Home Finance Here’s what Alibaba and China’s Kuaishou say about the economy

Here’s what Alibaba and China’s Kuaishou say about the economy

by YAR

In the GMV of the top five e-commerce platforms, Alibaba’s market share fell 6% in the first quarter from the fourth, according to Bernstein analysis.

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BEIJING — Alibaba was once the model for investing in modern China. Now the e-commerce market that fueled its growth is slowing as new players eat into Alibaba’s market share.

That is reflected in the performance of stocks since bottoming out in mid-March on sentiment for major Chinese internet names.

Pinduoduo shares have more than doubled since then, while Meituan shares are up 80% and JD shares are up more than 50% in Hong Kong. Kuaishou is up almost 47%.

Alibaba shares are up 42% in Hong Kong and 33% in New York. Tencent is up just 25%.

But except for Kuaishou and Pinduoduo, stocks remain down year-to-date.

“Our best options in the sector remain JD, Meituan, Pinduoduo and Kuaishou,” Bernstein analyst Robin Zhu and a team said in a report this week. “Interest in Alibaba has persisted, mainly from foreign investors, while comments on Tencent have turned very negative.”

Bernstein expects consumer and regulatory trends to favor stocks in “real” categories (e-commerce, food delivery and local services) over “virtual” ones (gaming, media and entertainment).

A slowing e-commerce market

Over the weekend, the JD.com-led 6.18 shopping spree saw total transaction volume rise 10.3% to 379.3 billion yuan ($56.61 billion). That’s a new high but the slowest growth on record, according to Reuters.

Traders who spoke to Nomura said Covid lockdowns disrupted garment production while consumer demand was generally low, according to a report on Sunday. Sales of high-end products fared better than those of the mass market, according to the report, citing a trader.

Alibaba, whose main shopping festival is in November, said only that it saw growth in gross merchandise value from last year, without disclosing figures. GMV measures the total value of sales during a certain period of time.

“Online retail growth is likely to be slower this year than in 2020 and 2021, and its penetration rate increase may be weaker than the average of 2.6 [percentage points] during 2015-2021,” Fitch said in a report last week.

“This is due to a larger base, deeper integration of online and offline channels…and weaker consumer confidence on concerns of a slowing economy and rising unemployment,” the statement said. signature. Fitch expects online sales of food and home goods to perform better than online sales of clothing.

In May, online retail sales of goods rose more than 14% from a year earlier, but overall retail sales fell 6.7% during that time.

Fitch expects China’s retail sales to grow in just low single digits this year, up from 12.5% ​​in 2021. But the firm expects online goods sales could expand its share of total retail goods to around 29 percent. % in 2022, compared to 27.4% in 2021 and 27.7% in 2020.

New players take market share from Alibaba

In that online shopping market, new companies have emerged as rivals to Alibaba. These include live streaming and short video platforms Kuaishou and Douyin, the Chinese version of TikTok also owned by ByteDance.

In the GMV of the top five e-commerce platforms, Alibaba’s market share fell 6% in the first quarter from the fourth, according to Bernstein analysis published earlier this month.

JD, Pinduoduo, Douyin and Kuaishou increased their market share during that time, according to the report. Douyin’s share in GMV increased the most, to 38%, although its combined market share with Kuaishou is only around 12% among the five companies.

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In a sign of how Kuaishou has become its own e-commerce player, the app cut links to other online shopping sites in March.

“Your recent decision to cut external links to [Alibaba’s] Taobao and JD show that times have changed,” Ashley Dudarenok, founder of China-based marketing consultancy ChoZan, said at the time of the news. “Taobao is no longer the only major battleground for e-commerce.”

In the quarter ended March 31, Kuaishou reported GMV on its platform of 175.1 billion yuan, an increase of nearly 48% from a year earlier.

Last month, ByteDance’s Douyin claimed that its e-commerce GMV more than tripled in the past year, without specifying when that year ended. Douyin banned links to third-party e-commerce platforms in 2020.

While Douyin dwarfs Kuaishou by number of users, what’s different for investors who want to play the short video e-commerce trend is that Kuaishou is publicly traded.

Even in JPMorgan’s earlier call in March to downgrade 28 “non-investable” Chinese internet stocks, analysts kept their only “overweight” on Kuaishou based on “management’s sharper focus on margin improvement, higher gross margin , larger user base and less risk of competition”.

Users such as cosmetics streamer Zhao Mengche often describe Kuaishou as having a “community,” in which he said the app is trying to integrate more brands and mimic a village market square, online. Zhao has more than 20 million followers on Kuaishou.

During the shopping festival on June 18 this year, fashion-focused social media app Xiaohongshu claimed that more merchants made their products available directly on the app, saying that users could also buy products imported from China. JD.com via Xiaohongshu.

Reduce spending on advertising

Looking ahead, companies were more inclined in the first quarter to spend on advertising closer to where consumers might make a purchase, rather than simply raising awareness, according to Bernstein. They estimated a 65.8% growth in Kuaishou e-commerce ads in the first quarter from a year earlier, with Pinduoduo, JD and Meituan also seeing double-digit growth.

However, revenue from the top 25 ad platforms tracked by Bernstein grew 7.4% year-over-year in the first quarter, slower than the 10.8% growth in the previous quarter.

And for ByteDance, China’s largest ad platform in the first quarter along with Alibaba, Bernstein estimated that domestic ads grew just 15% in the first three months of the year, despite live streaming sales of GMV probably almost tripled, the analysts said.

They expect ByteDance’s home ad business to drop to single digits, or even contract, in the second quarter.

— CNBC’s Michael Bloom contributed to this report.

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