What China’s Alibaba and Kuaishou say about the economy!

What China’s Alibaba and Kuaishou say about the economy!

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

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BEIJING – Alibaba was once the poster child for investing in modern China. Now the e-commerce market that has driven its growth is slowing down, while new players are eating away at Alibaba’s market share.

This is reflected in the performance of stocks since a markedly lower level in sentiment on major Chinese Internet names in mid-March.

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

Shares of Alibaba are up about 42% in Hong Kong and 33% in New York. Tencent is up only 25%.

But except for Kuaishou and Pinduoduo, the stock is still down for the year.

“Our top picks in this area remain JD, Meituan, Pinduoduo and Kuaishou,” Bernstein analyst Robin Zhu and a team said in a report this week. “Interest in Alibaba remains, mainly from foreign investors, while the reaction to Tencent has been very negative.”

Bernstein expects consumer and regulatory trends to favor stock plays in “real” categories — e-commerce, food delivery and local services — and “virtual” ones — gaming, media and entertainment.

A slow e-commerce market

Over the weekend, total transaction volume rose 10.3% to 379.3 billion yuan ($56.61 billion) at the 6.18 shopping festival, led by JD.com. It’s a new high in value – but the slowest increase on record, according to Reuters.

According to a report on Sunday, traders who spoke with Nomura said the Covid lockdown disrupted apparel production, while consumer demand was generally low. Citing a trader, the report said that sales of the high-end product outperformed those of the mass market.

Alibaba, whose main shopping festival is in November, only said without disclosing figures that it had seen an increase in gross merchandise value since last year. GMV measures the total selling price over a given period.

“Online retail growth this year is likely to be slower than in 2020 and 2021, and its gains in penetration rates could weaken to an average of 2.6. [percentage points] during 2015-2021,” Fitch said in a report last week.

“This is due to weak consumer confidence on a large base, deep integration of online and offline channels … and concerns of a slowing economy and rising unemployment,” the firm said. Fitch expects online sales of food and home goods to outperform apparel.

In May, online retail sales of goods increased by more than 14% from a year earlier, but overall retail sales declined 6.7% during that period.

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

New players gain Alibaba’s market share

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

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

The report noted that JD, Pinduoduo, Doyin and Kuaishou all increased market share during that time. Douyin’s GMV share grew the most at 38%, although its combined market share with Kuaishou is only 12% of the five companies.

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

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

For the quarter ended March 31, Kuaishou reported a GMV on its platform of 175.1 billion yuan, up about 48% from a year ago.

Last month, ByteDance’s Douin claimed its e-commerce GMV more than tripled in the previous year, without revealing when that year ended. Douyin banned links to external e-commerce platforms in 2020.

While Douin dwarfs Kuaishou by the number of users, what sets it apart for investors looking to drive the short-video e-commerce trend is that Kuaishou is publicly listed.

In an earlier call by JPMorgan in March to downgrade 28 “uninvestable” Chinese Internet stocks, analysts based their take on Kuaishou based on “management’s sharp focus on margin improvement, higher gross margins, larger user base and less competition risk”. The sole kept “overweight”.

Users such as cosmetics livestreamer Zhao Mengche often describe Kuaishou as a “community”, adding that the app is trying to integrate more brands and mimic the village’s market square – online. Zhao has over 20 million followers on Kuasho.

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, adding that users could also buy imported JD.com products through Xiaohongshu .

drop in advertising spend

Looking ahead, according to Bernstein, companies in the first quarter were more willing to spend on advertising where consumers could shop, not just to create awareness. They projected Kuaishou e-commerce ads growth of 65.8% in the first quarter from a year earlier, with Pinduoduo, JD and Meituan also seeing double-digit growth.

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

And for ByteDance — the largest advertising platform in China alongside Alibaba — in the first quarter, Bernstein estimated that home ads grew only 15% in the first three months of the year, despite livestreaming sales expected to nearly triple the GMV. Chances are, analysts said.

He expects ByteDance’s domestic advertising business to slow to single digits or even contract in the second quarter.

— CNBC’s Michael Bloom contributed to this report.

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