Online shopping is expected to grow in China. What’s less clear is how longtime players like Alibaba and JD.com will benefit. “We’re getting relatively strong insurgent players,” James Young, a Hong Kong-based partner at Bain and Company, told me last week. “It’s not just going to be a two-player game, it’s going to be a three-, four-, five-player game,” he said. E-commerce’s share of China’s retail sales rose to 37.5% in 2023, up from 27.9% in 2019, according to Bain. The data showed that the country ranks first in Asia for e-commerce penetration. In the US, official data shows e-commerce penetration remains slightly below a pandemic-era record of 16.4% of retail sales. In an effort to boost Alibaba’s credibility, the e-commerce giant’s co-founder Joe Tsai told CNBC’s Emily Tan earlier this year that online shopping will reach 40% of retail sales in China in the next five years – an opportunity, he said. the company is up for grabs after a restructuring last year. Yang agreed with Tsai’s prediction that e-commerce penetration will increase. “I’ve talked to a lot of people in the industry, at some point I think it’s 50-50 because at the end of the day physical stores have a role to play,” he said. “Who will like this growth?” – said Yang. “The growth formula and incremental growth are different.” Temu’s parent company PDD Holdings recently overtook Alibaba in market capitalization again. Goldman Sachs analysts upgraded PDD to neutral on May 24, just two months after downgrading it in March. “We believe that Chinese e-commerce is becoming one of the most undervalued subsectors of the Chinese Internet (amid high single-digit industry GMV growth),” Goldman Sachs analysts Ronald Keung and David Ma said in a note. GMV, or gross merchandise value, measures total sales over time. Goldman analysts pointed to ad tech upgrades that could boost ad revenue, generate strong free cash flow and global expansion that has not yet been priced in. business due to geopolitical problems. Analysts also raised their price target for PDD to $184 from $145 per share, about 21% above the stock’s U.S.-listed closing price on Thursday. Chinese e-commerce players will get a report card in the next few weeks based on the ongoing 618 shopping festival, which is scheduled to end in mid-June. “Given the strong earnings base in 2Q24, as well as intense competition at 6.18, we need more evidence to confirm that JD’s business has turned around, although the company left its full-year guidance unchanged,” said Morgan Stanley analyst Eddie Wang and his team. This is stated in a message dated May 17. The firm has an equal weight rating on JD.com and a $28 per share price target. That’s down from the stock’s closing price of $30.21 on Thursday. UBS analysts still believe JD.com shares could rise to $40, according to a May 28 note that rated the stock a buy. “Overall, general merchandise, especially the supermarket category, should be a key driver in 2024 following JD’s business optimization,” wrote UBS analyst Kenneth Fong and his team. While JD has yet to significantly expand its e-commerce operations overseas, Alibaba has increased spending on its international business. Last week, cross-border e-commerce platform AliExpress announced it had signed David Beckham for its largest global brand ambassador partnership to date. “We expect Alibaba’s share price to remain range-bound over the next 3 to 6 months as its financial performance still faces uncertainty early in the investment cycle,” JPMorgan China online analyst Alex Yao said in a report dated 15 May. He rates the stock as overweight with a $100 price target. That’s nearly 26% higher than the stock’s closing price on Thursday. “Increasing domestic e-commerce market share should ultimately lead to better monetization,” Yao said. “Taobao/Tmall Q GMV grew by double digits year-over-year in March, suggesting that market share loss has become very minor compared to the nationwide 11.6% increase in online physical goods GMV for the quarter.” However, the company that has truly captured market share is not publicly traded. TikTok’s parent company ByteDance operates a similar version of the app in China called Douyin, which has become a sales portal for brands and influencers, primarily through live streaming. Douyin is expected to achieve a gross GMV market share of 19% in China this year, larger than JD.com, Alibaba’s Taobao or Tmall individually, according to a Goldman Sachs analysis. The investment firm expects Douyin to reach PDD’s market share of 21% next year and surpass it to reach 22% in 2026. Tencent’s WeChat Video Account platform is expected to maintain 2% to 3% GMV market share through 2026, Goldman said. analysis said. Another growing e-commerce company is Hong Kong-listed Kuaishou. The video streaming platform last month reported e-commerce GMV grew 28.2% year-on-year in the first quarter to 288.1 billion yuan ($40.55 billion). “We remain positive about [Kuaishou’s] Advertising and e-commerce monetization and revenue growth are also forecast for total revenue +9.5% YoY in 2Q24E,” said Sophie Huang, analyst at CMB International, in a May 23 note. The firm forecasts Kuaishou’s e-commerce revenue GMV to grow 25% this year. This year, live streaming revenue, which accounts for about a third of total revenue, is expected to decline due to a high base. CMB International has set a price target of HK$97 ($12.41) for Kuaishou shares, up about 70%. Friday Levels — CNBC’s Michael Bloom contributed to this report.
