Pre-Q2 overview of China E-commerce Giants (Alibaba, Douyin, Kuaishou, and JD)

Understand key opportunities, risks, strategy pivots, sales forecast

Alibaba has been considered a proxy for investing in China. If you are seeking investment opportunities in China, researching Alibaba and the China e-commerce industry is unavoidable. As the country emerges from the shadows of the pandemic, the recovery of the Chinese economy is bound to be reflected in the e-commerce sector. Now is a great time to pay attention to the development and changing landscape of the China e-commerce industry.

China's e-commerce market is regaining momentum

China's e-commerce infrastructure is truly world-class, and the e-commerce market is still on the rise. Online retail sales have been steadily increasing year after year. According to The National Bureau of Statistics, the e-commerce industry managed to achieve an admirable 4% growth rate in 2022 despite the challenges faced.

Fresh data from BigOneLab highlights the impressive performance of major e-commerce players, including Tmall, JD, Douyin, and Kuaishou. Their growth rate hit an impressive 16% in 2023 Q2, culminating in an 11% increase in the first half of the year. To exclude the low base in 2022, the 2-year compound growth rate reveals that the e-commerce market has rebounded steadily since bottoming out in April.

Not all categories have shown consistent performance. In the chart below, we present the year-on-year growth rates for each category in 2023, alongside the marked year-on-year growth rates at the same time last year. This allows you to observe the growth achieved this year in relation to the base from last year.

The food and beverage category's online penetration rate is growing quickly. It saw an impressive 32% year-on-year growth in Q2, showing remarkable progress even with a high base from last year. Categories such as apparel, personal care & cosmetics, sports and health maintained a steady year-on-year growth rate of around 20%, despite having a relatively higher base from the previous year. Nevertheless, household appliances, smartphones and electronics categories experienced a recovery as they were working off a low base from last year.

What’s happening in the e-commerce realm?

In the past two years, content-based e-commerce rooted in short videos and live streaming is growing at rocket speed. That said, our data tells us that traditional players like Tmall and JD are far from down and out. Based on our data, it can be observed that during the rapid growth of Douyin and Kuaishou, Tmall and JD did not experience a significant decline. The decline in market share for Tmall and JD is attributed to the rapid growth of Douyin and Kuaishou.

Alibaba, the parent company of Tmall, and JD have been reflecting on the advantages of content-driven e-commerce in terms of user engagement and its potent mechanism for driving transactions. As a result, Alibaba has begun exploring ways to incorporate more content on its platform. Their implementation strategy includes providing users with short videos, live streams, influencer recommendations, and personalized storefronts.

JD has begun emphasizing its low-price strategy. In the past, JD has been actively responsive to the consumption demands of the middle-class consumers, earning recognition from quality-conscious customers by providing excellent product quality, fast delivery, and strong after-sales service. However, there have been long-standing deficiencies in terms of pricing and product variety.

Richard Liu, Chairman of JD: Ensuring low prices on the foundation of quality and service has been the most crucial weapon for JD’s success in the past, and it will remain the only foundational weapon in the future. When breaking down the customer experience in the retail business into three elements: price, quality, and service, low price represents "1," while quality and service are represented by two "0s." Without the advantage of low prices, all other so-called competitive advantages will become null and void. (Link)

Content-based platforms, on the other hand, are proactively embracing shelf-based e-commerce. Despite a slight slowdown in growth, Douyin and Kuaishou platforms refuse to back down easily. They are actively gearing up to expand their e-commerce scope and capitalize on new opportunities. These new trials seem to have yet to significantly impact traditional e-commerce platforms like Alibaba and JD. Nevertheless, everyone is closely observing how things will evolve.

In our previous issues, we discussed the potential appeal of investing in Chinese equities during the latter half of 2023. (At the time of writing, BABA's forward PE stands at a mere 10.95, with JD at 13 and PDD at 22.88.) Given the anticipated policy stimulus to boost domestic consumption, the steady recovery of e-commerce sales mentioned above, and preliminary signs of renewed consumer confidence, we believe that the Chinese internet sector deserves attention at current prices.

It is crucial to note, however, that Chinese e-commerce platforms are shaped not just by macroeconomic dynamics but also by structural shifts happening in the industry. Each leading player grapples with unique challenges and risks deserving of a deep dive. The forthcoming Q2 earnings report is pivotal, especially in light of China's slow economic rebound. In the sections that follow, we will help you get a jumpstart before the earnings release.

Data and analysis that you will access in the issue:

• Q2 forecast for online sales and category-wise sales for major platforms: Tmall, JD, Douyin, and Kuaishou.

• Key challenges and strategic pivots for BABA.

• Q2 forecast for JD's primary business segment (3C electronics) and the latest outcomes of JD's low-price approach.

• A detailed comparison between Tmall and Douyin, covering sellers, sellers by product category, and sales growth by product price levels.

• Specific challenges and potential risk factors for future growth faced by Douyin and Kuaishou amidst the rapid development of their e-commerce businesses.

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