- Competition to impact Southeast Asia; customers are more price sensitive, lack loyalty memberships
- Live commerce seeing a sharp growth in Southeast Asia – China exhibiting slower growth coupled with rapid shifts in market shares
- We like AMZN & PDD for superior growth. BABA is cheapest in valuation as it continues to lag its peers
US e-commerce outlook – with Chinese players’ market share at 3% – better than Southeast (SE) Asia, with 21%. TikTok Shop entered the US in Sep 2023 and aims for a US$17.5bn GMV (1.3% market share) in 2024. This is comparable to Temu’s 1.1% share who entered the US in Sep 2022 and may directly impact Shein (2.0% share). However, majority of US customers value product quality and faster delivery time over price. Over 70% of Amazon’s (AMZN) customers are Prime members, thereby ensuring loyalty. The US permits packages below US$800 to enter the US which could be lowered or removed if Chinese players remain overly aggressive. Southeast Asian consumers, on the other hand, are highly price sensitive, explaining TikTok Shop gaining a 9% market share in just two years of its launch (21% share for TikTok Shop-Tokopedia). Sea Ltd’s Shopee aims to defend its market share aggressively, which might lead to an exit of smaller players over FY24F/25F.
Livestream commerce growing rapidly in Southeast Asia; China expected to have a slower growth. SE Asia’s e-commerce GMV CAGR over 2022-2025 is expected to be 13% vs. the US’ 10% and China’s 8%. In China, the broader market is slowing down while Alibaba (BABA) is losing market share to Pinduoduo (PDD) & Douyin, suggesting a downside risk to BABA’s projections.
AMZN & PDD are our top picks; AMZN is trading near one standard deviation (-1SD) of its 5-year average. The street expects an EBITDA CAGR of 18% over 2023-2025 for AMZN, driven by (i) a recovery in its AWS cloud business (70% of group operating income in 2023); and (b) a sharp rise in e-commerce margins due to lower logistics costs and a premium-price for same-day delivery. PDD is our next pick, with the highest adj. EBITDA CAGR for 2023-2025 – at 32%. PDD continues to chip away market share from BABA, both in China and overseas. BABA is the cheapest, at 4.1x FY25F EV/EBITDA (Mar YE) as market doubts its ability to grow its domestic e-commerce revenue.