This is what China’s Alibaba and Queizhou say about the economy

Across the five GMV e-commerce platforms, Alibaba’s market share declined 6% in the first quarter versus the fourth, according to Bernstein’s analysis.

Street | Afp | Getty Images

Beijing – Ali Baba He was once the poster child for investing in modern China. Now the e-commerce market that fueled its growth is slowing down, while new players are moving away from Alibaba’s market share.

This is reflected in the stock’s performance since the apparent Down sentiment on major Chinese internet names in mid-March.

Bindudu The stock has more than doubled since then, while Mituan Shares rose 80%, and Dinar Shares rose more than 50% in Hong Kong. Queshu by nearly 47%.

Ali Baba Shares rose about 42% in Hong Kong, and 33% in New York. Tencent It only increases by 25%.

But except for Kuaishou and Pinduoduo, the shares are still down for the year so far.

“Our top picks in the sector are still JD, Meituan, Pinduoduo and Kuaishou,” Bernstein analyst Robin Chu and his team said in a report this week. “Interest in Alibaba has continued, mainly from foreign investors, while comments on Tencent have become very negative.”

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

E-commerce market slowdown

Over the weekend, the 6.18 Shopping Festival led by JD.com saw total transaction volume rise 10.3% to 379.3 billion yuan ($56.61 billion). This is a new high value – but the slowest growth ever, According to Reuters.

Traders who spoke with Nomura said the Covid lockdowns have disrupted apparel production, while consumer demand was generally low, according to a report on Sunday. The report, citing a trader, stated that sales of high-quality products were better than those of the mass market.

Alibaba, whose major shopping festival takes place in November, said it has seen a growth in total merchandise value compared to last year, without disclosing numbers. GMV measures the total value of sales during a given time period.

“Online retail growth is likely to be slower this year compared to 2020 and 2021, and its penetration gain may be weaker than the 2.6 average. [percentage points] “During 2015-2021,” Fitch said in a report last week.

“This is due to a larger base, deeper integration of online and offline channels… and weaker consumer confidence due to fears of a slowing economy and rising unemployment,” the company said. Fitch expects online sales of food and household goods to outperform clothing sales.

In May, online retail sales of goods were up more than 14% from a year ago, but overall Retail sales fell 6.7% during that time.

Fitch expects retail sales in China to grow only in low single digits this year, versus 12.5% ​​in 2021. But the company expects online merchandise sales to increase its share of total retail merchandise to about 29% in 2022, versus 27.4% in 2021 and 27.7% in 2020.

New players capture Alibaba’s market share

In this online shopping market, new companies have emerged as competitors to Alibaba. These platforms include short videos and live broadcasts Kuaishou and Douyin, the Chinese version of TikTok also owned by ByteDance.

Across the five GMVs of major e-commerce platforms, Alibaba’s market share fell 6% in the first quarter versus the fourth, according to Bernstein’s analysis published early this month.

The report said JD, Pinduoduo, Douyin and Kuaishou each grew their market share during that period. Douyin’s stake in GMV increased by 38%, although its combined market share with Kuaishou is only about 12% among the five companies.

Read more about China from CNBC Pro

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

Their recent decision to cut off external links to [Alibaba’s] At the time of the news release, Taobao and JD show that times have changed, Ashley Dudarinock, founder of China Marketing Consulting Company Chuzan, said at the time of the news release. “Taobao is no longer the only major battlefield 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 GMV e-commerce more than tripled last year, Without specifying when that year ended. Douyin banned links to external e-commerce platforms in 2020.

While Douyin dwarfs Kuaishou by number of users, the difference for investors who want to run the short video e-commerce trend is that Kuaishou is generally listed.

Even in JPMorgan’s earlier call in March to downgrade 28 “non-investable” Chinese Internet stocks, Analysts kept their single “heavyweight” on Kwaishu based on “management’s sharper focus on margin improvement, increased profit margin, a larger user base, and lower competition risk.”

Users like Zhao Mengche, a cosmetics livestream, often describe Kuaishou as a “community,” as he said the app is trying to integrate more brands and imitate the village market square – online. Zhao has more than 20 million followers on Kuaishou.

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, and said users can purchase imported JD.com products through Xiaohongshu as well.

Low advertising spend

Looking ahead, companies were more likely in the first quarter to spend on advertising closest to where consumers can make a purchase, rather than just building awareness, according to Bernstein. They estimated 65.8% growth in e-commerce ads in Kuaishou in the first quarter of last year, and Pinduoduo, JD and Meituan also experienced double-digit growth.

However, revenue across Bernstein’s top 25 ad platforms grew 7.4% year over year in the first quarter, slower than 10.8% in the previous quarter.

And for ByteDance — China’s largest advertising platform in the first quarter alongside Alibaba — Bernstein estimated that local advertising grew just 15% in the first three months of the year, despite the potential for GMV sales to nearly triple, analysts said.

They expect ByteDance’s local advertising business to slow to the single digits, or even contract, in the second quarter.

CNBC’s Michael Bloom contributed to this report.

.