July E-commerce Monthly Report: Industry Recovery, Major Platforms' Growth Rate Recovers in the Third Quarter

In July, the year-on-year growth rate of physical e-commerce online retail sales adjusted to an increase of 8.1% (compared to +6.4% in the second quarter). By category, in July, the growth rate of catering consumption increased by 3%, continuing to slow down, as offline demand recovered from the same period last year, resulting in a higher base; some categories saw a faster recovery compared to June, with communication equipment (+13%) returning to double-digit growth, summer travel driving sports and entertainment products also recovering double-digit growth (+11%), daily necessities slightly increased (+2%), while household appliances (-2%)/cosmetics (-6%) saw narrowed declines. The Post Office predicts that the volume of express delivery services in July will increase by approximately 22% year-on-year, driven by the trend of low unit prices of e-commerce items.

Various e-commerce companies have successively announced their second-quarter performance:

1. Alibaba's Taobao GMV saw a high single-digit year-on-year growth, with CMR increasing by 1%. The difference in growth rate is mainly due to the increase in the proportion of GMV from new business models with lower commercialization rates, leading to a decrease in monetization rates.

2. JD.com's revenue met expectations, with revenue from electronics decreasing due to a high base in air conditioners, while revenue from non-electronics including supermarkets maintained double-digit growth. Profit exceeded expectations mainly due to a year-on-year increase in gross profit margin, benefiting from improvements in supply chain capabilities, enhanced price competitiveness, and reduced subsidies.

Outlook:

1. Alibaba: Considering the gradual realization of the full-site promotion effect and the impact of the 0.6% technical service revenue for Taobao/Xianyu merchants starting from September, we expect Taobao GMV/CMR to increase by 8%/3% in the September quarter.

2. JD.com: We expect that the replacement of old with new products and the recovery of platform monetization will drive marginal improvement in revenue growth in the second half of the year. The company is expected to maintain growth above the social zero growth guidance for the full year, and the profit optimization effect brought about by the improvement in supply chain capabilities will continue.

3. Pinduoduo: Leading in price competitiveness, the mainland main site continues to expand its market share, and the platform will attract continuous advertising investment from merchants to achieve higher growth.

4. Kuaishou: E-commerce is still driven by increased supply and improved user penetration, but considering the intensifying competition from traditional shelf e-commerce, we expect GMV to increase by 18-19% in the second and third quarters.

Platform GMV enhancement strategy takes top priority. It has been reported that Pinduoduo adjusted its business focus in the second quarter, shifting from commercialization/profit improvement to GMV growth; Douyin e-commerce adjusted its operational target focus, with the first priority shifting from price competitiveness back to GMV. Previously, Alibaba's Taobao also shifted the weight of search traffic from "five-star price competitiveness" to GMV distribution. We believe that after the strategic adjustments, Douyin and Taobao will shift from exploring absolute low prices to focusing on advantageous categories and cost-effectiveness investments, while Pinduoduo still holds an advantage in low-price competitiveness. The business focus adjustment may be aimed at gaining a larger market share.

Investment Insights: It is expected that the growth rate of the market will slightly rebound in the third quarter. Maintaining the previous judgment, increased consumer frequency and expanded supply chain will be the main driving forces for platform GMV growth. Pinduoduo is expected to continue to gain market share, Alibaba should pay attention to the volume situation after the launch of new advertising products and the impact of technical service fees on monetization rates, while JD.com should focus on maintaining a balance between market share and profit growth.

Risks: Overseas expansion falling short of expectations; intense competition in the e-commerce industry; monetization of platforms falling short of expectations.

Source: CICC International