Alibaba, PDD, JD.com's combined market value is only a quarter of Amazon's, Goldman Sachs: Significant room for revaluation of China's e-commerce value

Against the backdrop of continuous release of favorable policies and the sustained enthusiasm in the market, the Chinese e-commerce industry is expected to bring about a revaluation of its value.

On September 30, Goldman Sachs pointed out in its latest research report that with the government rolling out strong growth-promoting policies and the gradual normalization of the e-commerce market environment, the market share of major e-commerce platforms is stabilizing. The e-commerce industry will become one of the most important areas for valuation revaluation in the Chinese internet sector. Goldman Sachs has raised its preference for e-commerce to the top two positions in its sub-sector of the Chinese internet industry, tied with the gaming industry.

Currently, the total market value of the Chinese e-commerce market is $500 billion, while Amazon's market value is as high as $2 trillion.

Goldman Sachs noted that the median 12-month forward price-to-earnings ratio of the Chinese internet industry is 14.3 times, still at a discount of over 40% compared to the U.S. internet industry. The valuations of e-commerce companies such as Alibaba, Pinduoduo, and JD.com are only 9-12 times, still below the median of the Chinese internet industry, indicating significant potential for revaluation.

Higher cost-effectiveness of Chinese e-commerce highlights investment value

Goldman Sachs pointed out that recent market data shows that the median 12-month forward price-to-earnings ratio of the Chinese internet industry is 14.3 times, still at a discount of over 40% compared to the U.S. internet industry. Especially in the Chinese e-commerce sector, valuations are as low as 7-12 times, much lower than similar companies in the U.S.

According to Goldman Sachs, government stimulus policies have stabilized the Chinese e-commerce market, with major players such as Alibaba, Pinduoduo, and JD.com maintaining their market shares. The price-to-earnings ratios of Alibaba, Pinduoduo, and JD.com still remain at 9-12 times, lower than the median of 14.3 times for the Chinese internet industry, making "this valuation quite attractive."

Goldman Sachs stated:

The valuations of the top 20 internet companies in China have been somewhat restored, and their market value has surpassed the high point in January 2023. However, the total expected net profit for these companies in the next 12 months has increased by 67% compared to the January 2023 expectations.

In the past week, e-commerce companies have seen significant increases in stock prices of 16%-32%, but given the industry's robust profit growth, low valuations, and government policy support, Goldman Sachs believes that this rebound may be more sustainable.

Singles' Day Shopping Festival as a key point to boost consumption

Goldman Sachs stated that the landscape of the Chinese e-commerce market is further normalizing. With the deepening development of live streaming for sales, competition between e-commerce platforms is becoming more intense, but leading enterprises have effectively responded, with Taobao, Tmall, and JD Retail successfully holding onto their market shares in recent months.

The e-commerce industry will become one of the most important areas for valuation revaluation in the Chinese internet sector, benefiting from the accelerated online transformation and the promotion of advertising technology, with industry growth expected to continue to outpace China's GDP and consumption growth.

Goldman Sachs predicts that by 2025, the total volume of goods transactions (GMV) in the e-commerce industry will grow by 7%, advertising revenue will grow by 12%, and domestic platform profits will grow by 13%.

The report points out that the Singles' Day Shopping Festival may become a key point to boost consumption, and online retail goods growth in the fourth quarter will accelerate to 8% year-on-year, an increase of 1 percentage point from previous expectations, mainly due to government stimulus policies such as the trade-in program and consumer vouchers.

Revaluation of Stock Prices for Major E-commerce Companies

Goldman Sachs has raised the preference for e-commerce in its China Internet industry sub-sector to the top two, tied with the gaming industry, and conducted stock price analysis on several important companies:

• Tencent: It is expected that game revenue will accelerate, and there is also potential in advertising and financial technology businesses. The target price has been raised from HKD 464 to HKD 521.
• Alibaba: The target price has been raised from USD 108 to USD 134, with expectations for continued growth in core businesses.
• Pinduoduo: The target price has been raised from USD 165 to USD 169, as the market may be underestimating the growth potential of its domestic business.
• JD.com: The target price has been raised from USD 40 to USD 45. Goldman Sachs believes that as the largest 1P retailer, JD.com still has room for valuation revaluation.
• Meituan: The target price has been raised from HKD 157 to HKD 194. Despite being valued higher than the industry average, its strong market position in food delivery and in-store services is noted.

The research report also points out that with the cooperation between e-commerce platforms, such as Taobao Tmall incorporating JD Logistics as its logistics supplier and opening Alipay in JD.com, new growth momentum may be generated