SAIC, AutoNavi, Ali Artificial Cloud
Express, Yue’bao, Tmall, AliWangWang, LaiWang, PAI, Health, KFC Intelligence (PAI
Alibaba Cloud (750mn) Ding Talk 2.0), Tmall Genie

Tencent WeChat Pay, 3rd Party WeChat (938mn), QQ (700mn), Didi, Dianping review WeChat Voice/ Tencent
Providers (JD.com, Didi, Qzone, WeChat Ecosystem, site Image, Tencent Cloud
etc.) Gaming Video

Ping An Ping An Bank, Ping An Ping An Health, Ping An Ping An Auto Owner, Facial recognition, Ping An
Insurance, Ping An Asset Securities Wanjia Clinics Voice print Health
same technology

Mgmt (350mn) Cloud

Baidu Baidu Search, Baidu Baidu Search Food Delivery Service, Little Fish Baidu
Wallet Project Apollo Cloud

Amazon E-commerce (B2C, C2C) Shopping search Echo, Kindle, Whole Alexa, Rekognition, AWS
Foods, Amazon Books, Polly, Lex, Amazon
Logistics Video

Google Google Play Store, Google Search, Android OS, G- Android OS, Waymo Health, Translation, Google
Google Search mail, Maps, Chrome, Snapchat Google Assistant, Cloud
(166mn MAU), Youtube, Waymo Google Face, Deep
Mind

Apple iTunes (800mn), Apple iOS, Safari iPhone (1bn), iPad, Siri, Face iCloud
Schulte Research

Music, Apple Pay (85mn) iPod, Mac, Apple Watch Recognition

Microsoft Xbox, Microsoft Wallet LinkedIn, Office, Skype, Bing, IE Kinect, Microsoft Zo, Computer Azure
(small) Surface, Windows vision/ Speech/
Phone Language API

Facebook Messenger Pay Facebook, Facebook Messenger Oculus, Project Titan Deep face, Deep /
(1.96bn), Whatsapp (1.3bn) text, Translation

Source: Schulte Research Estimates

 c. AI Cloud Comparison:
Amazon Big Winner. Alibaba Leader in Asia.

Company Market Share (in Comments

respective
markets)

Alibaba 41% Leader in Asia, >100 newly developed AI services

Services in storage, networking, healthcare, logistics, lifestyle, media, business
enhancements, and etc.

Tencent 7% #3 in Chinese Market, services in public/private storage for personal/business use

same technology

Baidu 1% Small cloud service

Amazon 47% Amazon AWS: Global & US leader

Microsoft 10% Fastest Growth Rate, 97% YOY

Azure & Office 365

Google 4% Fast growing, 45 teraflops of data (45 trillion bytes/second)

Services include AI APIs’, storage, search history, e-mail, etc.
71,000 searches/second
Schulte Research

New quantum computer

Apple 1% Small cloud service, primarily strong in private data collection

Services in location, storage, and security

Source: Schulte Research Estimates, HostUCan, Skyhighnetworks

 d. AI Cognitive Services Comparison: Microsoft Winner.
There is a “me too” attitude. Microsoft has made a wide and deep mark. But, Alibaba PAI is deeper and broader than anyone else.

Natural Language
Company Image Recognition Facial Recognition Voice Video
Understanding
Alibaba Document recognition, Identity Customer service Real-time translation Video
image search+, PAI authentication, Alipay AI, voice->text services, PAI analysis,
service, etc., PAI broadcast
service, PAI

Tencent Fashion trend analysis Identity WeChat Translation Tencent

authentication Voice/Image Video

Baidu xPerception, Pixlab API, Baidu Facial Voice Search, Translation, Speech /
WICG Shape Detection Recognition (99.7% Text-Speech Recog., Kitt.AI,
API accuracy) Converter, Deep RavenTech
same technology

Voice (97% accu.)

Amazon Amazon Rekognition Emotion recog., Face Alexa, Lex Alexa, Echo, Polly Amazon
Comparison Video

Microsoft Image understanding, Face API, Emotion, Speech Translation, Text Video
Celebrities/Landmark Verification, Detection Verification, Text- Analytics, LUIS analysis,
recog. Speech Converter Video
Indexer

Google Image searching Google Face Google assistant Translation AI, Text YouTube
Analytics
Schulte Research

Apple Classification/ Facial Rec. Siri Siri /

Detection/ Checking

Facebook Text recognition, Deep Face Oculus VR Voice Translation, Deep Text /
translation Recog.

Source: Schulte Research Estimates, Zenith

 e. AI Lifestyle Comparison:
Tencent + Alibaba Winner. Microsoft + Baidu falling behind.

Company Media Food Travel Entertainment Interaction Search Education Health

Alibaba Live media, KFC Air/train Audio/video Online Personalized Media Utilities
news China, tickets, solutions, video shopping search, direct education payment,
production, Koubei, hotel game services, e- support marketing services Hospital-
media Ele.me booking commerce, Youku, service, big patient comm.,
interaction, AGTech data analytics smart diagnosis
etc.

Tencent QQ music, Meituan LY.com E-commerce, video WeChat WeChat Search, Koo Learn, WeChat
Joox, Tencent Dianping games Sogou Ke.qq Intelligent
Video/ News Hospital

Baidu Book recomm. / Ctrip / / Search engine Baidu Health Search

(76% market Education
China is way ahead

share), (Jiaoyu)
personalized
search, data
marketing

Amazon Books, music, Whole / TV streaming, / Search Amazon /

TV streaming Foods, Amazon Studio recomm. Inspire
Amazon
Fresh

Microsoft / / / X-box/gaming Skype, Bing MSFT MSFT Health

LinkedIn Education

Google Google Videos / Google YouTube Snapchat, Search engine, Google for Google Health,
Flights Gmail, personalized Education Google Fit
Google+ search, data
marketing
Schulte Research

Apple ITunes / / Apps, App Store, Messages / / Health apps

Game
development kits

Facebook Facebook / / Facebook games Facebook, Internal Search / /

newsfeed Whatsapp, Function
Instagram

Source: Schulte Research Estimates, Zenith

 Alibaba: E-commerce + the fullest AI ecosystem of any company on earth.
And, it has achieved this while being the most profitable of any company.

Artificial Intelligence/ PAI 2.0

He
a lth

ce
er
G

m
ity ov

om
r er
cu
C
E- Se M nm
M n o en

Log
ar ey t

e
nc
ke
t

ra

isti
ce

su
il
n

cs
In
Reta
Fina

IoT
s
o f Service

Media
n s io n
E x pa e
Over Tim B2B

ties
B on

uri
C2C
Go

ds

O
Sec

O2
ver

Da g
Cr

Bi
ta
ne

ed B2C E g
Fi

M
S din
me

it
Schulte Research

na

s
n

Investment
nt

Le

me
ce

Ga
M Management
an
uf Cloud Computing y
ac rit
tu c u
rin Se
g
Source: Alibaba Website, Schulte Research Audio/Video
 Alibaba AI: a truly common man’s bible – access to virtually any
and all data dumps of all of China.

Artificial Intelligence/
AI PAI 2.0
Banking AI
A. Financial Services N. Government
Services Government
Services
M. Environment
B. E-Commerce

L. Health
C. Cyber-Security

K. Energy
D. Manufacturing
Schulte Research

E. Online-To-Offline J. Audio/Video
AI
Business AI
Services F. Logistics I. Video Games Lifestyle
H. Media Services
Source: Alibaba Cloud Website, Schulte Research
G. Websites/Apps
 Tencent: from social media network to the use of unintentional data to
create a full ecosystem
Tencent Holdings Progression

e
ag ition Re Sp
Im g n co eec
e co gn h
R iti
on
ing

it

We allet
ed
ertis

Cr

W
Ch
at
Adv

IoT
s io n o f Services
E x pa n e Gaming
Over Tim QQ
ng
E-

i
WeChat nk
co

Ba
m

e
m
Co

nd E
i
er

nl
Bo

g
Da ig
L e SM
ns

in
ce

ta
B
O
nd
u
Schulte Research

m
er
G
ui
de
s

Cloud Computing

Source: WeChat, Schulte Research

 Ping An has made greater strides into becoming an autonomous
financial ecosystem than any other company

Artificial Intelligence
Pi
e ng
ag ition An
Im g n Healthcare Fi
co

Pi Do
e nc

ng ct
R lo
ud

An or
Finance
su lth
e

Go
nc
In Hea
Io T ra

o d
et
a ll

Data Analytics
Management
W

Ping An
B ank
E-

Health
o n o f Se rvices
E x pa ns i e
Over Tim Insurance
Lu Lif C
fa e &
x P

ri n
cu A
Vo

s
tie
Se ing
i

W
ce

Ping An- ia
P
j
ea
pr

an ics
ra
in

UOE Fund
Schulte Research

W lin
bl
tR

es

C
ec
og

Golden Butler
ni
tio
n

Facial Recognition
 Zhong An: only 3 years old, the largest pure online, cloud-based
insurance company globally.

Artificial Intelligence
W
e uj
ag ition i es
Im g n Enterprise Solution ha
co n
Re Cl

SM nsur
o ud

I
E anc
Lifestyle

n r
sio te

Gr e
Vi pu

ou
m
Io T

Co

p
o
rg

Dynamic Pricing
Tra
Ca

ve l

Platform
O2O
o n o f Se rvices
E x pa ns i e
Over Tim St Returns
W ep P&C a lth
ell to e
ne H

t
Sm an

ss

en
id
M
al age
Fa

cc
t
lL m

as en
cia

A
Auto
en en

Sa m
Schulte Research

lR

tt le
di t
ec

ng

Agent Management Se
og

s
m
ni

a i
tio

Cl
n

AI
Credit Rating
 Baidu: stumbled in its transition from search engine to AI; regaining
momentum after widescale mngt. shakeup, and are pursuing risky
strategy of acquisition
Baidu Progression

Li
fe
sty

ng
le
i
tis

n
tio
er

Sp
la
v
Ad

eec
a ns

hR
Tr

ec
io n o f Services
E x pa ns e

h
Over Tim

rc
Ne Search

ea
ws

eS
Fe
ag
ed Im
Te

ec
xt

eR
Schulte Research

il
to

ta
ag
Cloud Services
Sp
Ro

Re
Im
ee
bo

ch
tic
s

Autonomous Driving
Source: Baidu Website, Schulte Research
 Amazon: online bookstore for 3 years to #1 global player in
almost everything, including Cloud, Enviable execution +
impressive global ambition.
Artificial Intelligence
Au
ics t
bo
t De ono
Ro liv mo
er us
Echo y

iti ce
Whole Foods

Kin

gn Fa
on
IoT
dle

Cl
co &
Re age

ou
oks
Bo

d
n
Im

a zo
Am

Entertainment
o n o f Se rvices
E x pa ns i e
Over Tim CD Books
s & i cs
Fo & o y
od DV T tron es
Ds c m
ele Ga

ot
Te

tb
xt

a
Ch
Everything..
-V

e
Schulte Research

Fi

nc
oi
na

ce

ra
n

su
ce

NLP
In
Life style
 Google: from #16 in search engine, Google has used AI to become
advertising behemoth. But, it is not on the radar screen in finance.

Artificial Intelligence
Au
tor to
l a
ns Ve nom
a hi o
Tr cle us

Qu
s

M rni

an t
b Services
Jo

ac ng
lea

um
hin

Com
e
Io T nio

put
i ve

Sna
Vis

in g
Dr

pch

Search
rvices

at
Se

nce
o n o f
E x pa ns i e
Over Tim

Video
Google

Intellige
Yo Gm h
ut
ub
ail a rc
Na pr

e Se

d
tu oc

or
ra ess

dw
l l in
Im

A
an g

Android h

ng
ec
ag

gu
Schulte Research

i
e&

tis
Sp
ag

er
e
Vi

v
Translation
de

Ad
o

Analytics
 Microsoft: started as dominant PC operating system but failed in the
all important transition to mobile, trying to recover by its Azure
Cloud. Why is Microsoft not a dominant leader in SME lending?

Artificial Intelligence
tor Co
l a n
a ns Ve ne
Tr hi cte
cl e d
Lifestyle

n r

Cl
sio te

ou
Vi pu
m Lu

d
Io T m
Co
ia

ce
rfa
Su

Video API
MSN

Search
o n o f Se rvices
E x pa ns i e
Over Tim Windows

e
Xb

Offic
o x
IE
pe ge
Fa

Linke
G

d In y d
Sk le
ce
es

s
tu
Schulte Research

AP

no

tic
re

g is
K
co

Language

Lo
nt

Understanding
ro
l

Chatbot
 Apple: this is a hardware company with awesome marketing,
unimpressive AI and seem to have stumbled in the progression.
Too late to the game?

Artificial Intelligence
Au
tor t
ns
l a Sy ono
a ste mo
Tr m us
s

Tr
Devices

an
I
AP

sl a
on

tio
Io T

Biometric secur
si

n
Vi

od
iP

iPad
o n o f Se rvices
E x pa ns i e
Over Tim Apple Inc
Siri
iP iOS s
ne

ity
ho u
ne iT
G

TV
am
Ap

le
eP

pp
p

aly c
s
l

A
iWatch
de

ay

An usi
tic
ag e
Schulte Research

M
elo

a n g
ral l g API
it
pm

AP

a tu
N e ssi n
en

pr o c
t

Virtual A m age
ssistant I
 Facebook: the greatest 1 trick pony ever. They control the social
network + people think this is important – but for it’s own sake? One
of the worst scores.

Artificial Intelligence
tor
l a Re Im
a ns co a g
Tr gn e

Da
FAIR labs iti

ta
on

n r
sio te

Ce
Lifestyle
Vi pu

nt
m
Io T

er
Co

s
Me
sse

Sensors
nge

Text AI
IOT
f Se rvices

r
o n o
E x pa ns i e
Over Tim W
Facebook
ha
tsa

t
s

ec
ulu
pp

nn
Oc

Co

lo w
Fa

De
cia

ok
ep

rF
Instagram

bo
lA
Schulte Research

ne
Te

ce
I

xt

ar
Fa

Le
Deep Face

FB
Cha
tbo
t g
Advertisin
 Chinese firms have implemented quicker and jettisoned quicker. China
dropped duds & created financial empires. US firms stopped their efforts.

Company Duds Successful Replacements

Alibaba Lai Wang, Alibaba.com (HK) Ant Financial, AliPay, Taobao, Tmall, Alibaba Cloud, PAI 2.0,
Zhima Credit, ANTSDAQ, Yue’bao, Youku, Weibo, etc.
Tencent Pai Pai, E-commerce WePay, Weilidai, WeBank, JD.com, WeChat, Didi, Tencent
Cloud, etc.
Ping An Ping An Good Car Ping An Bank, Ping An Insurance, Ping An Asset Mgmt, Ping An
Health, etc.
Baidu O2O Wai Mai Baidu Wallet

Microsoft Microsoft Wallet Skype

Google Google Hangout Android Pay

Facebook Messenger Pay / Duds with no

Apple Apple Pay /
replacement
Schulte Research

Amazon Amazon Lending /

Amazon Insurance

*China had duds but morphed quickly and pivoted effectively

 Project Conclusions
General Conclusions
1.
The Cloud is the foundation of AI strategy. Alibaba dominates in Asia.
Amazon dominates in US.

2.
Cognitive services are the foundation of AI development -> voice, image,
face, video, language. However, there is a “me too” and, surprisingly, a
feeling that AI is already commoditized.

3.
SMEs and corporates can access cheap AI tools which allow them to access
new forms of credit & offer new products. This is the age of the SME.
(Supply chain  can track ur goods etc)
Schulte Research

4.
Firms, especially in China + other GEMS, are leap-frogging banks rapidly.
They are using AI to analyze vast amounts of integrated data in order to
offer new financial services to billions of unbanked people and millions of
unbanked SMEs. (inclusion)
 Project Conclusions
Chinese Firms Conclusions
1.
PRC firms are better at monetizing technology for mass use.

2. PRC has a long term, coherent plan for AI. The US has no plan.

3.
Chinese are more willing to surrender data.

4.
Alibaba and Ping An are much further into new territory than anyone else.

5. Integration of finance and lifestyle is welcomed and encouraged by PRC.

Schulte Research

6. PRC has a clear national policy of proliferating credit to individuals and SMEs.
 Project Conclusions
Reasons for China’s Success over US
1.
US heavily entrenched incumbents & lobbying groups have impeded progress to protect cartels.

2. Multiple regulators who were on the warpath after the devastation of the GFC (US$300bn of fines)
discouraged new consumers credit products.

3.
Many of the Chinese companies learned to “eat dirt”. They were toughened by a highly
competitive environment. (But collaborate behind the scenes)

4.
China succeeded since there was no “there there”. Banking and regulatory structure were absent
and monetary infrastructure was very immature. The only way to win was with “new”.
Schulte Research
 Robot installations in China are 1/3 of global total
Schulte Research
 Master Summary: Financial, Operational, Artificial Intelligence Analysis

First Second Third Laggard

Operational Health Facebook Alibaba Tencent Amazon
Performance

Facebook (most from

Revenue Diversification Microsoft Alibaba Tencent
Business

ads)

Valuation Ping An Apple Google Tencent

Credit Health Google Apple Tencent Baidu

Fintech Alibaba Ping An Tencent Facebook

Artificial Intelligence Performance

Insurtech Ping An Alibaba Tencent Facebook

Healthtech Ping An Alibaba Amazon Baidu

Cloud Amazon Microsoft Alibaba Facebook

Data Source Alibaba Ping An Tencent Baidu

Cog Services Google Alibaba Microsoft Facebook

Schulte Research

Lifestyle Tencent Alibaba Amazon Baidu

Securities Ping An Alibaba Tencent Microsoft

Overall
Ping An Alibaba Tencent Baidu/Facebook
Winners/Losers
 Overall Rankings: Ping An and Alibaba dominate in all categories
Ranking of each company’s performance across all three areas: Artificial Intelligence Services, Financials, and Valuations. (1 st is
best, 9th is worst)

AI Scorecard Financials Valuation Average

1. Ping An 2 4 1 2.3

2. Alibaba 1 2 7 3.3

3. Google 5 4 3 4.0

4. Apple 6 5 2 4.3

5. Tencent 3 3 8 4.7

6. Facebook 8 1 6 5.0

7. Microsoft 7 6 4 5.7
Schulte Research

8. Baidu 9 7 5 7.0

9. Amazon 4 8 9 7.0

Note: “1” is best, “9” is worst

 Artificial Intelligence Scorecard:
Chinese firms have diversity and consist of a full menu. US firms tend to specialize through 1 brand. This age
of AI requires diversified ecosystem. Specialist firms lose out.
1 2 3 4 5 6 7 8 9
Alibaba Ping An Tencent Amazon Google Apple Microsoft Facebook Baidu
FinTech 10 10 9 7 6 7 4 4 5

InsureTech 9 10 9 6 4 4 4 4 4

HealthTech 9 10 8 8 7 7 7 5 4

Cloud 8 5 7 10 8 6 9 4 5

Data source 9 8 9 8 8 8 7 7 6

Cognitive 9 8 7 8 10 7 9 7 8
Services
Lifestyle 9 8 10 9 9 9 7 9 6

Securities 9 10 9 4 5 6 4 5 5
Schulte Research

Average 9.0 8.6 8.5 7.5 7.1 6.8 6.4 5.6 5.4

*Scoring from 1 (worst) to 10 (best)

Source: Schulte Research Estimates

 Financial Rankings:
Facebook/Alibaba best in operations; Baidu/Amazon worst. Microsoft also mediocre.

1 2 3 4 5 6 7 8
Facebook Alibaba Tencent Alphabet Apple Microsoft Baidu Amazon
Retained Earnings 3 5 4 1 2 8 6 7
(US$mn)

Gross Margin (%) 1 2 5 4 7 3 6 8

Net Margin (%) 1 2 3 6 5 4 7 8

Revenue CAGR (5yrs)

2 1 3 6 7 8 4 5
(%)

Cash/Total Asset 4 1 3 5 6 8 7 2

Tangible Leverage 1 3 5 2 6 8 4 7

ROE (%) 2 5 3 6 1 4 7 8

ROC (%) 3 6 2 5 1 4 7 8

ROA (%) 3 2 1 4 5 6 7 8
Schulte Research

Average 2.3 3.1 3.3 4.6 4.6 6.2 6.3 7.2

*Ranking from 1st (best) to 9th (worst)

*ROE/ROC/ROA are next 4Q estimates
*Detailed numbers on Page 15/16
 Valuation Rankings:
Ping An cheapest; Amazon most expensive

1 2 3 4 5 6 7 8 9
Ping An Apple Alphabet Microsoft Baidu Facebook Alibaba Tencent Amazon

P/E 1 2 4 3 5 6 7 8 9

P/B 1 4 2 6 3 5 7 8 9

PEG 2 7 6 8 3 1 4 5 9

Price/ Free Cash 1 2 4 3 5 7 6 8 9

Flow

EV/EBITDA NA 1 2 3 5 4 7 8 6

EV/EBIT NA 1 2 3 5 4 6 7 8
Schulte Research

Average 2.4 2.8 3.3 4.3 4.3 4.5 6.2 7.5 8.5

*Ranking from 1st (best) to 9th (worst)

 Strategy Directions: The key is integrated ecosystems. Specialization in
IOT + AI is a liability. Google/Facebook have thrown away spectacular
opportunities.

High P/E Right direction

g
p utin en
t
om AI nc
tu mC Te ba n
uan liba ngA
ou d
Q A P i
Cl Microsoft
h
Tec
Fi n
le
i fe sty e
L ogl
ata Go
Hierarchy of B i gD ple
/ Ap
IOT nt
Product i n me
a
ert are
Development Ent ft w
So e
m erc Facebook
om
E-C rch
Sea

Ba
re

idu
r d wa
Ha ng Wrong
e r tisi
Adv direction
Schulte Research

g
ki n
Low P/E Ban

Time
Alibaba, Tencent, and Ping An have IOT/AI plus fully integrated systems. Baidu
dropped the ball.
Source: Schulte Research
 Advertisement: Facebook is leading, other data rich
firms have the potential to expand the revenue source
Advertisement revenue as % of total revenue
100.0% 97.0% 1 trick ponies?
91.4%
89.0%
90.0%

80.0%

70.0%

60.0%

55.0 %
50.0%

40.0%

30.0%
Schulte Research

20.0% 17.7%

10.0% 7.1%
2.2%
0.0%
Facebook Baidu Google Alibaba Tencent Microsoft Amazon

Source: Schulte Research Estimates, Bloomberg

 Advertisement: Facebook is leading, other data rich
firms have the potential to expand revenue sources

Total Revenue (US$bn)

250

200

150
Other
Advertising

100
Schulte Research

50

0
Apple Amazon Ping An Alphabet Microsoft Facebook Alibaba Tencent Baidu

Source: Schulte Research Estimates, Bloomberg

 Chinese Companies Revenue Breakdown
China much more diversified than the US: PRC has a deeper, more integrated ecosystem

Alibaba Revenue Breakdown Tencent Revenue Breakdown

10 11%
2%
%
Advertising
5% C2C/B2C
1% Online games
4%
B2B 18%
Social networks
International commerce retail 47%
3% Advertising
International commerce wholesale
Other
4% Other commerce
55
Cloud computing
%
Digital media and entertainment

17% Innovation initiatives and others

24
%

Baidu Revenue Breakdown Ping An Revenue Breakdown

1% 1%
12%

Life insurance
41% Search service Property and casualty
Transaction service insurance
47
Schulte Research

Banking
% iQiyi
Trust business
Advertising
Securities business
28
58%
%

4%
8%

Source: Schulte Research Estimates, Bloomberg, Company filings

 US Companies Revenue Breakdown
These 5 companies are essentially specializing. I think the US companies have moved away from the
conglomerate model at the wrong time?

Amazon Revenue Apple Revenue Breakdown Google Revenue Breakdown

Breakdown
iPhone 1
2 1% Advertising
iPad %
Retail Products
2% 5%
11% C2V Other
13% Mac
6% Subscriptions
AWS Other bets
Services (Apple (Google Fiber,
Other Pay, AppleCare,
11% Calico Labs,
etc.)
18% Nest, Verily,
63 63 etc.)
% 7% Other (Apple TV,
%
Watch, Beats,
accessories, etc.)
8
7
%

Microsoft Revenue Facebook Revenue Breakdown

Breakdown 2%

Business
29 Computing
% (Office, Skype,
etc.) Advertising
44
Payments and
Schulte Research

% Cloud (Azure, other fees

SQL, etc.)

Personal
computing
27 (Windows,
% Surface, Xbox,
etc.)
98%

Source: Schulte Research Estimates, Bloomberg, Company filings

 Research Directions: US Firms
All companies have a similar vision of the future. AI, Big Data, and Language!

Companies Research Direction Unique Point

1.Facebook AI Research (FAIR) – semantic analysis, sentient analysis, etc.

2.Natural Language Processing and Speech – translation services, word sense disambiguation, etc.
Facebook 3.Applied Machine Learning – streamline content delivery, connect users w/ desired content Virtual Reality
4.Data Science – human interaction analysis, market intelligence, etc.
5.Virtual Reality - augmented reality experiences

1.Artificial Intelligence
2.Computer Vision
Human-computer
Microsoft 3.Human-computer Interaction
interaction
4.Human Language Technologies
5.Search and Information Retrieval

1.Apple Car/ Autonomous Driving

2.Augmented Reality
Apple Chips
3.HealthTech – Health functions within Apple watch
4.Chips – Hardware improvement

1.Image/Face Recognition
2.Voice Recognition
Amazon 3.ChatBot AI Drone, Robotics
4.Drone Delivery
5.Warehouse Robotics
Schulte Research

1.Machine Translation System

2.Deep Learning Algorithms – detection of diabetic retinopathy
Quantum
Google 3.Quantum Computing
Computing
4.Big Data Analytics
5.Machine Intelligence/Perception

Source: Schulte Research

 Research Directions: Chinese Firms
All companies have a similar vision of the future. Chinese firms show higher degree of diversification.

Companies Research Direction Unique Point

1.Financial Securities Exchange Core

2.Customer Service AI
Securities Exchange,
Alibaba 3.Intelligent Manufacturing – Cloud computing/big data analytics
Intelligent Manufacturing
4.Health Data Platform – Integration of patient data, image analysis, diagnosis
5.Commercial Vehicle Networks – logistics enhancement & optimization

1.Artificial Intelligence
2.Machine Learning – stock picking, HFT, portfolio management
Tencent Portfolio Management
3.Big Data – trend analysis
4.Cloud Computing

1.Data Mining – social media user behavior, engagement rates

Ping An 2.Computational Algorithms WMPs
3.Big Data Analytics – purchasing patterns, WMPs

1.Financial Platforms/Cores – E-commerce platforms, insurance cores, finance cores

2.Data Analytics/ Risk Management Modelling
Zhong An 3.AI – Transaction decision-making Blockchain
4.Blockchain – Digitalize off-chain assets, data storage, secure ID
5.AI – Customer service ChatBot
Schulte Research

1.Artificial Intelligence – image/speech recognition

2.High Performance Computing/Big Data Analytics
High performance
Baidu 3.Natural Language Processing
computing
4.Deep Learning
5.Augmented Reality

Source: Synergy Research, Schulte Research

 Major Acquisitions: US Firms
US firms invest heavily in acquiring smaller firms that do not necessarily operate in their industry.
Company Acquisition Amount (US$) Year Description Comment
WhatsApp 19bn 2014 Messaging
Oculus 2bn 2014 VR
Consolidation of social
Facebook
Instagram 1.01bn 2012 Social Network network industry

LiveRail 500mn 2014 Video ad.

LinkedIn 26.2bn 2016 Social Network
Nokia 8bn 2013 Phone
Failed hardware attempt on
Nokia. LinkedIn is the new
Microsoft Skype 8.5bn 2011 Messaging
bet on professional
Mojang 2.5bn 2014 Game developer network.

Yammer 1.2bn 2012 Corp communication

Beats Electronics 3bn 2014 Headphone
HopStop.com 1bn 2013 Transit guide
Apple Lifestyle + Health
Lattice 200mn 2017 AI
Gliimpse 200mn 2016 Health

Whole Foods Market 13.7bn 2017 Supermarket

Twitch 970mn 2014 Game streaming

Amazon Souq.com 580mn 2017 E-commerce O2O bet on Whole Foods

Elemental Technologies 500mn 2015 Mobile video

Schulte Research

Annapurna Labs 37mn 2015 Chip maker

Motorola Mobility 12.5bn 2012 Phone
Waze 1.3bn 2013 Map
Another failed case of
Google acquiring phone company
Apigee 625mn 2016 API platform
DeepMind 500mn 2014 AI
Source: Synergy Research, Schulte Research
 Major Acquisitions: Chinese Firms
All companies have a similar vision of the future. Chinese firms show higher degree of diversification.

Companies Acquisition Amount (US$) Year Description Comment

UCWeb 4.7bn 2014 Mobile browser

Youku 3.5bn 2015 Chinese Youtube

Alibaba AGTech Holdings 2.39bn 2016 Lottery Contents + data

SCMP 262mn 2015 Media

Wandoujija 200mn 2016 Android app store

Supercell 8.6bn 2016 Game developer

China Music Corp 2.7bn 2016 Music

Riot Games 400mn 2011 Game developer Consolidation of

Tencent
game industry
Miniclip SA na 2015 Game developer

Sanook na 2016 Thai web portal

91 Boyuan Wireless 1.9bn 2013 Android app store

Beijing Huanxiang Zongheng Chinese 31.3mn 2013 Online publisher

Baidu Literature Diverse
Schulte Research

TrustGo 30mn 2013 Mobile security

Ping An Autohome 1.6bn 2016 Auto website Auto insurance

Source: Synergy Research, Schulte Research

 Market Cap:
Tech companies are a gathering force in market cap. They dominate capital markets now. Banks can’t hold a
candle to tech spending

Market Cap (US$bn)

900

800

700

600

500

400

300

200
Schulte Research

100

0
Apple Alphabet Microsoft Facebook Amazon Alibaba Tencent Wells CCB HSBC Ping An Goldman Baidu Deutsche
Fargo Sachs Bank

Source: Schulte Research Estimates, Bloomberg

 Retained Earnings:
Alphabet and Apple are sitting on mountains of cash. Much of it as untaxed offshore cash.

Retained Earnings (US$bn)

120

Un-sustainable cash pile

105

100 96

80

60

40
Finally profitable Stock buybacks
27
Schulte Research

22 20
20 16
12

5
3
0
Alphabet Apple Ping An Facebook Tencent Alibaba Baidu Amazon Microsoft

Source: Schulte Research Estimates, Bloomberg

 Free Cash Flow:
Cash flows from operations – investment in operating capital (mostly fixed assets)

Tech companies blow away banks in cash flow (‘different’ numbers but you get the
point!)

Free Cash Flow (US$bn) (2016)

60

50

40

30

20

10
Schulte Research

0
ft t ) t
p le An so
e fi t ok on ab
a
en it) id
u
Ap ng ab ro bo az c of
r o h e lib n r Ba
Pi M
ic
Al
p x
p
Fa
c Am A Te x
p
-ta -ta
re pr
e
(p (
ti C
Ci SB
H

Source: Bloomberg, Citi Annual Report, HSBC Annual Report

 Investment Cash Flow
(net spending in Prop Plt & Eqpt, Capex, M&A)

US$300bn in “conduct costs” for banks is that much more that can’t be used for
investment. Plus, current R/D spending is woefully under invested.

Investment Cash Flow (US$bn) (2016)

50

45

40

35

30

25

20

15

10
Schulte Research

0
Microsoft Apple Alphabet Lloyds RBS (fines) Deutsche Facebook Alibaba Tencent BNP (fines) Amazon Baidu
(fines) (fines)

Source: Bloomberg
 Chinese Companies Liquidity (1.2 * Working Capital / Total Assets)

Alibaba Liquidity Tencent Liquidity

0.6 0.3

0.5 0.25

0.4 0.2

0.3 0.15

0.2 0.1

0.1 0.05

0 0
FY 2012 FY 2013 FY 2014 FY 2015 FY 2016 FY 2012 FY 2013 FY 2014 FY 2015 FY 2016

Baidu Liquidity
0.8

0.7

0.6
5 year deterioration
0.5
Schulte Research

0.4

0.3

0.2

0.1

0
Source: Bloomberg FY 2012 FY 2013 FY 2014 FY 2015 FY 2016
*Dotted line represents NASDAQ average
 US Companies Liquidity (1.2 * Working Capital / Total Assets)
Amazon Liquidity Microsoft Liquidity Facebook Liquidity
0.2 0.6 0.9

0.8
0.5
0.7
0.15
0.4 0.6

0.5
0.1 0.3
0.4

0.2 0.3
0.05 0.2
0.1
0.1

0 0 0
FY 2012 FY 2013 FY 2014 FY 2015 FY 2016 FY 2012 FY 2013 FY 2014 FY 2015 FY 2016 FY 2012 FY 2013 FY 2014 FY 2015 FY 2016

Apple Liquidity Google Liquidity

0.2 0.7
0.18
0.6
0.16
0.14 0.5
0.12 0.4
Schulte Research

0.1
0.08 0.3

0.06 0.2
0.04
0.1
0.02
0 0
FY 2012 FY 2013 FY 2014 FY 2015 FY 2016 FY 2012 FY 2013 FY 2014 FY 2015 FY 2016
Source: Bloomberg
*Dotted line represents NASDAQ average
 Chinese Companies Capital Structure (1.4 * Retained Earnings / Total Assets)

Alibaba Capital Structure Tencent Capital Structure

0.4 0.8

0.3 0.7
0.2 0.6
0.1 0.5
0
FY 2012 FY 2013 FY 2014 FY 2015 FY 2016 0.4
-0.1
0.3
-0.2
0.2
-0.3
0.1
-0.4
0
-0.5 FY 2012 FY 2013 FY 2014 FY 2015 FY 2016

Baidu Capital Structure

0.8

0.7

0.6

0.5
Schulte Research

0.4

0.3

0.2

0.1

0
Source: Bloomberg FY 2012 FY 2013 FY 2014 FY 2015 FY 2016

*Dotted line represents NASDAQ average

 US Companies Capital Structure (1.4 * Retained Earnings / Total Assets)

Amazon Capital Structure Microsoft Capital Structure Facebook Capital Structure

0.1 0.16 0.5
0.09 0.14 0.45
0.08 0.4
0.12
0.07 Stock buybacks0.35
0.06 0.1 0.3
0.05 0.08 0.25
0.04 0.06 0.2
0.03 0.15
0.04
0.02 0.1
0.01 0.02 0.05
0 0 0
FY 2012 FY 2013 FY 2014 FY 2015 FY 2016 FY 2012 FY 2013 FY 2014 FY 2015 FY 2016 FY 2012 FY 2013 FY 2014 FY 2015 FY 2016

Apple Capital Structure Google Capital Structure

0.9 1
0.8 0.9
0.7
Stock buybacks 0.8
0.7
0.6
0.6
0.5
Schulte Research

0.5
0.4
0.4
0.3
0.3
0.2 0.2
0.1 0.1
0 0
FY 2012 FY 2013 FY 2014 FY 2015 FY 2016 FY 2012 FY 2013 FY 2014 FY 2015 FY 2016
Source: Bloomberg
*Dotted line represents NASDAQ average
 Chinese Companies Profitability (3.3 * EBIT / Total Asset)

Alibaba Profitability Tencent Profitability

0.8 0.7

0.7 0.6
0.6
0.5
0.5
0.4
0.4
0.3
0.3
0.2
0.2

0.1 0.1

0 0
FY 2012 FY 2013 FY 2014 FY 2015 FY 2016 FY 2012 FY 2013 FY 2014 FY 2015 FY 2016

Baidu Profitability
0.9

0.8

0.7
5 year deterioration
0.6
Schulte Research

0.5

0.4

0.3

0.2

0.1

Source: Bloomberg 0
FY 2012 FY 2013 FY 2014 FY 2015 FY 2016
*Dotted line represents NASDAQ average
 US Companies Profitability (3.3 * EBIT / Total Asset)
Amazon Profitability Microsoft Profitability Facebook Profitability
0.4 0.7 0.7

0.35 0.6 0.6

0.3
0.5 0.5
0.25
0.4 0.4
0.2
0.3 0.3
0.15
0.2 0.2
0.1

0.05 0.1 0.1

0 0 0
FY 2012 FY 2013 FY 2014 FY 2015 FY 2016 FY 2012 FY 2013 FY 2014 FY 2015 FY 2016 FY 2012 FY 2013 FY 2014 FY 2015 FY 2016

Apple Profitability Google Profitability

1.2 0.5
0.45
1
0.4
0.35
0.8
0.3
Schulte Research

0.6 0.25
0.2
0.4
0.15
0.1
0.2
0.05
0 0
FY 2012 FY 2013 FY 2014 FY 2015 FY 2016 FY 2012 FY 2013 FY 2014 FY 2015 FY 2016
Source: Bloomberg
*Dotted line represents NASDAQ average
 Chinese Companies Debt Structure (0.6 * Market Cap / Total Liabilities)

Alibaba Debt Structure Tencent Debt Structure

12 10
9
10
8
7
8
6
6 5
4
4
3
2
2
1
0 0
FY 2014 FY 2015 FY 2016 FY 2012 FY 2013 FY 2014 FY 2015 FY 2016

Baidu Debt Structure

8

7
Deterioration
6

5
Schulte Research

Source: Bloomberg 0
FY 2012 FY 2013 FY 2014 FY 2015 FY 2016
*Dotted line represents NASDAQ average
 US Companies Debt Structure (0.6 * Market Cap / Total Liabilities)
Amazon Debt Structure Microsoft Debt Structure Facebook Debt Structure
4.5 4.5 40

4 4 35
3.5 3.5
30
3 3
25
2.5 2.5
20
2 2
15
1.5 1.5
10
1 1

0.5 0.5 5

0 0 0
FY 2012 FY 2013 FY 2014 FY 2015 FY 2016 FY 2012 FY 2013 FY 2014 FY 2015 FY 2016 FY 2012 FY 2013 FY 2014 FY 2015 FY 2016

Apple Debt Structure Google Debt Structure

6 14

5 12

10
4
8
Schulte Research

3
6
2
4
1 2

0 0
FY 2012 FY 2013 FY 2014 FY 2015 FY 2016 FY 2012 FY 2013 FY 2014 FY 2015 FY 2016
Source: Bloomberg
*Dotted line represents NASDAQ average