Charts of week: BABA and JD's Plan to Spin Off - What's Next for China's Internet Equities?”

Week of Apr 3, 2023

Chinese e-commerce giant Alibaba Group is restructuring and becoming a holding company. On March 28th, BABA announced plans to split its business into six independent companies, which could explore separate IPOs. Following suit, JD.com announced it will spin off its industrial and property units and list them separately on the Hong Kong exchange.

Tickers / companies covered in this issue:

• BABA

• JD

• Meituan

• Douyin

• Bili

• Pinduoduo

Short-term implication: The Chinese internet sector gains momentum.

BABA's restructuring has reduced some of the regulatory risks that investors perceive in the short term. The new organizational structure also eliminates the "conglomerate discount," which is favorable in the long term. BABA and JD's restructuring plan could create some short-term momentum for offshore China internet equities, as investors may see this as a positive move for the sector.

KWEB (KraneShares CSI China Internet ETF) jumped last week upon news of BABA and JD's spinoff

1)KWEB: KraneShares CSI China Internet ETF. 2) EEM: iShares MSCI Emerging Markets ETF. 3) CNYA: iShares MSCI China A ETF (onshore).

Long-term Horizon: Landscape of China's Internet Sector

Investors should carefully evaluate the long-term implications of these restructurings and the competitive landscape of China's internet sector before making investment decisions. To help readers gain a grasp of the competitive landscape, we have compiled a series of charts to show the important players in these areas.

BABA is effectively creating six separate business lines, and here are the major players for each area in China domestic market:

Original Chart: www.wsj.com

BABA's e-commerce business in China could be valued at least as much as BABA's current state

Currently, BABA's Tmall holds a competitive position but faces pressure from JD.com and Pinduoduo, which have been growing steadily over the years. In Q4 2022, Alibaba's Chinese commercial sector revenue dropped 1% YoY to ¥170B. Despite Covid restrictions, Pinduoduo grew its revenue by 46% YoY to ¥39.82B.

Furthermore, new live shopping platforms such as Douyin and Kuaishou present new challenges for traditional e-commerce platforms. Douyin's live shopping has rapidly increased its Gross Merchandise Value since its launch, achieving significant YoY% growth and continuing to expand. In Jan & Feb 2023, both Douyin and Kuaishou exhibited greater increases in GMV compared to traditional online shopping giants Tmall and JD.

Meituan remains the top player in local consumer services, but Douyin is becoming a threat.