The internet economy is shifting from scale expansion to profitability, AI monetization, and ecosystem quality

Overview

This report comes from Nomura's China internet team's mid-2026 expert call series, covering internet economy verticals such as local services, AI music, China e-commerce, cross-border e-commerce, travel, large language models, online healthcare, short dramas, and AI animation. Overall, the industry's main focus is shifting from purely pursuing transaction scale and user growth toward profitability, AI infrastructure investment, model monetization, content ecosystem quality, and regulatory adaptation.

Core views

The core views include: first, AI and large models remain the strategic focus of internet platforms and independent AI companies, but closed-source versus open-source paths, computing power costs, and enterprise workflow integration capabilities will determine monetization quality; second, Douyin local services and e-commerce still have scale growth, but compared with mature platforms such as Meituan, they still lag in redemption, operational refinement, and conversion efficiency; third, cross-border e-commerce, especially TikTok Shop, is growing strongly, providing a positive boost to logistics service providers such as J&T; fourth, OTA airline ticketing faces pressure from slowing traffic, fuel prices, and tighter airline policies; fifth, AI-generated music and short dramas can reduce supply costs and promote user acquisition, but copyright, content quality, user retention, and advertising value remain constraints.

Analysis framework

The report uses a summary of expert interviews, combining qualitative judgments and key operating data from 10 industry experts spanning OTA, e-commerce, generative AI, local services, music, cross-border logistics, and short dramas, and cross-analyzes them with Nomura's existing ratings, valuation methods, and risk disclosures on mentioned targets such as Meituan, Alibaba, J&T, and TME.

Methodology notes

• Expert interviewsIndustry expert calls

  Summarizes changes across internet economy sub-sectors through frontline observations from multiple industry experts.

  This method emphasizes real-time information on operating metrics, competitive dynamics, and management strategy direction, but conclusions depend on the expert sample and are suitable for trend judgment and cross-validation.

• Competitive comparisonPlatform operating capability comparison

  Compares Douyin local services and Meituan in terms of GTV, redemption rate, subsidy design, membership operations, and cross-scenario conversion.

  The report argues that total GTV does not fully represent effective transaction quality, and that redemption rate and operational refinement affect net GTV and monetization efficiency.

• Valuation disclosureRelative valuation and sum-of-the-parts valuation

  The disclosure uses EV/EBIT, P/E, P/S, or sum-of-the-parts valuation methods for J&T, Meituan, Alibaba, and TME.

  This valuation information comes from issuer-specific disclosures and is used to explain the target prices and key downside risks of mentioned targets, rather than serving as a single valuation model for the expert call theme.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• Meituan 3690 HK

  Local-services industry benchmark and disclosed Buy target

  Strengths

  Redemption rate is estimated above 80%, with a more mature operating framework and advantages in personalized subsidies, membership operations, and cross-scenario conversion.

  Weaknesses

  In-store, hotel, and travel businesses still face pressure from macro consumption and competition.

  Comparison

  Douyin local services total GTV is growing rapidly, but with a redemption rate of about 57-58%, net GTV quality may still lag Meituan significantly.

  Risks

  Intensifying competition in food delivery or in-store consumption, and weaker-than-expected performance in new businesses.

• J&T Express 1519 HK

  Beneficiary of TikTok Shop logistics growth and disclosed Buy target

  Strengths

  Deeply integrated with TTS, handling a high proportion of parcels in most Southeast Asian markets, with fulfillment capability, network coverage, and cost advantages.

  Weaknesses

  Growth is highly tied to the TTS ecosystem, and some markets may be affected by platform supplier diversification.

  Comparison

  Experts believe that in Southeast Asia's low-ticket environment, an asset-light third-party logistics and local warehousing ecosystem is better suited to TTS than the capital-intensive FBT model.

  Risks

  Intensifying market competition, slower-than-expected parcel volume growth, weaker-than-expected cost optimization, and country-level regulatory risks.

• Alibaba BABA US

  Large internet platform, AI and e-commerce competitor, and disclosed Buy target

  Strengths

  Has capital, a data ecosystem, and strategic necessity, with the ability to own advanced LLMs and drive cloud and e-commerce synergies.

  Weaknesses

  AI and cloud investment may pressure margins, and e-commerce growth is affected by the consumption environment.

  Comparison

  Experts believe pure AI labs such as Moonshot have the advantage of focus, but the report still sees large platforms such as Alibaba and ByteDance as strong competitors.

  Risks

  Increased investment leading to margin decline, and payment and internet finance regulatory risks potentially affecting the core business and Ant Group's value.

• ByteDance / Douyin / TikTok Shop

  Core platform in local services, e-commerce, AI music, Doubao, and cross-border e-commerce

  Strengths

  Has a strong traffic gateway, a multi-business ecosystem, AI infrastructure investment, and growth momentum in cross-border e-commerce.

  Weaknesses

  Local-services redemption rate and operational refinement lag Meituan, e-commerce GMV growth is below internal targets, and Soda Music user time spent is declining.

  Comparison

  Douyin is shifting from pure GTV expansion to monetization and profitability, while Doubao's agentic shopping tied to e-commerce is still at an early stage.

  Risks

  Weak consumption, AI investment costs, copyright disputes, user growth saturation, regulation, and platform ecosystem quality constraints.

• Moonshot AI

  China generative AI and closed-source LLM commercialization case

  Strengths

  Experts expect ARR to exceed USD1bn by year-end, with strong overseas API and AI coding capabilities; the closed-source strategy helps protect margins and scale monetization.

  Weaknesses

  High-quality proprietary data and specialized AI capabilities are needed to enter next-stage scenarios such as healthcare, education, and finance.

  Comparison

  Compared with large internet platforms, pure AI labs are more focused; but large platforms have advantages in capital, data, and ecosystem.

  Risks

  Tight supply of Nvidia high-end chips, declining model prices, enterprise customer acquisition costs, and intensified competition with large platforms.

• Hongguo

  Observation target for short-drama and AI-generated content commercialization

  Strengths

  Short-drama and animated-drama apps have large user scale, core revenue is growing rapidly, and AI-generated content improves supply and production efficiency.

  Weaknesses

  AI-generated content has lower quality, shorter popularity cycles, and weaker emotional resonance, which may reduce retention and advertising value.

  Comparison

  The platform does not pursue AI content growth at any cost, but instead keeps viewing share below 30% to maintain ecosystem health.

  Risks

  Declining user time spent, dilution of brand advertising value, and growth being affected by AI content review and recommendation-weight adjustments.

• Tencent Music Entertainment TME US

  Music streaming disclosed Buy target, related to AI music and Soda Music industry changes

  Strengths

  The disclosure values online music subscription, non-subscription music, and social entertainment separately, and it remains rated Buy.

  Weaknesses

  The main report does not provide substantial new in-depth analysis of TME's business, serving more as referenced issuer disclosure.

  Comparison

  Soda Music has grown through Douyin traffic diversion, but its user base is nearing saturation and user time spent is declining, indicating intensified music streaming competition.

  Risks

  Loss of online music user time spent, weaker-than-expected paid user growth, insufficient penetration of high-priced SVIP, and tighter regulation of monetization such as advertising and live streaming.

Key data

• Number of experts10Covering OTA, e-commerce, generative AI, local services, cross-border e-commerce, travel, LLM, online healthcare, short dramas, and AI animation.
• Moonshot AI ARRExpected to exceed USD1bn by year-endExperts said it is mainly driven by overseas API usage and AI coding capabilities.
• Douyin local services 1H26 total GTVAbout CNY551bn, up 44% year over yearOn a pre-refund and pre-cancellation basis; experts said the business may reach breakeven at some point in 2H26E.
• Estimated Meituan in-store business 1H26 GTVCNY629bn, up 11% year over yearCompared with Douyin local services total GTV, but Meituan's redemption rate is estimated to be significantly higher.
• Douyin local services redemption rateAbout 57-58%Nomura estimates Meituan's redemption rate may exceed 80%, so the net GTV gap may be larger than total GTV suggests.
• Soda Music user scaleAbout 50mn DAU and 150mn MAU in May 2026Experts expect year-end DAU of about 60mn, up about 50% year over year, below the nearly 100% growth in 2025.
• Soda Music user time spentAbout 50 minutes/dayDown from the 60-70 minute peak, affected by user dilution and competition from short dramas and novels.
• Douyin e-commerce 618 GMV growthAbout 19% year over yearBelow the internal target of 24-25%.
• Douyin e-commerce FY26 realistic GMV growth target15-16% year over yearExperts believe the platform is shifting from aggressive scale expansion to balancing growth and profitability to support AI infrastructure and LLM investment.
• China airlines 1H26 passenger volume375mn passengers, up 1% year over year1Q26 grew about 7%, while 2Q26 fell 4-5%, affected by higher fuel prices caused by geopolitical conflict in the Middle East.
• Expected summer travel air trafficDown 4% year over year in July-AugustExperts are cautious on peak summer travel demand.
• TikTok Shop 1H26 GMVAbout USD35bnSoutheast Asia and the United States were the main contributing regions, with 1H26 growth of about 2x.
• Hongguo short-drama platform usersFlagship short-drama app 120mn DAU, 330mn MAU; standalone animated drama app 16.5mn DAU, 40mn MAUData are based on expert figures from June 2026.
• Hongguo core revenueAbout CNY20bn, up about 87% year over yearAdvertising contributed about 97%; experts expect full-year core revenue of CNY42-45bn, about doubling year over year.
• Hongguo AI-generated content shareViewing share below 30%The platform controls AI content share through recommendation weighting, revenue-sharing adjustments, and stricter content review.
• J&T Express disclosed rating and priceBuy; price HKD9.15; target price HKD14Price date is 2026-07-14, with the main valuation method being 18x FY26F EV/EBIT.
• Meituan disclosed rating and priceBuy; price HKD79.20; target price HKD109Price date is 2026-07-14, using sum-of-the-parts valuation.
• Alibaba disclosed rating and priceBuy; price USD112.35; target price USD178Price date is 2026-07-13; the disclosure separately values China e-commerce, AliCloud, and non-core assets.
• Tencent Music Entertainment disclosed rating and priceBuy; price USD8.83; target price USD12.50Price date is 2026-07-13; the disclosure uses sum-of-the-parts valuation for online music subscription, non-subscription music, and social entertainment.

Impact & implications

In terms of investment implications, the report reinforces several directions: Meituan still has an advantage in refined local-services operations; AI participants such as Alibaba, ByteDance, and Moonshot will compete over large-model monetization through computing cost, proprietary data, and enterprise workflows; J&T benefits from strong TikTok Shop growth in Southeast Asia and the United States as well as fulfillment linkage; OTA airline ticketing revenue faces dual pressure from traffic and airline policy; AI content tools improve supply efficiency in the short term, but if content quality and advertising value are insufficient, platforms may proactively limit AI content share, thereby affecting the commercialization pace of video-generation AI tools.

Risks

• Weak Chinese consumption may continue to pressure demand for e-commerce, local services, in-store consumption, and travel.
• If Douyin local services and e-commerce shift too quickly from scale to profitability, GMV growth and merchant growth may be sacrificed.
• Falling large-model prices, tight computing supply, and changes in inference costs may compress AI company margins.
• Uncertainty between open-source and closed-source model paths, as well as enterprise customer switching costs and depth of workflow integration, will affect monetization realization.
• Airline ticketing is pressured by fuel prices, geopolitical conflict, and tighter airline commission distribution policies, weighing on OTA revenue.
• TikTok Shop may face regulatory scrutiny and logistics service provider diversification requirements in markets such as Indonesia.
• AI-generated music and short dramas face risks related to copyright, quality, retention, advertising value, and content review.
• Mentioned targets still face company-specific risks such as intensifying competition, regulation, insufficient cost optimization, and weaker-than-expected performance in new businesses.

What to watch

• Whether Douyin local services can break even in 2H26E, and whether its redemption rate moves closer to Meituan.
• Whether Moonshot AI's year-end ARR exceeds USD1bn, and whether its closed-source flagship model can be implemented in industries such as healthcare, education, and finance.
• Whether Douyin e-commerce FY26 GMV growth falls within the 15-16% range, and progress in Doubao's agentic shopping data and supply-chain integration.
• TikTok Shop GMV growth in Southeast Asia and the United States, and the stability of J&T's parcel share in markets such as Indonesia.
• Changes in China's summer-travel airline passenger volume, fuel surcharges, and airline commission distribution policies.
• Whether Soda Music's year-end DAU reaches about 60mn, and whether copyright disputes over AI-generated music affect platform growth.
• Whether Hongguo's control of AI-generated content share affects user growth, advertising revenue, and demand for video-generation AI tools.
• Whether subsequent target prices, ratings, and key operating assumptions for Meituan, Alibaba, J&T, and TME are adjusted.