Here’s what China’s Alibaba and Kuaishou are saying about the economy


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

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BEIJING – Alibaba was once the poster child for investments in modern China. Now, the e-commerce market that fueled its growth is slowing while new players eat up Alibaba’s market share.

That’s reflected in the performance of shares since an apparent bottom in sentiment among major Chinese internet names in mid-March.

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

Alibaba’s shares are up about 42% in Hong Kong and 33% in New York. Tencent is only up about 25%.

But with the exception of Kuaishou and Pinduoduo, the stocks are still down for the year to date.

“Our top picks in this sector remain JD, Meituan, Pinduoduo and Kuaishou,” Bernstein analyst Robin Zhu and a team said in a report this week. “Interest in Alibaba continues, mostly from overseas investors, while feedback on Tencent has turned very negative.”

Bernstein believes consumer and regulatory trends will favor stock prices in “real” categories — e-commerce, grocery delivery, and local services — over “virtual” categories — games, media, and entertainment.

A slowing e-commerce market

Over the weekend, the 6.18 shopping festival led by saw its total transaction volume rise 10.3% to 379.3 billion yuan ($56.61 billion). That’s a new high in value – but the slowest growth on record, according to Reuters.

Retailers who spoke to Nomura said Covid lockdowns have disrupted apparel production while consumer demand has been generally low, according to a Sunday report. Sales of high-end products outperformed the mass market, the report said, citing a retailer.

Alibaba, whose main shopping festival takes place in November, said only that the gross merchandise value increased compared to last year, without giving numbers. GMV measures total sales value over a period of time.

Online retail growth is likely to be slower this year than in 2020 and 2021, and the increase in penetration rate could be weaker than the average of 2.6 [percentage points] between 2015 and 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 about a slowing economy and rising unemployment,” the company said. Fitch expects online sales of groceries and household goods to outperform clothing.

In May, online retail sales of goods rose more than 14% year-on-year, but total retail sales fell 6.7% during the period.

Fitch expects China’s retail sales to grow only in the low single digits this year, up from 12.5% ​​in 2021. However, the company expects online sales of goods to account for its share of total retail goods in 2022 around 29%, compared to 27.4% in 2021 and 27.7% in 2020.

New players are grabbing Alibaba’s market share

In this online shopping market, new companies have sprung up to rival Alibaba. These include the short video and live streaming platforms Kuaishou and Douyin, the Chinese version of TikTok, also owned by ByteDance.

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

JD, Pinduoduo, Douyin and Kuaishou have all increased their market share during this period, the report said. Douyin’s GMV share rose the most at 38%, although its combined market share with Kuaishou among the five companies is only about 12%.

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In March, the app cut links to other online shopping sites in a sign that Kuaishou has emerged as an e-commerce player in its own right.

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

For the quarter ended March 31, Kuaishou reported GMV on its platform of 175.1 billion yuan, up nearly 48% year-on-year.

Last month ByteDance’s Douyin claimed its e-commerce GMV more than tripled in the last year, without specifying the end of the year. Douyin banned links to external e-commerce platforms in 2020.

While Douyin dwarfs Kuaishou in terms of user count, the difference for investors looking to capitalize on the short-video e-commerce trend is that Kuaishou is publicly traded.

Even with JPMorgan’s previous call in March to downgrade 28 “non-investable” Chinese internet stocks, analysts maintained their only “overweight” position in Kuaishou based on “management’s greater focus on margin improvement, higher gross margin, larger user base and reduced competitive risk.” “.

Users like cosmetics live streamer Zhao Mengche often describe Kuaishou as a “community” where the app tries to integrate more brands and mimic a village marketplace — online. Zhao has more than 20 million followers on Kuaishou.

During this year’s 6.18 Shopping Festival, fashion-focused social media app Xiaohongshu claimed that more merchants made their products available directly on the app, and users could also purchase imported products through Xiaohongshu.

Ad spending is going down

Looking ahead, companies tended to spend on advertising closer to where consumers buy, rather than just raising awareness, according to Bernstein in the first quarter. They estimated Kuaishou’s e-commerce ad growth in the first quarter was 65.8% year over year, with Pinduoduo, JD and Meituan also seeing double-digit growth.

However, revenue across the top 25 advertising platforms Bernstein tracks grew 7.4% year over year in the first quarter, slower than the previous quarter’s 10.8% growth.

And for ByteDance — the largest ad platform in China in the first quarter alongside Alibaba — Bernstein estimated that domestic ads grew just 15% in the first three months of the year, even though the GMV of live streaming sales likely nearly tripled, they said analysts.

They expect ByteDance’s domestic ad business to slow to single digits or even shrink in the second quarter.

– CNBC’s Michael Bloom contributed to this report.


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