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It all flows down to earnings or even cash flow.
Subscribers and users are not something I would value at. If you look at tech companies, they bank on the story of how many users they have attracted, however at this stage, the profit extracted from each user is negligible or even negative. Of course, the next stage is to start monetizing the users by removing the carrots.
Tencent Music is a good example of what happens next. As the product matured and freebies ended, many customers just left, MAU has decreased (this happened even before China order TME to stop being the only party to have exclusive music content due to their contracts). Now revenue is growing but profit margin has also decreased as the cost of acquiring customers or keeping them has increased. As a result, tencent music did not meet its growth story, as earnings only grew modestly. Share prices fell 70% and P/E is now at 15 -16 times (which puts it at fairly valued)
The chinese tech companies are reflective of what happens next and why I dont believe the words of users and subscribers. Because when monetization begins, all the "cheapos" will just abandon you. The same is why I don't trust the story of Netflix because when subscription fees increase or when companies such as crypto.com stops giving out free Netflix subscription to its users worldwide, people will leave. Earnings will rise no doubt but it wont be as fast as what many analysts will think. Grab and Shopee are another iffy story, many people are now leaving shopee for lazada because shopee is reducing the rewards it gives for playing its games and capping the amount of coins it gives as cashback for buying products.
So people are accumulating their coins still (at a slower pace) but in turn are spending less on Shopee platform. E.g. Previously it was easy to accumulate 1,000 shopee coins and spend on a $30 product and in the process get a $10 discount off from the shopee coins. Now users accumulate only 500 coins ($5 discount), so they wont spend on a $30 product but instead spend on a $15 product. Grab too has been introducing new fees and devaluing the Grabpoints (equivalent to cashback) and is introducing more and more exceptions in its T&C
Subscribers and users are not something I would value at. If you look at tech companies, they bank on the story of how many users they have attracted, however at this stage, the profit extracted from each user is negligible or even negative. Of course, the next stage is to start monetizing the users by removing the carrots.
Tencent Music is a good example of what happens next. As the product matured and freebies ended, many customers just left, MAU has decreased (this happened even before China order TME to stop being the only party to have exclusive music content due to their contracts). Now revenue is growing but profit margin has also decreased as the cost of acquiring customers or keeping them has increased. As a result, tencent music did not meet its growth story, as earnings only grew modestly. Share prices fell 70% and P/E is now at 15 -16 times (which puts it at fairly valued)
The chinese tech companies are reflective of what happens next and why I dont believe the words of users and subscribers. Because when monetization begins, all the "cheapos" will just abandon you. The same is why I don't trust the story of Netflix because when subscription fees increase or when companies such as crypto.com stops giving out free Netflix subscription to its users worldwide, people will leave. Earnings will rise no doubt but it wont be as fast as what many analysts will think. Grab and Shopee are another iffy story, many people are now leaving shopee for lazada because shopee is reducing the rewards it gives for playing its games and capping the amount of coins it gives as cashback for buying products.
So people are accumulating their coins still (at a slower pace) but in turn are spending less on Shopee platform. E.g. Previously it was easy to accumulate 1,000 shopee coins and spend on a $30 product and in the process get a $10 discount off from the shopee coins. Now users accumulate only 500 coins ($5 discount), so they wont spend on a $30 product but instead spend on a $15 product. Grab too has been introducing new fees and devaluing the Grabpoints (equivalent to cashback) and is introducing more and more exceptions in its T&C
