Tencent Biography 1998-2016: Evolution of Chinese Internet Companies

Chapter 7 Listing: "Ceremony of Coming of Age" in the pinch

No great discovery can be made in science unless one gets rid of the minutiae and takes a wider view.

—Albert Einstein (physicist)

The listing is a very important milestone, and there is a feeling of relief.We have always had a strong sense of crisis.After becoming a public company, Tencent will go on a more stable and long-term path.

—— Chen Yidan

Why Choose Goldman Sachs
The first time Liu Chiping met Ma Huateng was at the coffee bar in the lobby of the Hong Kong Conrad Hotel. It was an autumn rainy afternoon in 2003. The company's other founder, Chen Yidan, was walking with Ma Huateng.

Liu Chiping was the executive director of Goldman Sachs Asia Investment Banking Department, in charge of investment projects in the telecommunications, media and technology industries.Their meeting this time was a thread drawn by MIH, and the topic they talked about was Tencent's listing. "Ma Huateng doesn't like to talk politely, and his words are very logical. At the same time, he is also a person who doesn't show his cards easily." This is Liu Chiping's first impression of Ma Huateng.

After entering Tencent, MIH continued to work hard to increase its shareholding, and at the same time began to plan for listing.Under the arrangement of a Hong Kong law firm, in June 2002, MIH provided more sufficient support for Tencent's registered capital through investment in convertible bonds, and the shares of Tencent's five founders also decreased accordingly.Before listing, Tencent’s shareholding structure changed to the entrepreneurial team accounting for 6%, MIH accounting for 5%, and IDG accounting for 46.5%. In August 46.3, Tencent redeemed the remaining shares of IDG and a small amount of shares of MIH. So far, MIH and the Tencent team hold 7.2% of the shares respectively.

It was during this period that due to the excellent performance of China's Internet after the bubble burst, the international capital market showed a strong interest in Chinese companies, which triggered another round of "China concept stocks" small upsurge.From December 2003 to December 12, 2004 Internet companies obtained the opportunity to go public overseas, including TOM Online, Kongkong and Lingtong in the wireless business, as well as the online recruitment website 12job and the online travel website eLong. Net, financial portal financial circles, online game companies Ninetowns and Shanda.Tencent has also become a member of this wave of collective listing due to its monopoly position in the instant messaging field and its profits in mobile value-added services.

Chiping Lau is very skilled in Internet business and is also very familiar with the Chinese market.He grew up in Hong Kong and went to the United States to study in 1991. He studied at the University of Michigan, Stanford University and the Kellogg School of Business of Northwestern University.He had a friend who used to play basketball with Xie Jiahua, and later founded the online shoe store Zappos, which was acquired by Amazon for $8.5 million.After graduating with a master's degree, Liu Chiping first worked at McKinsey and joined Goldman Sachs Asia in 1998.During his time at Goldman Sachs, he participated in the reorganization of Guangdong Guangdong Group, which involved more than 100 creditor banks and more than 400 companies.Liu Chiping worked until two or three in the morning almost every day for more than two years, and went to more than 20 companies personally. "My knowledge of Chinese companies is obtained from the Guangdong Hai restructuring case. It’s easier to do any project.”

Liu Chiping had heard of Tencent as early as around 2000, and Goldman Sachs had received a financing proposal from Tencent. "At that time, the financing scale was very small, and everyone couldn't see its future clearly, so they let it go."This time, when MIH introduced Tencent to Goldman Sachs, Shanda also came to the door at the same time.The high-tech department of Goldman Sachs was divided into two teams to fight for these two projects "back to back", and Liu Chiping was in charge of negotiating with Tencent.At the beginning of the work, the first thing he asked the colleagues in this case to do was to apply for a QQ account first.

In terms of Tencent, Ma Huateng and others are not very clear about the meaning of listing, but just think that "a company should probably go public."At the same time, Ma Huateng has no idea which underwriter to choose. He has met many investment banks before, including Morgan Stanley, Merrill Lynch, UBS and Deutsche Bank, etc., and the suggestions he received are similar.

When meeting Liu Chiping, Ma Huateng's first impression of him was, "He is the best mandarin speaker I have ever met in Hong Kong."In addition, there is actually a QQ number on Liu Chiping's business card, which makes Ma Huateng feel very kind.In the ensuing negotiations, the two suggestions mentioned by Liu Chiping left a deep impression on him.

First of all, Liu Chiping bluntly believes that Tencent's current income is overly dependent on the "Monternet" business. "This is a business model that depends on others. It will make investors feel that Tencent lacks plasticity and has no confidence and imagination for the future. Therefore, it should When going public, emphasize the network effect and explore the development potential of instant messaging tools.”Liu Chiping's observation immediately gave Ma Huateng the pleasure of finding a bosom friend. At that time, he overcame all opinions and ventured into online games and news portals, precisely because of his concern about this hidden danger.

Secondly, Liu Chiping suggested that it is better to be conservative in the valuation of the company. Instead of raising the market value too high all at once, it is better to slowly increase the value of the company so that those shareholders who bought Tencent shares can enjoy the growth. benefits.Ma Huateng recalled: "His idea is also closer to our style. The investment banks we met before all gave very aggressive valuation suggestions, which made us feel cheated."

Liu Chiping's down-to-earth attitude made Ma Huateng finally decide to hand over the listing to Goldman Sachs, and he had a sense of recognition for this unique investment bank manager.

Nasdaq or Hong Kong
In the process of planning for listing, there was a choice that caused considerable controversy, that is: listing in the United States or Hong Kong.

At that time, the vast majority of Chinese Internet companies chose to list on Nasdaq, which was considered "the cradle of the global Internet." The previous "Big Three" Sina, Sohu, and NetEase all entered the capital market there without exception.However, Lau Chiping proposed listing on the Hong Kong Stock Exchange for three reasons:
First, Tencent’s business model cannot find a comparable benchmarking company in North America. All instant messaging tools in the United States, from ICQ to Yahoo! Messenger, to MSN, are not independent companies, nor have they found a profitable model .Americans believe that all Internet innovation should first appear in Silicon Valley or Boston's Route 3, and that the rest of the world is nothing more than a response to American-style innovation. This is what Braudel calls "world time." [[-]].Now, Tencent tells a story that Americans have never heard before, and they may not be willing to pay for a Chinese story.This is the tragedy of Nasdaq.

Second, Hong Kong is closer to Tencent's own home market, and analysts and shareholders in Hong Kong obviously know Tencent better than Americans.Theoretically, for a company based on serving the public, the closer its listing location is to its local market, the more real the company's value will be reflected.The valuation of Internet companies on the Hong Kong Stock Exchange is definitely not as high as that of Nasdaq, but the stock price fluctuations are less than those of the latter. For Tencent, which is pursuing continuous growth, this may be a good thing.

Third, listing in Hong Kong will also bring about the possibility that, as a red chip stock, it may return to the capital market in mainland China in the future.The people who know Tencent best are always its hundreds of millions of users. Unfortunately, at that time, the mainland’s securities regulatory authorities turned a blind eye to Internet companies and closed the application window. In Liu Chiping’s view, this is a kind of prejudice that complements Nasdaq .

In addition to these three market-related reasons, there is another reason that finally made Ma Huateng decide to choose Hong Kong, which is the cashing of employee options.Shortly after its founding, Tencent promised early core employees stock options. Ma Huateng wanted to complete the purchase at a lower price before listing, but this would be seen as an "inappropriate way to reduce the company's profits" in the US capital market. behavior”, and in Hong Kong, this practice is generally accepted.In Ma Huateng's view, the latter rule is more beneficial to employees.

According to Liu Chiping's recollection, there was a heated debate among Tencent's executives regarding the choice of listing location, and in the end, Ma Huateng accepted Goldman Sachs' proposal.

IPO covered by halo

In the collective listing boom in 2004, Tencent was obviously not the most dazzling one, and its limelight was overshadowed by other companies with more hype themes.

Shortly after the Spring Festival, on March 3 (New York time, March 11), TOM Internet Group was officially listed for trading in the United States and Hong Kong, setting two records in one fell swoop: it was the first mainland Internet company listed in Hong Kong, It is also the first Chinese Internet company to be listed on NASDAQ and Hong Kong's Growth Enterprise Market at the same time.In this listing, TOM’s net financing amount is about 3 million US dollars. TOM is controlled by the Li Ka-shing family, the richest man in Hong Kong. The president is the young Wang Leilei. His grandfather, Wang Zheng, was the first director of the Telecommunications Bureau of the Central Military Commission of the People's Republic of China and the first party secretary of the Ministry of Posts and Telecommunications.Because of this, TOM's SMS revenue has surpassed that of Tencent, Netease and Sina successively, becoming the "King of SP" in Monternet's business.

On May 5, China's largest online game company, Shanghai Shanda Network, was listed on NASDAQ, and was strongly sought after by international investors. In just half an hour, more than 13 million shares were traded, and the stock price rose from $150 after opening to $11.30.In the following six months, Shanda's stock price once touched as high as 12.38 US dollars, becoming the Chinese Internet company with the highest market value. The 44.30-year-old Chen Tianqiao replaced Ding Lei and became the new richest man in China with a net worth of more than 31 billion yuan.

Under the cover of TOM and Shanda, the two star enterprises, Tencent, which has no halo "blessing", appears to be quite low-key.

Once, Goldman Sachs and Tencent disagreed on the financing scale and price-earnings ratio at a listing strategy discussion meeting held at the Yangtze River Center in Hong Kong.Goldman Sachs believes that Tencent's proposal "should be reduced by at least 1/5", while Ma Huateng believes that Hong Kong people know little about the mainland market, Tencent's value has been seriously underestimated, and communication has reached a deadlock.Seeing this, Liu Chiping called Ma Huateng out of the conference room on the 67th floor. The two sat in the elevator and ran outside the building to smoke. He patiently explained to Ma Huateng the investor's mentality. Just calmed down a bit.

During the tense work, Liu Chiping gradually fell in love with these founders of Tencent. He recalled: "They are all very serious people, very simple, and even a little nerdy. Professional managers are all different. When writing a prospectus, some parts are routine, such as industry status, trend analysis, etc., but Ma Huateng and other founders carefully consider every word, and sometimes have heated debates. In terms of forecasting, they are reluctant to write numbers that may not be possible."

On June 6, Tencent and Goldman Sachs Securities jointly held the first investor promotion meeting in Hong Kong, announcing that it has passed the listing hearing of the Stock Exchange and will be listed soon.According to the prospectus documents, Tencent achieved an operating income of 2 million yuan and a profit of 2003 million yuan in the past 7.35. The company will issue 3.22 million new shares, equivalent to 4.2% of the equity, and the offering price per share is 25 to 2.77 Hong Kong dollars, which is about 3.7. The expected annual price-earnings ratio is 2004 to 11.1 times, and the total funds raised will reach 14.9 billion to 11.6 billion Hong Kong dollars.

In the next two weeks, Tencent executives started a devil-style global roadshow, and they separately participated in more than 80 investor meetings.Zeng Liqing even flew to South Africa to do a road show. "The deepest impression is that you have to memorize a lot of hard-to-pronounce English words, but in fact, many South Africans don't even know that there is a city like Shenzhen."Liu Chiping accompanied Ma Huateng to focus on the US market, "Flying in various cities in the US all day long, the most painful thing is jet lag. Every time we arrive at a place, we order a very early breakfast, and the waiter knocks on the door, and we have to get up."

During a flight trip, Liu Chiping was exhausted and reclined on his seat with his eyes closed. Chen Yidan, who was seated next to him, suddenly patted him awake and offered an invitation: "Hey, are you willing to join Tencent?" , Perseverance and quick learning ability have been unanimously recognized by the founder team of Tencent, and the chemical effect produced by the combination of "earth turtle + foreign turtle" is worth looking forward to.

On June 6, Tencent, with the stock code 16.hk, was officially listed, and the listed trading price was set at the upper limit of the offering price of 00700 Hong Kong dollars.The stock price performed well at the opening of the market. At one point, it was as high as 3.7 Hong Kong dollars. In the afternoon, it was suppressed by large-scale selling, and fell below the issue price at the close. A total of 4.625 million shares were traded that day. Calculated by issuing 4.4 million shares, the turnover rate was as high as 4.2%.In other words, the vast majority of investors who bought Tencent stocks chose to sell them on the first trading day, and they will regret it many years later.

Through the listing, Tencent raised a total of 14.38 billion Hong Kong dollars, and created 5 billionaires and 7 multi-millionaires.According to the shareholding ratio, because Ma Huateng holds 14.43% of the shares, the book wealth is 8.98 million Hong Kong dollars; Zhang Zhidong owns 6.43% of the shares, and the book wealth is 4 million Hong Kong dollars; Zeng Liqing, Xu Chenye, and Chen Yidan hold a total of 9.87% of the shares. The three people's wealth contract is 6.14 million Hong Kong dollars.The other 7 senior executives of Tencent own another 6.77% of the shares, and the 7 people have a total of 4.22 million Hong Kong dollars.

Cleaning up 'lame penguins' in storm

After checking the Chinese financial media reports around June 2004, none of the commentators believed that Tencent was making history.On the contrary, most of the news is unfavorable to Tencent, which is also one of the objective reasons for the high turnover rate on the listing day and the stock price falling below the issue price.

Just one day before the listing, on June 6, Beijing's Ministry of Information Industry issued a "notice", which was like a bomb thrown on the water, and it immediately caused shocking waves.

This "Notice on Carrying out Self-inspection and Self-Correction Activities for Mobile SMS Services" requires mobile companies in various regions to address SMS business market access, business promotion, order application, service provision, easy unsubscription, transparent charging, handling complaints, and violations. Strict self-examination will be carried out in multiple links such as punishment. If there are still problems after rectification, the relevant service provider will be revoked.As early as April 4, the Ministry of Information Industry had issued the "Notice on Relevant Issues Concerning the Standardization of Short Message Service", which strictly ordered the rectification of the chaotic short message service market. The "Notice" in June was the beginning of the implementation of the rectification.

In the past three years or so, various value-added content service providers have done everything they can to increase revenue. There are two worst behaviors: one is to deduct fees without the consent of users. A batch of user lists were captured from the database, and the fee was directly deducted. It was called "secret deduction" at that time, and it was no different from theft in essence.The second is to send a large number of pornographic and violent messages to lure users to subscribe.China Mobile, on the other hand, took a conniving attitude towards this, and some local branches even actively cooperated, either for the purpose of improving performance or accepting bribes and kickbacks.Among the complaints received by mobile companies every year, the number of complaints about SMS services accounts for 3%, while its revenue only accounts for 3% of the annual revenue of the entire mobile company.

An unavoidable fact is that in those years of huge profits and mud and sand, in Tencent's SP business, things that induced users to subscribe impulsively also happened. The department publicly warned.However, unlike the vast majority of SP companies, Ma Huateng, Zhang Zhidong and others are very vigilant about this, and fierce disputes often occur in the biweekly general office meeting.Ma Huateng divides SP business into red business, yellow income and green income. Among them, "red" refers to the income on the warning line, "yellow" refers to the income in the gray area, and "green" refers to legitimate income.According to the memories of many executives, he repeatedly proposed to Zeng Liqing and others to increase "green income", "I would rather reduce or even have no red and yellow income than take moral and legal risks."

Under his restraint, Tencent's income ranking in Monternet fell from the first place, and it was once ranked fourth or fifth.

The anger towards SP service providers exploded in 2004 at CCTV's "March 3 Consumer Protection Day" live broadcast.At that party, the three major telecom operators became the target of public criticism. Polls showed that arbitrary charges by telecom companies were listed as one of the most hated business practices, second only to rising house prices.Under the pressure of huge public opinion, the Ministry of Information Industry launched a severe rectification action.

The rectification of the short message business has brought "Monternet", which has been making great strides all the way, to an inflection point in policy.This innovative project that once saved China's Internet industry showed embarrassing "underpants". At the end of June, Netease took the lead in issuing a revenue warning, declaring that the revenue from SMS would plummet by 6% to 37% on the basis of the first quarter. slide.

Because it chose Hong Kong as the listing location, Tencent narrowly escaped the fate of the stock price plummeting, but it still suffered a lot.In Tencent's overall revenue, the revenue from telecom value-added services accounted for 56% of the total revenue, and half of other revenues classified as Internet value-added services were also related to this. Therefore, if calculated accurately, when Tencent was first listed, it was almost A parasitic enterprise that was "kidnapped" by "Monternet".The rectification that began in June left Tencent in a predicament of weak revenue growth for the next year or so.

The collective encirclement and suppression of QQ

Another fact that is more frightening than the sluggish revenue growth is that almost at the same time, a campaign against QQ took place in the Internet field. Almost all portals began to launch their own instant messaging tools, and the "war of the gods" was about to break out.

Just two weeks after Tencent went public, two heavyweights appeared in the Beijing International Club Hotel, and they each challenged Tencent.The reputation and financial resources of these two are above Ma Huateng, namely NetEase's Ding Lei and Microsoft's Bill Gates.

On June 2004, 6, Ding Lei, who rarely appeared in the media, went north to Beijing and held a large-scale press conference to promote Netease Paobo in a high-profile manner.This is the first time that Ding Lei and Ma Huateng, two of the best product managers on the Internet in China who were born in the same year and the same month, faced each other so closely on the same battlefield.

NetEase launched NetEase Bubbles in November 2002. It carried out a "non-differentiated follow-up strategy" for QQ. The functions of group chat, sending emoticons and screenshots pioneered by Tencent were transplanted into Bubbles one by one. , Bubble's voice engine, like Tencent, uses Global IP Sound technology.A year later, Ding Lei upgraded it to a strategic product, and the project manager reported directly to him. At the end of 11, Netease Paobao launched a large-scale promotional activity of "hanging Bubbles to send text messages". Hanging on Bubbles for one day can exchange 2003 text messages. With a maximum of 120 users online at the same time, Netease Paobao has become the second largest domestic instant messaging tool after QQ in terms of market share.

At the press conference in June 2004, Ding Lei also brought an explosive weapon. He declared that Netease had successfully developed an instant voice communication tool similar to Skype, "Our real breakthrough is in any environment. Both can communicate, and the voice quality has reached the quality of GSM. The quality of our voice communication in the next version will exceed that of the telephone. NetEase has completely passed the test in the experimental network, and there is no technical problem in communicating with traditional telephones. And now This version of Bubble already has such a function, and the software has been installed in it, and it can be launched as long as the policy allows."This is a fact worthy of being recorded. It shows that Chinese Internet companies have achieved a major breakthrough in instant voice communication as early as 6. If it were not for the brutal obstruction of state-owned telecom operators, WeChat in 2004 would have come to fruition as soon as possible. Born 2011 years ago, and this opportunity should belong to Ding Lei's NetEase.

Three days after Ding Lei held the press conference, Bill Gates, who came to participate in the first "China International Service Industry Conference and Exhibition", appeared in the same hotel. This is his ninth trip to China. Gates announced that Microsoft will Increase research and development and promotion efforts in China.When a reporter asked about Microsoft's prospects for its instant messaging tool MSN in China, he hinted: "Maybe our pace will be faster." More than two months later, Microsoft quietly established MSN China in Beijing and Shanghai. market and R&D center.

Around 2004, it was far more than NetEase and Microsoft who rushed into the field of instant messaging and tried to compete with Tencent.

On June 6, Yahoo China officially launched the Chinese version of Yahoo! Messenger 7, which added the voice animation function of "Qiaozui Doll". In addition, it also integrated Yahoo search, online photo album and a variety of interactive games in the chat window.At this time, Zhou Hongyi, who had ridiculed Ma Huateng on "West Lake Lunjian" as the president of Yahoo China at this time, was acquired by Yahoo for US$6.0 million in November 3721. Zhou Hongyi assumed the responsibility of revitalizing Yahoo China.He predicted that with the segmentation of the market, it is impossible for QQ to be the dominant player. In an interview with the reporter of "2003st Century Business Herald", he also questioned Ma Huateng's diversification strategy: "Tencent's diversification Development may also be a weakness. Doing portals, emails, and games may disperse the driving force. The success of QQ before was because of its focus. After diversified development, how much power it has concentrated on instant messaging is undoubtedly. It’s a challenge it sets for itself.”

On July 7, Sina announced the acquisition of Langma for US$7 million.Langma UC is very popular among trendy urban youths. Its registered users have increased to 3600 million, and its maximum number of simultaneous online users is 8000. Its market share ranks only after QQ, MSN and Netease Paobao.Sina changed its name to "Sina UC" to replace the "chatchat" which had not improved before.

On October 10, TOM Online announced that it has signed a strategic cooperation agreement with Skype, "to bring the world's most advanced Internet voice communication tools and instant messaging services to the vast number of Chinese Internet users."

Even telecom operators have entered the field. In November, China Telecom launched a carrier-grade Internet instant messaging software - Vnet Messenger (VIM for short). As long as users have a VIM number, they can connect to landlines, PHS or even mobile phones to realize calls, file transfers, conference calls, etc. Function.

In addition, Sohu launched "Search Q", 263 launched "E Call", Netcom launched "Tiantian Instant Messenger", and even Alibaba, which is engaged in e-commerce, has its own "Tradelink".At that time, a report in the "Securities Times" disclosed that more than 200 similar products appeared across the country, and the trend of encirclement and suppression against Tencent was formed impressively.

What makes Tencent even more passive is that there was a call for "interconnection" inside and outside the industry at that time.After Zhou Hongyi took office, he worked hard to promote the "interconnection" between Yahoo Messenger and MSN, in order to break Tencent's monopoly. "Communication World" thought in a long review: "If the interoperability of instant messaging software is not solved, the whole industry will suffer. From the perspective of development, alliance may be the best way out, because 'communication has no limits' It is the ideal of human communication and exchange of information."

Such a voice is undoubtedly very unfavorable for Tencent.

bid farewell to teenage

The series of industry events that took place in the summer and autumn of 2004 left Ma Huateng with little time to digest the joy brought to him by going public.

From the day the stock was listed, Tencent bid farewell to its youthful youth. It is like a young man who has accepted the "adult ceremony" and will face a more dangerous and vast life.Its vital functions will change, and all competitors will regard it as a full-fledged enemy.Ichak Edith described in the book "Enterprise Life Cycle": "In the adolescence of the enterprise life cycle, the enterprise can be regenerated. This is a process full of pain and protracted time. Conflict and behavior Lack of continuity. Entrepreneurs find themselves facing challenges in three aspects: the delegation of authority, the change of leadership style, and the replacement of corporate goals.” These words of Eddis are exactly the portrayal of Tencent at that time.

In July, Tencent moved out of the SEG Technology Pioneer Park, which brought it good luck, and moved into the Fiyta Building in Nanshan District. The number of employees in the company has increased to more than 7.Ma Huateng is surrounded by various meetings and decisions every day. An employee recalled: "There is often a long queue at the door of his office. Managers are holding documents, reports and receipts, silently waiting for him to sign." In 760 On his birthday in March, the board of directors decided to give him a special gift, which was a professional-grade high-power astronomical telescope. future.

Of course, there were also things that made Ma Huateng happy. He and his wife held a less publicized wedding at the Venice Hotel in Shenzhen, and bid farewell to their leisurely single life.In the beginning, his entrepreneurial partners were not only happy for the boss, but also secretly happy for themselves. In the past few years, Ma Huateng did not leave the company until after 10 pm almost every day. After getting married, he started to leave work on time , everyone will be "liberated".However, it didn't take long for a new "torture method" to appear, and everyone often received his work emails after 12 midnight.

In December, Liu Chiping, who made great contributions to the listing, officially decided to join Tencent. He applied to Ma Huateng for a special position: chief strategic investment officer (CSO).

Chen Yidan, who was in charge of the human resources affairs of the company at the time and invited him on the plane, told Liu Chiping very sorry that his salary at Tencent would be 2/3 less than that at Goldman Sachs.Liu Chiping, who is super sensitive to numbers, said with a smile: "Maybe one day, Tencent's stock will rise 100 times!"

(End of this chapter)