Several stocks are set to benefit from the “relentless pursuit of eyeballs” in the Chinese internet sector, according to analysts at asset management firm AllianceBernstein. “Our most memorable takeaway from Q2 reporting for the China internet space has been the extent to which e-commerce merchants are chasing incremental eyeballs out of traditional channels … We’re now seeing e-commerce related activity pick up on media platforms hitherto less associated with online retail,” analysts Robin Zhu, Ronald Ma and Xuan Ji wrote in a Sept. 15 note. They observed that the gross merchandising value (GMV) of WeChat’s so-called mini program has exceeded a trillion renminbi ($137.06 billion) while livestreaming e-commerce in China now “runs in the ‘tens of billions of RMB annualised’,” with even the likes of video-sharing platform Bilibili and social media and e-commerce player Xiaohongshu appearing to benefit. Mini programs are apps within WeChat and have functions in areas such as e-commerce, task management, coupons, and so on. In line with that, the e-commerce market share continues to move away from giants Alibaba and JD.com and toward Pinduoduo (PDD), Douyin and Kuaishou , AllianceBernstein said. “Compared with Q2 2021, our estimates for GMV by platform suggest PDD took 40.4% incremental GMV share on a 2-year stack, compared with 36.1% for Douyin, -0.1% for Alibaba, 9.1% for JD and 14.5% for Kaishou,” the analysts wrote. Online retailer Pinduoduo — which has a wide-ranging shopping app for products such as clothes and groceries — counts white label manufacturers and farmers as a sizable portion of its merchant base. “For all the talk of pivoting to low prices Alibaba and JD did not appear to have made an impact on PDD’s lead in mind share for value in Q2 … or since,” the analysts wrote. Stock ratings AllianceBernstein has outperform ratings on both PDD and JD.com at target prices of $120 and $55, representing an upside of 20.2% and 76.7%, respectively, from their Sept. 18 close. The asset manager also has outperform ratings on fellow Chinese internet companies Tencent , Meituan and NetEase at 455 Hong Kong Dollars ($58.20), HK$195 and $120 — representing 45.8%, 62.5% and 18.3% upside, respectively. Alibaba, Kuaishou and Bilibili were given market perform ratings, which corresponds to a neutral call. Tech giant Alibaba was given a price target of $100, representing a 14.9% upside from its Sept. 18 close. Kuaishou and Bilibili were given target prices of HK$70 and $16, representing 10.9% and 17.0% upside, respectively. Outlook The analysts said the expansion of channels for spending could lead to accelerating growth in e-commerce penetration, though the extent of upside is “debatable.” “The fact [that] a mature ecosystem of third-party logistics providers exist to help facilitate shipments has lessened what was hitherto an important source of competitive edge for the large platform incumbents,” they said. — CNBC’s Michael Bloom contributed to this report.
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