Source: Beast Finance Author: Beast Finance
Regulators introduce new accounting rules
Beast Finance learned that in order to standardize the accounting treatment related to enterprise data resources and strengthen the disclosure of relevant accounting information, the Ministry of Finance formulated and issued the "Interim Provisions on Accounting Treatment Related to Enterprise Data Resources" on August 21, 2023. Since January 1, 2024 Be implemented.
Boldbeast Finance believes that the regulations provide a framework for the classification of data resource enterprises (that is, personal and commercial data collected online or otherwise for business purposes), and will allow companies to designate data that meets relevant accounting standards as intangible assets, or Designate it as inventory when sold in business.
The relevant person in charge of the Accounting Department of the Ministry of Finance stated that the formulation of the "Interim Regulations" will help to further promote and standardize the implementation of accounting standards by data-related enterprises, and provide more information related to the value of data resources.
The new accounting standards originated from the 20th National Congress, which proposed to accelerate the construction of "Digital China", develop the digital economy, and standardize the accounting treatment related to enterprise data resources.
China's strategy to strengthen its digital economy includes the establishment of the National Data Bureau, which will coordinate and promote the development, integration, sharing, and utilization of the national economic and social data infrastructure.
While it is unclear what types of data will be eligible for inclusion, under the new rules, companies will be required to include data resources as part of their inventories, intangible assets and capital expenditures when compiling their balance sheets. Data such as personal and business information, maps, surfing behavior, real-time GPS location, spending patterns, financial details, browser cookies, etc. will likely also be considered strategic economic assets and will be reflected in a company's financial statements.
pros and cons
Boldbeast Finance expects that the impact of these new regulations on large Internet companies and Chinese concept stocks will be huge, especially on industries such as computing and telecommunications, cloud service providers, Internet retail, streaming services, financial technology and social networks. Influence.
On the bright side, recognizing data assets on the balance sheet can provide businesses with several benefits. It enables companies to demonstrate the value they derive from collecting and analyzing data, provides investors with a more holistic view of their operations and growth potential, and increases transparency and accountability of data management practices, as well as companies conducting better data Governance and security measures. Companies are also able to leverage their data resources to create new revenue streams and even record them as goodwill to increase book value.
There are challenges, however, as determining the precise value of data assets is complex and the value of data often depends on factors such as its quality and availability. Additionally, containing personal and sensitive information also raises ethical considerations, requiring strict privacy and security measures to protect user data. Recognition of data assets may also lead to greater scrutiny by investors, regulators and stakeholders of data management practices, use and compliance with data protection laws. Companies need to ensure the quality and accuracy of their data, as inaccurate or misused data can negatively impact a company's reputation and financial performance.
How much is personal data worth?
It is predicted that by 2025, the world's data will grow to 175 Zettabytes (Zettabytes is a computer term that represents ten trillion bytes, which is a huge number).
The main motivation behind data collection lies in the intricate interplay between platforms and companies, especially in optimizing the effectiveness of their advertising, product development and marketing strategies. Currently, most companies mainly use personal data in the following two areas:
(1) Direct advertising: Personal information collected by social networks and online retailers, from age and preferences to family dynamics, ends up in the hands of advertisers. This allows companies to precisely target information to specific individuals, rather than taking a broad and expensive approach. For example, a first-time mother in her 20s would respond differently to an ad targeting pregnant women than a mother of three in her 30s. Likewise, a young Asian with a passion for sneakers and pop music is more valuable to a streetwear brand than an older European with an interest in mid-century furniture and classical music. By leveraging personal data, advertisers can simplify, reduce waste, and increase user satisfaction and campaign effectiveness.
(2) Predictive analytics: A more modern approach involves leveraging extensive personal data sets to predict emerging trends, assess market readiness, and fine-tune product information. By collecting large amounts of personal data on numerous individuals within the same demographic range, companies can uncover new market opportunities and interests that might otherwise have been overlooked. This gives brands the opportunity to tailor their messaging to align with the dominant cultural context and delay product launches until market conditions are more favorable. Solar panel manufacturers, for example, could benefit from knowing which age groups respond positively to renewable energy-focused messages and those leaning towards cost savings.
The value of personal data, like any market, fluctuates primarily due to the principles of supply and demand. It's worth noting that the value of men's data is generally slightly higher due to the larger number of women globally. Likewise, values vary when assessed across different markets and demographics.
A 2020 study by data analytics companies MacKeeper and YouGov revealed that the value of personal data is significantly higher for 18-24 year olds compared to other age groups.
The value of personal data (Source: MacKeeper, YouGov)
Assessing the value of different personal and company data is difficult and complex given the wide variation in value due to factors such as quality, quantity and population. But we can figure out the potential value of certain data by referring to the price of personal data traded on the [Dark Web]:
The price of personal data on dark web merchants (Source: MacKeeper, YouGov)
If these prices are any guide, the data stored on the servers of many of China's largest internet companies or shared with other businesses could add hundreds of millions of dollars to the recorded value of their assets.
The value of data held by Alibaba
Taking Alibaba as an example, the company stated in its 2022 financial report that they have served 1.31 billion customers.
Alibaba has long collected vast amounts of data through its e-commerce marketplace, Alipay, and the digital entertainment sites and social media properties it operates within its ecosystem.
As one Morgan Stanley analyst noted, Alibaba has laid the foundation for its transformation into "a leading data services company leveraging big data and cloud computing to upgrade all its businesses, ecosystem partners and customers."
Using Alibaba's artificial intelligence, real-time data from Chinese consumers can be thoroughly analyzed. This data serves a dual purpose: not only to aid customer understanding, but also to help categorize them and promote more relevant and ongoing consumer interactions. With China's retail market boasting hundreds of millions of active buyers each year, Alibaba's dynamic data is fundamentally reshaping the way brands are marketed.
Considering that Alibaba has applied data to so many fields, how much is Alibaba’s data worth?
Assuming that each customer’s data (including name, age, financial data, health records, browsing and spending habits, etc.) is worth $3, then for Alibaba, which has more than 1 billion customers, it can use this data alone to The third party provides marketing services to generate a value of US$3 billion (this is still our conservative estimate, the actual value is much higher than this), and by January 1, 2024, new accounting regulations will be implemented, and then we will know that Ali How much is the data held by Baba worth?
Which ETFs and Chinese concept stocks will be affected by the new regulations?
These new accounting regulations will come into effect on January 1, 2024, and are expected to have a significant impact on Chinese concept stocks listed in the United States. In light of this development, these companies are tasked with reconciling newly recognized data assets with the stringent standards required by GAAP (Generally Accepted Accounting Principles), which emphasizes the need for financial transparency and consistency in reporting practices.
The fund that Beast Finance believes may be affected by this new regulation is the China Internet Index ETF (KWEB), which is mainly composed of Internet-related companies; in addition to its largest holding Alibaba, it also holds Tencent Holdings (00700), Shares in companies such as Pinduoduo (PDD), Baidu (BIDU), NetEase (NTES) and Ctrip (TCOM).
Chinese concept stocks that may be affected include cloud and data service providers Kingsoft Cloud (KC), Chindata (CD) and GDS (GDS), 21Vianet (VNET), Weibo (WB) and Lizhi (LIZI), Tencent Music (TME), JD.com (JD), Lufax (LU) and Waterdrop (WDH), among others.
In addition, this new regulation may also affect other China ETFs, such as iShares MSCI China ETF (MCHI), China Large Cap ETF (FXI) and Deutsche Bank Harvest CSI 300 Index, FTSE 25 China Index ETF, etc.
What should investors do?
The ongoing transformation presents an opportunity for investors to enrich their understanding of company assets, which are data-driven, and their inherent potential for appreciation. However, the complex task of accurately assessing and classifying these data resources can present significant obstacles. Issues related to data security, governance protocols, and potential regulatory intervention by the SEC may arise, and may ultimately lead to the delisting of certain Chinese stocks from the U.S. market.
Beast Finance believes that investors holding stocks of companies in these industries should not take immediate action, but should choose to keep their holdings on the sidelines and remain vigilant to further developments until the market has a clear understanding of this new accounting regulation. Clear response, then plan.
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