Goldman Sachs identified that the median 12-month forward P/E ratio for China's internet sector stands at 14.3x, showcasing a 40% discount compared to the U.S. internet sector. E-commerce giants like Alibaba (BABA, Financial), JD.com (JD), and Pinduoduo (PDD) have even lower valuations, between 9-12x, signaling significant potential for value reassessment. The favorable policy environment and the sustained market enthusiasm are expected to drive value re-evaluation in the Chinese e-commerce industry.
Goldman Sachs' recent report highlights that the Chinese government's pro-growth policies and the normalization of the e-commerce market environment are stabilizing the market shares of major platforms. This positions the e-commerce sector as a crucial area for value reassessment within China's internet industry, elevating its preference for e-commerce alongside the gaming sector.
Currently, China's e-commerce market has a total valuation of $500 billion, whereas Amazon's valuation is $2 trillion. The 12-month forward P/E ratio for Chinese internet firms is 14.3x, presenting a more than 40% discount to their U.S. counterparts. Specifically, Chinese e-commerce companies have valuations between 7-12x, much lower than similar American companies. Alibaba, Pinduoduo, and JD.com's market share stability and attractive 9-12x P/E ratios make them particularly appealing for investors.
Goldman Sachs observed that despite significant share price increases for e-commerce companies over the past week (16%-32%), the sector's robust profit growth, attractive valuation, and supportive government policies suggest that this rally might be sustainable. The report also pointed out that China’s top 20 internet companies have recovered their valuations, surpassing the highs of January 2023, with a 67% increase in the composite 12-month forward net income expected since then.
The upcoming Double Eleven Shopping Festival is anticipated to be a pivotal moment for boosting consumer spending. Goldman Sachs noted that competition among e-commerce platforms, intensified by live-streaming sales, is being effectively managed by leading companies like Taobao Tmall and JD Retail, which have maintained their market shares.
Goldman Sachs projects that by 2025, the e-commerce industry’s gross merchandise volume (GMV) will grow by 7%, advertising revenue by 12%, and domestic platform profit by 13%. The Double Eleven Shopping Festival is expected to accelerate Q4 online retail growth to 8% year-over-year, influenced by government incentives such as trade-in programs and consumer coupons.
Goldman Sachs also analyzed the stock performance of several key companies within the sector. They noted potential new growth drivers from collaborations, such as Taobao Tmall incorporating JD Logistics into its logistics network and initiating Alipay on JD Mall.
