The e-commerce landscape in China is on the precipice of a significant change. A combination of policy support and rising market enthusiasm is setting the stage for a re-evaluation of the industry's worth.
As the bulls consider Chinese stocks with greater focus, local e-commerce companies such as Alibaba, Pinduoduo, and JD.com could be undervalued compared to US listed peers, with their current valuations ranging from 9 to 12 times.
This notion holds promise for investors considering that China's top 20 internet companies have already witnessed a valuation recovery. Indeed, the aggregate 12-month forward net profits for these companies have surged by 67% relative to the expectations in January 2023.
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Shifting focus to the future, the Gross Merchandise Value (GMV) of China's e-commerce industry is projected to expand by 7% by 2025. Moreover, advertising revenue and domestic platform profits are expected to increase by 12% and 13% respectively. These forecasts reflect a robust growth trajectory for the sector and provide a solid foundation for the anticipated valuation reassessment.
Signaling confidence in the sector's potential, Goldman Sachs has revised its price targets for key players, including Tencent, Alibaba, Pinduoduo, JD.com, and Meituan. This adjustment is indicative of the belief that there's more room for reassessment and growth within the valuations of these e-commerce behemoths.
China's e-commerce sector could be on a path to a significant valuation uptick. The combination of continued policy support, market enthusiasm, and promising growth forecasts points to a re-evaluation that could bridge the gap in market value with prominent global counterparts.
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