Online shopping is widely expected to grow in China. It's unclear how much legacy players like Alibaba and JD.com will benefit. “There are relatively strong insurgent players coming in,” James Yang, a Hong Kong-based partner at Bain & Company, told me last week. “This will not just be a two-player game, but a three-, four- or five-player game,” he said. E-commerce's share of retail sales in China rose to 37.5% in 2023, up from 27.9% in 2019, according to Bain. The data showed that in Asia, the country ranks first by a large margin in e-commerce penetration. In the United States, official data show that e-commerce penetration remains just below its pandemic-era high of 16.4% of retail sales. In an effort to boost confidence in Alibaba, Joe Tsai, co-founder of the e-commerce giant, told CNBC's Emily Tan earlier this year that online shopping is set to reach 40% of China's retail sales in the five years. The coming – an opportunity, he said. The company is preparing for a takeover after its restructuring last year. Yang agreed with Tsai's predictions about the increased penetration of e-commerce. “I've talked to a lot of people in the industry, and at some point it's a 50-50 guess, because ultimately there's a role for physical stores,” he said. “Who will enjoy this growth?” Yang said. “The formula for growth and incremental growth is different than before.” Temu's parent company PDD Holdings recently surpassed Alibaba once again in terms of market capitalization. Goldman Sachs analysts on May 24 upgraded PDD to buy from neutral, just two months after it downgraded the rating in March. “We believe e-commerce in China emerges as one of the most undervalued sub-sectors within China's internet (versus single-digit industry GMV growth),” Ronald Keung and David Ma, analysts at Goldman Sachs, said in the note. GMV, or gross merchandise value, measures total sales over time. Goldman analysts pointed to ad technology upgrades that could boost ad revenue, generate strong free cash flow and global expansion that has yet to be priced in. They raised their valuation for Temu to $19 billion, from $18 billion, based on a model that excludes the US company. Business due to geopolitical concerns. Analysts also increased their price target on PDD from $145 per share to $184 – about 21% above the stock's US-listed close on Thursday. China's e-commerce players will get a near-term report card in the next few weeks based on the ongoing 618 Shopping Festival which is scheduled to end in mid-June. “With a high comp base in Q2 2024 as well as intense competition in 6.18, we need more evidence to prove that JD's business has turned around, although the company left its full-year guidance unchanged,” Morgan Stanley equity analyst Eddie Wang said. And his team. He said in the May 17 report. The company has an Equal Weight rating on JD.com and a price target of $28 per share. That's down from the stock's close of $30.21 on Thursday. UBS analysts still believe JD.com shares could hit $40, according to a May 28 note rating the stock a buy. “On a clean base, general merchandise, especially the supermarket category, should be the main driver for 2024, following JD's improving business,” UBS analyst Kenneth Fung and team wrote. While JD has not yet significantly expanded e-commerce overseas, Alibaba has increased spending on its international business. Last week, the company's 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 stock price to remain within a range over the next three to six months, as its financial conditions still face uncertainty in the early stage of the business cycle,” Alex Yao, an internet analyst at JPMorgan China, said in a May 15 report. Investment. He rates the stock Overweight, with a price target of $100. That's nearly 26% higher than where shares closed on Thursday. “Improving domestic e-commerce market share should ultimately lead to better income generation,” Yao said. “Taobao/Tmall's GMV grew by double digits year-on-year in the March quarter, indicating that its market share loss has become very mild versus the nationwide online physical goods GMV growth of 11.6% in the quarter.” However, the company that has already consumed market share is not publicly traded. ByteDance, TikTok's parent company, runs 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 have a total GMV market share of 19% in China this year, more than that of JD.com, Alibaba's Taobao or Tmall on an individual basis, according to a Goldman Sachs analysis. The investment firm expects Douyin to match PDD's 21% market share next year, and surpass it by reaching 22% in 2026. Tencent's WeChat video account platform is expected to retain about 2% to 3% GMV market share through 2026, it said. Goldman Sachs mentioned. Analysis said. Another growing e-commerce player is Hong Kong-listed Kuaishou. The video streaming platform reported last month that e-commerce GMV grew 28.2% year-on-year in the first quarter to 288.1 billion yuan ($40.55 billion). “We remain optimistic about (Kuaishou’s) advertising, e-commerce monetization and earnings growth, and expect total revenues of +9.5% y/y in 2Q24E,” Sophie Huang, an analyst at CMB International, said in a May 23 note. The company expects Kuaishou's e-commerce GMV revenue to grow 25% this year, although live streaming revenue – which represents about a third of total revenue – is expected to decline due to the high base. CMB International has a target price of HK$97 (US$12.41) for Kuaishou shares, or about 70% above Friday's levels. — CNBC's Michael Bloom contributed to this report.
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China's growing e-commerce market is creating a new set of winners
