Goldman Sachs Forecasts Major Valuation Upside for China’s E-Commerce Giants
BABA, JD, PDD, Meituan’s, Tencent.
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On September 30th, Goldman Sachs released a report highlighting that the e-commerce sector in China is poised for significant valuation reassessment. This comes as the government implements strong growth-promoting policies and the market environment gradually normalizes. The report states that the market share of major e-commerce platforms is stabilizing, making the sector one of the most critical for revaluation within China's internet landscape. Goldman has elevated e-commerce to one of the top two preferred subsectors in China's internet industry, alongside gaming.
China’s e-commerce market is currently valued at $500 billion, while Amazon’s market cap stands at $2 trillion. Goldman Sachs pointed out that the median price-to-earnings (P/E) ratio for the Chinese internet sector over the next 12 months is 14.3, which is more than 40% lower than that of the U.S. internet sector. Notably, the valuations for Chinese e-commerce giants such as Alibaba, Pinduoduo, and JD.com remain between 9 and 12 times earnings, below the median for China's internet sector, indicating substantial potential for revaluation.
The report further notes that China’s e-commerce market is stabilizing, helped by the government’s stimulus measures, with the market shares of leading players like Alibaba, Pinduoduo, and JD.com remaining steady. These companies' price-to-earnings ratios are still attractively low, between 9 and 12 times, making their valuations appealing.
Goldman Sachs forecasts that the e-commerce sector will continue to benefit from the accelerating digital transformation and advancements in advertising technology. By 2025, the sector’s gross merchandise volume (GMV) is expected to grow by 7%, with advertising revenue rising by 12%, and profits from domestic platforms increasing by 13%. Key growth periods, such as the Singles' Day shopping festival, are expected to boost online retail growth in Q4 to 8% year-on-year, a 1% improvement over previous estimates, largely due to government initiatives like trade-in programs and consumer vouchers.
In terms of individual companies, Goldman Sachs raised its price targets for several key players. Alibaba’s target was increased from $108 to $134, with core business growth expected to continue. Pinduoduo’s target rose from $165 to $169, as Goldman believes its domestic growth potential is underestimated. JD.com saw its target lifted from $40 to $45, with room for valuation reassessment as China's largest first-party retailer. Additionally, Meituan’s target was adjusted from HKD 157 to HKD 194, despite being valued above industry averages, reflecting its strong market position in food delivery and in-store services. Meanwhile, Tencent’s price target was raised from HKD 464 to HKD 521, as the company is expected to see accelerated growth in gaming revenue, as well as potential in its advertising and fintech businesses.
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