Goldman Sachs Reviews 618: Taobao and JD.com's prices are close to Pinduoduo, the return rate is rising, and the algorithm is improving monetization

With the 2024 618 Shopping Festival coming to an end on June 20, the performance of major e-commerce platforms has ushered in a test moment.

Goldman Sachs analyst Ronald Keung said that in the month-long shopping festival, Taobao, JD.com, and Pinduoduo all made a relatively large degree of profit, and most of the goods on different platforms had similar prices, and they all paid more attention to the consumer experience.

Goldman Sachs expects 618 industries to achieve low-double-digit year-on-year growth in gross merchandise value (GMV) this year. However, due to the impact of returns and order cancellations, net GMV (i.e., the final actual order value) is expected to increase by only a mid-to-high single digit.

The shopping festival cycle is extended, and sales are more dispersed in terms of date

What's special about this year's 618 is that many platforms have directly canceled the pre-sale link and launched the promotion as early as May 20. According to Goldman Sachs' estimates, due to the early start and long cycle, this year's shopping festival lacks a large outbreak of orders concentrated on a certain day as before.

Unlike previous years, this year's 618 event had three sales peaks: May 20, June 1 and June 18, the analyst wrote in the report. The promotion activities that started in advance also led to the sales of e-commerce in the first week of June not being as good as in previous years. The early-kickstart promotion also saw China's online retail sales sprint jump 13% year-on-year in May, up from 9.6% in April.

The analyst also pointed out that in terms of express delivery volume, the national parcel volume increased by about 20% year-on-year from May 20 to June 16, slightly lower than the growth rate from March to April:

We observed a strong rebound in parcel volumes in the week of 20 May, but we observed three consecutive weeks of month-on-month declines, and express outlets also spoke of a smaller peak in parcel volumes than in previous years, so there was less pressure.

Goldman Sachs pointed out that the early start of shopping festival promotions reflects the fact that major e-commerce platforms pay more attention to user experience:

The removal of pre-sale periods across platforms is an effort to streamline holiday schedules and allow consumers to enjoy a more timely shopping and fulfillment experience, thereby improving the user experience. Compared to the past, when the pre-sales period mainly helped merchants test SKUs and prepare inventory accordingly, we are seeing marketplaces increasingly prioritizing users.

Douyin e-commerce GMV growth slowed down, and the penetration rate of live broadcast e-commerce tends to mature

From the perspective of GMV, traditional e-commerce platforms represented by Taotian and JD.com are gradually gaining a foothold in the face of the impact of Douyin e-commerce and Pinduoduo.

According to Goldman Sachs estimates, Taotian's total GMV achieved double-digit year-over-year growth during the 618 period, while JD.com reported that its GMV reached a new high during the 618 period (Goldman Sachs expects single-digit year-over-year growth).

In contrast, although Douyin's e-commerce GMV has maintained a high growth rate of more than 20%, the growth rate has begun to decline, and the GMV of top anchors with goods has also declined year-on-year.

Goldman Sachs also specifically mentioned that Pinduoduo's GMV may have achieved a growth rate of 15-20% during the 618 period, but compared with its competitors, Pinduoduo has always paid less attention to promotions for specific shopping festivals, and more importantly to maintain daily low prices.

In addition, Goldman Sachs also said that according to data from a third-party agency, Syntun, the GMV growth rate of live streaming has further decreased to 12% (compared to 28% last year), which Goldman Sachs believes is due to the penetration rate of live streaming e-commerce has reached a relatively mature level.

Price competition and subsidies between platforms have intensified

According to Goldman Sachs' assessment, during the 618 period this year, major e-commerce platforms have increased subsidies. For example, JD.com announced an additional 10 billion yuan in user subsidies on June 15, and Taobao subsequently announced an additional 10 billion yuan in "surprise red envelopes". Goldman Sachs observed that the price gap between Taobao/JD.com and Pinduoduo is narrowing, and the prices of most goods on the three platforms have been basically flat on the day of 618:

In our view, JD.com/Alibaba's increased investment in user subsidies in the final stages of the 618 promotion reflects their efforts to drive growth and seize market share. Based on our price comparison, we have noticed that the price gap between Taobao/JD and Pinduoduo has been narrowing over the past year. On the day of 618, Taobao/JD.com's pricing on multiple SKUs was basically the same as Pinduoduo.

Looking ahead, as prices on Taobao Tmall/JD.com and Pinduoduo become increasingly homogeneous, we believe that service quality and user experience will be the differentiating factors for consumers when making purchasing decisions.

In addition, Goldman Sachs also observed that Taobao 88Vip/JD Plus members were given additional coupons in addition to general promotions, which is expected to drive high ARPU user growth.

618 return rate generally rises, some women's clothing merchants report that the return rate is as high as 80%

The user-first strategy also means that the return policy of e-commerce platforms has become more lenient. Some merchants, especially women's clothing merchants, said that the return rate during the 618 shopping festival was as high as 80%. Goldman Sachs believes that this could lead to a further widening of the gap between GMV and real income.

Analysts believe that the increase in return rates may be due to the following factors:

(1) More favorable return policy, from April 2024, 88VIP users can enjoy unlimited free returns. and the refund-only policy, originally introduced by Pinduoduo, which has been widely adopted by other e-commerce platforms.

(2) Consumers are increasingly paying attention to the value of goods and tend to return unsatisfactory goods;

(3) Convenient and timely logistics fulfillment experience makes the return process easier. We believe this will also boost GMV growth, as the company's definition of GMV is typically based on gross GMV (i.e., including returns/cancellations), so the growth gap between revenue and GMV remains key to watch.

Adtech upgrades offer long-term monetization potential

The upgrade of advertising technology is also the highlight of this year's 618 promotion.

Alibaba's advertising platform, Alimama, promoted the site-wide marketing function to more merchants during the 618 period. Pinduoduo has also launched a new traffic allocation mechanism, giving up to 9 times the traffic weight to merchants who have reduced prices. Analysts expect these ad tech upgrades to work over the next 6-12 months, bringing more monetization opportunities to platforms:

Based on our communication with merchants, we learned that Alibaba's site-wide marketing has been gradually rolled out to more merchants since its trial run in April 2024. However, we expect there will still be a gap between Alibaba's GMV and CMR (Customer Management Revenue) in June, as the ad tech/algorithm upgrade may take time to refine in order to be fully effective/adopted by more Taobao merchants in the next 6-12 months.

We still expect Alibaba's monetization boost potential to occur in the second half of FY25. For Pinduoduo, we expect its advertising products to continue to penetrate and will further roll out site-wide marketing and standardized marketing tools.

Looking ahead, although the growth rate of e-commerce GMV may have slowed in June due to the impact of the big promotion, Goldman Sachs analysts believe that the recent correction in e-commerce stocks has largely reflected these concerns. They are optimistic about the opportunities in the e-commerce industry in the second half of the year, and expect the industry's performance to improve due to the base effect, profit inflection point, advertising technology potential and operational leverage.

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