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May27,2016China:Technology:InternetEquityResearchTechNet2016Conference:Spotlightonnewtech&arationalmarketInternetfinance,newtechnologyanddigitaladssettoexploitsmartphoneacreage,themostvaluablerealestateThroughouttheGSTechNet2016conferenceonemessagewasclear,technologiescontinuetoevolvetoexploitthemostvaluablerealestateforinternet,thesmartphone.
InternetfinancelookspoisedtogrowsignificantlyinChinainparticular,drivenbybusinessandgeographicalexpansion.
AntFinancialplanstogrowto2bnusersinthenext10years,from0.
45bnin2015.
WeBank,whichactsasaplatformleveragingsocialdata,issettoexpandintowealthmanagement.
PaytmIndiaaimstohaveamerchantnetworkthatistwicethesizeofVisa,MasterCardandAmexinIndiacombined,byyearend.
Othernewtechtopics:Contentincludinggamesandmovieswillplayacriticalroleindrivingtheadoptionofvirtualreality(VR)andalsoindeterminingwhetheritreplacessmartphonesinfuture.
Onautonomousdriving(AD),BaiduisthefrontrunnerinChinagivenitscapabilitiesindeeplearning,mapsandbigdata.
Thecompanyexpectscommercializationinthreeyears,backedbythegovernment's"InternetPlus"strategy.
TougherVCenvironmentdrivesmorerationalcompetitionAccordingtoventurecapital(VC)companiesthatpresentedatTechNet,categoryleadersarestillabletoraisesignificantamountsofcapital,buttherehasbeenincreasingfocusonprofitabilityandefficientuseofcash.
Theslowdownincapitalfunding,asevidencedbyprivatedown-roundsandunicornIPOsbelowprivatemarketvaluations,wasalsodiscussed.
InChina,thelong-termmarginoutlookwillbethekey,aslaidoutinourrecentreport"BattleoftheInternetGiantsIV:TAM'ingtheprofitpool".
Chinainternet&education:GrowthstillrobustdespitedownturnOnlineadvertising:DespiteBaidu'sreducednumberofhealthcare/medical-relatedads,itssearchadvertisingrevenueremainsresilient.
Weiboexpectstomaintainstrongmomentumwithitsgrowinguserbase/SMEadvertising.
Onlinegaming:NetEaseexpectstopoststronggrowthwithitssolidgamepipelineincludingbothself-developedandlicensedgamesonbothPCandmobile.
E-commerce:JD.
comguidedforagradualimprovementinOPmarginasmanagementstrikesthefinelinebetweengrowthandprofitability.
Education:NewOrientalexpectsK-12(primary&secondaryeducation)momentumtodrivestrongrevenuegrowth,whileTALEducationguidedforstrongcapacityexpansion.
RELATEDRESEARCHChinaInternet:BattleoftheInternetGiantsIV:TAM'ingtheprofitpool–May17,2016Alibaba:Strengtheningmeasurestodefeatcounterfeiting–May23,2016Baidu:Acleaner,consumer-firstBaiduemerges,TP-8%toUS$220–May12,2016Digitaladvertising:DigitalAdvertisingTakeaways;Tencent#1BrandinChina–May3,2016Tencent:Weixin:thenorthstar(2);multipledriversintact;reiterateCL-Buy–Apr13,2016PiyushMubayi+852-2978-1677piyush.
mubayi@gs.
comGoldmanSachs(Asia)L.
L.
C.
GoldmanSachsdoesandseekstodobusinesswithcompaniescoveredinitsresearchreports.
Asaresult,investorsshouldbeawarethatthefirmmayhaveaconflictofinterestthatcouldaffecttheobjectivityofthisreport.
Investorsshouldconsiderthisreportasonlyasinglefactorinmakingtheirinvestmentdecision.
ForRegACcertificationandotherimportantdisclosures,seetheDisclosureAppendix,orgotowww.
gs.
com/research/hedge.
html.
Analystsemployedbynon-USaffiliatesarenotregistered/qualifiedasresearchanalystswithFINRAintheU.
S.
DavidJin,CFA+852-2978-1466david.
jin@gs.
comGoldmanSachs(Asia)L.
L.
C.
GeorgeMeng,CFA+852-2978-0178george.
meng@gs.
comGoldmanSachs(Asia)L.
L.
C.
FanLiu,CFA+86(10)6627-3192fan.
liu@ghsl.
cnBeijingGaoHuaSecuritiesCompanyLimitedTheGoldmanSachsGroup,Inc.
GlobalInvestmentResearchMay27,2016China:Technology:InternetGoldmanSachsGlobalInvestmentResearch2TableofContentsGoldmanSachsTechNetConference(AsiaPacific)20163Takeawaysfromkeynote&paneldiscussions31.
Fintech,paymentandBlockchain32.
Autonomousvehicle,VR/AR,e-commerce73.
ViewsfromVCs9Takeawaysfromcompanymeetings111.
Onlineadvertising112.
Onlinegaming123.
E-commerce134.
Education145.
Evolvingbusinessmodels15DisclosureAppendix16Exhibit1:GlobalInternetcomps**Notes:*DenotesstockisonourregionalConvictionList.
PricesareasofthecloseonMay24,2016.
Alltargetpricesona12-monthbasis,exceptYooxNetAPorterona2-yearbasis.
**Source:DataStream,GoldmanSachsGlobalInvestmentResearch.
LastTarget+/-MktCapPEGCompanyTickerfxPricePriceSideRating(US$mn)3MoYTD2016E2017E2016E2017E2016E2017E2016E2016E2017EChinaInternet58.
comWUBA$51.
8764.
023%Neutral5,961-6%-21%NM28.
5x4.
3x3.
0xNM18.
6xNMNM35.
2xAlibabaBABA$75.
59100.
032%Buy192,75512%-7%26.
5x21.
2x8.
5x6.
6x19.
1x14.
1x1.
1x35.
0x28.
1xAutohomeATHM$24.
83NotRated2,9070%-29%BaiduBIDU$176.
71220.
024%Buy62,5209%-7%29.
5x19.
8x4.
7x3.
9x17.
8x13.
1x0.
7x36.
7x24.
7xChangyouCYOU$18.
6516.
9-9%Sell9864%-25%9.
7x8.
8x0.
8x0.
8x3.
1x3.
5x1.
1x8.
8x8.
0xCtripCTRP$44.
8955.
023%Buy21,9368%-3%84.
4x31.
6x7.
4x5.
5x58.
8x25.
6x0.
8x103.
4x38.
7xJD.
comJD$22.
9833.
044%Buy31,559-11%-29%NM51.
6x0.
7x0.
6x49.
6x20.
3xNMNM74.
1xJumeiJMEI$5.
369.
577%Neutral809-17%-41%14.
3x8.
9x0.
5x0.
4x13.
6x7.
4x0.
3x25.
4x15.
9xNetEaseNTES$173.
00182.
05%Buy22,8728%-5%15.
8x16.
2x3.
7x2.
9x11.
1x11.
2x2.
2x16.
6x17.
0xQunarQUNR$33.
7245.
033%Neutral4,973-11%-36%NM93.
5x5.
9x4.
2xNM55.
7xNMNM124.
8xSinaSINA$50.
3948.
0-5%Neutral2,97216%2%31.
1x23.
6x1.
5x1.
2x12.
2x8.
0xNM29.
7x22.
5xSohuSOHU$40.
2241.
02%Sell1,556-10%-30%NM21.
9x0.
4x0.
3x69.
9x2.
4xNMNM22.
3xSouFunSFUN$5.
536.
823%Neutral2,3557%-25%NM16.
4x1.
3x0.
9xNM5.
4xNMNM20.
1xTencent0700.
HKHK$164.
50195.
019%Buy*199,75517%8%28.
6x23.
5x8.
6x7.
2x18.
7x15.
7x1.
5x33.
9x27.
9xTuniuTOUR$8.
4915.
077%Neutral1,126-31%-47%NMNM0.
4x0.
2xNMNMNMNMNMVIPShopVIPS$11.
1216.
548%Buy7,101-12%-27%16.
8x14.
6x0.
9x0.
7x12.
5x11.
3x1.
0x24.
9x21.
6xWeiboWB$24.
2522.
0-9%Neutral5,40657%24%45.
5x25.
4x8.
3x5.
9x34.
3x18.
3x0.
7x41.
3x23.
0xMedian(SumforMktcap)23%567,5484%-25%27.
5x21.
9x2.
6x2.
0x18.
2x13.
1x1.
0x31.
8x23.
0xChinaEducationChinaDistanceEducationDL$11.
3314.
024%Neutral398-5%-23%15.
2x12.
3x2.
1x1.
8x7.
0x5.
6x0.
6x18.
8x15.
2xNewOrientalEDU$41.
2032.
5-21%Neutral6,47329%31%25.
0x21.
6x3.
6x3.
1x19.
4x16.
4x1.
6x19.
7x17.
0xTALXRS$56.
9263.
011%Buy5,21010%22%34.
4x24.
7x6.
0x4.
5x27.
3x19.
6x1.
2x38.
0x27.
4xTarenaTEDU$10.
1013.
534%Buy5862%-3%13.
2x11.
0x2.
2x1.
7x9.
1x6.
7x0.
5x17.
6x14.
7xMedian(SumforMktcap)17%12,6666%10%20.
1x16.
9x2.
9x2.
5x14.
2x11.
6x0.
9x19.
3x16.
1xAsia,x-ChinaInternetKakao035720.
KQW99,600134,00035%Buy4,9695%-14%24.
3x18.
9x4.
5x3.
7x14.
0x11.
2x32.
7x25.
4xNCSOFT036570.
KSW236,000252,0007%Neutral4,3761%11%15.
4x15.
5x4.
2x4.
0x10.
3x10.
5x16.
5x16.
6xNexon3659.
T1,7801,700-4%Neutral6,91910%-10%12.
9x11.
6x2.
7x2.
3x7.
7x6.
9x12.
4x11.
0xSoftbank9984.
T6,2067,80026%Buy67,05517%1%14.
1x11.
2x1.
9x1.
9x6.
7x6.
3x17.
8x14.
0xYahooJapan4689.
T50460019%Buy26,01716%2%18.
4x17.
2xMedian(SumforMktcap)11%196,15810%1%18.
4x17.
2x1.
9x1.
9x7.
2x7.
3x20.
4x19.
8xGlobalInternetAmazonAMZN$708.
35800.
013%Buy*341,48428%5%86.
5x60.
4x2.
3x1.
8x21.
5x16.
5x97.
7x68.
2xeBayEBAY$24.
0430.
025%Buy28,1630%-13%13.
0x11.
9x2.
7x2.
2x7.
0x6.
4x16.
3x14.
8xFacebookFB$117.
89146.
024%Buy339,28710%13%32.
5x26.
2x12.
0x9.
0x20.
0x15.
7x40.
2x32.
4xGoogleGOOGL$738.
10850.
015%Buy*514,4742%-5%21.
6x18.
0x6.
0x4.
9x12.
5x10.
6x24.
9x20.
8xLinkedInLNKD$129.
87162.
025%Buy17,67010%-42%38.
0x29.
3x4.
7x3.
8x18.
5x15.
0x47.
4x36.
6xNetflixNFLX$10012020%Buy44,3509%-12%NM55.
5x5.
0x4.
0x83.
4x31.
7xNM66.
4xPricelinePCLN$1,2701,250.
0-2%Neutral64,3950%0%19.
9x16.
9x6.
1x5.
0x17.
0x14.
3x19.
6x16.
6xYahooYHOO$35.
5938.
07%Neutral33,88415%7%94.
3x65.
2x9.
5x9.
2x46.
2x41.
1x100.
7x69.
6xYandexYNDX$19.
7723.
921%Buy6,85150%26%33.
9x22.
7x5.
8x4.
8x17.
8x11.
8x40.
9x27.
4xMedian20%1,531,38510%-5%33.
9x27.
8x3.
6x3.
4x18.
5x15.
0x40.
2x33.
5xMEDIAN,GLOBAL20%2,307,7579%-7%25.
0x21.
7x2.
7x2.
1x16.
4x12.
0x27.
0x23.
0xPerformanceP/E,non-GAAPEV/EBITDAPEatTPnon-GAAPEV/RevenueMay27,2016China:Technology:InternetGoldmanSachsGlobalInvestmentResearch3GoldmanSachsTechNetConference(AsiaPacific)2016AttherecentGSTechNetConference2016heldinHongKong,wehosted150companiesacrosstheinternet,telcosandtechnologysectors,includinglistedandprivatecompanies.
Keynotespeakersincluded:EricJing,PresidentofAntFinancial;JingWang,SeniorVicePresidentofTechnologyatBaiduandVijayShekharSharma,Founder&CEOofPaytm.
Thepaneldiscussionsincluded:TheRealityofVirtual&AugmentedReality(EugeneChung,Founder&CEOofPenroseStudios;WondoKang,DirectorofSamsungVRofSamsungElectronics;BenWeinberger,CEOofLumus);InsightsfromInvestors:AsiaandBeyond(HanKim,ManagingDirectorandCo-Founder,AltosVentures;JohnLindfors,ManagingPartner,DSTInvestmentManagement;HanyNada,Co-Founder&ManagingPartner,GGVCapital).
Wealsohostedcompaniesfromonlinegaming(NetEase),onlineadvertising(Baidu,Weibo,Sina),e-commerce(JD.
com),onlinelocalservices(Baidu,Foodpanda),newtechnology(AR&Co)andeducation(TALEducation,NewOrientalEducation)forinvestormeetingsduringtheconference.
Takeawaysfromkeynote&paneldiscussions1.
Fintech,paymentandBlockchainKeynote:AntFinancialEricJing,President,AntFinancialServicesGroupAntFinancialwasestablishedin2004asAlipay,tocreatetrustandfacilitatetransactionsbetweenmerchantsandbuyers.
Thecompanyfocusesontheunderservedsmallandmicroenterprisessegmentandalsotheconsumersegment.
Accordingtothecompany,thesolutionsitoffersareeasytouseandsafe,whileatalowcostandreliantoncontinuousinnovation.
Ithasexpandedprimarypaymentservicestoincludewealthmanagement,lending,andinsurance,byleveragingthreebaseinfrastructures:creditsystem,technology/cloudcomputingandbigdatacapabilities.
AntFinancial'sthreekeymetricsare:(1)over160mndailytransactions;(2)morethan450mnactiveusers;and(3)80%oftransactionsareonsmartphones.
LeveragingtheAlibabauserdatabaseandartificialintelligence(AI),plusrealtimeriskmanagementhasresultedinAlipay'sfraudrateoflessthan0.
1bps,significantlylowerthanglobalpeers.
1.
Yu'EBao:Theworld'sthirdlargestmoneymarketfundbasedonitsAUMofUS$117bnasof4Q15(behindVanguardandFidelity).
Thefundhasexpandedsubstantiallysinceitsinceptionin2013whenithadAUMofUS$29bn.
Thisisanentrylevelcashmanagementproductforconsumers,withsecurityandliquiditythekeycriteria.
2.
Lendingbusinessserves3.
4mn+SMEcustomersandhasdisbursedUS$100bninloansoverthelastfouryears.
AverageloanbalanceperborrowerisaroundUS$6k,orRmb40k,asitservicesthesmallercustomers.
Theseloansareprovideduncollateralized,asAntleveragesitsbigdatatoassesscreditquality.
3.
Consumerfinancingbeganinearly2015.
OnSinglesDay2015,creditconsumerloanswereissuedforthepurchaseof60.
5mnorders,whichatRmb7.
7bnrepresented8.
5%ofAlibaba'stotaltransactionsofRmb91bnonthatday,anaverageofRmb128/order,witha99.
99%successrate.
May27,2016China:Technology:InternetGoldmanSachsGlobalInvestmentResearch44.
Onlineinsuranceplatformoffersbuyerscoverageoflogisticcostsarisingfromgoodsreturnsandexchangesandhasbeenofferedforthepastfouryears.
Itaccepts>15mndailyorderswithanaverageticketsizeofonlyRMB0.
51,dependingontheuserbehavior,buyingpatternandcategoryofproductbought.
Theplatformserves350mnbuyersand1.
92mnsellers.
Thedatacollectedbythecompanywilleventuallybeusedforriskmanagement.
Antgoingglobal:AnthasexpandedinternationallyandpartneredwithPaytminIndia.
Itplanstogrowto2bnusersinthenext10yearsbyempoweringlocalpartnersandfocusingonlocalization,auserbasethatisconsistentwithitsAlibabatargets.
AlipaydominatestheRmb12tnthirdpartyinternetpaymentmarketwith47.
5%marketsharein2015,accordingtoiResearch,or2xtherunner-up.
TheportalisintegratedwithTaobao,Tmall,Koubei,Eleme,amongothers.
WeexpectAlipaytocontinueplayingastrategicroleinenablinginnovationandacceleratingthedevelopmentofinternetfinanceinChinaandpotentiallyglobally.
AccordingtoAlibabamanagementonits4Q16earningscall,dialoguewiththeregulatorsregardingconvertingcontractualinterestintoequitystakesinAntFinancialhasbeenconstructive.
Antwaslastvaluedat~US$60bnwhenthecompanyraisedUS$4.
5bninfinancesinApril2016,accordingtoAlibabamanagementduringthelatestearningscall.
Exhibit2:AlibabaandTencent'sfinance-relatedsubsidiariesSource:CompanydataFintechinChina:WeBankJaredShu,HeadofStrategy,WeBankWeBankisauniqueinternetfinanceplatformwiththefirstbankinglicenseinChina,whichmanagementbelievesiswellpositionedtocapitalizeonthederegulatingmarket.
ChinahasfewerbanksonaperpopulationbasisthantheUS.
WeBankseesthreemajortrendsdrivingtheinternetfinancemarketinChina.
(i)Thegovernmentisdrivinginnovationinthefinancialservicessector,withtheregulatorhavingissuedbankinglicensestotraditionalinternetcompanies.
TheimpactcanbecomparedtoFacebookandAmazonbeinggivenaninternetfinancelicense.
(ii)TechnologyandbigdataaredrivingthedigitalizationofChina'sfinancialservices.
Theindustryisevolvingandispoisedtocatertothedemandsoftheunderserved,ataALIBABATENCENT1PAYMENTAliPayInternetpaymentTenPayInternetpayment2FINANCEYu'eBaoMoneyMktFundLicaitongFundmktZhaoCaiBaoFundmktHowbuyFundmktShumiFundFundmktZhongAnPropertyInsuranceAntDakeCrowdFundingPortfoliosStockbrokerageZhingAnPropertyInsuranceTencentFinanceFin.
MediaWangjinSheP2PFutuSecuritiesStockBRokerageReorientGroupInvestmentbank3CREDITWangjinSheP2PWeilidaiCashloanAngMicroLoanMicroloanTencentCreditSvc.
CreditWangshangLoanSmallonlinebusinessloanHuaBeiMicrocreditcardJieBeiCashloanSesameCreditCredit4OTHERSAliFin.
CloudCloudTencentFin.
CloudCloudHundsunTech.
InternetsecuritiestechnologyDataThinkTankThinktankShangchengFinancing&GuarantyLoanguaranteeMay27,2016China:Technology:InternetGoldmanSachsGlobalInvestmentResearch5pointintimewhenTencentandAlibababothhaveadeepecosystemthatleveragestheirdominanceacrossmultipleinroadsintotheconsumer.
Tencent'sstrengthistheconsumer,whileAlibabahasadeeperengagementwithbusinesses.
(iii)Developmentofcapitalmarketsandderegulationofinterestrateswilltransformthecurrentfinancialservicesindustry,drivingtheindustrytowardretail,andopeninguptheindustrytointernetfinancecompanies.
WeBankconnectstheusersonitsplatformwithfundingandproductsofferedbyofflinefinancialinstitutions.
Itprovidesatechnologyplatformwiththeabilitytotargetmarketing,offerdataanalytics,riskmanagementanddataanalytics.
WeBanklaunchedWeilidai(microloans)inmid-2015andhasexclusiveaccessontheWeChatandQQportals.
Thesetwoplatformshave762mnand658mnusersrespectively,withadegreeofoverlap.
QQhasayoungerpopulationwhileWeChat'suserbaseishighlyengaged.
WeBankenhancesPBOCcreditscoredatawithitsowncreditscoredata.
Itusesdata,includinglocationsocialnetwork&socialdata,aswellaslocationbaseddata,tomanagethetwokindsofrisk–relatedtofraudandcredit–facedbythecompany.
Socialdatahasproventobeverypowerfulinidentifyingfraudrisk,basedonthenatural5-7socialclusterseachusernormallyhas.
Thesocialgraphdevelopedcannormallybetracked,especiallywhenitdeviatesfromthenorm.
Thelatterisafunctionofthewillingnessandabilitytopay,whichcanbedeterminedbyaddingdatapointssuchaswhethertheuserisagiver/receiverofenvelopesduringCNY,orwhetherthesocialclustersarestable.
AccordingtoWeBank,thetwovariablesthatimpacttheabilitytorepayloansarejoblossandinfidelity.
WeBankfunds15-20%ofitstotalloanswhilemostofthefundingisdonebythe20partnerbanksonthesystem.
AsofApril2016,WeBankhad6-7mncustomers,aloanbalanceofRmb70bn,andadefaultriskof20bpsatthisearlystage.
AnotherbusinessWeBankstateditwantstogetintoiswealthmanagementfromthestandpointofinvestment,withmarginsof20bps(andithasRmb24bnAUMatthisearlystage).
TheWeBankwealthmanagementbusinessdiffersfromTencent's,whichismoreaboutcashmanagement.
DigitizingIndia:Paytm(Alibabaaffiliate)VijayShekharSharma,FounderandCEO,PaytmLaunchedin2011,PaytmisIndia'slargestmobilepaymentserviceplatformwith126mnusersinFY2016andiscurrentlypartlyownedbyAlibaba(AlibabaandAntFinancialcollectivelyown~40%).
Itcommands57%ofpaymentsmarketshareinIndia,accordingtothecompany.
PaytmhasbeentryingtoeliminatetheneedforPoint-of-Salessystemsandhashelpedmerchantsreducecostssubstantially.
By2016yearend,PaytmplanstohaveamerchantnetworkinIndiathatistwicethesizeofVisa,MasterCardandAmexcombinedinthecountry,accordingtoVijay.
PaytmaimstoconvertIndia'seconomyintoadigitalplatform,therebysolvingproblemssuchascorruption,creditissues,accesstocapital,amongothersinthetraditionalbankingsystem.
Throughitsdigitalplatform,PaytmhasagoalofbringinghalfabillionIndianstothemainstreamofeconomy.
E-commerce:Tostimulatetheusageofitspaymentservice,Paytmintroduceditse-commercebusiness,bringingmerchantsontoitsplatformwhileofferingcustomersacashlesspaymentsolution.
May27,2016China:Technology:InternetGoldmanSachsGlobalInvestmentResearch6Paytmwallet:AsIndiadoesnothavethecapabilityofconvertingphysicalcashintodigitalcash,thedigitalcashhastobegeneratedviaP2Ptransactions.
CashhastobegiventosomeonewithaPaytmaccountandthemoneywillbeconverted.
95%ofmobilewalletcustomersinIndiahavePaytmwallet.
Paytmmonetizesitspaymentservicebychargingmerchantsapaymentcostof2.
5%(Paytmpaysaloadingcostof1%tothebank).
Paymentbanklicense:Paytmwasrecentlyawardedoneofthe11newpaymentbanklicensesinIndia.
Managementbelievesthereisampleopportunityforeveryplayeranddonotforeseecompetitionbeingintense.
Leveragingitsuserbase,Paytmtargetstohave200mnbankaccountsinthefirstyearofthebanklaunch.
Banksandtraditionalfinance:Abankgenerallystartswithhighendcustomersandthenbuildsitsofferingforlowervaluecustomers.
Ontheotherhand,Paytmstartsfromlowendcustomersandmovesintheoppositedirection.
Intheshort-term,Paytmisintroducingmorepeopletothefinancialsystem,whileinthelongertermtheremaybeoverlapofcustomersegmentsbetweentraditionalbanksandPaytm.
PaytmBankwillnotbeallowedtolendoutdeposits,minimizingcreditriskforcustomers.
TightfundingenvironmentandimpactonIndia:Inthelast3-4years,startupsraisedmoneyatarapidpace,causingvaluationstogrowsignificantly.
Nowasfundingtightens,thereispotentialofadown-round,andcapitalhastobeutilizedcarefully.
Partnerships:PaytmhaspartnershipswithUber,Alibaba,etc.
,toexpanditsnetworkeffect.
AlibabaandAntFinancialhavebeeninvolvedwithPaytmsince2014andhavereceivedaUS$575mninvestmentfromAlibabain2015.
Fintech:UnlockingBlockchainAlistairDuff,Consultant,R3;MarkSmith,Founder&CEO,SymbiontInitsbaseform,Blockchainisadistributedledgerthatstoresdatainadecentralizedandpublicfashion.
ItwasdevelopedasatooltotrackandcreateBitcoin.
WhileBitcoinwastryingtoanswertheage-oldquestionof"howtoendcash",Blockchainofferednewsetsoftoolsthatcouldbedevelopedtoreducecostandimprovetransparency,unlockingamultitudeofopportunitiesfordifferentindustries.
Marketinfrastructure:Giventhechallengingcapital,complianceandregulatoryenvironment,bankswereoneofthefirsttolookatBlockchainatscale.
Accordingtothepanels,theapplicationofBlockchaincouldsavetheindustrybillionsofdollarsayearasitspeedsupprocessingtimeandreducestheneedforabackoffice.
Banksarealsoaimingtoachieveinternalefficiencieswithinthestockexchange,movingfromt+2,t+3tot+0(real-timetrading).
Promisingapplications:TheStateofDelaware,whereoverhalfofallpubliclytradedUScompaniesareincorporated,hasunveiledaBlockchaininitiativetotransitionfromapapermarketplacetoapaperless(uncertificated)marketplace.
TheapplicationofBlockchaincouldalsobeusefulfortradefinanceinAsiaasitenhancesefficiencyindeliveryandminimizescounterpartyrisks.
Challenges:TheopennatureofBlockchainposesuncertaintiesastowhetherthereisstillmomentumorthatithasalreadyreachedthetippingpointintermsofadoption.
Also,regulatoryhurdlessurfacequitefrequentlygiventhetechnologyisrelativelynewanduntested,althoughtheregulatoryenvironmentislessrestrictiveinAsiacomparedtotheUS.
Regulatoryinterest:TherehasbeengrowingregulatoryinterestinBlockchain.
Asregulatorsarecallingforgreatertransparencyfrombanks,thedistributedledgerMay27,2016China:Technology:InternetGoldmanSachsGlobalInvestmentResearch7technologyisabletocatertoregulator'sneeds.
Furthermore,compliancecostscouldpotentiallyflattenoutandevendeclineasaresultofusingBlockchain.
Timetomassadoption:ItmaynottakelongbeforetheuseofBlockchainbecomesthemainstream.
AlotofresourceshavebeeninvestedinthedevelopmentofBlockchainapplications.
Theseapplicationswillexpandfromnichesegmentsintomoretraditionalbusinessesandverticals,graduallybecomingmoreubiquitous.
Althoughregulationsandstandardsmaycausesomechallenges,Blockchainappearswellpositionedtogainwide-spreadadoption,accordingtothepanels.
Funding:Thereisaninterestingdivideinthecurrentsourceoffunding:a)WestcoastVCmoneyisinvestedinconsumer-focusedapplications,b)banksandinstitutionsaredrivingtheinstitutionalsolutions,andc)individualsarebackingsomeoftheopen-sourcesolutions.
2.
Autonomousvehicle,VR/AR,e-commerceKeynote:Autonomousvehicles(AV)inChinaJingWang,SeniorVicePresidentofTechnology,BaiduAutonomousdrivingisoneoftheemergingtechnologieswithpracticalapplication.
Driverlesscarsrecognizevisualswithhighprecisioninlocalizationandnavigation.
Thesevehiclesneedtomakedecisionsandlistentoverbalinstructions.
AccordingtoJingWang,theworldmaysomedaymovetoadriverlessworld,thesuccessofwhichrequiresArtificialIntelligence(AI)andsafety.
TheessenceofmodernAIisself-learningthatallowscontinuouslearningandevolutionpoweredbybigdata,cloudcomputingandalgorithms.
Baidubelievethatefficiencyinthefuturewillbeattainedascars,notdrivers,areteachingcars.
Carsareaimingforsafetyguaranteeof100%.
Thecompanyseesthefollowingthreemegatrendsintheindustry:(i)Newenergyvehiclesaredrivenbyfactorssuchasenvironmentalissues,reductioninnumberofparts,andthecomplexityinelectricvehiclevs.
traditionalvehicles.
(ii)Carsharing,asseenintheUS,meansthatonaveragecarsareidle95%ofthetime.
Whilebeingdriven,76%oftimespentincarsiswhenthedriverisalone,whichappearsawasteofresourcesandtime.
Also,24%ofurbanparkingspaceremainsidle.
(iii)Intelligentvehicles–AdvancedDrivingAssistantSystem(ADAS)–Level1to3;whileLevel4isthefullyautonomousvehicle.
InChina,Baiduisoneofthefrontrunnersinthisareaofinnovation,withthefollowingprovidingitcompetitiveadvantagesinautonomousdriving:Speechrecognition:BaiduhasthebestChinesespeechrecognitionintheworldaccordingtothecompany.
Itwasnamedoneofthetop10breakthroughtechnologiesin2016byMITTechnologyreview.
Imagerecognitionandcontentunderstanding:Baiduhasstrongfacialverificationsoftware(0.
23%errorratevs.
humanerrorof0.
8%),globalleadingvehiclerecognitioncapabilities,andstate-of-the-artOpticalCharacterRecognition(OCR)technologywith84.
84%accuracy.
3DHDmap&localizationinChinawith5cm-levelaccuracycurrently,downfrom+/-10cmaccuracyinjustthelastsixmonths.
FirstfullyautonomouscarbuiltbyBaiduwastestedundermixedroadconditions(i.
e.
cityroad,ringroadandhighways).
TodateitistheonlydriverlesscartopasssafetystandardsinChina.
May27,2016China:Technology:InternetGoldmanSachsGlobalInvestmentResearch8Globaltalent:Baiduhasastrongresearchtalentbaseacrosstheworld(incl.
SiliconValley,Beijing,Shanghai,andShenzhen).
Governmentsupport:BaiduhasanagreementwithacityinChina(Wuhu)todevelopfullyautonomouscarareasinthenextthreeyears,andthecompanyexpectscommercializationoftheautonomouscarstobeachievedbythen.
Inourview,basedonBaidu'scapabilitiesincomputing,algorithmsandbigdata,thecompanylookswellpositionedtoemergeasamarketleaderinautonomousdrivinginChina.
Exhibit3:BATinvestmentsinAutonomousdrivingNotes:*FormoredetailsonBaidu'sAutostrategypleasesee"BIDU:Inlinewithexpectations:Investingforgrowthnowincludesautos",May2,2016.
Source:Companydata,TheRealityofVirtual&AugmentedReality:The"look-forward"generationEugeneChung,Founder&CEO,PenroseStudios;WondoKang,Director,SamsungVRofSamsungElectronics;BenWeinberger,CEO,LumusVirtualreality(VR)andaugmentedreality(AR)arewidelyperceivedasthenextbigcomputingplatformafterthe"lookdown"platform,smartphone.
Elevatingthephysicalworldtoincludedigitalaugmentationcontent,VR/ARbringstheuserinteractionexperiencetothenextlevel.
Accordingtothepanels,everycomputingcyclehasprobablygenerated10xtheuserscomparedtothepreviousone,withthecurrentcyclebeingmobile.
VR/ARapplicationsarethemainforcepushingthedevelopmentofthisindustry.
Penrose,whichwastaggedasthe"PIXARofVR"byTechCrunch,isaleadingdeveloperofVR/ARcontent.
Theirfirstmovieproduction"TheRoseAndI"madeitsworldpremiereattheSundanceFilmFestival2016.
Althoughtherearemanycompanieswhichdevelophardwareinthespace,creatingVRcontentshouldplayavitalroleintheenhancementofVR.
InChina,biginternetgiantslikeAlibabaandTencentareaimingtoleverageVRtoenhanceuserexperience.
AlibabarecentlyprovidedTaobaomobileapplicationusersavirtualrealitydatewithcelebrities,usingVRasamarketingplatform.
EPICGames,whichis48%ownedbyTencent,recentlyannouncedthatitsUnrealEngine4isintegratedwithDaydram,Google'smobileVRplatform.
Samsunglauncheditsfirstwater-testingVRheadsetGearVRinNovember2015andaccumulatedover1mnactiveusers.
However,itexpectsacoupleoftechnologybreakthroughsareneededbeforethewideadoptionofmobileVR/ARdevices:BaiduAlibabaTencentJan2015:Baidureleaseditsnewsmartphoneconnectivitysolutioncalled'CarLife',partneringwithAudi,SGM,andHyundai.
Apr2014:AlibabaacquiredAutoNavi,oneofthelargestmobilemappingservicesproviders.
Since2014,TencenthasbeenactivelydevelopingInternetofvehicle(IoV)bysuccessivelylaunchingbothhardwaresuchasLubaoBox,andsoftwareincl.
acar-borneinternetintegratedsolution-fundriveWeDrive,anIoVROM,anIoVappaswellasAPIMyCaretc.
Dec2015:Baidutesteditsfirstautonomouscar,basedonamodifiedBMW3series,andsetupanewbusinessunitforAVtech.
BaiduintendstocommercializeitsAVsin3yearsandrealizemassproductionin5years.
Mar2015:AlibabajointlysetupaUS$160mnfundwithSAIC,thebiggestcarmakerinChina,todevelopconnectedcarbusinessesnamed"CarofInternet".
ThefirstproductwillbelaunchedinSep/Oct2016.
May2015,Tencentpurchased11.
3%stakeinNavInfo,oneoftheChina'slargestmobilemappingcompanies.
Jan2016:BYDannouncedthatithasbeendevelopingAVtechbothinhouseandpartneringwithBaidu(focusingonthemapservice).
May2016:SigninganagreementwithWuhu(inAnhuiprovince)todevelopfullyautonomousdrivingcararea,startingfromasmallerareatoexpandtothewholecityin5years.
BaiduiscooperatingwithChery,whowillprovidethefirstbatchofcarsfortestdriving.
Baiduexpectscommercializationtotakeplacewithin3years.
ADAS/AVMay27,2016China:Technology:InternetGoldmanSachsGlobalInvestmentResearch9Displaytechnology:Higherresolution(accordingtoSamsung,even2KisstillfarfromasatisfyingexperiencewhenpluggedintoGearVR)andhigherframerates(toreducedizziness).
Computingpower:Currentsmartphonecomputingpowerisbarelycatchingupwith3Dgraphics,thushardcoreapplicationswillbelimitedtoconsole/PCattheearlystage.
Asdisplayandcomputingpowerstepsup,thatmeansbatterieswillneedtoimprovesignificantlytoenableportableoutdoorusage.
Limitedfieldview:Ideally,havingatrueoverlapof60degreeswouldallowtheachievementofmostofthepossibilitiesthatARbrings.
However,thecurrentrangeisfrom15degreesforGoogleglass,whileHololensisabitmorethanthat,andLumushasaproductthatcanprovideupto40degreesfieldwhichenablesbetterARvision.
Onthehealthimplications,researchfromtheUSandKoreashowedsimilarimpactlevelsbetweenwatchingTVandusingVR/ARdevices.
SoutheastAsiaRising:E-commerceinSoutheastAsiaMaxBittner,CEO,LazadaASEANhasafootprintof560mnpeople,withincreasingconsumptiondemandandanunderpenetratedonlineretailmarket,withsignificantpotential.
Lazadaisane-commercecompanywithoperationsinsixSoutheastAsianmarkets(Indonesia,Malaysia,Thailand,Vietnam,SingaporeandPhilippines),providingconsumerswithavarietyofproductsrangingfromconsumerelectronicstohouseholdandfashion.
ItsbusinessmodelissimilartoAmazon'sinemergingmarkets.
In2015Lazada'sGMVgrew167%yoytooverUS$1bn.
AccordingtotheLazadaCEO,itscompetitiveadvantagesinclude:Logisticsandsupplychainservices:LazadaExpress,thecompany'slastmileunit,reachedmorethan65%ofitscustomersin2015.
Lazadahas~10klastmileridersand~5.
6kemployees.
One-stop-shopphilosophythatprovidesasolutiontomerchantsacrossbothregionsandbrands.
Lazadabelievesthate-commercerequireseconomiesofscale,whereplayersneedtoprovideeithermoreservicestotheconsumerorawiderreachtothemerchants.
ContrastingASEAN,theLazadaCEOcommentedthatIndonesiaisthemostimportantmarketduetoitssize,whileThailand(withrelativelyhigherGDP)hasthemostsophisticatedmarket.
HealsocommentedthatitistooearlytotalkaboutchangesfollowingtheApril12,2016announcementthatAlibabawouldtakeacontrollingstakeinLazada.
WebelievechallengesfacedbyLazadaarelikelytobesimilartothosefacedbyAlibabainitsearlystages,includingcashondelivery(COD),lackofcreditcards,absenceofinfrastructure,andpotentiallylimitedmerchantsontheplatform.
Animprovementoftheecosystemwouldrequirecollectiveeffortsintheregion.
3.
ViewsfromVCsInsightsfromInvestors:AsiaandBeyondHanyNada,Co-Founder&ManagingPartner,GGVCapital;HanKim,ManagingDirector&Co-Founder,AltosVentures;JohnLindfors,ManagingPartner,DSTInvestmentManagement.
Valuation:AccordingtothoseVCspresentingatTechNet2016,categoryleadershavestillbeenabletoraisesignificantamountsofcapitaldespitenumerousunicornIPOsbeingMay27,2016China:Technology:InternetGoldmanSachsGlobalInvestmentResearch10belowprivatemarketvaluationsduetotheslowdowninequitymarketsinthelastyear,especiallyinChina.
Concernsfromcompaniesfromdown-roundsareexpectedtobemorecommongoingforwardandprivatecompaniesneedtohavesufficientcapitaltobeabletowithstandadownturn.
Thosepresentingalsosuggestedthatventuresmayfarebetterinthelongrundependingonwhotheirpartnersare.
Mergersofequals:Thecriticalsuccessfactorsformergersaresynergiesandtherightleadership.
Successfulmergershavegenerallybeenledbymanagementteamsthataremoreproactivethantheircounterparty–i.
e.
aquasi-acquisition.
Thesemergersareoftendrivenbyrationalinvestorswhoseemorevalueinmergingratherthancompetingandareoftentriggeredinthefaceofamajorcompetitor,orahighcashburnrate.
Profitandcashflowthefocus:Cashburnremainsabigconcernbutportfoliocompaniesappearwillingtotakemorerisksiftherewardsarejustifiable.
Additionally,therehasbeenincreasingfocusonprofitability.
VCsandearlystageinvestorsareencouragingcompaniestoaimforprofitabilitysoonerthanlater,givenpressurefromlaterstageinvestorsandtighteningmarketconditions.
Separately,thetighteningmarketenvironmentcouldprovideanopportunityforcompanieswithenoughcapitaltobecomeaggressiveingainingmarketshareandeliminatecompetition.
Futuretrends:Areasofinterestdifferbytypesofinvestors.
VCspickedtheUS,China,SoutheastAsia,IndiaandKoreaasfocusregions.
Withinthesemarkets,thefavoredareasoffocusincludeAI,consumerinternet,andmobileapplications.
Managementstillimportant(diligence):Credibilityoffoundersandtheirteams,trackrecord,andstrategyexecution,remainkeyevaluationcriteriawhenperformingduediligence.
Thisisprimarilybecausetherearenotmanytangibleresultsthataninvestorcanrelyonintheearlystagesofacompany.
Someinvestorsprefertokeepawatchonmanagementover1or2yearsbeforemakinganinvestmentdecision,giventheextenttowhichtheybelievemanagementisakeyfactorforboththesuccessorfailureofadeal.
However,otherinvestorsbelievemarketconditionsarealsoasignificantfactorcontributingtofailureorsuccess.
May27,2016China:Technology:InternetGoldmanSachsGlobalInvestmentResearch11Takeawaysfromcompanymeetings1.
OnlineadvertisingBaidu(Buy,12mTPUS$220)Addressingconcernsonhealthcareadvertising:Noneoftherecentthreemeasures(morestringentpolicyonhealthcareadvertising;searchalgorithmtoprioritizecredibility,limitadloadwithin30%/page;implementNetizenprotection)requiredbythegovernmentinvestigationteaminChinaareazerotoonechange,i.
e.
notdrasticenoughtohaveamaterialeffectonBaidu'sbusinessinourview.
Baiduplanstobuildonthecurrentoperations,andiscommittedtomakethechangesbytheendofMay2016deadline.
Asofnow,healthcareadvertisingfrom2500+hospitals(includingthemilitaryones)hasbeentakendown,althoughtherevenueimpactfromthisisunclearasBaiduisstillwaitingformoreclarityonfutureadvertisingpolicies.
Baidubelievesthattherestofitsbusinessshouldseeanegligibleimpactfromthechange.
Video(iQiyi)businessupdate:iQiyi'scapabilityinproducing/acquiringgoodcontentwasreaffirmedbyBaidu,askeymetricsofiQiyi'soperations,MAUs,timespentperuser,andsubscriptionusersareallgrowinghealthily.
Payingsubscriptionsgrewfrom10mn+inDec-end2015to15mn+inMar-end2016,partlyduetopopularshowssuchasDescendantsoftheSun.
Asaresult,thecompanyexpectssubscriptionrevenuecontributiontoiQiyiwillcontinuetorise.
Aspecialcommittee(consistingofthreeexternalindependentdirectors–Messrs.
GregPenner,BrentCallinicosandJamesDing)isstillreviewingtheproposediQiyibuyoutoffer,andnotimelinehasbeenannouncedyet.
BaiduWalletlastreported65mnactiveusers.
Over50%ofNuomi'stransactionsarecurrentlythroughBaiduwallet,andalltheBaiduinvestedcompanies(suchasCtrip)arealsolinkedtotheservice.
Additionally,BaidudoesnotseemuchriskfromcompetitionwithGoogleinChina,asBaiduhasstate-of-arttechnologytocatertoChineseusers,andhasalsobuiltupitsbrandnameovertheyearsthroughcontinuousinnovationandfocusingonuserexperiences.
Valuationmethodology:Our12-mSOTP-basedtargetpriceremainsUS$220(incorporating15x2017Eearningsforthecoresearchbusiness,theGStargetvaluationforitsholdinginCtrip,anda10%holdcodiscount).
Keyrisks:Searchgrowthslowing,higherO2Ospend.
Weibo(Neutral,12mTPUS$22)Weibo'sCFO,Mr.
HermanYu,hostedinvestormeetingsduringTechNet2016.
HereiteratedthatthecompanyisseeingstrongmomentumforWeibo'susergrowth/userengagementwhichisthefoundationofitsadvertisingrevenues.
Therewasstronginvestorinterestinitsnewbusinessopportunities,e.
g.
videoadvertising/livebroadcasting/Fans'economy.
1)Revenue:HermanYuexpectsstrongSMEadvertisingmomentumtosustain,ashethinksadvertisersare"realizingWeibo'svalueasasocialplatform",andthus"allocatemoreadbudgettoWeiboforthebenefitofstronguserengagement".
2)LiveBroadcasting:Weibo'slivebroadcastingofferingsaremainlyviaYiZhiBo,thelivebroadcastingcompanythatWeibotookastakein.
HermanYuthinkstheWeiboplatformdifferentiatesitselffromotherpopularlivebroadcastingplatforms(e.
g.
Inke)given:a)itsMay27,2016China:Technology:InternetGoldmanSachsGlobalInvestmentResearch12261mnMAU/120mnDAU(asofMarch2016),providingthebroadcastersthesocialplatformtoengagewithalargeuserbase;andb)thestrongcontentcategorizationinplace,thususerscanbeproperlytargetedforbetterengagement.
3)Faneconomy:StillataveryearlystageforWeibo,asitisstilltryingtoprovideaplatform/mechanismsothatmore"WangHong(onlinecelebrities)"couldemergeintheWeiboplatform.
Weibowouldbenefitbyearningadvertisingdollarsfromthoseonlinecelebritiesasafirststep,thenpotentiallymonetizebysharingtheadvertisingrevenuesthatthoseonlinecelebritiescouldgeneratebydirectingtraffictoadvertisers(e-commerceplatforms,brandadvertisers,etc.
).
Valuationmethodology:Our12-mtargetpriceofUS$22isbasedonatargetP/Emultipleof23xappliedtoour2017EEPS.
Keyrisks:better/worse-than-expectedSMErevenuegrowth/video-relatedcosts.
2.
OnlinegamingNetEase(Buy,12mTPUS$182)TheNetEaseCFO,Mr.
OnwardChoi,hostedinvestormeetingsduringTechNet2016.
Hemaintainedaconstructiveviewacrossbusinesslines,includingonlinegaming,e-commerce,andotherbusinesses(esp.
advertising).
Onlinegames:1)FantasyWestwardJourney(FWJ)andWestwardJourney(WJ)"maintainedtheirsolidperformance"andhavecomeintothe"plateaustage"ofthelifecyclewithprolongedshelflife.
Thecompanyalsoexpectastrongmobilegamingpipelinethroughouttheyear,incl.
Ghost,Overwatch,etc.
2)NetEase'smobilerevenuehasahigherportionfromiOScomparedtoAndroid,butmanagementmentionedthatAndroidrevenuesharingwithdistributorshas"comedown"recently,thankstoitsstrongmobilegamingfranchise.
3)ForPCgames,NetEaseexpectstosee"mildgrowth"for2016,thankstonewgamelaunchesandexpansionplansforlegacytitles.
NetEaseannouncedatitsMay20gameseventthatitwillexclusivelylicenseMicrosoft/Mojang'sMineCraft(bothmobileandPCversions)inChina.
MineCraftisawell-knownsandboxgamewith100mnregisteredplayersaroundtheworld.
E-commerce:1)NetEaseexpects2QGMVtoretainrobustgrowthmomentumdespiterecentheadwindsfromslowingmacro.
ManagementattributesthemarginexpansionforKaolato:a)economyofscale,b)productmixchangetowardmoreplatformbusiness,i.
e.
OneDollarLuckyDraw,andc)morerationalpricingintheindustry.
2)Managementcommentedthattheyhaven'tseenmuchnegativeimpactfromthenewcross-bordere-commercetaxpolicieswhichbecameeffectivefromApril8,plusthepolicyitself"mightbesubjecttodelayedimplementation".
3)Althoughmanagementdoesn'thaveaspecificbreak-eventimelinefore-commercebusiness,theymightstarttoprovidemoredisclosurefromasegmentalperspective,inordertohelpinvestorsbetterunderstandthecompany'sbusinesslines.
Advertising:1)Mobilecontributionhasbeengrowinginthepastfewquarters,mostlydrivenbyitsmobileNewsApp.
Topverticalsareautomobile,internetservicesandtelecommunication.
2)Managementexpectsthe~20%grossmarginforemail,e-commerceandtheotherssegmenttosustainoverthenextfewquarters,pendingnomajorpolicychangestowardtheOneDollarLuckyDrawbusiness.
Valuationmethodology:Our12-mtargetpriceofUS$182isbasedonatargetP/Emultipleof17xappliedtoour2017EEPS.
Keyrisks:Weakerperformanceoflegacygames,lowermargin.
May27,2016China:Technology:InternetGoldmanSachsGlobalInvestmentResearch133.
E-commerceJD.
com(Buy,12mTPUS$33)JD.
com'sCEO,SidneyHuangpresentedon'E-CommerceinChina'duringTechNet2016,andbelowwesummarizethekeydiscussionpoints.
AddressingconcernsonGMVbrushing:JD'simprovedanti-brushingalgorithmin1Q16caughtmorebrushing(i.
e.
fakingonlineorders)andhenceaffectedGMVgrowth,especiallythemarketplaceGMV.
Thecompanyfoundthatsmallermerchantstendtodomorebrushingthanbiggerbrandsastheydon'thavebrandrecognition.
Asaresult,thebiggerbrandsonJD'smarketplaceactuallybenefitedfromtheanti-brushing.
Inaddition,theimpactofanti-brushingonrevenueismuchlessthanonGMV,asmerchantsseekwaystorankhigherinthesearchresultsbypurchasingmoreadvertisingfromJDwhentheoldwayofbrushingisblocked.
Logistics:1)>20%of3PordersaredeliveredbyJD'sin-housedeliveryteamand1deliverypersonalforevery1000peopleinChina.
Theaveragenumberofparcelsdeliveredalsoreached~50mndaily,basedonthenumbersreportedbyChinaNationalBureauofStatistics(NBS).
Whilelogisticscompaniestraditionallyoperatewithasingleservicesmodel,i.
e.
focusingononeareaofthechainsuchastrackingorwarehousingmanagement,theindustrynowadaysoffersmoreintegratedservices.
AccordingtoJonnyChou,CEOofBestLogistics(unlisted),thecompanydelivers6mnparcels/dayandprovidesservicesincludingexpressdelivery,freightdelivery,inventorymanagement,warehousefulfillment,softwareMay27,2016China:Technology:InternetGoldmanSachsGlobalInvestmentResearch14development,financing,businessconsultingandcross-borderlogisticsservices.
AccordingtoChou,~65%ofthecompany's2015revenuewascontributedbyparceldelivery,~15%fromsupplychainservices,and~15%fromLTL(lessthantruckloadshipping).
4.
EducationNewOrientalEducation(Neutral,12mTPUS$32.
5)TheCFOofNewOriental,StephenYang,andtheIRDirector,SisiZhao,hostedinvestormeetingsduringTechNet2016.
Managementremainsconfidentonbothtoplineandbottomlinegrowthprospectsandshowcasedits"O2OTwo-wayInteractiveEducationsystem".
Growthoutlook:ThecompanyreiteratedK12(POPkidsandU-Can)asthemainrevenuedriver,at25-30%CAGRfornext2-3years,given:1)thecompanycontinuestotakemarketsharesfrommomandpopshops;2)theretentionratehasimprovedfrom60-65%lastyeartoover70%thisyear;and3)theutilizationrateisexpectedtoimprovefromthecurrent20%levelto30%inthelongterm,drivenbyseatoccupancyrateimprovement(from50%to60%)andanincreaseintimeslotutilizationrate(from40%to50%).
Onepercentagepointimprovementintheutilizationratecoulddriveupoperatingmarginby~0.
7%,accordingtothecompany.
Thecompanyeyes17-18%utilizationrateinthefuture.
Intermsofcapacityexpansion,managementremainscommittedtoits40%capacityexpansiontofulfillstrongmarketdemand.
Thecompanyisadding~1,800classroomsthisyear.
ShuangShiKeTang:TAL'ssecondgrowthdriverisShuangShiKeTang(Doubleteachermodel).
AmasterteacherlocatedinBeijingorShanghaiconductsteachingexerciseswhicharebroadcastlivetoclassrooms(pilotprogram5-6classroomsandacombined~150students).
Eachclassroomassignsoneteachingassistanttofacilitatethestudents.
ThisteachingmodelshouldhelpTALpenetrateintolowertiercitiesineachprovince.
TheMay27,2016China:Technology:InternetGoldmanSachsGlobalInvestmentResearch15tuitionfeewillbethesameastheregularclasses.
TALisgraduallyrollingouttheprogramacrossthecountryandfeedbackismonitored.
Haibianonlineliveeducation:Forcitieswithoutphysicallearningcenters,TALcatersthedemandwithHaibian,onlinelivebroadcastclasses.
Haibianhas~20,000studentswhoaretaughtbyeightteachersand50%yoy.
ItsinternetbusinessisfocusedonenhancinguserexperiencewithMIUI,Xiaomi'suserinterfaceandinternetservice,updatingitsfirmwareeveryweek,introducinganinnovativefeatureeverytime.
Todate,Xiaomihasinvestedin111companies,asignificantnumberofwhichareinternetcompanies.
Itaimstodeliveracohesiveuserexperiencebybuildingsoftwareontopofitshardware.
Onmonetization,managementbelievesitcanonlymonetizeitsservicesafterattainingcertainscale.
Currently,itismonetizingthevalue-addedservicesofferedtousersandpartners.
AccordingtoXiaomi,itscurrentRev/MAUisinsingledigitUS$,whichcomparestoGoogle(US$50),Facebook–USA(US$41),Facebook–Global(US$10-11)andTencent(US$25).
May27,2016China:Technology:InternetGoldmanSachsGlobalInvestmentResearch16DisclosureAppendixRegACWe,PiyushMubayi,DavidJin,CFA,GeorgeMeng,CFAandFanLiu,CFA,herebycertifythatalloftheviewsexpressedinthisreportaccuratelyreflectourpersonalviewsaboutthesubjectcompanyorcompaniesanditsortheirsecurities.
Wealsocertifythatnopartofourcompensationwas,isorwillbe,directlyorindirectly,relatedtothespecificrecommendationsorviewsexpressedinthisreport.
Unlessotherwisestated,theindividualslistedonthecoverpageofthisreportareanalystsinGoldmanSachs'GlobalInvestmentResearchdivision.
InvestmentProfileTheGoldmanSachsInvestmentProfileprovidesinvestmentcontextforasecuritybycomparingkeyattributesofthatsecuritytoitspeergroupandmarket.
Thefourkeyattributesdepictedare:growth,returns,multipleandvolatility.
Growth,returnsandmultipleareindexedbasedoncompositesofseveralmethodologiestodeterminethestockspercentilerankingwithintheregion'scoverageuniverse.
Theprecisecalculationofeachmetricmayvarydependingonthefiscalyear,industryandregionbutthestandardapproachisasfollows:Growthisacompositeofnextyear'sestimateovercurrentyear'sestimate,e.
g.
EPS,EBITDA,Revenue.
Returnisayearoneprospectiveaggregateofvariousreturnoncapitalmeasures,e.
g.
CROCI,ROACE,andROE.
Multipleisacompositeofone-yearforwardvaluationratios,e.
g.
P/E,dividendyield,EV/FCF,EV/EBITDA,EV/DACF,Price/Book.
Volatilityismeasuredastrailingtwelve-monthvolatilityadjustedfordividends.
QuantumQuantumisGoldmanSachs'proprietarydatabaseprovidingaccesstodetailedfinancialstatementhistories,forecastsandratios.
Itcanbeusedforin-depthanalysisofasinglecompany,ortomakecomparisonsbetweencompaniesindifferentsectorsandmarkets.
GSSUSTAINGSSUSTAINisaglobalinvestmentstrategyaimedatlong-term,long-onlyperformancewithalowturnoverofideas.
TheGSSUSTAINfocuslistincludesleadersouranalysisshowstobewellpositionedtodeliverlongtermoutperformancethroughsustainedcompetitiveadvantageandsuperiorreturnsoncapitalrelativetotheirglobalindustrypeers.
Leadersareidentifiedbasedonquantifiableanalysisofthreeaspectsofcorporateperformance:cashreturnoncashinvested,industrypositioningandmanagementquality(theeffectivenessofcompanies'managementoftheenvironmental,socialandgovernanceissuesfacingtheirindustry).
DisclosuresCoveragegroup(s)ofstocksbyprimaryanalyst(s)PiyushMubayi:AsiaPacificMedia,AsiaPacificTelecoms.
DavidJin,CFA:AsiaPacificMedia.
GeorgeMeng,CFA:AsiaPacificMedia.
FanLiu,CFA:AsiaPacificMedia.
AsiaPacificMedia:58.
comInc.
,AlibabaGroupHolding,AstroMalaysiaHoldings,AutohomeInc.
,Baidu.
comInc.
,Changyou.
com,ChinaDistanceEducationLtd.
,Ctrip.
comInternational,InfoEdgeIndiaLtd.
,JD.
comInc.
,JumeiInternationalHolding,JustDialLtd.
,KakaoCorp.
,MakemytripLtd.
,NaverCorp.
,NCSOFTCorp.
,NetEaseInc.
,NewOrientalEducation&Technology,Qunar.
com,SINACorp.
,Sohu.
com,SouFunHoldings,TALEducationGroup,TarenaInternationalInc.
,TencentHoldings,TuniuCorp.
,VipshopHoldings,WeiboCorp.
,ZeeEntertainmentEnterprises.
AsiaPacificTelecoms:AxiataGroup,BhartiAirtel,BhartiInfratelLtd.
,ChunghwaTelecom,Digi.
com,DishTVIndia,FarEasTone,HKTTrust,HongKongBroadbandNetworkLtd.
,HutchisonTelecommunicationsHK,IdeaCellular,Indosat,KTCorp.
,KTCorp.
(ADR),LGUPlus,M1Ltd.
,MaxisBhd,PCCWLtd.
,PTLinkNetTbk,PTSaranaMenaraNusantara,PTXLAxiata,RelianceCommunications,SingaporeTelecommunications,SKTelecom,SKTelecom(ADR),SmarTone,StarHub,TaiwanMobile,TelekomMalaysia,TelekomunikasiIndonesia,TowerBersamaInfrastructureTbk.
Company-specificregulatorydisclosuresCompendiumreport:pleaseseedisclosuresathttp://www.
gs.
com/research/hedge.
html.
DisclosuresapplicabletothecompaniesincludedinthiscompendiumcanbefoundinthelatestrelevantpublishedresearchDistributionofratings/investmentbankingrelationshipsGoldmanSachsInvestmentResearchglobalEquitycoverageuniverseRatingDistributionInvestmentBankingRelationshipsBuyHoldSellBuyHoldSellGlobal32%53%15%65%58%51%AsofApril1,2016,GoldmanSachsGlobalInvestmentResearchhadinvestmentratingson3,029equitysecurities.
GoldmanSachsassignsstocksasBuysandSellsonvariousregionalInvestmentLists;stocksnotsoassignedaredeemedNeutral.
SuchassignmentsequatetoBuy,HoldandSellforthepurposesoftheabovedisclosurerequiredbytheFINRARules.
See'Ratings,Coveragegroupsandviewsandrelateddefinitions'below.
TheInvestmentBankingRelationshipschartreflectsthepercentageofsubjectcompanieswithineachratingcategoryforwhomGoldmanSachshasprovidedinvestmentbankingserviceswithintheprevioustwelvemonths.
Pricetargetandratinghistorychart(s)Compendiumreport:pleaseseedisclosuresathttp://www.
gs.
com/research/hedge.
html.
DisclosuresapplicabletothecompaniesincludedinthiscompendiumcanbefoundinthelatestrelevantpublishedresearchRegulatorydisclosuresDisclosuresrequiredbyUnitedStateslawsandregulationsSeecompany-specificregulatorydisclosuresaboveforanyofthefollowingdisclosuresrequiredastocompaniesreferredtointhisreport:managerorco-managerinapendingtransaction;1%orotherownership;compensationforcertainservices;typesofclientrelationships;managed/co-May27,2016China:Technology:InternetGoldmanSachsGlobalInvestmentResearch17managedpublicofferingsinpriorperiods;directorships;forequitysecurities,marketmakingand/orspecialistrole.
GoldmanSachstradesormaytradeasaprincipalindebtsecurities(orinrelatedderivatives)ofissuersdiscussedinthisreport.
Thefollowingareadditionalrequireddisclosures:Ownershipandmaterialconflictsofinterest:GoldmanSachspolicyprohibitsitsanalysts,professionalsreportingtoanalystsandmembersoftheirhouseholdsfromowningsecuritiesofanycompanyintheanalyst'sareaofcoverage.
Analystcompensation:AnalystsarepaidinpartbasedontheprofitabilityofGoldmanSachs,whichincludesinvestmentbankingrevenues.
Analystasofficerordirector:GoldmanSachspolicyprohibitsitsanalysts,personsreportingtoanalystsormembersoftheirhouseholdsfromservingasanofficer,director,advisoryboardmemberoremployeeofanycompanyintheanalyst'sareaofcoverage.
Non-U.
S.
Analysts:Non-U.
S.
analystsmaynotbeassociatedpersonsofGoldman,Sachs&Co.
andthereforemaynotbesubjecttoFINRARule2241orFINRARule2242restrictionsoncommunicationswithsubjectcompany,publicappearancesandtradingsecuritiesheldbytheanalysts.
Distributionofratings:Seethedistributionofratingsdisclosureabove.
Pricechart:Seethepricechart,withchangesofratingsandpricetargetsinpriorperiods,above,or,ifelectronicformatorifwithrespecttomultiplecompanieswhicharethesubjectofthisreport,ontheGoldmanSachswebsiteathttp://www.
gs.
com/research/hedge.
html.
AdditionaldisclosuresrequiredunderthelawsandregulationsofjurisdictionsotherthantheUnitedStatesThefollowingdisclosuresarethoserequiredbythejurisdictionindicated,excepttotheextentalreadymadeabovepursuanttoUnitedStateslawsandregulations.
Australia:GoldmanSachsAustraliaPtyLtdanditsaffiliatesarenotauthoriseddeposit-takinginstitutions(asthattermisdefinedintheBankingAct1959(Cth))inAustraliaanddonotprovidebankingservices,norcarryonabankingbusiness,inAustralia.
Thisresearch,andanyaccesstoit,isintendedonlyfor"wholesaleclients"withinthemeaningoftheAustralianCorporationsAct,unlessotherwiseagreedbyGoldmanSachs.
Inproducingresearchreports,membersoftheGlobalInvestmentResearchDivisionofGoldmanSachsAustraliamayattendsitevisitsandothermeetingshostedbytheissuersthesubjectofitsresearchreports.
InsomeinstancesthecostsofsuchsitevisitsormeetingsmaybemetinpartorinwholebytheissuersconcernedifGoldmanSachsAustraliaconsidersitisappropriateandreasonableinthespecificcircumstancesrelatingtothesitevisitormeeting.
Brazil:DisclosureinformationinrelationtoCVMInstruction483isavailableathttp://www.
gs.
com/worldwide/brazil/area/gir/index.
html.
Whereapplicable,theBrazil-registeredanalystprimarilyresponsibleforthecontentofthisresearchreport,asdefinedinArticle16ofCVMInstruction483,isthefirstauthornamedatthebeginningofthisreport,unlessindicatedotherwiseattheendofthetext.
Canada:GoldmanSachsCanadaInc.
isanaffiliateofTheGoldmanSachsGroupInc.
andthereforeisincludedinthecompanyspecificdisclosuresrelatingtoGoldmanSachs(asdefinedabove).
GoldmanSachsCanadaInc.
hasapprovedof,andagreedtotakeresponsibilityfor,thisresearchreportinCanadaifandtotheextentthatGoldmanSachsCanadaInc.
disseminatesthisresearchreporttoitsclients.
HongKong:FurtherinformationonthesecuritiesofcoveredcompaniesreferredtointhisresearchmaybeobtainedonrequestfromGoldmanSachs(Asia)L.
L.
C.
India:FurtherinformationonthesubjectcompanyorcompaniesreferredtointhisresearchmaybeobtainedfromGoldmanSachs(India)SecuritiesPrivateLimited,ResearchAnalyst-SEBIRegistrationNumberINH000001493,951-A,RationalHouse,AppasahebMaratheMarg,Prabhadevi,Mumbai400025,India,CorporateIdentityNumberU74140MH2006FTC160634,Phone+912266169000,Fax+912266169001.
GoldmanSachsmaybeneficiallyown1%ormoreofthesecurities(assuchtermisdefinedinclause2(h)theIndianSecuritiesContracts(Regulation)Act,1956)ofthesubjectcompanyorcompaniesreferredtointhisresearchreport.
Japan:Seebelow.
Korea:FurtherinformationonthesubjectcompanyorcompaniesreferredtointhisresearchmaybeobtainedfromGoldmanSachs(Asia)L.
L.
C.
,SeoulBranch.
NewZealand:GoldmanSachsNewZealandLimitedanditsaffiliatesareneither"registeredbanks"nor"deposittakers"(asdefinedintheReserveBankofNewZealandAct1989)inNewZealand.
Thisresearch,andanyaccesstoit,isintendedfor"wholesaleclients"(asdefinedintheFinancialAdvisersAct2008)unlessotherwiseagreedbyGoldmanSachs.
Russia:ResearchreportsdistributedintheRussianFederationarenotadvertisingasdefinedintheRussianlegislation,butareinformationandanalysisnothavingproductpromotionastheirmainpurposeanddonotprovideappraisalwithinthemeaningoftheRussianlegislationonappraisalactivity.
Singapore:FurtherinformationonthecoveredcompaniesreferredtointhisresearchmaybeobtainedfromGoldmanSachs(Singapore)Pte.
(CompanyNumber:198602165W).
Taiwan:Thismaterialisforreferenceonlyandmustnotbereprintedwithoutpermission.
Investorsshouldcarefullyconsidertheirowninvestmentrisk.
Investmentresultsaretheresponsibilityoftheindividualinvestor.
UnitedKingdom:PersonswhowouldbecategorizedasretailclientsintheUnitedKingdom,assuchtermisdefinedintherulesoftheFinancialConductAuthority,shouldreadthisresearchinconjunctionwithpriorGoldmanSachsresearchonthecoveredcompaniesreferredtohereinandshouldrefertotheriskwarningsthathavebeensenttothembyGoldmanSachsInternational.
Acopyoftheseriskswarnings,andaglossaryofcertainfinancialtermsusedinthisreport,areavailablefromGoldmanSachsInternationalonrequest.
EuropeanUnion:DisclosureinformationinrelationtoArticle4(1)(d)andArticle6(2)oftheEuropeanCommissionDirective2003/125/ECisavailableathttp://www.
gs.
com/disclosures/europeanpolicy.
htmlwhichstatestheEuropeanPolicyforManagingConflictsofInterestinConnectionwithInvestmentResearch.
Japan:GoldmanSachsJapanCo.
,Ltd.
isaFinancialInstrumentDealerregisteredwiththeKantoFinancialBureauunderregistrationnumberKinsho69,andamemberofJapanSecuritiesDealersAssociation,FinancialFuturesAssociationofJapanandTypeIIFinancialInstrumentsFirmsAssociation.
Salesandpurchaseofequitiesaresubjecttocommissionpre-determinedwithclientsplusconsumptiontax.
Seecompany-specificdisclosuresastoanyapplicabledisclosuresrequiredbyJapanesestockexchanges,theJapaneseSecuritiesDealersAssociationortheJapaneseSecuritiesFinanceCompany.
Ratings,coveragegroupsandviewsandrelateddefinitionsBuy(B),Neutral(N),Sell(S)-AnalystsrecommendstocksasBuysorSellsforinclusiononvariousregionalInvestmentLists.
BeingassignedaBuyorSellonanInvestmentListisdeterminedbyastock'sreturnpotentialrelativetoitscoveragegroupasdescribedbelow.
AnystocknotassignedasaBuyoraSellonanInvestmentListisdeemedNeutral.
EachregionalInvestmentReviewCommitteemanagesvariousregionalInvestmentListstoaglobalguidelineof25%-35%ofstocksasBuyand10%-15%ofstocksasSell;however,thedistributionofBuysandSellsinanyparticularcoveragegroupmayvaryasdeterminedbytheregionalInvestmentReviewCommittee.
RegionalConvictionBuyandSelllistsrepresentinvestmentrecommendationsfocusedoneitherthesizeofthepotentialreturnorthelikelihoodoftherealizationofthereturn.
Returnpotentialrepresentsthepricedifferentialbetweenthecurrentsharepriceandthepricetargetexpectedduringthetimehorizonassociatedwiththepricetarget.
Pricetargetsarerequiredforallcoveredstocks.
Thereturnpotential,pricetargetandassociatedtimehorizonarestatedineachreportaddingorreiteratinganInvestmentListmembership.
Coveragegroupsandviews:Alistofallstocksineachcoveragegroupisavailablebyprimaryanalyst,stockandcoveragegroupathttp://www.
gs.
com/research/hedge.
html.
Theanalystassignsoneofthefollowingcoverageviewswhichrepresentstheanalyst'sinvestmentoutlookonthecoveragegrouprelativetothegroup'shistoricalfundamentalsand/orvaluation.
Attractive(A).
Theinvestmentoutlookoverthefollowing12monthsisfavorablerelativetothecoveragegroup'shistoricalfundamentalsand/orvaluation.
Neutral(N).
Theinvestmentoutlookoverthefollowing12monthsisneutralrelativetothecoveragegroup'shistoricalfundamentalsand/orvaluation.
Cautious(C).
Theinvestmentoutlookoverthefollowing12monthsisunfavorablerelativetothecoveragegroup'shistoricalfundamentalsand/orvaluation.
NotRated(NR).
TheinvestmentratingandtargetpricehavebeenremovedpursuanttoGoldmanSachspolicywhenGoldmanSachsisactinginanadvisorycapacityinamergerorstrategictransactioninvolvingthiscompanyandincertainothercircumstances.
RatingSuspended(RS).
GoldmanSachsResearchhassuspendedtheinvestmentratingandpricetargetforthisstock,becausethereisnotasufficientfundamentalbasisforMay27,2016China:Technology:InternetGoldmanSachsGlobalInvestmentResearch18determining,ortherearelegal,regulatoryorpolicyconstraintsaroundpublishing,aninvestmentratingortarget.
Thepreviousinvestmentratingandpricetarget,ifany,arenolongerineffectforthisstockandshouldnotbereliedupon.
CoverageSuspended(CS).
GoldmanSachshassuspendedcoverageofthiscompany.
NotCovered(NC).
GoldmanSachsdoesnotcoverthiscompany.
NotAvailableorNotApplicable(NA).
Theinformationisnotavailablefordisplayorisnotapplicable.
NotMeaningful(NM).
Theinformationisnotmeaningfulandisthereforeexcluded.
Globalproduct;distributingentitiesTheGlobalInvestmentResearchDivisionofGoldmanSachsproducesanddistributesresearchproductsforclientsofGoldmanSachsonaglobalbasis.
AnalystsbasedinGoldmanSachsofficesaroundtheworldproduceequityresearchonindustriesandcompanies,andresearchonmacroeconomics,currencies,commoditiesandportfoliostrategy.
ThisresearchisdisseminatedinAustraliabyGoldmanSachsAustraliaPtyLtd(ABN21006797897);inBrazilbyGoldmanSachsdoBrasilCorretoradeTítuloseValoresMobiliáriosS.
A.
;inCanadabyeitherGoldmanSachsCanadaInc.
orGoldman,Sachs&Co.
;inHongKongbyGoldmanSachs(Asia)L.
L.
C.
;inIndiabyGoldmanSachs(India)SecuritiesPrivateLtd.
;inJapanbyGoldmanSachsJapanCo.
,Ltd.
;intheRepublicofKoreabyGoldmanSachs(Asia)L.
L.
C.
,SeoulBranch;inNewZealandbyGoldmanSachsNewZealandLimited;inRussiabyOOOGoldmanSachs;inSingaporebyGoldmanSachs(Singapore)Pte.
(CompanyNumber:198602165W);andintheUnitedStatesofAmericabyGoldman,Sachs&Co.
GoldmanSachsInternationalhasapprovedthisresearchinconnectionwithitsdistributionintheUnitedKingdomandEuropeanUnion.
EuropeanUnion:GoldmanSachsInternationalauthorisedbythePrudentialRegulationAuthorityandregulatedbytheFinancialConductAuthorityandthePrudentialRegulationAuthority,hasapprovedthisresearchinconnectionwithitsdistributionintheEuropeanUnionandUnitedKingdom;GoldmanSachsAGandGoldmanSachsInternationalZweigniederlassungFrankfurt,regulatedbytheBundesanstaltfürFinanzdienstleistungsaufsicht,mayalsodistributeresearchinGermany.
GeneraldisclosuresThisresearchisforourclientsonly.
OtherthandisclosuresrelatingtoGoldmanSachs,thisresearchisbasedoncurrentpublicinformationthatweconsiderreliable,butwedonotrepresentitisaccurateorcomplete,anditshouldnotbereliedonassuch.
Theinformation,opinions,estimatesandforecastscontainedhereinareasofthedatehereofandaresubjecttochangewithoutpriornotification.
Weseektoupdateourresearchasappropriate,butvariousregulationsmaypreventusfromdoingso.
Otherthancertainindustryreportspublishedonaperiodicbasis,thelargemajorityofreportsarepublishedatirregularintervalsasappropriateintheanalyst'sjudgment.
GoldmanSachsconductsaglobalfull-service,integratedinvestmentbanking,investmentmanagement,andbrokeragebusiness.
WehaveinvestmentbankingandotherbusinessrelationshipswithasubstantialpercentageofthecompaniescoveredbyourGlobalInvestmentResearchDivision.
Goldman,Sachs&Co.
,theUnitedStatesbrokerdealer,isamemberofSIPC(http://www.
sipc.
org).
Oursalespeople,traders,andotherprofessionalsmayprovideoralorwrittenmarketcommentaryortradingstrategiestoourclientsandprincipaltradingdesksthatreflectopinionsthatarecontrarytotheopinionsexpressedinthisresearch.
Ourassetmanagementarea,principaltradingdesksandinvestingbusinessesmaymakeinvestmentdecisionsthatareinconsistentwiththerecommendationsorviewsexpressedinthisresearch.
Theanalystsnamedinthisreportmayhavefromtimetotimediscussedwithourclients,includingGoldmanSachssalespersonsandtraders,ormaydiscussinthisreport,tradingstrategiesthatreferencecatalystsoreventsthatmayhaveanear-termimpactonthemarketpriceoftheequitysecuritiesdiscussedinthisreport,whichimpactmaybedirectionallycountertotheanalyst'spublishedpricetargetexpectationsforsuchstocks.
Anysuchtradingstrategiesaredistinctfromanddonotaffecttheanalyst'sfundamentalequityratingforsuchstocks,whichratingreflectsastock'sreturnpotentialrelativetoitscoveragegroupasdescribedherein.
Weandouraffiliates,officers,directors,andemployees,excludingequityandcreditanalysts,willfromtimetotimehavelongorshortpositionsin,actasprincipalin,andbuyorsell,thesecuritiesorderivatives,ifany,referredtointhisresearch.
TheviewsattributedtothirdpartypresentersatGoldmanSachsarrangedconferences,includingindividualsfromotherpartsofGoldmanSachs,donotnecessarilyreflectthoseofGlobalInvestmentResearchandarenotanofficialviewofGoldmanSachs.
Anythirdpartyreferencedherein,includinganysalespeople,tradersandotherprofessionalsormembersoftheirhousehold,mayhavepositionsintheproductsmentionedthatareinconsistentwiththeviewsexpressedbyanalystsnamedinthisreport.
Thisresearchisnotanoffertosellorthesolicitationofanoffertobuyanysecurityinanyjurisdictionwheresuchanofferorsolicitationwouldbeillegal.
Itdoesnotconstituteapersonalrecommendationortakeintoaccounttheparticularinvestmentobjectives,financialsituations,orneedsofindividualclients.
Clientsshouldconsiderwhetheranyadviceorrecommendationinthisresearchissuitablefortheirparticularcircumstancesand,ifappropriate,seekprofessionaladvice,includingtaxadvice.
Thepriceandvalueofinvestmentsreferredtointhisresearchandtheincomefromthemmayfluctuate.
Pastperformanceisnotaguidetofutureperformance,futurereturnsarenotguaranteed,andalossoforiginalcapitalmayoccur.
Fluctuationsinexchangeratescouldhaveadverseeffectsonthevalueorpriceof,orincomederivedfrom,certaininvestments.
Certaintransactions,includingthoseinvolvingfutures,options,andotherderivatives,giverisetosubstantialriskandarenotsuitableforallinvestors.
InvestorsshouldreviewcurrentoptionsdisclosuredocumentswhichareavailablefromGoldmanSachssalesrepresentativesorathttp://www.
theocc.
com/about/publications/character-risks.
jsp.
Transactioncostsmaybesignificantinoptionstrategiescallingformultiplepurchaseandsalesofoptionssuchasspreads.
Supportingdocumentationwillbesupplieduponrequest.
Allresearchreportsaredisseminatedandavailabletoallclientssimultaneouslythroughelectronicpublicationtoourinternalclientwebsites.
Notallresearchcontentisredistributedtoourclientsoravailabletothird-partyaggregators,norisGoldmanSachsresponsiblefortheredistributionofourresearchbythirdpartyaggregators.
Forresearch,modelsorotherdataavailableonaparticularsecurity,pleasecontactyoursalesrepresentativeorgotohttp://360.
gs.
com.
Disclosureinformationisalsoavailableathttp://www.
gs.
com/research/hedge.
htmlorfromResearchCompliance,200WestStreet,NewYork,NY10282.
2016GoldmanSachs.
Nopartofthismaterialmaybe(i)copied,photocopiedorduplicatedinanyformbyanymeansor(ii)redistributedwithoutthepriorwrittenconsentofTheGoldmanSachsGroup,Inc.