China’s E-Commerce Players Post Strong Quarterly Results Despite Covid-19

China’s three largest e-commerce platforms Alibaba ($BABA), JD.com ($JD) and Pinduoduo ($PDD) have all released their earning results for the first quarter this year, and it’s worth taking a minute to review the numbers.

Alibaba announced on Friday that its GMV (gross merchandise value—a measure of total sales transacted through its platforms) had reached $1 trillion for the year ended March 31. Yes, you read that right: trillion with a “t”—one-sixth of all of China’s retail sales. Alibaba said active users on its platforms had risen to 726 million over the same period.

Pinduoduo also said on Friday that the company’s GMV for the year ended March 31 was $163 billion. Active buyers over the same period had reached 628 million.

JD.com released its full-year results in mid-April, reporting that its GMV for the year ended December 31 had risen to $299.5 billion. On May 15, JD.com said that its active customer accounts had jumped 24.8% to 387.4 million for the year ended March 31.

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As a reference point, Amazon’s 2019 GMV was $335 billion, perhaps $200 billion of which was from North America. So the big three Chinese platforms hold up nicely in comparison.

But do these strong annual results perhaps mask bad news from this year’s first quarter? See for yourself: Alibaba’s first quarter revenue jumped 22% year over year, PDD’s revenue soared 44% and JD.com’s rose 20.7%.

(Disclaimer: These are not stock market tips. Do not use this analysis for investment purposes. This is offered as useful insight on the resilience of Chinese consumer behavior. In my view, GMV is a good metric for platform activity, but it is not a GAAP number.)

What all of this means

Chinese e-commerce has held up well through Covid-19 concerns, economic uncertainty, lockdowns and logistics disruptions. All of the costs and problems associated with the disruption have been more than offset by e-commerce offering the right solution for a pandemic. China went into the pandemic with over 35% of its retail spend in e-commerce, but—as I wrote previously—by the end of the year, it will likely be 50%. That now appears conservative.

Warning signs? Some of the annual data, and even quarterly data, no doubt masks the Covid-19 turmoil that peaked in China in February.

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Second, each of these companies has a number of business ventures underway with varying degrees of connectivity to e-commerce. In other words, the core e-commerce business will have growth rates slightly different from the overall rates. (If Alibaba wants to experiment with high-tech hotels that strikes me as a somewhat questionable experiment, but so what?)

Finally, nothing lasts forever. Maturity will creep into the market and growth rates have a tendency to taper. But that tapering is at present offset by several factors: the growing preference for e-commerce over physical stores, the growing universe of products and services being offered digitally (we are just scratching the surface with e-health and online education), and expansion overseas through a variety of models. I do not see a lot of tapering in the next few years.

First-quarter earnings have been a good news story, but the results place a premium on the second quarter to validate the good news. Warren Buffett reminds us of Benjamin Graham’s aphorism that in the short run, the stock market is a voting machine, but in the long run it is a weighing machine. Well, the Chinese consumers are voting and weighing in favor of e-commerce.