What are BAT stocks?
– BAT stands for three leading Chinese technology companies: Baidu, Alibaba, and Tencent. Investors and commentators often group them together because of their size, consumer reach inside China, and diversified tech businesses. BAT is sometimes compared to the U.S. FAANG group (Facebook/Meta, Amazon, Apple, Netflix, Alphabet) as a shorthand for major tech market players in their respective markets.
Key takeaways
– BAT refers to Baidu (search and AI), Alibaba (e-commerce and payments), and Tencent (social platforms and gaming).
– Each company has a wide product ecosystem and large domestic user bases that drive scale advantages.
– Common tailwinds: large Chinese consumer market, mobile payments adoption, growth in cloud and digital services.
– Common risks: regulatory scrutiny in China, volatile investor sentiment in tech, and issues specific to cross‑listing or ADRs (American Depositary Receipts) versus Hong Kong listings.
– This explainer summarizes each company’s business focus and key 2019–2021 figures reported in the source material, and gives a short due‑diligence checklist and a worked example for revenue growth.
Understanding BAT: a short overview
– Why they matter: Together, these firms dominate many digital services in China (search, shopping, messaging, payments, gaming). Their scale enables network effects and rapid product development (for example, mobile payments and cloud services).
– Diverging views: Proponents point to China’s large and growing internet population and areas where these firms lead (e.g., mobile payments). Skeptics caution that tech valuations can be high and that Chinese stocks may face sharp speculative swings and regulatory actions.
– Considerations for investors and students: when researching BAT, separate business fundamentals (users, revenue, margins) from macro or regulatory events. Pay attention to where each company lists its shares (U.S. exchanges, Hong Kong) and how exchange rates and local rules affect reporting.
Company snapshots (figures as reported in the provided source, mostly as of 2020–Sept 2021)
1) Baidu (ticker: BIDU)
– Core business: China’s largest search engine, plus maps, music, some social features, and AI/self‑driving research.
– Scale: Source states Baidu reached over one billion devices monthly across its services, and had about 76.91% domestic search market share (statistical source date referenced).
– Financial snapshot (per source): FY2020 revenue ~ $16.4 billion (vs. ~$16.5 billion in 2019 — a small decline). Market capitalization reported around $58 billion in Sept. 2021.
– Leadership note: Co‑founder Robin Li served as CEO since inception.
2) Alibaba (ticker: BABA)
– Core business: E‑commerce (Taobao for consumer‑to‑consumer, Tmall for business‑to‑consumer), cloud computing, digital media and payments via Alipay (part of its ecosystem).
– Scale: Reported over 1.18 billion annual active consumers across its ecosystem as of June 30, 2021 (912 million in China; ~265 million outside China).
– Financial snapshot (per source): Fiscal year 2021 revenue reported at ~$109.48 billion (the source states this was an increase from ~$78.98 billion the prior year). Market cap reported ~$476.96 billion as of Sept
2021. Leadership note: Founder Jack Ma stepped down as Alibaba’s executive chairman in 2019; Daniel Zhang succeeded him as chairman and has been a central operational leader.
3) Tencent (ticker: TCEHY / 0700.HK)
– Core business: Social networking (WeChat/Weixin, QQ), digital content (gaming, music, video), online advertising, fintech and cloud services. Tencent’s business model blends consumer-facing platforms with a large content and services ecosystem that monetizes users through subscriptions, in‑app purchases, advertising, and payments.
– Scale: WeChat (and Weixin) is a dominant messaging platform in China with over a billion monthly active users; Tencent is also the world’s largest video‑game company by many measures, with a broad portfolio of first‑party and equity‑held studios and titles.
– Financial snapshot (per source): Reported FY2020 revenue and rapid growth in digital services; market capitalization reported in the range of several hundred billion dollars as of Sept. 2021 (see sources below for the exact figures used in public summaries).
– Leadership note: Founded by Ma Huateng (Pony Ma), who has served as chairman and CEO, with management emphasizing platform and content investments.
Quick worked examples and simple metrics
Below are small numeric examples showing how to calculate commonly used cross‑company metrics. Use the most recent company filings for up‑to‑date figures when doing your own work.
1) Revenue growth rate (example for Alibaba, using the Investopedia snapshot numbers)
– Formula: Growth rate = (New revenue − Old revenue) / Old revenue
= Quick worked examples and simple metrics (continued) =
1) Revenue growth rate (example for Alibaba, using the Investopedia snapshot numbers)
– Formula: Growth rate = (New revenue − Old revenue) / Old revenue
– Worked numeric example (illustrative, rounded): Assume prior fiscal year revenue = $72.0 billion and current fiscal year revenue = $109.5 billion. Growth = (109.5 − 72.0) / 72.0 = 37.5 / 72.0 = 0.5208 → 52.1% year‑over‑year growth.
– Notes: Confirm whether you use reported currency and whether numbers are fiscal-year or trailing‑12‑months (TTM). Small rounding differences are normal.
2) Net profit margin
– Definition: Net profit margin = Net income / Revenue. It shows the share of revenue that becomes profit after all expenses, taxes, and interest.
– Worked numeric example (illustrative): If revenue = $109.5 billion and net income = $25.0 billion, net profit margin = 25.0 / 109.5 = 0.228 → 22.8%.
– Interpretation: Higher margins indicate greater profitability per dollar of sales. Compare margins to peers and to historical company margins.
3) Price‑to‑earnings (P/E) ratio
– Definition: P/E = Market price per share / Earnings per share (EPS). Equivalent aggregate form: P/E = Market capitalization / Net income.
– Worked numeric example (illustrative): If market cap = $450 billion and net income = $25.0 billion, P/E = 450 / 25 = 18.0.
– Use: P/E helps gauge how much investors pay for each dollar of earnings. Compare across comparable firms, sectors, and the company’s history. Watch for differences in accounting (GAAP vs. non‑GAAP) and for one‑off items.
4) Enterprise value / EBITDA (EV/EBITDA)
– Definitions:
– Enterprise value (EV) = Market capitalization + Total debt − Cash and cash equivalents. EV reflects the total value of the business to all capital providers.
– EBITDA = Earnings before interest, taxes, depreciation, and amortization; a proxy for operating cash flow.
– Worked numeric example (illustrative): Market cap = $450B, total debt = $30B, cash = $60B → EV = 450 + 30 − 60 = $420B. If EBITDA = $40B, then EV/EBITDA = 420 / 40 = 10.5.
– Interpretation: Lower EV/EBITDA often indicates cheaper relative valuation, but context matters (growth, capital intensity, margins).
5) Average revenue per user (ARPU)
– Definition: ARPU = Revenue / Active users (e.g., monthly active users, MAU). ARPU measures monetization per user.
– Worked numeric example (illustrative): If revenue = $109.5B and MAUs = 800 million, ARPU = 109.5B / 800M = $136.88 per user per year.
– Use: Helps assess whether user base growth or monetization drives revenue increases. For multi‑product platforms, compute ARPU by segment where data is available.
6) User growth rate
– Formula: User growth rate = (New users − Old users) / Old users.
– Worked numeric example (illustrative): If MAUs increased from 700M to 800M, growth rate = (800 − 700) / 700 = 0.1429 → 14.3% year‑over‑year.
– Note: Pay attention to definitions (MAU, DAU = daily active users, paying users) because companies vary in disclosures.
Practical checklist for evaluating a BAT‑style internet stock
1. Verify the revenue mix: platform commerce, advertising, cloud, digital media, financial services.
2. Check growth drivers: user growth, ARPU trends, new products, international expansion.
3. Assess margins: gross margin and operating margin trends; watch for heavy investments that depress short‑term margins but may support long‑term growth.
4. Examine capital structure: cash, debt, share count (for EPS), and any ADS/ADR structure if listed abroad.
5. Regulatory and geopolitical risk: regulatory actions, fines, or restrictions in home market; cross‑border listing risks.
6. Management & governance: founder/insider ownership, board independence, disclosure quality.
7. Valuation comparables: P/E, EV/EBITDA, price‑to‑sales (P/S) vs. peer group and historical range.
8. Non‑GAAP adjustments: reconcile company’s adjusted metrics (e.g., adjusted EBITDA) to GAAP figures.
9. Currency and translation effects: confirm whether financials are reported in RMB, HKD,
or USD; watch translation gains/losses and FX hedging.
10. Share and listing mechanics: verify whether the public security is an A‑share, H‑share, ADR (American Depositary Receipt), or ADS (American Depositary Share). Check the ADR/ADS ratio (how many domestic shares each ADR represents), any voting‑rights differences, and the depositary bank’s fee structure. These affect liquidity, per‑share economics, and how corporate actions (splits, dividends) map to the traded instrument.
11. Taxation and dividend withholding: confirm dividend withholding rates for nonresident investors and whether tax treaties apply. For Chinese companies, dividend withholding on foreign investors and withholding on certain capital gains may apply depending on domicile and instrument.
12. Litigation and contingent liabilities: scan MD&A and notes for ongoing investigations, material lawsuits, or guarantees (related‑party or otherwise). Quantify potential outflows where possible and test sensitivity in stress scenarios.
13. Accounting red flags: look for frequent restatements, repeated non‑GAAP adjustments that materially differ from GAAP, related‑party transactions, or aggressive revenue recognition (channel stuffing, significant post‑period returns). Reconcile footnote details to headline numbers.
14. Product and market concentration: measure revenue concentration by customer, product, or region. A single large customer ≥10–20% of revenue increases execution and credit risk.
15. Scenario & sensitivity analysis: build 2–3 forward scenarios (base, downside, upside). Key variables: revenue growth, ARPU (average revenue per user), margin trajectory, capex, and FX rates. Run sensitivity tables for valuation multiples and terminal growth.
Worked examples
A. Converting ADS reported EPS to domestic‑share EPS
Assume:
– Company reports Net Income (GAAP) = RMB 1,200 million.
– Domestic shares outstanding = 600 million.
– ADS ratio = 2 domestic shares per ADS (so 1 ADS = 2 domestic shares).
– USD/RMB exchange rate = 7.0 RMB per USD.
Domestic EPS = Net Income / Domestic shares = 1,200 / 600 = RMB 2.00 per domestic share.
EPS per ADS = (Net Income / Domestic shares) × (domestic shares per ADS)
= RMB 2.00 × 2 = RMB 4.00 per ADS.
If the ADR trades in USD and financials are converted at 7.0:
EPS per ADS in USD = RMB 4.00 / 7.0 = USD 0.5714 per ADS.
B. EV/EBITDA example across currencies
Assume target market cap (ADS price × ADS outstanding) = USD 10,000 million.
Net debt (domestic RMB) = RMB 7,000 million → convert at 7.0 → USD 1,000 million.
Enterprise value (EV) = 10,000 + 1,000 = USD 11,000 million.
EBITDA (last 12 months, converted to USD) = RMB 6,600 million / 7.0 = USD 942.9 million.
EV/EBITDA = 11,000 / 942.9 ≈ 11.67×.
Notes: consistent FX conversion and treatment of minority interests and operating leases are important when comparing cross‑border peers.
Practical due‑diligence checklist (quick)
– Confirm instrument type (A/H/ADS/ADR) and conversion ratio.
– Reconcile adjusted metrics to GAAP/IFRS in footnotes.
– Convert all amounts to a single analysis currency; note translation vs. transaction FX.
– Check top 10 customers and product revenue splits.
– Scan for government, regulatory, or geopolitical risks specific to sector.
– Verify insider ownership, related‑party deals, and recent governance changes.
– Run three financial scenarios and sensitivity tables for key drivers.
Sources (for further reading)
– Investopedia — BAT Stocks (context page): https://www.investopedia.com/terms/b/bat-stocks.asp
– U.S. Securities and Exchange Commission — American Depositary Receipts (ADRs): https://www.sec.gov/fast-answers/answersadrhtm.html
– Hong Kong Exchanges and Clearing (HKEX) — Listing and market information: https://www.hkex.com.hk
– U.S. SEC EDGAR database — company filings and disclosures: https://www.sec.gov/edgar.shtml
– International Financial Reporting Standards (IFRS) Foundation — standards and guidance: https://www.ifrs.org
Educational disclaimer
This is general informational and educational content, not personalized investment advice. Verify facts and consult licensed professionals before making investment decisions.