Across the GMV of five major e-commerce platforms, Alibaba’s market share fell 6% in the first quarter from the fourth, according to Bernstein’s analysis.
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BEIJING — Alibaba was once the poster child for investing in modern China. Now, the e-commerce market that fueled its growth is slowing, while new players are chipping away at Alibaba’s market share.
This has been reflected in stock performance since an apparent low in sentiment across major Chinese internet names in mid-March.
Pinduoduo shares have more than doubled since then, while Meituan shares have climbed 80% and JD shares have risen more than 50% in Hong Kong. Kuaishou is up nearly 47%.
Alibaba shares rose about 42% in Hong Kong and 33% in New York. Tencent is only up about 25%.
But except for Kuaishou and Pinduoduo, stocks are still down for the year so far.
“Our top picks 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, mostly from overseas investors, while returns 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” categories – games, media and entertainment.
A slowing e-commerce market
Over the weekend, the 6.18 shopping festival hosted by JD.com saw total transaction volume increase by 10.3% to 379.3 billion yuan ($56.61 billion). It’s a new high in value – but the slowest growth on record, according to Reuters.
Traders who spoke with Nomura said the Covid lockdowns had disrupted clothing production, while consumer demand was generally weak, according to a Sunday report. 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 takes place in November, only said it saw growth in gross merchandise value from a year ago, without disclosing numbers. GMV measures the total value of sales over a certain period of time.
“Online retail growth is expected to be slower this year than in 2020 and 2021, and its penetration rate gain could be lower than the average of 2.6 [percentage points] during the period 2015-2021,” Fitch said in a report last week.
“This is due to a broader base, deeper integration of online and offline channels…and weaker consumer confidence amid concerns of a slowing economy and rising unemployment” , the company said. Fitch expects online sales of food and household products to outperform those of clothing.
In May, online retail sales of goods jumped more than 14% from a year ago, but overall retail sales fell 6.7% during this period.
Fitch expects China’s retail sales to grow only a small number this year, from 12.5% in 2021. But the company expects online sales of goods can increase its share of total retail goods to around 29% in 2022, from 27.4% in 2021 and 27.7% in 2020.
New players are grabbing market share from Alibaba
In this online shopping market, new companies have emerged as rivals to Alibaba. These include the short-form video and live-streaming platforms Kuaishou and Douyin, the Chinese version of TikTok also owned by ByteDance.
Across the GMV of five major e-commerce platforms, Alibaba’s market share fell 6% in the first quarter from the fourth, according to Bernstein’s analysis released earlier this month.
JD, Pinduoduo, Douyin and Kuaishou all increased their market share during this period, according to the report. Douyin’s GMV share grew the most, by 38%, although its combined market share with Kuaishou was only around 12% among the five companies.
In a sign of how Kuaishou has become its own e-commerce player, the app cut links to other online shopping sites in March.
“Their recent decision to cut external links to [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 primary 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 ago.
Last month, ByteDance’s Douyin claimed that its e-commerce GMV had more than tripled in the past year, without specifying when that year ended. Douyin banned links to external e-commerce platforms in 2020.
While Douyin eclipses Kuaishou in user numbers, what’s different for investors who want to follow the short video e-commerce trend is that Kuaishou is publicly listed.
Even in JPMorgan’s earlier call in March to downgrade 28 “non-investable” Chinese internet stocks, analysts retained their only “overweight” position in Kuaishou based on “management’s stronger focus on improving margins, higher gross margin, larger user base and less risk of competition”.
Users like cosmetics live streamer Zhao Mengche often describe Kuaishou as having a “community,” in which he said the app tries to integrate more brands and mimic a village marketplace – online. . Zhao has over 20 million followers on Kuaishou.
During this year’s 6.18 shopping festival, fashion-focused social media app Xiaohongshu claimed that more merchants are making their products available directly on the app, and users can also buy JD products. com imported via Xiaohongshu.
Ad spend is down
Looking ahead, companies were more inclined in the first quarter to spend on advertising closest to where consumers might make a purchase, rather than just building awareness, according to Bernstein. They estimated a 65.8% growth in Kuaishou’s e-commerce listings in the first quarter compared to a year ago, with Pinduoduo, JD and Meituan also seeing double-digit growth.
However, revenue for the top 25 ad platforms Bernstein tracks grew 7.4% year-over-year in the first quarter, down from 10.8% growth in the previous quarter.
And for ByteDance — China’s largest advertising platform in the first quarter alongside Alibaba — Bernstein estimated that domestic ads grew just 15% in the first three months of the year, despite the likely tripling of live sales, analysts say.
They expect ByteDance’s domestic ad business to slow to single digits, or even contract, in the second quarter.
– CNBC’s Michael Bloom contributed to this report.