China Internet Sector – E-commerce and Digital Ads
Moderate physical goods GMV growth in 3Q on seasonality: 3Q19E industry GMV growth +17.7% YoY vs 22% in 1Q & 2Q
Accelerating MAU growth despite moderate marketing spending
Enhanced personalisation and entertainment features to drive user engagement and stimulate impulse purchases
Robust ad revenue growth on increased penetration and wallet share gains; Alibaba/JD.com/Meituan to post 27%/34%/69% YoY growth for ad revenue in 3Q19
Solid margin expansion: narrowed losses of new initiatives (logistics, offline retail, etc.)
Singles’ Day highlights: (i) social marketing strategy to drive low-tier city expansion; (ii) content-based purchases through livestreaming and gala shows (BABA); (iii) enriched gamification functions (JD: “Jingxi”); (iv) similar subsidy (50 off 400)
Risks: competition on user engagement pressures on monetisation rate and margins
Softer growth on weaker business confidence amid macro headwinds, offset by accelerating cannibalisation of traditional channels
Demand side: prudent spending in 1H19 amidst macro uncertainty, 2H recovery hinges on key vertical demand recovery (auto, games, 3C, recruitment, real estate)
Supply side: pricing pressure persists for brand and feeds ad on significant inventory creation; less impact on performance ads (e-commerce, leads, etc.)
Tougher competition for user time: flattish mobile user growth, average user time reached 6 hours per day (Sep-19)
Blurring line between brand/transaction marketing: in-video product link (Kuaishou), mini programme (Douyin), mixed feeds with content (Taobao)
Winners: e-commerce players, short video apps
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