- US regulatory tightening on Chinese players may lower competition in US market, favouring locals
- In Southeast Asia, the competition across e-Commerce platforms has become more rational
- Chinese e-Commerce sector exhibits a slower growth outlook with market-leader (Alibaba) losing share
- US players delivered encouraging earnings and guided for better profitability prospects
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Potential US regulatory tightening on Chinese e-Commerce players to benefit local players; Southeast Asia facing more rational competition. Chinese e-Commerce companies possess 3% market share in the US at end-2023 (vs 21% in Southeast Asia). However, they are now facing regulatory risks from the government, such as inspections on forced labour, data privacy violations, and unfair competitive practices, as well as the removal of US’s de-minimis rule. The regulatory tightening moves, should they be approved, are expected to reduce competition in the US e-Commerce sector.
Currently, over 70% of customers subscribe to a loyalty membership with Amazon (the US market leader), which offers free same-day delivery to its members. US customers value product quality, variety, and faster delivery times, compared to Southeast Asian (SEA) customers, who tend to be more price sensitive. Post-consolidation of e-Commerce firms in Indonesia, SEA is now seeing a more rational competitive scene. Instead of focusing on cutting prices and growth at any cost, SEA players are steering toward profitability improvements by raising commission rates along with reductions in promotions and logistics subsidies.
US players beat estimates in 1Q24 while SEA companies players focus on profitability. In 1Q24, US players beat market estimates, with other business segments witnessing all-time-high margins. US players’ guidance for 2Q24F are in line with market projections, while their guidance for international businesses turned profitable. On the other hand, while Chinese e-Commerce corporate earnings met market expectations, their investments in international markets may result in the dilution of overall profitability. In SEA, e-Commerce companies are focusing on being EBITDA positive.
Other businesses of e-commerce players are showing potential. US e-Commerce players stand to benefit from renewed growth in cloud services after a brief slowdown in 2023. Some of the drivers include the impact of generative artificial intelligence (GenAI) on ad placements, user engagements, and conversions. While Chinese e-Commerce firms also offer cloud services, it will take them more time to achieve meaningful growth given macroeconomic headwinds in this region. Rather, they are placing larger emphasis on growing their fintech businesses, in the lending segment particularly, so as to monetise their large e-commerce user base in SEA.
Figure 1: E-Commerce gross merchandise value projections in SEA, the US, and China
Source: Google, Temasek and Bain, Insider Intelligence, iResearch, DBS
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