Alibaba (NYSE: BABA) recently commenced the largest and one of the most widely anticipated initial public offerings in U.S. history, but investors familiar with Chinese Internet stocks and the exchange traded funds that focus on those names know there is much to the group than Alibaba.
Alibaba does, however, make for the “A” in a nifty acronym pertaining to three of China’s Internet behemoths. That acronym is BAT and its constituents are Baidu (NasdaqGS: BIDU), Alibaba and Tencent (OTC: TCEHY).
BAT comes courtesy of a recent presentation by KraneShares, the issuer behind the KraneShares CSI New China ETF (NYSEArca: KFYP) and the popular KraneShares CSI China Internet Fund (NasdaqGM: KWEB). KFYP, formerly known as the KraneShares CSI China Five Year Plan ETF, allocates nearly 35% of its weight to Baidu and Tencent while those two stocks combine for about 21.5% of KWEB’s weight. [Proper Application of China ETFs]
Underscoring the opportunity with the BATmen and the aforementioned ETFs, KraneShares points out that the trio generated $20 billion in revenue last year and $7 billion in the first quarter of 2014.
The three companies have a combined market value north of $430 billion. Although Alibaba is still in its infancy as public company, its market value was $219 billion at Tuesday’s close. That’s nearly the combined market value of Visa (NYSE: V) and Goldman Sachs (NYSE: GS), two of the largest members of the Dow Jones Industrial Average.
Importantly, Baidu, Alibaba and Tencent each have specific niches in which they are dominant, as KraneShares notes. Alibaba is an e-commerce juggernaut while Baidu is the Google (NasdaqGS: GOOGL) of China. In fact, Baidu controls 81.7% of the China Internet search market compared to a meager 12% for Google China, according to KraneShares. Tencent is a leader in gaming and instant messaging.
Revenue growth for the BAT firms has been extraordinary. Both Baidu and Tencent more than doubled revenue in local currency terms from 2011 to 2013, according to KraneShares. [ETFs for a VIP of Internet Stocks]