Amid continuous policy support and rising market enthusiasm, China's e-commerce sector is on the brink of a significant valuation reassessment. According to Goldman Sachs, with the implementation of strong pro-growth policies and the gradual normalization of the e-commerce market environment, the market shares of major e-commerce platforms are stabilizing. This sector is expected to become one of the most crucial areas for valuation reassessment within China's internet industry.
Currently, the total market value of China's e-commerce market stands at $500 billion, compared to Amazon's market value of $2 trillion. Goldman Sachs notes that the median 12-month forward price-to-earnings (P/E) ratio for China's internet industry is 14.3 times, more than 40% lower than that of the U.S. internet sector. E-commerce companies like Alibaba (BABA, Financial), Pinduoduo (PDD), and JD (JD) have valuations ranging from 9 to 12 times, which are still below the median for China's internet industry, highlighting substantial potential for value reassessment.
Goldman Sachs emphasizes that China's e-commerce sector offers higher cost-effectiveness and investment value. Recent market data indicates the median 12-month forward P/E ratio for China's internet industry is significantly discounted compared to the U.S. Specifically, China's e-commerce valuations are as low as 7 to 12 times, notably below those of their U.S. counterparts. Stimulus policies from the Chinese government have helped stabilize the e-commerce market, firmly fixing the market shares of key players such as Alibaba (BABA, Financial), Pinduoduo (PDD), and JD (JD), with their P/E ratios remaining in the 9-12 times range.
Goldman Sachs reports that valuations of China's top 20 internet companies have recovered, surpassing their January 2023 peaks. The aggregate 12-month forward net profits for these companies have grown by 67% compared to January 2023 expectations. Despite significant stock price increases of 16%-32% over the past week for e-commerce companies, Goldman Sachs believes the robust profit growth, low valuations, and supportive government policies may sustain this rebound.
Additionally, the "Double 11" shopping festival is expected to be a crucial moment for boosting consumption. The e-commerce market structure in China is normalizing further, with live-streaming sales deepening competition among platforms. Leading companies like Taobao, Tmall, and JD Retail have successfully maintained their market shares in recent months. Boosted by accelerated online transformation and advances in advertising technology, the growth rate of the e-commerce sector is anticipated to consistently surpass China's GDP and consumption growth.
Goldman Sachs projects that the Gross Merchandise Value (GMV) of the e-commerce industry will grow by 7%, advertising revenue by 12%, and domestic platform profits by 13% by 2025. The report also highlights that the "Double 11" shopping festival could be pivotal for stimulating consumption, with online retail product growth in the fourth quarter accelerating to 8% year-over-year, one percentage point higher than previous expectations, primarily driven by government initiatives such as trade-in programs and consumption vouchers.
Price Target Adjustments for Key E-commerce Companies
Goldman Sachs has raised its preference for the e-commerce sub-sector within China's internet industry to the top two positions, alongside the gaming industry, and has revised the price targets for several significant companies:
Tencent: Price target increased from HKD 464 to HKD 521, driven by anticipated growth in gaming revenue and potential in advertising and fintech businesses.
Alibaba (BABA, Financial): Price target raised from $108 to $134, with expectations of continued growth in core business areas.
Pinduoduo (PDD): Price target increased from $165 to $169, suggesting the market may undervalue its domestic business growth potential.
JD (JD): Price target adjusted from $40 to $45, indicating further room for valuation reassessment as the largest first-party retailer.
Meituan: Price target lifted from HKD 157 to HKD 194, despite higher valuation, supported by strong market positions in food delivery and in-store services.
The report also notes potential new growth drivers through collaborations between e-commerce platforms, such as Taobao and Tmall integrating JD logistics as a logistics provider and enabling Alipay in JD Mall.
