The cross-border logistics company has quadrupled the size of its IPO in response to new rules seeking to stamp out suspicious new Chinese listings, seeking to raise $33 million

Key Takeaways:

• World Road Inc.’s updated Nasdaq listing application reveals its business began to deteriorate in its latest fiscal year as a result of U.S. policy changes
• The cross-border e-commerce logistics company is seeking a valuation multiple that’s many times higher than far larger peers like S.F. Holding and UPS

By Doug Young

Sometimes delivery is all about timing. That’s certainly the case with World Road Inc., a Chinese supplier of cross-border e-commerce logistics services, which filed an updated prospectus this week for a Nasdaq IPO. The company first filed for its listing in May last year, back when shipping e-commerce items from China to the rest of the world was all the rage. But much has changed since then, which is painfully apparent in World Road’s latest financials.

The company is making the IPO bid into an environment fraught with obstacles and uncertainties. The biggest of those is coming on the trade front, as the U.S. and Europe take steps to tamp down the flood of Chinese imports pouring into their markets. But there are also political obstacles, as the U.S. and China both crack down on suspicious “pump and dump” Chinese IPOs on Wall Street. 

That crackdown is reflected in World Road’s notable quadrupling of its fundraising target in its latest IPO application. The company says it now plans to raise about $33 million in a Nasdaq listing by selling 6 million shares for between $5 and $6 each. In its original filings last year, the target was much lower, aiming to raise around $7.5 million by selling 1.5 million shares for between $4 and $6 each.

The big fundraising increase looks directly related to a new Nasdaq rule that took effect this year, requiring all Chinese companies making new listings on the exchange to raise at least $25 million. World Roald’s new fundraising target meets that threshold, though it’s far from clear this listing will make it to market.

The company still needs to get clearance from the Chinese securities regulator, which it said is still pending. That regulator, the Chinese Securities Regulatory Commission, has also emerged as an important gatekeeper trying to screen out potential “pump and dump” IPOs that were giving China a bad reputation on Wall Street.

A typical case came from a company called Pomdoctor (POM.US), which sold IPO shares last October for $4 each. The stock initially rose above $5, until one day in December, when it suddenly tanked to $0.50 from its $5.42 close the previous day. The stock has never recovered since then, last closing at about $0.83 on Thursday.

A big factor behind such spectacular crashes is inflated valuations at the time of the IPOs, which could also be the case with World Road. A pricing at the middle of its range would value the company at about $190 million, which, when combined with sales from its latest fiscal year, gives it a price-to-sales (P/S) ratio of about 3.3. While that’s not huge, it’s quite a bit higher than the 0.39 for S.F. Holding (6936.HK; 002352.SZ), one of China’s top logistics providers, and 0.93 for global giant UPS (UPS.US).

That immediately puts World Road’s shares in danger of collapse if and when the company completes its IPO, since there’s no apparent reason why it should be valued so much higher than these industry leaders.

Deteriorating financials

Making matters worse, World Road’s latest financials hardly look too encouraging. Things were quite different when the company, based in the Central Chinese city of Wuhan, first filed its IPO prospectus in May last year. Back then, it boasted booming revenue that more than tripled to 464 million yuan ($69 million) in its fiscal year through March 2025 from 130 million yuan the previous year.

At that time, cross-border e-commerce of products flowing from China to the rest of the world was booming, much of that conducted over major platforms like Shein, Temu, TikTok and AliExpress. Another factor driving the boom was the rise of Chinese brands that were finding success in Western markets, such as Anker, Aukey and Ugreen.

But in February last year the U.S. eliminated a loophole that had previously allowed packages worth less than $800 coming from China to enter the country duty-free. Europe took a similar step by imposing a temporary 3 euro customs duty on packages containing goods entering the bloc worth 150 euros ($174) or less from February this year. Such goods had also previously been allowed to enter duty free.

As those policies took effect, World Road’s revenue fell 18% to 381 million yuan year-on-year during its fiscal year through March 2026. It predicted things would continue to worsen before they get better.

“We anticipate further revenue decline over the next 12 months due to competitive pressures and uncertainties within the economic environment,” it said in its prospectus. “Unstable tariffs on Chinese imports introduced in April 2025 are expected to disrupt cross-border trade.”

Logistics has never been a very profitable business to start with, which is reflected in World Road’s low gross margins. What’s more, its gross margin has been dropping steadily amid all the cross-border trade frictions, falling to 6.2% in its latest fiscal year from 6.4% the previous year and 7.1% the year before that.

On the bottom line, World Road’s profit fell 3.7% in its latest fiscal year to just 8.6 million yuan from 8.93 million yuan a year earlier. The smaller rate of profit decline compared with the company’s revenue decline owed mostly to aggressive cost cutting, which is commendable but hardly a reason to be positive about this company.

It’s also slightly notable that the name of World Road’s IPO underwriter is redacted in the latest prospectus, unlike earlier versions that named Craft Capital Management and R.F. Lafferty. That’s significant because in March a U.S. congressional committee sent letters to three other small investment banks looking into their potential role in underwriting suspicious IPOs by small Chinese companies. So it’s not surprising that these small underwriters want to stay as low-profile as possible, and would quite likely flee from any Chinese listing at the first sign of trouble.

It’s obviously too early to say if that kind of trouble is on the horizon for World Road. But the high valuation it’s seeking, combined with its deteriorating finances, certainly don’t bode well for its IPO.

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The provider of compliance services for cross-border e-commerce companies has filed to list in Hong Kong, boasting 66% revenue growth in the first half of this year

Key Takeaways:

• Vatai Holdings has applied to list in Hong Kong, providing a fresh, high-growth angle to the maturing e-commerce story by focusing on fast-growing cross-border trade
• The company’s Americas revenue growth slowed sharply last year after the U.S. eliminated an import tax loophole, exposing one of Vatai’s few vulnerabilities

By Doug Young

E-commerce as a category feels a bit like yesterday’s news, with giants like Alibaba and Amazon failing to generate as much excitement as they did a decade ago. One exception to that rule is cross-border e-commerce, which has been booming in the last few years as a growing number of Chinese merchants and brands sell their products directly to consumers across the globe.

One company well positioned to profit from that boom is Vatai Holdings Ltd., which provides compliance services for companies engaged in cross-border e-commerce and last week filed to for a Hong Kong IPO. While big names like Temu and Shein have captured headlines for their ability to sell Chinese goods directly to consumers around the globe, Vatai caters to the thousands of smaller e-commerce companies engaged in such cross-border e-commerce.

Specifically, the company had 246,245 paying customers last year, up 47% from the 167,133 it had a year earlier, showing just how big demand for these compliance services is. That’s not too surprising, since cross-border e-commerce typically takes Chinese companies into very unfamiliar terrain in terms of compliance with local rules on things like taxes and product standards.

Truth be told, there’s not much to dislike about this company. It’s the world’s largest provider of such compliance-related services, according to third-party data in the prospectus. With 21.5% of China’s cross-border e-commerce compliance platform market last year, Vatai says its sales value exceeded the combined total of the second- to eighth-ranked market players combined.

If there’s one slight cause for concern, it’s the current uncertainty surrounding cross border trade. The U.S. and Europe have become wary of getting flooded by cheap Chinese goods in the last few years, and have begun erecting some trade barriers to slow that inflow. That shows up in some of Vatai’s recent data, which we’ll discuss shortly.

But with the exception of that one caveat, this company really looks quite strong.

Well-positioned

Vatai has positioned itself at the center of a global cross-border e-commerce market worth a massive 14 trillion yuan ($2.09 trillion) in 2025, and expected to reach 22.2 trillion yuan in 2030, according to third-party data in the prospectus. Much of that is flowing from China to the rest of the world, as Chinese brands and merchants become increasingly adept at selling to consumers overseas, often over platforms like Amazon and Alibaba’s AliExpress.

Despite its relatively small size, Vatai’s listing has some relatively major backers, including leading domestic investment bank CICC as one of its main underwriters. Its early investors also include Boyu Capital, which made headlines last year when it became Starbucks’ new China partner. And most recently, tech giant IDG also invested in the company.

Founded in 2019, the company was already worth $260 million two years later when Boyu invested in 2021. No valuation was given after IDG’s pre-IPO investment earlier this year, but we wouldn’t be surprised if Vatai rose to “unicorn” status with a valuation of more than $1 billion after that funding.

Next, we’ll zoom in on some of Vatai’s financials, which also look quite impressive for such a young company. Its revenue grew 66% in the first half of this year to 386 million yuan from 233 million yuan a year earlier. That marked an acceleration from the 51% growth it recorded for all of 2025, and 46% for 2024, showing the company’s growth has yet to peak.

Vatai makes its money from fees for its various services, which it breaks down into four categories. Significantly, the top three of those are all posting strong, consistent growth. Leading that list was environmental compliance services, which rose 70% year-on-year in the first half of this year to account for 44.7% of revenues. Tax compliance services rose by a similar 70% over that period to account for 36.1% of revenue, while product testing and certification services rose 71% to account for 14.5% of revenue.

Globally diverse

Geographically, the company gets nearly all of its revenue from outside China. It started out providing tax compliance services for Chinese e-commerce companies selling into Germany, and expanded from there to the other major EU markets of France, Britian, Italy and Spain. It says it’s now active in 121 countries and regions globally.

Europe remains its largest market, accounting for 83% of its revenue in the first half of this year. The Americas was a distant second, accounting for 9.3% of sales during that time. The Americas also offers an important data point that illustrates Vatai’s vulnerability to the risk from changing trade policies. After nearly doubling in 2024, revenue growth from the Americas slowed to just 28% last year, before rebounding to 62% in the first half of 2026. By comparison, Europe didn’t really see any slowdown in 2025.

Last year was significant for Chinese companies selling to the U.S., because that’s when the Donald Trump administration eliminated a loophole that had previously allowed foreign packages containing goods worth less than $800 to enter the country duty-free. That exemption, known as de minimus, was officially eliminated for goods coming from China in February that year, and was later expanded to cover goods coming from all countries.

Europe, meantime, took a similar step by imposing a temporary 3 euro customs duty on packages containing goods entering the bloc worth 150 euros ($174) or less from February this year. Such goods had also previously been allowed to enter duty free. The fact that Vatai’s Americas business bounced back this year, and the lack of impact to its European business in the first half of 2026, seems to show that this type of trade measure should have relatively little impact on the company over the longer term.

Vatai has also shown quite good ability to scale its business without incurring high costs. That helped the company to boost its adjusted profit, which excludes share-based compensation and restructuring charges, by 70% in the first half of this year to 74.1 million yuan from 43.6 million yuan a year earlier.

The company’s cash flow is also quite strong, with its cash rising to 563 million yuan by June from 122 million yuan a year earlier, which was also helped by its pre-IPO funding earlier this year. That might lead some to wonder why Vatai is listing now, since it doesn’t seem to need the cash. Our guess is it wants to raise its profile and improve its technology, and possibly expand its services to e-commerce sellers from other markets besides China.

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The e-commerce giant has reduced the pain from its entry to food delivery, but weak retail sales and crowded new battlefields show its next growth engine remains elusive

Key Takeaways:

• JD.com beat expectations and improved its profit in the second quarter, but investors focused on its first quarterly revenue decline since its 2014 Nasdaq listing
• Losses from the company’s young food-delivery business are narrowing, but weaker retail sales and fierce competition show it needs a more convincing growth story

By Hu Minghe

E-commerce giant JD.com Inc. (JD.US; 9618.HK) gave investors a profit recovery. They sold the stock anyway.

The selloff came after the company reported its first quarterly revenue decline since its Nasdaq listing in 2014, with revenue down 2.9% year-on-year to 346.4 billion yuan ($51.1 billion) in the three months to June, according to its latest financial report released last Thursday. Its adjusted net profit rose 20.8% to 8.9 billion yuan. Both figures were better than many analysts expected. But the sales decline mattered more to investors, who sent its Hong Kong and Nasdaq-listed shares down about 9%.

The reaction pointed to a bigger question: What does a company like JD become when its China e-commerce growth story that once captivated investors grows old?

Three months earlier, the concern was that JD was paying a heavy price to enter China’s new food-delivery war. In the second quarter, some of that pressure eased. The company’s marketing expenses fell 24.8% to 20.3 billion yuan during the period, mainly because JD pulled back from promotional spending on new businesses. Losses in its new businesses segment, which includes food delivery, narrowed to 9.85 billion yuan.

But the same segment’s revenue plunged by 47.6% to 7.26 billion yuan, partly reflecting a transfer that moved some on-demand delivery revenue into its JD Logistics (2618.HK) unit. That helped to make JD Logistics a bright spot for the quarter. But the picture isn’t as bright for the parent JD, as its newer consumer bets have yet to produce an obvious second growth engine.

JD built its name as China’s reliable online store, especially for electronics, appliances and fast delivery. But China’s e-commerce market no longer has such clean borders. Alibaba (BABA.US; 9988.HK) and PDD Holdings (PDD.US) operate relatively similar traditional e-commerce sites. But there are also less traditional newcomers like ByteDance’s Douyin, which let users turn their short videos into shopping channels, and Meituan (3690.HK), which leads in the food-delivery market.

Stumbling electronics

JD’s first trouble spot is the one it knows best. Revenue from the electronics and home appliance businesses for which it’s famous fell 11.8% to 157.9 billion yuan in the second quarter, dragging down overall product revenue by 5.4%. General merchandise sales and services still grew, but not enough to offset weakness in electronics.

CEO Sandy Xu said on the earnings call that electronics and appliances were hit by last year’s high base created by spiking sales from government trade-in subsidies, as well as higher prices for electronics caused by rising raw material costs.

But investors appear to be looking beyond that temporary hangover to a more basic concern: China’s consumers are still cautious in a sluggish economy, and a growing number of internet platforms are fighting harder for the same wallets. JD’s old promise of genuine goods delivered quickly is no longer enough. PDD’s Pinduoduo platform can undercut prices. Douyin can turn entertainment into impulse shopping. Alibaba can push deeper into local services. And Meituan can bring almost anything nearby to a consumer’s door in less than an hour.

To foreign readers, food delivery may sound like a side business with some potential. But the reality is it has become part of a larger fight over “instant retail” in China, where consumers expect meals, groceries, medicine and daily goods to arrive almost immediately.

On the call, JD executives said order volume for the food delivery business kept growing during the latest quarter, losses narrowed by more than 50% year-on-year, subsidies per order fell, and commissions and advertising were starting to contribute revenue. They also said the business is bringing new users, local merchants and on-demand delivery capabilities into JD’s broader retail system.

Defensive measure

The improvement suggests JD has moved past the most aggressive stage of the subsidy campaign for its food delivery business. But for now, food delivery looks more like a way to defend its overall traffic, rather than a proven new growth engine.

China’s instant-retail war is brutal even for the strongest player. Meituan has also been hurt by subsidy battles, which pushed the company into the red last year. Alibaba retired its Ele.me takeout dining brand in December and rebranded it as Taobao Instant Commerce, pulling food and other local deliveries more directly into the shopping cart of its core Taobao e-commerce business. Beijing has also become more alert to the damage caused by endless discounting, releasing draft rules in June to curb excessive food-delivery subsidies and price wars.

The same hunt for new growth is also pushing JD abroad. JD executives told analysts that Joybuy, its European online retail business, doubled revenue within two quarters and now offers same-day or next-day delivery to more than 40 million customers in major European cities. The strategy plays to JD’s traditional strengths in warehouses, supply-chain control and faster, more reliable delivery.

But Europe is not a blank market waiting for JD to arrive. Amazon.com (AMZN.US) is entrenched, local retailers still matter for offline shopping, and Chinese-linked platforms such as Temu, AliExpress and Shein have already trained many European shoppers to expect ultra-low prices. JD is taking a different path by leaning on its traditional strengths in electronics, appliances and local fulfillment, but that path is expensive.

Its proposed $2.5 billion purchase of Germany’s Ceconomy, owner of the MediaMarkt and Saturn chains, could give it a valuable offline foothold. But that purchase, once considered a done deal, was cast into doubt after the European Commission laid out concerns in May that the transaction may involve unfair foreign subsidies. The case shows Chinese e-commerce companies now face political and regulatory barriers overseas as well as local competition.

Technology is another area where JD is trying to sharpen its edge, though that story is more about efficiency than a fresh source of growth. Its R&D expenses rose 37.7% to 7.3 billion yuan in the second quarter, as it continued to invest in AI and automation. Founder Richard Liu has acknowledged that JD is not the strongest player in large-model research, while pointing to its logistics and warehousing data as advantages.

JD has shown it can take its foot off the subsidy accelerator to bring some relief to its bottom line. That’s useful after its expensive push into food delivery. But spending less is not the same as growing again. The next test is whether China’s most reliable online retailer can find a new reason for shoppers – and shareholders – to come back.

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From European regulatory scrutiny to sudden licensee changes, multinational deals are facing new tests of trust and transparency

Key Takeaways:

• European regulatory scrutiny over JD.com’s Ceconomy acquisition reflects a new phase of geopolitical tension and demands for financial transparency
• Western brands operating in China must overcome deep-seated trust issues and cede control to local partners to survive fierce domestic competition

By Brad Burgess and Doug Young

Whether it's a Chinese e-commerce giant venturing West or a U.S. fashion label going East, cross-border business is increasingly fraught with scrutiny and trust deficits. A major European acquisition by a Chinese retailer recently hit a regulatory speed bump, while an American brand conglomerate abruptly swapped one of its Chinese licensees. Both situations highlight growing friction in international deal-making.

JD.com (JD.US; 9618.HK) thought it had a done deal when it agreed to pay $2.5 billion for German retailer Ceconomy last year. But now it seems it may not be so done after all. The European Commission has opened a full-scale investigation into the purchase, scrutinizing whether the Chinese e-commerce titan received unfair state support, such as preferential financing from state-run banks or tax incentives from the government. It said it will make its final determination by Oct. 1.

We believe this serves as a critical pulse check on EU-China relations and might be the harbinger of broader regulatory scrutiny from the EU and Germany. The EU's relatively new foreign subsidies regulation is clearly being used as an additional measure outside standard anti-monopoly rules. In a previous case, a Chinese railroad company proactively pulled out of a public tender in Bulgaria after its ridiculously low bid sparked immediate red flags over state subsidies.

That withdrawal was seen as a victory for the new regulation. But applying this tool to a private company rather than a traditional state-owned enterprise is a noteworthy extension of this scrutiny. JD.com has been aggressively pursuing retail assets across Europe, making this regulatory obstacle even more significant for future M&A.

The geopolitical climate adds to the friction. Germany — where Ceconomy's MediaMarkt and Saturn chains are based — was traditionally conciliatory toward China under former Chancellor Angela Merkel. Today, political concern is mounting, and the dialogue between the EU and China isn't where it was before. If the EU vetoes this deal, China will likely complain of discrimination, claiming its companies are being targeted, and vow to protect its rights. That inevitably ends in retaliation, perhaps targeting European exports like champagne, cognac, or brandy.

The crux of the problem lies in how state support is disclosed. Current Chinese financial statements contain vague disclosures, often bundling financial incentives with other investment gains and losses. Anyone receiving financing from a state-run Chinese bank is technically getting government support. However, defying Beijing by explicitly detailing that government support is like playing with fire, as China routinely denies offering such subsidies. We're curious to see if Western regulators will push companies to be more forthright and specific in their material disclosures moving forward.

Letting go of the reins

On the flip side, Western companies operating in China face their own set of hurdles. U.S. company Authentic Brands, which owns major labels like Reebok, Eddie Bauer, and Brooks Brothers, made recent headlines when it abruptly dumped the China licensee for its Nautica and Spyder brands. Following the announcement, shares of the dumped partner, Tristate Holdings (0458.HK), tanked about 15%.

This kind of partner shifting is a relatively common shortcut for major Western brands to develop the China market. However, identifying a capable partner with enough breadth and execution capability to adapt a product for local tastes is easier said than done. We saw a similar situation recently when Nike (NKE.US) made major changes to its China licensing agreement with long-time partner Topsports (6110.HK), whose stock also tumbled after losing authorizations for online sales.

Decades-long relationships evaporate in some cases, highlighting the extreme fragility of these partnerships. We think multinational companies suffer from a profound trust problem. To succeed, they need to let go a bit and trust their Chinese partners more. Local operators understand the rapidly changing Chinese consumer landscape far better than a remote headquarters ever could. Local managers often complain that running everything through headquarters takes too much time and makes them less competitive. Yet, ceding control and allowing a brand to morph for local tastes — like Yum China (YUMC.US; 9987.HK) successfully offering pizza with corn and shrimp — is deeply uncomfortable for many top multinationals.

While top-tier global brands might still command loyalty among brand-conscious urbanites, mid-tier labels face fierce competition from local players. For investors evaluating these publicly traded partners, diversification is key. If a local licensee is heavily dependent on a single Western brand, the risk of a sudden breakup should prompt extreme caution. Investors must do their homework to understand the importance of each brand relationship.

Ultimately, the ones who do best in China are those willing to let go. The way a business is promoted and operated needs to be flexible and modified according to actual conditions in the Chinese market.

China’s fifth-largest marketing services provider for cross-border e-commerce customers is shifting to social media platforms and its own direct sales for growth

Key Takeaways:

• Miduoduo has chalked up three years of losses ahead of its application for a Hong Kong IPO, but attributes that to costs associated with its recent business shifts
• The provider of cross-border e-commerce marketing services says its strong revenue growth last year reflects a tie-up with TikTok and focus on Southeast Asia

By Edith Terry

It’s a familiar story when startups head for the capital markets with a track record of losses. Cross-border e-commerce company Miduoduo Group Inc. was one of the latest cases in point when it applied for a Hong Kong listing last week.

The company reported losses of $16.4 million in 2023, $163,000 in 2024 and $24.5 million last year, on revenue of $70.9 million, $71.1 million and $138.1 million, respectively. Prior to rule changes introduced in 2018, the Hong Kong Stock Exchange probably would have simply dismissed Miduoduo’s application due to its earlier requirements for two years of profitability before an IPO.

Adjusted for certain non-cash items, the company’s bottom line looks better – with a net profit of $59,000 in 2023, followed by a loss of $87,000 in 2024 and a $2.3 million profit last year.

Despite that bumpy profit record, more is going on with Miduoduo that merits a closer look beyond its bottom line. For one, the company’s latest backers include sovereign wealth fund Central Huijin Investment, whose fresh funding last year valued Miduoduo at HK$5 billion ($638 million).

The company is trying to position itself more like a hot high-tech startup rather than a 14-year-old player in the mature ad services industry, counting on its most recent embrace of the exploding market for outbound e-commerce selling goods from Chinese merchants to buyers in other countries.

It wants investors to see it not only as a marketing services provider, but also as an operator of its own direct cross-border e-commerce platform with a focus on Southeast Asia. It says it will use IPO proceeds to bankroll localization and e-commerce warehouses in four key Southeast Asian markets – Thailand, Indonesia, Vietnam and Malaysia. Its recent partnership with the popular TikTok short video site, which operates the TikTok Shop e-commerce platform, is also an important part of its story. It credits that growing TikTok relationship for its recent growth, which saw its revenue nearly double last year after a mostly flat performance in 2024.

Corporate evolution

Minduoduo’s rapid evolution from domestically focused ad services provider to an integrated provider of cross-border online selling services in some ways spotlights a rapidly emerging new corner of China’s giant e-commerce industry.

With 15.52 trillion yuan ($2.3 trillion) in online retail sales in 2024, China represents roughly half of the global online retail market. Its cross-border e-commerce industry generated $461.7 billion in revenue in 2024, and is expected to grow 15.1% annually through 2029, according to the listing document. That’s providing fertile ground for growth of the cross-border e-commerce services segment, which is projected to more than double from $36.3 billion in 2024 to $73.7 billion in 2029.

Five companies currently represent 36.5% of the total market for outbound e-commerce marketing services. Miduoduo is the smallest in that group, ranking fifth in 2024, with a tiny 0.5% market share. Guangdong Advertising Group (002400.SZ) is the leader, with 17.2% of the market, while unlisted Tec-do, Donson and Singoo Cloud are next, collectively representing 18.8%.

The group has faced pressure lately in the U.S., a major market for Chinese e-commerce sellers, following the closing of a loophole last year that previously let packages valued at under $800 enter the country tariff-free. A similar movement is occurring in Europe, as the EU prepares to abolish its own tariff waiver for parcels worth less than 150 euros ($173) starting next month.

Miduoduo’s response to those and other pressures is a textbook study in resilience and opportunism.

The company started out as Huiyuan Information, a cross-border trade intermediary based in South China’s Fujian province, initially working with Google to increase the U.S. company’s advertising business from Chinese customers. In 2021, the company’s co-founders, Chairman Ruan Weixing and CEO Deng Hai, began a pivot from providing inbound marketing services to offering outbound services for Chinese advertising agencies.

Direct e-commerce services

After 2023, the company also began doing business with individual brand customers in addition to its older business working with agencies. After May 2025, it began its own overseas e-commerce operations working with TikTok Shop.

Miduoduo’s core business has been overseas marketing services since 2021, and that business still accounted for 93.1% of its revenues last year. Its own direct overseas e-commerce operations made up just 3.1% of revenues in the first year of that business. The key to Minduoduo’s latest expansion beyond its core marketing services is its relationship with TikTok, which began in 2024. The relationship has since matured into a platform for the company’s own direct e-commerce business as well as e-commerce advertising services.

As that relationship matured, TikTok’s share of Miduoduo’s revenues went from 0.2% in 2023 to 30.3% in 2025, with most of the rest coming from Google. Under its marketing services business model, Miduoduo buys ad space on platforms like Google and TikTok, and sells that to agency customers, and makes some of its money via rebates from the platforms. But Google’s rebates went from $1.49 million in 2023 to just $838,000 in 2025, after the U.S. search giant reduced its rebate policy in 2023. By comparison, rebates from TikTok totaled $4.38 million in the first full year of that relationship.

Miduoduo gives full credit to TikTok for helping to increase its gross profit from $2.9 million in 2023 to $11.8 million in 2025, although its relationship with Google continues. Revenue from services provided through TikTok increased from $9.7 million in 2024 to $38.9 million in 2025, with the number of active customers rising from 706 to 1,209. The company’s gross margin is quite low, reflecting its status as a middleman provider of marketing services. But the figure has been improving with the growing TikTok relationship and rise of its higher-margin direct e-commerce business, climbing from 4.1% in 2023 to 8.6% last year.

In addition to the ad services relationship with TikTok, the company’s own TikTok Shop-based direct e-commerce business contributed revenue of $4.2 million last year, with a much higher gross margin of 72.1%. That business sold products to consumers in the U.S., Malaysia, Thailand and Vietnam last year, apparently confined to a single brand partner. But the company says three additional brand partners signed up for the service in the first four months of 2026, showing that business could have strong future potential.

It’s probably too early to say whether Miduoduo’s new relationship with TikTok will be able to keep delivering such strong growth and margin improvement over the longer haul. But its embrace of an outbound e-commerce model, combined with its Southeast Asian focus, look like smart moves amid growing Chinese tensions with the West and growing stinginess at Google, which is facing its own challenges as AI eats away at its core search business.

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Alibaba is reportedly offering $1.5 billion for regional online grocer Pupu, more than double the $600 million offered by a previous bidder

Key Takeaways:

• Alibaba is reportedly bidding $1.5 billion for Pupu, the dominant online grocer in South China’s affluent Fujian province
• The bid is more than double the $717 million Meituan is paying for national online grocer Dingdong, as competition for assets heats up in China’s instant commerce wars

By Doug Young

Just months after one of its rivals agreed to pay $700 million for an online grocer with a national footprint, e-commerce giant Alibaba Group Holding Ltd. (BABA.US; 9988.HK) is reportedly bidding twice that amount for a regional player in the hotly contested space.

There are quite a few elements that explain why Alibaba is reportedly willing to pay $1.5 billion for Pupu, the dominant online grocer in South China’s affluent Fujian province, according to a report last Friday in Bloomberg. The bid comes just four months after Meituan (3690.HK) agreed to buy leading online grocer Dingdong (DDL.US) for $717 million.

At the highest level, Alibaba is engaged in a cutthroat war in China’s emerging market for instant commerce. That category initially included categories like groceries and takeout dining that required quick delivery due to their perishable nature. But increasingly it’s also come to include many other daily-use items that can be warehoused and delivered locally, with companies often promising to deliver such goods in less than an hour.

Alibaba originally focused on takeout dining through its Ele.me service, but has expanded that under its Taobao Instant Commerce brand to include groceries and other products. Such instant commerce services have been one of Meituan’s main revenue sources for quite a while, with delivery services accounting for about a quarter of its revenue in its latest quarterly report. Meantime, JD.com (JD.US; 9618.HK) has also been pushing heavily into instant commerce since last year, with an initial focus on takeout dining. While most attention goes to those three companies, another playing moving aggressively into the space is SF Intra-city (9699.HK), the city-level delivery arm of national delivery giant SF Holding (6936.HK).

Pupu is one of the last remaining independent online grocers, and is quite the dominant player in Fujian and parts of adjacent Guangdong province, two of China’s wealthiest areas. The company reportedly controls 70% of the online grocery market in the Fujian provincial capital of Fuzhou, and operates a network of over 400 warehouses in Fujian and Guangdong, according to one Chinese media report.

Even more striking, Pupu generated 30 billion yuan in revenue in 2024, according to the report in 21^st Century Business Herald, which, if true, would be 20% more than the 24 billion yuan that Dingdong generated from its much larger national network last year. But Pupu’s gross margin of 22.5% in 2024 trailed Dingdong’s 29.2%.

Still, Pupu’s dominant position in its home market, combined with the larger instant commerce war, is probably what’s leading Alibaba to make such a high bid for the Fujian company. The Bloomberg report noted that Alibaba’s bid was more than double the $600 million offered in an earlier bid by traditional grocer Sun Art (6808.HK). And other media point out that reports in late May said Meituan and JD.com were all also bidding for Pupu.

All that appears to show this is a classic bidding war, meaning it’s quite possible Pupu could ultimately sell for even more than the $1.5 billion in Alibaba’s latest bid.

Investors unimpressed

The instant commerce wars have taken a toll on all three companies’ financials, as they spend heavily to build up their businesses and offer billions of yuan in subsidies to gain market share. That’s scared off investors, with shares of both Alibaba and Meituan down about 23% so far this year. SF Intra-city is down by an even larger 29%, even though the company appears to be growing its instant commerce business more profitably. JD.com’s stock has fared better, down just slightly year-to-date, though even that doesn’t look too impressive in the broader rally for China tech stocks this year.

A look at each of these companies’ financials shows the toll the instant commerce war is taking on its business.

Meituan has suffered the most, reporting revenue from its delivery services fell slightly to 25 billion yuan in the first quarter from 25.8 billion yuan a year earlier. But the huge subsidies it has offered to compete with the others dragged the company deeply into the red, as it swung to a 6.83 billion yuan loss for the quarter from a 10.1 billion yuan profit a year earlier.

Revenue from Alibaba’s quick commerce segment jumped 57% year-on-year in the quarter through March to nearly 20 billion yuan. But its heavy spending to ramp up the service caused adjusted earnings before interest, taxes and amortization (EBITA) for its core e-commerce segment to tumble 40% to 24 billion yuan from 39.7 billion yuan a year earlier.

JD.com was similar to Alibaba, reporting a 9.2% year-on-year rise in its new businesses segment, which includes local delivery services to 6.28 billion yuan. But the segment’s loss from operations ballooned to 10.3 billion yuan from a 1.33 billion yuan loss a year earlier.

SF Intra-city looks the most impressive among the group, reporting its intra-city on-demand delivery services rose 47.6% last year to 13.5 billion yuan from 9.12 billion yuan in 2024, citing big gains in food delivery and on-demand retail. The company didn’t break out profitability for that segment, but its overall profit for the year more than doubled to 278 million yuan from 132 million yuan a year earlier.

China’s market regulator is aware of the intense nature of the instant commerce price wars, and has repeatedly called in Alibaba, JD.com and Meituan to ease the competition. While the companies have repeatedly said they are heeding that call, the latest financial results, combined with this latest bidding war, appear to show that no one is really backing down just yet.

Notably, the Bloomberg report points out that Meituan’s purchase of Dingdong has yet to receive regulatory approval. Whoever ends up making the winning bid for Pupu will also require similar approval. We would argue the presence of three or four strong players in the instant commerce market represents relatively healthy competition.

What’s more any regulatory veto could imperil the longer-term prospects of smaller players like Dingdong and Pupu, which lack the financial resources of Alibaba, Meituan and JD.com to weather a prolonged price war. But China’s market regulator doesn’t always follow such logic, and could easily veto one or both sales as a sort of punishment for Alibaba and Meituan for failing to heed its call to lower the heat in their ongoing price war.

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The e-commerce giant has expanded aggressively in Hong Kong over the last year, acquiring commercial buildings, a supermarket chain and establishing an extensive logistics network

Key Takeaways:

• JD.com has been expanding aggressively into Hong Kong, with plans to open multiple signature JD Malls in the city over the next three years
• The e-commerce giant’s Hong Kong expansion will directly challenge longtime local leaders like ParkNShop, Fortress and Watsons

By Lau Chi Hang

JD.com Inc.’s (JD.US; 9618.HK) June 18 shopping festival launch in Hong Kong came with some extra bells and whistles this year on top of the usual hype. In addition to the usual promotions, the company disclosed it has recently spent HK$35 billion ($4.49 billion) to build up its operations in the city. It also unveiled its first JD Mall in the city’s Wan Chai district, covering 30,000 square feet, with plans to open another six to eight outlets in the city over the next three years.

Among China’s leading e-commerce players, JD.com has been the only one to place Hong Kong so squarely in its sights. Last year, the company acquired Kai Bo Food Supermarket, a popular mass-market grocery chain, moving wholeheartedly into the city’s hotly contested grocery space. It wasted no time from there, adding 10 new Kai Bo branches over the last year to take it past the 100-store milestone.

While that was happening, the company’s JD Logistics (2618.HK) unit was setting up hubs across the city, covering all 18 districts, to support product delivery and installation services.

$450 million headquarters

Last year, JD.com also acquired 50% of the China Construction Bank Tower in Hong Kong’s Central financial district for nearly HK$3.5 billion, providing a high-profile base to use as its headquarters in the city.

The company’s JD Health (6618.HK) is also already active in Hong Kong, supplying healthcare and medical aesthetic products, as well as medications targeting several specific categories of diseases. It also provides online health consultation services and is developing a local elderly care business.

All that comes as JD.com is also cranking up its core e-commerce business in the city, and is developing a presence with supporting JD Mall retail experience stores. The first location will officially open its doors on June 18 to coincide with the shopping festival named after that date. JD.com hasn’t disclosed its investment in that facility, but its 30,000-square-foot footprint is considered quite large in space-starved Hong Kong.

This particular store is full of promotional gimmicks. In addition to a free massage area, it will provide complimentary coffee, and an esports arena alongside several designated photo-op spots for social media check-ins. JD.com has disclosed future locations will be equally big, with floor areas ranging from 30,000 to 80,000 square feet.

Limited retail scale in Hong Kong

JD.com's Hong Kong onslaught involves substantial investments, even though the city boasts a relatively small population of just 7 million. Which raises the question of whether it’s really worth it to spend such vast sums to conquer this relatively small city.

Data from the Hong Kong Census and Statistics Department shows the total value of the city’s retail sales stood at around HK$380 billion over the last two years. That was just a fraction of figures for the nearby mega-cities of Guangzhou and Shenzhen, which logged 1.1 billion yuan ($163 million) and 1.03 billion yuan, respectively. Even the smaller nearby cities of Dongguan and Foshan achieved 445 billion yuan and 395 billion yuan, respectively.

Aware that its big investment in Hong Kong might raise some eyebrows, JD.com has been quick to mention the city serves as an important stepping stone to the international marketplace. But that logic, while once common for globally minded Chinese consumer companies, no longer seems to apply. Names like PDD’s (PDD.US) Temu, Alibaba’s (9988.HK; BABA.US) Taobao and Shein have jumped directly to foreign markets rather than using Hong Kong as a springboard. That allows them to quickly set up shops in single markets first, such as a European country or a single U.S. state, and then use their acquired knowhow to expand into adjacent areas.

Challenging a hometown champion

Many of the business lines that JD.com is expanding in Hong Kong will also bring it into direct competition with CK Hutchison Holdings (0001.HK), the flagship of Li Ka-shing, the city’s richest man. Among other things, the conglomerate owns the ParkNShop supermarket chain, Fortress electronics stores, and the Watsons personal health and pharmacy chain. Challenging such an entrenched rival won’t be easy.

In the supermarket realm, Hong Kong is already quite saturated with established chains ParkNShop and Wellcome, complemented by the more recent arrival of HKTVmall. With such established rivals, JD.com could well face challenges making inroads with Kai Bo as its main vehicle, especially when one considers the grocery business’ razor-thin margins.

When it comes to electronics, another one JD.com’s strengths, Hong Kong already has its own pool of established players like Fortress, alongside Broadway, as well as China’s own Suning chain of stores, and online platforms HKTVmall and Yoho (2347.HK).

Unremarkable appeal

Then there are the new JD Mall experience shops. Some simple calculation based on local rates shows the monthly rent for the first such shop in the pricey Wan Chai district would amount to a similarly large sum of nearly HK$20 million annually. Given thin profit margins for electronics, such high rental costs won’t be easy to recoup through simply product sales.

JD.com has been heavily hyping the Hong Kong JD Mall, saying it offers an immersive environment. But a recent visit to the store during its soft opening felt quite average. If one isn’t going specifically to shop, perhaps just one visit is enough. The massage area’s four chairs are perpetually occupied, and the complimentary coffee feels rushed since there’s no comfortable place to sit down and enjoy it. The robots that are also a special feature are far from any performing acrobats sometimes seen on TV, and more like ordinary models often seen in everyday settings elsewhere. The store’s biggest selling point was perhaps its extravagant large-screen TV valued at HK$1 million.

The inaugural JD Mall's site selection also wasn’t ideal, not at ground-level and mostly accessible via connecting footbridges, and distant from popular tourist shopping hotspots.

JD.com intends to open additional stores in some of Hong Kong’s other bustling districts such as Mong Kok and Sha Tin, where rental costs will be similarly high or higher, adding further expense to its Hong Kong foray. But the company’s pockets are quite deep, given its status as an e-commerce titan on the Chinese Mainland. That means it has plenty of resources to use in its battle to win over Hong Kong shoppers. But when, if ever, it recoups its costs and becomes profitable in the crowded market is another question entirely.

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The online auto pioneer still makes money by connecting car buyers and sellers, but weak demand, falling ad budgets and new competition are eroding its old advantages

Key Takeaways

• Autohome’s first quarter revenue fell nearly 28%, as automakers cut advertising and fewer dealers paid for its services in a sharply contracting China car market
• The company is more protected than car traders that hold inventory, but its results show how China’s auto slump is hurting online commerce, advertising and transaction services

By Hu Minghe

An extended price war in China’s auto sector has already taken a toll on carmakers, dealers and used car traders. Now, the pain is growing more acute in a place that doesn’t actually build or stockpile cars.

That place is Autohome Inc. (ATHM.US; 2518.HK), one of China’s best known online auto service platforms. Founded in 2005 by car enthusiast Li Xiang, who later built electric vehicle maker Li Auto, Autohome became a go-to destination for Chinese car buyers, offering model databases, reviews, price comparisons and forums.

That legacy makes the company’s latest financial results feel bigger than just another soft quarter for a single company. Autohome is a useful gauge for both China’s auto market and online commerce. It earns most of its money not by directly selling cars, but by helping automakers and dealers reach buyers, generate leads and complete transactions. That keeps it less exposed to falling car prices than inventory-heavy new and used car sellers. But it also means the company relies on transactions for its business, as well as confidence. And right now, both of those are scarce.

Ad engine stalls

Autohome’s first quarter revenue skidded 27.9% year-on-year to 1.05 billion yuan ($152 million) from 1.45 billion yuan a year earlier. Its net income dropped by an even bigger 87.6% to 44.3 million yuan from 356.6 million yuan. And ominously, the company also slipped into the red on an operating basis, reporting an operating loss of 34.4 million yuan, ending years of profitable operations on that basis.

The pressure showed up across all of the company’s main businesses. Media services revenue fell 32.8% to 162.7 million yuan, as automakers tightened advertising budgets. Leads generation revenue fell 22% to 503.5 million yuan, reflecting fewer paying dealers. And online marketplace and other revenue slid 32.5% to 382.3 million yuan. Management blamed the declines on reduced spending from automakers and dealers amid shrinking sales volumes and growing losses for many.

China’s auto industry is off to one of its worst starts in years in 2026. Domestic sales have dropped in each of the last seven months, including an especially sharp 21.6% drop in April, the latest month with available data. Companies have sharply reined in their spending on advertising and other services as that happens, creating a painful transition for older platforms built on trusted content and user traffic.

Rising new rivals

Autohome’s squeeze is also a story about changing internet habits. In an interview last year, Li Xiang said he did not start Autohome because he simply loved cars, but rather because he saw a market opportunity. He chose autos because cars were standardized products, founded Autohome in June 2005, and quickly built it into China’s top auto vertical platform.

His most striking reflection was that Autohome became too easy after around 2009 because it faced little real competition. The company was built for the era of search, forums and professional reviews, attracting consumers who were already seriously thinking about buying a car. The new world looks different.

Dongchedi, the auto information and trading platform started by TikTok owner ByteDance, grew up inside a short video and algorithm driven ecosystem. It pushes automotive content through recommendation feeds, reaching users earlier in the decision process. It is reportedly considering a Hong Kong IPO that could raise $1 billion to $1.5 billion, suggesting investors may be more interested in platforms that can connect traffic more directly to transactions.

Dongchedi has promoted cooperation models where some dealers pay based on completed sales rather than only leads, challenging the older model of simply selling traffic to dealers and automakers. Its rise poses the question of whether Autohome’s usefulness to car buyers can still be monetized the same way in the face of newer and more efficient business models.

Autohome also faces a trust challenge as it moves deeper into transactions. In January, China’s internet regulator criticized the company and other auto vertical platforms in a campaign against irregular auto testing content, saying some reviews could mislead consumers.

Haier takes over

Autohome’s answer to the changing world around it is to become more than a media and leads platform. Management says it is transforming from an automotive information site into a comprehensive auto service ecosystem. In the first quarter, it highlighted a wide range of new initiatives, including an app upgrade, expanded premium content, AI and large language model (LLM) tools, an online car purchase pilot in Shenzhen and Xi’an, the launch of a service in Thailand and a cross-border used car export platform.

Those moves are meant to push Autohome closer to where actual money is changing hands. In particular, the moves into Thailand and exports show overseas expansion offers one path forward as Chinese automakers push into foreign markets. At the same time, used cars may offer room for platforms to add value through inspection, pricing, matching and trust building as increasingly cautious consumers in China opt for cheaper second-hand cars.

That also helps explain why Haier bought control of Autohome last year. The Chinese home appliance giant, through its Cartech unit, paid about $1.8 billion for about 43% of Autohome from longtime owner Ping An. Haier was not simply buying an aging car website. It was buying traffic, data and a consumer entry point into a broader auto service ecosystem.

But the timing is awkward. Haier is trying to help Autohome build a new engine just as the old one is running low on fuel. Autohome still had more than 80 million mobile daily active users in March, according to QuestMobile, and had about 20 billion yuan in cash and investments at the end of that month. It also agreed to pay a first-half dividend and is actively repurchasing company shares to support its stock price.

But those efforts haven’t done much to soothe worried investors. Autohome’s stock is down about 30% over the last year, though the shares rallied nearly 10% in the three trading days after the latest report, suggesting investors were expecting even worse.

Autohome is far from down for the count. It has plenty of financial resources and is still profitable, with limited exposure to China’s price war. But the company is clearly lacking momentum. For Autohome, the question isn’t whether Chinese consumers still need help choosing cars. They do. Rather, the tougher question is whether Autohome is the place they go for help in making their decision.

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The discount e-commerce company has been approved to spin off two of its brick-and-mortar outlet stores into a REIT, with another 18 similar projects

Key Takeaways:

• Vipshop reported its revenue rose 1.2% in the first quarter, representing only its second growth in the last eight quarters
• The company recorded strong growth for its brick-and-mortar outlets business, which helped to offset sluggishness for its older bargain e-commerce apparel sales

By Doug Young

As e-commerce becomes increasingly “old hat,” major companies are searching for new stories to keep investor interested in their stocks. Alibaba (BABA.US; 9988.HK) is focusing on AI and cloud services, while JD.com (JD.US; 9618.HK) is billing itself as a diversified company with operations in everything from healthcare to logistics. PDD (PDD.US) is trying to wow investors with the explosive growth of its overseas Temu service.

Then there’s stalwart Vipshop Holdings Ltd. (VIPS.US), which is struggling a bit to move beyond the early success it found with “daily deals” offering cheaply priced big brand clothing using a group buying model. That model has been running low on fuel for years now, sending the company into revenue contraction back in 2024.

In a sort of “back to the future” twist, the company revealed in its latest financial results, announced on Thursday, that it’s finding some unlikely success in its brick-and-mortar outlets business. While it doesn’t break out specific revenue for that part of the business just yet, the strong performance does seem to coincide with a recent trend for consumers looking for “experiential shopping” for their offline purchases these days.

Such shopping differs from more traditional store visits, in that consumers often plan special trips to places like outlet malls and membership stores like Walmart’s Sam’s Club, treating them as a hybrid shopping-recreational experience. Vipshop hasn’t traditionally focused much on that part of its business, centered on its brick-and-mortar Shan Shan Outlet stores. But that part of the business offered a glimmer of some excitement in its latest results, including a plan to spin off the Shan Shan business’ property element into a real estate investment trust (REIT).

Vipshop could certainly use some excitement these days, as its “daily deal” business model has been yesterday’s news for quite some time. Despite its flatlining revenue, the company is still quite profitable. But its stock commands a meager price-to-earnings (P/E) ratio of just 7, a third or less of the 21 for Alibaba and 24 for JD.com. Even PDD, whose Temu has come under attack on multiple fronts lately, trades at a higher ratio of 10.

Vipshop’s latest results show it continues to sputter, though it managed to eke out some revenue growth for only the second time in the last two years. But lest anyone get too excited, the company forecast a return to revenue contraction in the second quarter and painted a gloomy outlook for the near term.

Founder and Chairman Eric Shen noted that this year’s Lunar New Year holiday in February was relatively strong, but quickly added that things have gone south since then. "Following the holiday period, we saw a very apparent moderation of sales in March," he said. “As we enter the second quarter, the April data does not turn out very well, slightly – it’s not improving from March and into May to date, still very challenging.”

Shifting focus

Vipshop has certainly been trying to improve itself, though most of its steps are quite incremental and lack the imagination of major strategic moves that get investors more excited with big growth potential. Among other things, the company has been focusing more of its resources on its higher-spending members, and noted its SVIP membership base grew 9% year-on-year in the first quarter.

Another bright spot for the company, whose mainstay is traditional apparel, has been its newer moves into sportswear and outdoor products that are popular among young people. It noted that part of the business continued to outperform, helping to offset weakness in its core womenswear and menswear categories.

The sum of all those factors, combined with a 30% year-on-year jump in its Shan Shan Outlets business during the quarter, added up to first-quarter revenue of 26.6 billion yuan ($3.91 billion), which was up 1.2% from 26.3 billion yuan a year earlier. But the company said it expects to slip back into the revenue contraction in the second quarter, forecasting a year-on-year drop of up to 5% for the three months to June.

Vipshop’s gross margin improved a bit in the first quarter, rising to 24.4% from 23.2% a year earlier, thanks to its focus on higher margin products and cost controls. The result was a relatively strong 13.6% rise in its first-quarter profit to 2.2 billion yuan from 1.9 billion yuan a year earlier. But even here, we should note the company’s adjusted profit, which excludes share-based compensation costs, was flat year-on-year at 2.3 billion yuan.

Vipshop shares rose 2.1% on Thursday after the report’s release, indicating some slight investor enthusiasm. But the stock is flat over the past year, showing investors will need to see some better results to value the company more highly, including more momentum and contribution from its outlets business.

The outlets business isn’t exactly new, with Vipshop noting its Shan Shan Outlets in the Central Chinese city of Zhengzhou and the Northern city of Harbin have been around for roughly a decade. But the company appears to be putting more energy into that business lately to seize on demand for experiential shopping and bargains from value-conscious consumers in China’s slowing economy.

CFO Mark Wang said the company’s application to spin off the property element of the Harbin and Zhengzhou outlets received regulatory approval late last month, and pricing of the shares was completed this week. Following the spinoff, Vipshop will retain 49% of the REIT’s shares, allowing it to deconsolidate that part of the business from its results. It will also book a one-time 5.3 billion yuan gain from the spinoff in the second quarter.

Wang pointed out that in addition to those older outlets, the company currently holds another 18 outlet projects in its portfolio, “demonstrating strong potential for future expansion.” The model for the outlets business looks quite solid, allowing Vipshop to reap benefits from operating the stores while moving the capital-intensive property ownership assets into the REIT.

But the fact that the company doesn’t break out separate revenue for the outlets underscores that this business is still a relatively small part of its overall revenue pie. To get investors more excited, it will need to accelerate new openings to highlight its potential to become a major experiential brick-and-mortar retailer.

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The company’s Taocheche platform is riding China’s late-blooming used-car boom, but its inventory-heavy model shows the high cost of building trust in the sector

Key Takeaways

• Taocheche has become China’s largest used-car platform by GMV, but the business comes with razor thin margins and steep losses for operator Yusheng
• The broader used car market is finally picking up, helped by policy changes and more price-conscious buyers, even as companies keep searching for a profitable business model

By Hu Minghe

China’s used-car market has always looked like it should be fertile ground for success. Vehicle ownership reached 366 million units in 2025, the largest globally. But just 5.5% of that base came from used-vehicle transactions, far below the 12.8% level in the U.S., according to third-party market data in an IPO filing last week by Yusheng Holdings Ltd., operator of Taocheche, which it bills as China’s largest used car platform.

And yet, second-hand cars have remained a tough sell in China, where many buyers still prefer new vehicles. Used car transactions have been weighed down by buyer concerns related to hazy vehicle histories, uneven inspections, inconsistent pricing and a fragmented dealer base. Those are exactly the frictions Yusheng says Taocheche can solve.

Many of the company’s business metrics show how used car trading can translate to big business. Yusheng reported revenue of 6.66 billion yuan ($924 million) last year, up 21.8% from 2024. Its gross profit for the year totaled 679 million yuan, equating to a gross margin of 10.2%. Its platform handled 191,487 vehicle transactions last year, supported by 62 offline sales centers nationwide.

But none of that matters if a company is losing money, which is definitely the case for Yusheng. The company reported a net loss of 916.9 million yuan in 2025, widening from a 695.5 million yuan loss in 2023 and 574 million yuan in 2024. That shows that while Taocheche has scale, it has yet to find a sustainable business model that yields profits as well.

Late-arriving used-car moment

On paper, at least, the market is finally moving in Yusheng’s direction. China’s used-car transactions crossed 20 million units for the first time in 2025, reaching 20.1 million vehicles with a transaction value of about 1.3 trillion yuan, or nearly $200 billion, according to the China Automobile Dealers Association.

Policy changes are part of the story. For years, the market was constrained by local restrictions that made it difficult to move cars across provinces for resale. Those rules were often framed as environmental safeguards, but in practice they protected local dealers and prevented supply from getting to where it was needed. Recent reforms have improved transaction efficiency, transparency and traceability, according to Yusheng’s prospectus. Cross-regional trades accounted for almost 35% of transactions last December, up from just over 30% a year earlier.

Consumption habits are shifting too. Younger buyers are more open to pre-owned goods and more focused on value in a slower economy. Even so, China still trails developed markets. Yusheng points to familiar frictions: lack of information about a car’s history, inconsistent inspection standards, limited pricing transparency and a transaction process still too dependent on small operators that lack the resources to provide professional standards.

In Western markets like the U.S., big names like CarMax (KMX.US), Carvana (CVNA.US) and AutoNation (AN.US) have stepped in to fill that gap.

The cost of building trust

Yusheng’s model is far more hands-on than simply operating an online marketplace where buyers and sellers interact directly with the platform only as facilitator. It is also directly involved in the trading process, buying and selling used cars itself, providing platform services to buyers and sellers, and maintaining its own offline sales-center network where people can come to inspect cars before a purchase.

Its more active role is designed for a market where buyers still want to see and touch the vehicle before paying — and where trust is the biggest obstacle. But such measures are also very costly. Inventory ties up cash. Offline centers add fixed costs. Reconditioning requires labor and facilities. And prices may fall before a car is sold – an especially big risk in the current Chinese car market plagued by constant price wars.

That risk is not theoretical. Yusheng’s prospectus says revenue per retail unit fell in 2024 as intensified competition in China’s new-vehicle market suppressed used-vehicle prices. More than 80% of the company’s cost of revenues in 2025 came from vehicle procurement. The result is a gross margin of around 10% that leaves little room for mistakes.

Searching for a business model

The plight of other players in China illustrates how unsettled the playbook remains. Uxin (UXIN.US), one of the earliest listed used-car platforms, has leaned into large offline superstores with reconditioning factories and local government partnerships. In 2025, its retail transaction volume more than doubled to 51,110 units and revenue rose 78.6% to 3.24 billion yuan ($463.3 million). But it still recorded a 262.5 million yuan net loss from operations, with gross margin of just 6.7% – even lower than Yusheng’s.

Another player, Guazi, offers a cautionary tale. Its parent, Chehaoduo, raised $1.5 billion from SoftBank Vision Fund in 2019, when investors were still betting heavily that online platforms could restructure China’s used car market. Since then, Guazi has repeatedly adjusted its model — from its early “no middleman” pitch, to guaranteed sales, offline stores, nationwide buying and, most recently, as a third-party platform serving dealers.

ByteDance-backed Dongchedi, which is reportedly also considering a Hong Kong IPO, is another wildcard. It is best known as an auto information and advertising platform, but its huge traffic base gives it a natural path into transactions. Taken together, these cases show the sector is still an experiment in progress as companies search for the right business formula.

The investment question

Yusheng is trying to win over investors by pointing to real momentum. It was China’s leading used-car transaction platform in 2025 based on its 15.5 billion yuan in GMV and 3.8% market share, according to third-party market data in its prospectus. The same ranking shows the top five platforms had only 14.5% of the market combined, a reminder that the market is still quite fragmented.

At the same time, the used car traders are having to compete with new car dealers offering aggressive discounts to clear their own inventory. A recent report from the Autohome Research Institute said used passenger car transaction growth slowed to just 1.8% in the first three quarters of 2025, compared with 9.2% growth for new-car retail sales. The study also found that more than 80% of people who reject used cars cite opaque vehicle conditions and irregular transactions as major concerns.

That shows the trust problem continues to be a major challenge keeping many buyers from considering used cars. Yusheng is trying to win that trust by buying its own inventory, conducting inspections, reconditioning cars and operating offline stores. The success or failure of its IPO will come down to whether investors believe that costly and time-consuming trust-building process can eventually translate into profits, not just volume.

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Backed by HSG, formerly Sequoia China, China’s second largest provider of e-commerce services is raising cash for its fast-growing livestreaming business

Key Takeaways:

• BMax has filed to list in Hong Kong, seizing on its status as a first mover in developing livestreaming e-commerce services in the world’s largest online retail market
• The company’s core business offering services in traditional e-commerce grew by just 10% between 2023 and 2025, compared to 64% growth for its livestreaming business

By Edith Terry

In a park in western Shanghai’s leafy Changning district, the Romomo Live Streaming Center is a showcase of livestreaming technology that’s all the rage these days on China e-commerce scene. The facility features 150 broadcast studios in two buildings and 300 resident hosts, who, on any given day, are likely to be pitching high-end international fashion and footwear brands. Those brands are all customers of Romomo’s parent, Shanghai Buy Quickly BMax Technology Services Group Co. Ltd.

Now, BMax is bringing its e-commerce services story to the capital markets with its application last week for a Hong Kong IPO, aimed at raising cash to expand the company’s fast-growing livestreaming business. The listing boasts an all-star cast of Citic Securities and CLSA as underwriter and coordinator, respectively, with HSG, formerly Sequoia China, as a major backer, indicating it’s likely to be relatively large, perhaps raising $100 million or more.

BMax is no run-of-the-mill e-commerce services provider, focused squarely on the mid- to luxury-end of the market. Its clients last year included 70% of the world’s top 20 high-end fashion brands, earning it a reputation as a “gondolier” steering names like LVMH and Estée Lauder to online shoppers.

It ranks second nationally in terms of gross merchandise value (GMV) handled through its e-commerce services, with 39.7 billion yuan ($5.82 billion) in GMV last year, giving it 2.7% of the domestic market. Only Baozun (9991.HK, BZUN.US) was larger, with 5.3% of the market, according to third-party data in the company’s prospectus.

But BMax faces stiff competition from not only Baozun, but also names like Weimob (2013.HK), Qingmu (301110.SZ) and Bicheng Digital, among others vying for a piece of the huge market. The result is price pressure. Brands that are the chief customers of these service providers are shopping for companies that offer the lowest service fees and commission rates, and are also setting up their own in-house e-commerce teams. At the same time, China’s overall e-commerce market is rapidly maturing, dampening growth for everyone and sending many service providers into the red.

Reliance on traditional e-commerce services

Traditional e-commerce services continue to make up the bulk of BMax’s business, at about two-thirds of its revenue last year. By comparison, newer livestreaming services made up 21.9% of the total. But the latter grew 30% year-over-year in 2025, compared to just 12.6% growth for BMax’s traditional e-commerce services business.

BMax’s revenue has been rising at a steady, if not overly impressive, clip over the last three years, growing about 20% from 1.32 billion yuan ($194 million) in 2023 to 1.59 billion yuan last year. But growth for its core business was slowing notably over that time. BMax’s traditional e-commerce services, offered for brands selling on traditional e-commerce platforms like Tmall and JD.com, grew by just over 10% between 2023 and 2025. Livestreaming services grew by a much faster 64% over that time.

The slowdown in BMax’s core business has taken a toll on its gross margin and profits. Its gross margin fell from 37.2% in 2023 to 33.4% last year, while profit fell by 18% from 250 million yuan to 204 million yuan over that time.

The good news is that BMax has emerged as the leader in the fast-growing market for livestreaming e-commerce services. In 2025, it had 4.6% of the Chinese market for “interest” based e-commerce, which refers to people who buy products sold over social media channels like Douyin, the Chinese version of TikTok, and RedNote, also known as Xiaohongshu.

Selling over social media, often via popular hosts and celebrities using livestreaming, has become all the rage in China these days, encroaching on traditional e-commerce buying from shops in online malls like Pinduoduo, JD.com and Tmall. Livestreaming services in China grew by 37.5% annually between 2021 and 2025, compared to 15% for traditional e-commerce services over that time, according to independent research in BMax’s prospectus.

Livestreaming business is also taking a bigger slice of BMax’s revenue pie, growing from 16.1% in 2023 to 21.9% last year, according to its IPO filing.

Livestreaming campus

A studio complex in Shanghai’s Linkong Park, one of 20 livestreaming campuses in the city, served as BMax’s entry to the livestreaming market in 2021. “Four years ago, we were just a small studio next to a supermarket on the first floor,” Zhao Meiling, BMax’s head of government relations, told Chinese media in a recent interview. “Now we’ve grown into an industry leader with 300 live streamers and 150 professional livestreaming rooms.”

BMax has a distinct edge in livestreaming over Baozun, which started later in the game, and Weimob, which specializes in social media through its close ties with Tencent’s WeChat but lacks a capacity in other online channels. Baozun only began developing a livestreaming business in 2023, with its “Creative Content to Commerce” studios and acquisition of Location, a Douyin partner. But that investment has yet to pay off, with revenue from the services side of its business, which includes livestreaming, up just 2.4% last year to 6 billion yuan.

BMax also has a competitive advantage in its model that has provided services over multiple channels from the beginning, unlike Baozun, which is closely tied to Alibaba and its massive Tmall platform, and the much smaller Weimob, which is deeply integrated with WeChat.

By comparison, BMax has provided services across multiple e-commerce platforms over its 15-year history, initially for brands selling their products over traditional e-commerce platforms like Tmall and JD.com, as well as official company websites and WeChat mini-programs. The company points out in its prospectus that it “strategically evolved into social media channels” to keep up with the latest trends in Chinese e-commerce.

BMax launched its proprietary multi-channel digital retail operating system, called Futail, in 2023. It connects data from all mainstream platforms, integrating management from supply chain to marketing. BMax also caters to the design needs of its premium customers, with its own design center, internal creative center and a livestreaming team of 208 in-house streamers.

While Hong Kong’s IPO boom has provided a bonanza for many tech firms, e-commerce and related services have yet to catch the wave, probably due to the market’s relative maturity compared with sexier emerging areas like AI and robotics. Baozun is typical of the group, currently losing money as its stock trades more than 91% below its secondary listing price in Hong Kong from September 2020. Weimob is also money-losing, and its shares trade 50% lower than their IPO price from January 2019.

BMax looks better than both of those due to its profitability and leading position in livestreaming e-commerce. Still, a price-to-sales (P/S) ratio of 5, which would top Weimob’s 2.9 and Baozun’s meager 0.11, would value BMax at just over $1 billion, which put it into the league of tech “unicorns.”

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The company’s latest valuation suggests it is being priced like a sprawling platform built on Douyin’s domestic cash flow, TikTok’s global reach and an aggressive AI push

Key Takeaways

• ByteDance’s latest super-sized valuation looks increasingly like a sum-of-the-parts story, centered on Douyin domestically, TikTok globally, and a growing AI story through Doubao
• The company doesn’t urgently need cash from an IPO, but could start by listing some of its smaller businesses first if the situation is right

By Hu Minghe

Potentially worth more than $600 billion in a recent proposed transaction, ByteDance is no longer being valued like the owner of a single hit app. That’s how much the parent of the Douyin and TikTok short video apps could be worth after a current investor looking to sell its stake at an initial $550 billion valuation raised its price after finding strong buyer interest, the South China Morning Post reported last week.

That super-sized valuation speaks volumes about what investors think ByteDance has become, namely China’s second most valuable internet company, slightly behind Tencent’s (0700.HK) $650 billion and twice as big as Alibaba’s (BABA.US; 9988.HK) $300 billion.

That headline figure raises the question of which businesses are doing the heavy lifting for a company whose portfolio includes the Douyin and TikTok short video apps at its core, along with a host of smaller but influential others like Toutiao, CapCut, Lark and Feishu. The hierarchy is relatively clear: Douyin and TikTok are kings, while AI through the company’s Doubao app is the fast-rising star supporting the latest premium.

The center of gravity starts in China. While TikTok is known to the world, Douyin is a household word in China, where it has become the platform of choice for advertisers and product sellers alike over e-commerce stalwarts like Alibaba, JD.com (JD.US; 9618.HK) and PDD (PDD.US), and where it increasingly also competes with Meituan (3690.HK) in online-to-offline local services.

Douyin: The domestic anchor

To understand why ByteDance can command this kind of valuation, the first place to look is Douyin. While it started as a short video app, Douyin has evolved to include its cash-spinning Douyin E-commerce, which generated about 3.5 trillion yuan in gross merchandise value (GMV) in 2024, up roughly 30% from a year earlier, according to market estimates. Official platform data released this year said shelf-based e-commerce GMV rose 49% over the prior 12 months, while the number of merchants rose 45%. Douyin also said more than 80,000 new merchants crossed 1 million yuan ($146,000) in livestream transaction value.

Those numbers point to a change in how shopping happens on Douyin. Put simply, Douyin is increasingly looking like a place where people go to shop, rather than simply to watch videos and make occasional purchases when something catches their eye.

That helps explain the battlefield Douyin is now fighting on. It is no longer just a platform where brands buy ads or influencers peddle products. Instead, it has become a more direct rival with Alibaba, JD.com and PDD’s Pinduoduo. The battle doesn’t stop at shopping. Through its local-services push, Douyin is also trying to turn short-video traffic into restaurant deals, hotel bookings and other offline spending, which compete with Meituan’s offerings. Estimates put Douyin Life Services’ 2025 payment GMV at more than 850 billion yuan, up 59% year on year.

That’s why Douyin is such an important piece in ByteDance’s current valuation: it’s the clearest example of how the company is turning content into a broader commercial ecosystem offering not only entertainment, but product sales and services.

TikTok: essential but harder to value

If Douyin is ByteDance’s domestic cash anchor, TikTok is its global growth engine. ByteDance’s international sales rose 63% to about 280 billion yuan in 2024, contributing roughly a quarter of total revenue, with much of that coming from TikTok, according to a Bloomberg report.

But TikTok is also harder to value than Douyin due to geopolitics. Following U.S. government pressure, TikTok’s U.S. business that was its largest asset has been restructured into a venture that’s 80.1% owned by American and global investors, with ByteDance holding the remaining 19.9%. At the same time, some commercial activities, including e-commerce, advertising and marketing, remain under ByteDance’s existing U.S. entities. In other words, TikTok is still central to ByteDance’s global story, but has become a more complicated asset.

Oracle has valued its 15% stake in the U.S. venture at about 13.3 billion yuan, implying ByteDance’s 19.9% is worth about 19 billion yuan and the joint venture itself is worth roughly 95.4 billion yuan. But the joint venture is only part of TikTok’s U.S. operation, and ByteDance also still wholly owns TikTok’s operations in other lucrative global markets like Europe, Southeast Asia and Latin America.

AI is the premium

If Douyin is ByteDance’s crown jewel with TikTok in a more supporting role, AI looks like the company’s rising star that’s still a diamond in the rough. Of ByteDance’s plans to reportedly spend about 160 billion yuan on capital expenditure this year, roughly 85 billion yuan – or more than half – is set aside for AI chips and related computing infrastructure. That suggests AI is no longer a side bet, but one of the company’s top priorities.

The consumer side of that push is Doubao, ByteDance’s AI chatbot. The company said this month that daily calls to the Doubao model had surpassed 120 trillion tokens by late March, doubling in three months and rising roughly 1,000-fold since its launch. It also said the number of enterprise customers whose cumulative usage topped 1 trillion tokens had risen to 140, up from 100 at the end of last year.

ByteDance is also trying to push Doubao into interfaces users touch every day. It has already rolled out a Doubao-powered assistant on ZTE’s Nubia M153 prototype phone, and is reportedly in talks with other handset makers. At the same time, ByteDance is extending its AI reach outside China through Cici, its overseas AI app. Its new Seedance 2.0 AI video model has also captured recent headlines for its ability to transform text into realistic, high-quality videos.

IPO in sight?

Despite its huge size, ByteDance has shown few signals lately of rushing toward an IPO. Its shares regularly trade through private market transactions, and its private status helps it avoid the disclosure burden and extra scrutiny that come with a public float. What’s more, the company is reportedly quite profitable and doesn’t really need the billions of dollars an IPO would provide.

If any listings occur, they might start with one or more of ByteDance’s smaller, autonomous units rather than the crown jewels. One such candidate could be Dongchedi, also known as DCar, which is ByteDance’s automotive information and trading platform. At the same time, ByteDance could also simply sell off other non-core parts, like it reportedly did with its Moonton gaming division last month in a deal that valued the unit at $6 billion.

ByteDance is ultimately a puzzle with many moving parts, but also one that appears to be trying to sharpen its focus. Investors are no longer valuing it like the owner of one blockbuster app, but more like a platform that is one of China’s first truly global internet stories. Douyin is its domestic base, while TikTok supplies its global reach with a big political risk asterisk. And Doubao offers the possibility of another major growth engine.

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The steel trading platform is expanding its services across the supply chain and is tapping overseas markets, but the revenue-boosting moves come at a cost

Key Takeaways:

• Turnover rose nearly 37% last year but gross margins shrank and losses surged
• The company is ramping up its international presence and rolling out AI tools in a bid to fuel long-term growth

By Lee Shih Ta

Once dubbed the Alibaba of the steel industry, ZG Group (6676.HK) is actively evolving into more than just an online trading hub.

And the changes underway at ZG Group illustrate a wider trend, as China’s online business platforms aim to become more deeply involved in the industries they serve.

For ZG Group, one of China’s biggest digital platforms for steel trading, that means moving beyond simple matching services into selling products and fulfilling orders, expanding overseas and rolling out AI upgrades.

The imperative is financial. In a maturing market, transaction fees from digitally matching steel suppliers, traders and end users are not enough to sustain long-term growth. Steel demand is driven by macroeconomic and property cycles, and the resulting volatility serves to intensify competition among platforms, making it hard to keep raising commission rates.

But getting more directly involved in the supply chain also has its downsides. The diversified revenue streams are often accompanied by declining profitability.

These dynamics are evident in the latest annual earnings from ZG Group, which reported a leap in revenues but on lower margins and with a much wider loss.

Integrated services

The company is now positioning itself as a technology services company, leveraging industrial data and AI agents to offer intelligent transactions, smart logistics and supply-chain services.

On the international front, the company aims to replicate itself overseas within three years, spearheaded by an accelerating push into the Middle East and Southeast Asia. It is set to bring a steel processing plant in Dubai into operation this year that could become a supply-chain hub for the region.

ZG Group has also launched AI-powered procurement and transaction assistants, hoping to turn them from internal tools into a revenue driver. It has also proposed a transaction model linking one AI agent with another. Meanwhile, it is branching out beyond the core steel business into electronic components and electrical products, signaling a shift towards serving a broader industrial supply chain.

So how are the numbers stacking up? Revenue rose 36.7% in 2025 to 2.12 billion yuan ($310 million) from the prior year. However, gross profit fell just over 11% to 379 million yuan, implying a gross margin of about 17.9%, a steep drop from 27.5% in 2024. The group’s net loss ballooned from about 68.7 million yuan in 2024 to a whopping 590 million yuan last year.

Growing pains

The company attributed part of the widening losses to non-cash factors such as listing-related costs and share-based payments. ZG Group made it onto the Hong Kong stock market last year after it was taken over by a publicly listed shell company, Aquila Acquisition Corp, in a so-called De-SPAC deal, using a backdoor route to a flotation.

However, even after excluding these effects, ZG Group’s adjusted EBITDA turned negative in 2025, indicating that the earnings pressure is coming from the business transformation.

A shifting revenue structure lies at the root of the challenge. The company is replacing income from its original high-margin platform with supply-chain services and trading businesses that generate lower returns.

Revenue from international transactions, with a gross margin of just 7.9%, grew 71.5% to 1.02 billion yuan last year, accounting for 48% of total turnover. Meanwhile, income from the non-steel transaction business jumped nearly 75% to 322 million yuan, around 15% of total revenue, with a gross margin of only 3%.

Transaction support services, which account for about 23% of revenue, logged a gross margin of only 6.1%. In contrast, transaction services with a gross margin of 88.2% fell 16%, reducing their overall revenue share to 12.4%. Technology subscription services, with a gross margin reaching 93%, contributed only about 1.4% of revenue.

Artificial intelligence remains one of the few ways to add value. The company’s AI-related revenue tripled to 335 million yuan last year, contributing about 15.8% of the top line. However, AI functions more as a tool to enhance efficiency for now, based on information disclosed by ZG Group. As such, the AI business has yet to show it can power high-margin growth in the near term.

ZG Group’s gross margin of about 18% falls between the levels of two significant peers, but at the lower end. Margins at ZKH Group (ZKH.US), which is also transitioning toward a supply-chain model, have been relatively stable, coming in at 14.8% in the fourth quarter. Way above them both is Full Truck Alliance (YMM.US), which still primarily operates a matching platform and is achieving gross margins in excess of 60%.

ZG Group is trading at a price-to-sales ratio of about 0.77 times, higher than ZKH’s 0.37 times but far below Full Truck Alliance’s 4.78 times. The gap suggests Investors view ZG Group more as a supply-chain company than a high-margin platform business. The company’s share price fell about 4% to HK$1.2 after the results and has tumbled more than 50% over the past six months amid ongoing worries about corporate direction and earnings.

Its market value could have even further to fall, if margins stay under pressure and AI cannot bridge the gap for now.

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The low-cost e-commerce company is sacrificing some profit to repair its seller economics, deepen its supply chain and prepare its global Temu arm for a more compliance-heavy phase

Key Takeaways:

• PDD’s latest results suggest its old formula of cheap traffic and extreme pricing is giving way to a model built around supply-chain depth and better merchant relations
• A big bet for investors is whether the low-cost e-commerce company’s international Temu arm can adapt to more complex business conditions outside China

By Hu Minghe

For years, e-commerce company PDD Holdings (PDD.US), known for its rock-bottom prices, sold investors on scale and speed: more users, more merchants, more orders, more growth. But as it matures, the company has shifted that formula to something slower and less glamorous — better merchant relations, deeper supply chains, wider logistics coverage and a more compliant global business.

That may help to explain why the market looked past the company’s latest quarterly report issued last week, which looked a bit messy. Rather than panic, investors sent the stock up as much as nearly 10% the day of the announcement. That suggests they saw the Temu owner less as a company in breakdown, and more as one trying to evolve from a bruising stretch of domestic competition and mounting regulatory pressure at home and abroad.

The numbers show why the debate around PDD has become more complicated. The company’s fourth-quarter revenue rose 12% year-on-year to 123.9 billion yuan ($17.7 billion), but its net income fell 11% to 24.5 billion yuan. More tellingly, online marketing services — the company’s traditional cash engine — grew just 5% to 60 billion yuan, far slower than the 19% rise in transaction services to 63.9 billion yuan.

Even after the brief post-earnings rally, PDD’s shares traded at about 10 times trailing price-to-earnings (P/E), well behind the 22 for rival Alibaba (BABA.US; 9988.HK) and 15 for JD.com (JD.US; 9618.HK).

PDD explains that the squeeze it’s now feeling is intentional as it makes its transition. On its earnings call, Co-Chairman and Co-CEO Zhao Jiazhen said 2025 was the company’s biggest year yet for investment in “high-quality development.” He cited a 100 billion yuan support program for merchants and said PDD’s next phase would focus on deeper investment in the supply chain, even at the cost of weaker short-term profitability.

Zhao also said the company hoped to “build another Pinduoduo” – the name of its original signature service in China – over the next three years, indicating management wants investors to see the company less as a hyper-growth discount platform and more as operator of a vast supply-chain business.

PDD’s shift is most reflected by where it is spending. On the earnings call, Zhao highlighted work in China’s agricultural regions and industrial belts, fee cuts and support for manufacturers, and a logistics push that includes development of county-level transfer warehouses and village pickup points to bring more remote areas into free-shipping zones. Many of the company’s core suppliers are manufacturers, who sell directly to users in price-sensitive smaller markets, allowing for its signature rock-bottom prices by cutting out costly middlemen.

The company said it had built delivery networks focused on such smaller markets in more than 10 provinces and municipalities, while its “new quality supply” programs were aimed at helping merchants upgrade their products, production and branding. Together, those measures suggest PDD is trying to broaden its usefulness to both sellers and consumers, and not just compete on price.

Tighter regulation at home

The company’s domestic reset is also being pushed by a tighter legal and regulatory climate in China. A major flashpoint for merchants had been PDD’s “refund without return” policy, which allowed buyers to get their money back without returning products. Authorities ordered major platforms to end that practice by July 2025. Since then, Beijing has moved more broadly against the kind of cutthroat conditions underpinning such lowest-price-at-any-cost model.

New pricing rules issued last December targeted tactics such as excessive fees and search-ranking penalties used to pressure merchants into lowering prices, while anti-monopoly guidance released last month warned internet platforms against collusion and unfair pricing. In March, Shanghai regulators gathered more than 40 major platforms, including PDD, for an antitrust compliance briefing that highlighted risks such as below-cost selling. In such a climate, PDD’s latest efforts look like adaptation to a tighter regulatory climate as China tries to ease a “race to the bottom” business culture that often results in destructive competition.

The overseas story has required similar adjustment. PDD said its Temu global business now serves nearly 100 markets, but added its next phase will be focused less on user growth and more on compliance with tariffs, customs and product-safety rules.

After the U.S. last year closed a loophole that allowed low-value parcels mailed from China to enter the country duty-free, Temu’s daily U.S. users fell sharply. Meanwhile, the EU is preparing a change that would eliminate a similar duty-free exemption for low-value parcels, and make platforms such as Temu responsible for duties and product-safety compliance.

On the earnings call, PDD Co-Chairman and Co-CEO Chen Lei said regulatory compliance had become the “baseline requirement” for the company’s next global expansion phase. After winning scale in many overseas markets, the harder task for Temu now is proving it can operate under a much harsher trade and compliance regime than what it was used to in China.

PDD is also increasingly feeling the compliance challenge in its home China base. In January, Shanghai tax authorities fined the company 100,000 yuan for failing to submit required tax information. While the fine was relatively small, more important is what it says about PDD’s operating environment: its second act is not just about operating highly efficient supply chains and logistics, but also about proving it can do so more responsibly.

Its decision to remain focused on its core e-commerce business also helps explain why PDD looks different from many of its larger internet peers. While those peers are leaning harder into AI in their investor messaging, PDD is still asking to be judged mainly as an e-commerce and supply-chain company.

By comparison, e-commerce leader Alibaba says AI “is and will continue to be one of our primary growth engines,” while WeChat operator Tencent (0700.HK) says its core businesses are funding increasing investments in AI. JD said it integrated more than 50,000 AI agents into its internal workflows by the end of the fourth quarter. PDD’s own message was much narrower, returning instead to merchants, logistics, compliance and the supply chain. That may make the company look less exciting, but it also means PDD is not asking investors to underwrite a large new AI spending cycle on top of its existing transition.

That may be the best way to understand why PDD’s shares could rally after a mediocre quarterly earnings report and still trade at a relatively modest P/E multiple. Investors may be warming to the idea of a second act for the company built on better merchant relations, supply-chain depth, wider logistics and a more compliant Temu. But the low valuation suggests they are still waiting for proof that the company can make such a transition.

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"Every major country in the world today has become extremely protective of know-how."

Key Takeaways

• Dingdong's decision to sell its domestic operations to Meituan highlights the brutal reality of China's instant commerce price wars
• India's rejection of a Chinese private equity investment in an Italian firm signals a new era of global protectionism over advanced technology

By Doug Young & Rene Vanguestaine

The global M&A landscape is shifting rapidly, shaped by harsh new realities on both domestic and international fronts. Two recent major developments perfectly encapsulate these modern challenges. In one case, a major acquisition in China’s internet sector highlights the brutal wars taking place as companies try to gain scale in an underperforming post-Covid economy. In the other, a collapsed cross-border deal with an Indian element underscores how geopolitical tensions are increasingly erecting roadblocks for global investments. Both events reflect a broader theme: companies are being forced to navigate an increasingly complex competitive environment.

In the domestic arena, we look at one of the bigger M&A deals on the Chinese internet in quite a while. Dingdong (DDL.US), an early pioneer in online-to-offline (O2O) services, specifically online groceries, is being swallowed by food delivery giant Meituan (3690.HK) in a $717 million deal.

Lately, Dingdong was being overwhelmed by larger internet companies encroaching on its space, most notably Alibaba (BABA.US; 9988.HK), JD.com (JD.US; 9618.HK), Meituan, and Pinduoduo (PDD.US). We believe this deal was primarily driven by market share considerations. The Chinese economy hasn’t performed as strongly as expected post-Covid, with consumers becoming significantly more concerned about the cost of both discretionary items and necessities, spending less than anticipated.

In this kind of business, it’s all about scale. To grow market share, companies offer incentives and cut prices, prompting their rivals to jump in and do exactly the same. We’ve seen similar price wars in other sectors, such as electric vehicles and solar panels. However, while EV and solar manufacturers can export their goods overseas to find growth, O2O e-commerce relies on fresh food and prepared meals. Replicating this at scale overseas takes time, making it easier for these giants to compete aggressively at home first.

What’s particularly surprising about this deal is that it happened at all. Chinese entrepreneurs are famous for not wanting to sell their companies even when the odds are highly against them, often staying in the game until their businesses fail and shareholders are left with worthless shares. We think Dingdong’s founder, Liang Changlin, deserves tremendous credit for recognizing the inevitable. He chose to sell the China business while it still held value.

Dingdong will remain a publicly traded company, retaining its global market businesses and roughly $1.2 billion in cash. While there’s speculation about expanding grocery deliveries in other markets, we remain cautious. Meituan is already pushing into the Middle East and Latin America, meaning Dingdong might just be transferring its domestic competition to foreign markets. For investors, the proof will be in the pudding — it is a waiting game to see what the new Dingdong does next.

Geopolitics kills a cross-border deal in India

Shifting to the international stage, we examine one of the first cross-border M&A deals killed by India over apparent concerns regarding the buyer’s China ties. EuroGroup Laminations, an Italian firm, was looking to sell a 45% stake to FountainVest, a Chinese-owned private equity firm based in Hong Kong.

The deal required India’s approval because EuroGroup owns 40% of Kumar Precision Stampings, which it bought in 2024. Even though the two sides offered to carve out the Indian operations to satisfy regulators, India effectively killed the deal without giving a specific reason.

We believe this has all the markings of geopolitics. Relations between China and India have been strained in recent years. Kumar Precision Stampings is involved in advanced technology, which has become a substantial economic and strategic priority for India, just as it is for China and the U.S. By rejecting the carve-out offer, the Indian government likely wanted to protect not just Kumar, but its ongoing access to high-quality Western technology. Carving the unit out would have left Kumar on its own, potentially unable to move forward with the never-ending upgrades required in high tech.

FountainVest likely pursued this minority interest for either financial gain or strategic considerations on the part of China — either of which would be enough reason for India to block the transaction.

In the past, vetoes of M&A deals on national security grounds were rare, largely because massive deals occurred between friendly Western nations. Today, we believe we will definitely see more of these vetoes. Every major country — including the U.S., India, China, and a newly awakened Europe — has become extremely protective of its know-how and national champions. The world is becoming much more competitive geopolitically, and cross-border M&A deals will increasingly find themselves caught in the crossfire.

China’s leading online-to-offline services company said it expects to report a loss of up to 24.3 billion yuan for 2025, translating to a fourth-quarter loss of about 15.7 billion yuan

Key Takeaways:

• Meituan lost more than $2 billion in the fourth quarter, though the figure represented an improvement from its $2.7 billion third-quarter loss
• China’s market regulator called in Meituan, Alibaba and JD.com for a meeting last week to try and tamp down their overheated competition in the emerging instant commerce field

By Doug Young

There’s not much positive you can say about a 15.7 billion yuan ($2.3 billion) loss, which is roughly what online-to-offline (O2O) services leader Meituan (3690.HK) recorded in the fourth quarter, based on a profit warning issued by the company last Friday. The only slight positive we can see is that the latest loss represents a slight improvement over the third quarter, when the company lost an even larger 18.6 billion yuan.

That means perhaps the bad times at Meituan have bottomed out, as the company remains locked in a turf war in China’s emerging instant commerce sector with e-commerce juggernauts Alibaba (BABA.US; 9988.HK) and JD.com (JD.US; 9618.HK). That war has lasted nearly a year, kicked off when Alibaba and JD.com both made nearly simultaneous new moves into the space last spring.

China’s market regulator has stepped in repeatedly to try and ease the competition, which has seen all three companies spend billions of dollars on subsidies for both consumers and retailers and restaurants to try and get them to do more business on their platforms. Signals coming from some of those merchants last fall seemed to indicate that Alibaba, JD.com and Meituan were indeed scaling back their cutthroat ways, perhaps explaining the slight improvement on Meituan’s bottom line in the fourth quarter.

But lest anyone think the war has ended, the State Administration for Market Regulation (SAMR) called in six major internet companies just last week for yet another round of knuckle-rapping over excessive competition, according to numerous media reports. In addition to Meituan, Alibaba and JD.com, others called in for the latest dressing-down included Tencent, Baidu and Douyin, the Chinese version of TikTok.

That seems to show there’s still plenty of competition occurring in this space, and it’s unclear who will back down first. Meituan is the most vulnerable in this war since the instant commerce services at the heart of the battle are one of its core businesses, unlike Alibaba and JD.com, whose main revenue source is their online marketplaces. In a sign of the times, instant commerce services, called “delivery services” in Meituan’s financial reports, slipped from its biggest revenue source to the third biggest in last year’s third quarter.

According to its profit warning, issued on Friday, Meituan expects to report a net loss of between 23.3 billion yuan and 24.3 billion yuan for all of last year, reversing a 35.8 billion yuan profit a year earlier. That represents a remarkable swing of about 60 billion yuan, or around $8.6 billion, in just the space of a year, showing just how intense the latest price war has been.

Some number crunching shows that the midpoint of the forecast loss range translates to the 15.7 billion fourth-quarter loss we previously mentioned, easing from the even bigger 18.6 billion loss in the third quarter. The company was still profitable in last year’s second quarter, though barely, with a 365 million yuan profit for that period, down 97% year-on-year.

The price war has taken a toll on Meituan’s stock, which has lost about half of its value over the last 52 weeks. By comparison, JD.com’s stock is also down about 30%, though Alibaba’s shares are actually up about 30% over that time.

‘Unprecedented’ competition

Meituan was quite direct in explaining its huge reversal of fortune, blaming “unprecedentedly intense industry competition” last year, which led it to “strategically increase” its investments across its entire ecosystem. “Those included increased marketing, promotions, increased courier incentives to ensure service quality, and proactive investment in resources for merchants to help them maintain their operational efficiency,” Meituan said.

The heavy spending was quite prominent in Meituan’s third-quarter report last year, when its marketing expenses rocketed to 34.3 billion yuan, or about 36% of its revenue, from 18 billion yuan, or 19% of revenue, a year earlier. It was also reflected in the company’s cost of revenue, which jumped 24% year-on-year on incentive programs for merchants, far faster than the 2% growth for its actual revenue.

Meituan also blamed its recent overseas expansion under its Keeta takeout delivery brand, which is running into similar competition overseas from local players as well as at least one Chinese rival, DiDi Global, in Brazil. In addition to Brazil, where it launched service last October, Keeta also operates in Saudi Arabia, the UAE, Kuwait and Qatar, as well as closer to home in Hong Kong. That operation is being personally overseen by Meituan founder Wang Xing, showing how serious the company is about the business.

Meituan said it expects its losses to continue into the current quarter due to ongoing competition, but tried to reassure investors by saying its operations remain “sound and stable.” It added it also has sufficient cash to support its business development. Despite those reassuring words, Meituan’s stock still continued to sag on Monday, the first trading day after the profit warning, with the shares down 2.2% shortly after the market opened.

Meituan has been one of the most effective of China’s internet companies when it comes to M&A, which is one reason why we like this company and think it will ultimately emerge stronger from this latest price war. The company started out as a Chinese version of Groupon (GRPN.US), offering group buying bargains, and scored a major advance when it merged with Dianping, China’s version of Yelp (YELP.US), in 2015. It also made headlines in 2018 with its purchase of Mobike, one of China’s leading operators of a popular shared bicycle service. Both of those acquisitions have thrived and continue to be leaders in their spaces.

Meituan was back in the M&A headlines two weeks ago when it announced a deal to buy Dingdong (DDL.US), China’s leading online grocer, for $717 million. That deal represented an important step in the consolidation of China’s instant commerce sector, since groceries ordered online are arguably one of the biggest segments of instant commerce. What’s more, the acquisition will nicely complement Meituan’s own Xiaoxiang and Kuailv online grocery services.

But while the departure of Dingdong as a rival will help to ease competition somewhat, there’s no possibility of anything similar happening with Alibaba or JD.com, which are both quite large and look determined to stay in the instant commerce sector for the time being. That means the instant commerce price war may ease slightly, but is likely to continue for most of this year, despite the attempts by China’s market regulator to turn down the temperature.

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Just a half year after its Nasdaq listing, the operator of a B2B agricultural trading platform is using its IPO funds to move into agricultural management tools and services

Key Takeaways:

• Yimutian has announced a new acquisition and partnership as part of its shift from B2B e-commerce platform operator into agricultural services
• The transformation could get a policy boost from China’s drive to modernize its agricultural sector, but also faces challenges from the company’s limited resources

By Doug Young

Just a half year after its Nasdaq listing, Yimutian Inc. (YMT.US) is undergoing a major transition. The company currently operates a B2B platform for traders of agricultural products, and it makes most of its money through commissions and other fees from transactions between buyers and sellers. But it wants to get more into the business of working more directly with agricultural product makers, helping them to improve their operations using digital tools. It also wants to sell more directly to consumers, cutting out costly middlemen that are currently the main buyers on its platform.

It advanced that agenda with two major new initiatives announced at the end of last week, including plans for an acquisition and a new partnership with an agricultural project in South China’s Guangdong province. Investors weren’t too impressed, possibly feeling they were tricked into buying one thing, only to discover the company whose stock they originally purchased was moving in a very different new direction.

Yimutian’s shares sank nearly 9% on Friday after the pair of announcements, as the stock closed at $1.64 – about 60% below its offer price of $4.10 at the time of its listing last August. This type of bait-and-switch isn’t uncommon among Chinese companies, some of which are constantly changing their business models as they seek out the best formula for success.

In this case, investors may be worried because the type of business transformation Yimutian is seeking could be costly, especially if it embarks on an acquisition spree to pursue its new aims. Its cash was already running dangerously low at the time of its IPO, down to just 1.7 million yuan ($254,000) at the end of last June. But it got a major new infusion with the listing, which raised about $20 million, and is now being used to fund the company’s transition.

Hence, any investors who thought they were buying into a B2B agricultural trader may justifiably feel duped now that the company is using their money for something else. We would argue the new direction looks somewhat interesting, and would position Yimutian in a niche that’s more difficult for competitors to copy than its current business. The two big questions are: Can it successfully navigate China’s complex agricultural landscape to execute its new plan; and will its cash and other financial resources be enough to see it through the transition?

The new acquisition announced last Thursday will see Yimutian purchase Hunan Jiufeng Agriculture Co., a 14-year-old maker of premium camellia oil products, for an undisclosed sum. It said the move represents a “strategic shift for Yimutian as it builds an integrated agricultural ecosystem spanning production, circulation, and consumer markets.”

“Our long-term vision is to create a technology-driven agricultural ecosystem that connects production with consumption,” said Yimutian Chairman Deng Jinhong.“By applying AI and data throughout the value chain, we aim to improve production efficiency, strengthen quality assurance, and unlock greater commercial value for agricultural products. Ultimately, our goal is to make every acre of farmland more valuable.”

Agricultural project partnership

The same day it announced the Jiufeng purchase, Yimutian also unveiled a new partnership to jointly develop a large-scale integrated agricultural project in the city of Huazhou in South China’s Guangdong province. That initiative covers about 21,000 mu, or 1,400 hectares, though Yimutian didn’t give the project’s agricultural focus. But like the acquisition, it said the alliance would bring its technical tools to another agricultural project operator.

“Yimutian will contribute its digital platform capabilities, data systems, and AI-enabled agricultural technologies, while local partners will support land coordination, infrastructure integration, and project execution,” it said. It added the partnership aims to create a “replicable model for large-scale modern agriculture development.”

The two initiatives come just months after Yimutian announced another plan last November to purchase agricultural technology company Ningbo Xunxi Technology using a combination of cash and stock. At the time, it said Xunxi had capabilities in channel expansion, digital supply chain management, and multi-category operations to help farmers and agricultural enterprises by providing them with full-chain services, from production to sales. In an update last month, Yimutian said it had completed due diligence and expected the deal to close by the end of March.

All these initiatives look interesting and could ultimately create a company that’s much harder for competitors to replicate if Yimutian can successfully manage its new partnerships and integrate its acquisitions. That’s often quite challenging, especially in China’s agricultural landscape where land-use rights are quite complex and can often change. But Yimutian also has government policy in its favor, since China is trying to downplay traditional family farms in favor of the kinds of modern agribusinesses that lie at the heart of Yimutian’s new focus.

While it moves in its new direction, Yimutian’s original B2B agricultural products trading business is going nowhere fast. Its revenue slipped 18% in the first half of last year to 66.4 million yuan from 80.9 million yuan a year earlier, while its losses for the two half-year periods were roughly the same at about 60 million yuan. Its gross margin is quite high, reaching 80.3% in the first half of last year. But that was more than offset by heavy operating expenses, which totaled 72.3 million yuan during that period – well above its 66.4 million yuan in revenue.

Investors may also be concerned after Yimutian revealed last November that its volume of tradeable shares fell below the Nasdaq’s $15 million minimum threshold, which could subject it to delisting if it didn’t rise above that level within 180 days. It pointed out it expected the number to rise above the threshold after a 180-day lockup period ends for its pre-IPO investors, which will happen later this month. But that flood of new shares into the market could also pressure the stock price, which is likely another investor concern.

At the end of the day, Yimutian’s future hinges on its ability to shed its roots as a B2B trading platform operator and move into the higher value-added business of helping agricultural firms improve their operations using its digital tools, and also helping them to sell directly to consumers. If you believe it can do that, the stock could potentially hold quite a bit of upside. But that transformation could take some time, and investors will inevitably be looking for signs of a return to revenue growth before giving the company anymore funds.

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One of the country’s oldest online grocers will sell itself to its larger rival for $717 million, in one of the largest such sales to date in a fast-evolving Chinese instant commerce sector

Key Takeaways:

• Dingdong’s stock fell 14%, dropping its market value to $700 million, after announcing the sale of its core China business to rival Meituan for $717 million
• Founder Liang Changlin probably made the move after realizing Dingdong would be unviable as a standalone online grocer in China’s fast-evolving instant commerce space

By Doug Young

The instant commerce wars ravaging China’s retail landscape have claimed their biggest victim yet. That’s our flash verdict following the Thursday announcement that Dingdong (Cayman) Ltd. (DDL.US), one of China’s earliest online grocers and arguably one of its oldest instant retailers, is throwing its bag into the much larger shopping cart of rival Meituan (3690.HK).

Consolidation in China’s online sector rarely happens through this type of merger, partly because most companies are headed by fiercely independent founders who would rather see their empires go bankrupt than sell them to someone else. That was the case in 2022 when Dingdong’s former top rival Missfresh crashed and burned, even though many suitors probably would have considered buying the company while it was still doing reasonably well.

So, in that regard, we have to commend Dingdong founder Liang Changlin for seeing the writing on the wall and selling his company while there was still something of value to sell. China’s retail landscape was far different when Liang, described on Dingdong’s website as a “serial entrepreneur,” previously founded several other e-commerce companies before setting up his online grocery business in 2017.

Most notably, China’s “instant commerce” sector has exploded in the last year, as e-commerce heavyweights Alibaba (BABA.US; 9988.HK) and JD.com (JD.US; 9618.HK) entered the space. Groceries were arguably one of the earliest instant commerce products due to their perishable nature and the ease of delivery from local warehouses. Similar logic holds for takeout dining meals.

But Alibaba, JD.com and even Meituan have taken the concept to a new level lately with instant commerce rapid delivery initiatives that included not only groceries and takeout dining, but many everyday household items that usually took days to deliver in the past. Now the group is fighting to see who can deliver the fastest, with some promising deliveries for even non-perishable items in as little as 30 minutes.

None of this comes cheap, and Alibaba, JD.com and Meituan are all using their other profitable businesses to subsidize their instant commerce initiatives – a factor that may have made Dingdong’s Liang realize he could never compete with such big companies over the long term. The subsidy wars took an especially big toll on Meituan, which swung massively into the red with an 18.6 billion yuan ($2.68 billion) loss in last year’s third quarter, compared with a 12.9 billion yuan profit a year earlier.

Against that backdrop, we’ll take a closer look at the Dingdong deal, which is quite simple. Both sides said Meituan will acquire Dingdong’s core China business for a total consideration of $717 million, with 90% to be paid up front and the remaining 10% to follow after the settlement of applicable taxes.

Disappointingly, the comments from both companies don’t talk about the brutal competition driving this deal, and instead only talk about both companies’ commitment to freshness and quality. Dingdong’s U.S. shareholders weren’t too impressed, with the stock dropping 14.4% on Thursday, wiping out most of its gains from the last 52 weeks. Still, the company’s market value after the selloff was around $700 million, which is roughly what Meituan is paying. Meituan shareholders were also unimpressed, with its stock down 1.5% in Friday morning trading in Hong Kong.

Grocery giant

From a market perspective, the merger of Dingdong with Meituan’s own online grocery businesses, mostly its Xiaoxiang and Kuailv services, will create an industry leader. Dingdong’s revenue totaled 6.66 billion yuan in the third quarter, but wasn’t going anywhere fast, up just 1.9% year-on-year. Dingdong operates over 1,000 front warehouses in China, with more than 7 million monthly transacting users, according to Meituan’s announcement of the deal.

Meituan’s grocery business makes up the bulk of the “new initiatives” segment of its financial reports, whose revenue rose 15.9% year-on-year to 28 billion yuan in the third quarter. The new initiatives segment also includes Meituan’s overseas Keeta takeout dining business, which has been expanding aggressively over the last year, and we suspect most or all of the new initiative revenue growth came from that.

Still, the two companies combined would have nearly 35 billion yuan in quarterly grocery-related sales, translating to 140 billion yuan annually, which is no small amount. By comparison, U.S. grocery leader Kroger (KR.US) reported $147 billion in sales in the 12 months through last September, about seven times more than Dingdong, in the far more mature U.S. market.

But again, we need to emphasize this deal is really more about instant commerce and less about groceries. Dingdong’s Liang probably understood that when he decided to sell. Thus, he realized his standalone grocer would never be able to compete with the likes of Alibaba, JD.com and Meituan, which were offering not only groceries, but takeout meals and other everyday items, from kitchenware to clothing, under their instant commerce banners.

It’s interesting to note that Dingdong didn’t sell the entire company to Meituan, but instead only sold its core China business. Dingdong pointed out it also operates an international business, which is presumably all that will be left in the publicly traded company – plus a big chunk of cash – after the sale to Meituan is completed.

That leaves us to speculate what might be next for the Dingdong name, and the publicly traded Dingdong (Cayman) company after this deal closes. We suspect the Dingdong name will be retired and merged into Meituan’s Xiaoxiang business, similar to what Alibaba is now doing by merging its Ele.me takeout dining name into its newer Taobao Instant Commerce brand.

In addition to the $717 million it will get from Meituan, the listed Dingdong (Cayman) had another $549 million in cash and short-term investments at the end of last September. That means it will have more than $1.2 billion in its coffers once the deal is complete. Liang could theoretically pay that out to investors as a massive dividend, which would represent a nice 70% premium to the current stock price. But given his background as a “serial entrepreneur,” we suspect he may try to use the company – and its huge cash pile after the deal closes – to try his hand at another business, either inside or outside China.

Anyone who thinks a big dividend might be coming could hang around and wait for such a payout, and pocket some nice profits in the process. But if Liang decides to try out another business, perhaps building off Dingdong’s small base in international markets, then investors could be left holding a new mystery grocery bag of dubious value.

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The e-commerce company’s move is the latest development in its gradual transformation into an online version of Costco and Sam’s Club

Key Takeaways:

• East Buy is building up same-day delivery capabilities in its top 10 markets, and plans to trial instant retail fulfillment capabilities in Beijing, Shanghai and Guangzhou
• The company’s stock rallied 14% after it announced the moves, contained in its latest financial report that showed it returned to profitability in the first half of its fiscal year

By Doug Young

Just when the price war in China’s emerging instant commerce sector looked set to ease, yet another major player looks set to enter the space. That new challenge is coming from East Buy Holding Ltd. (1797.HK), which disclosed the initiative in its latest financial report on Wednesday for the first half of its fiscal year through last November.

The plan would throw East Buy into the thick of an ongoing turf battle between industry giants Alibaba (BABA.US; 9988.HK), JD.com (JD.US; 9618.HK) and Meituan (3690.HK) in the business of delivering goods to customers within as little as an hour of placing orders online.

While East Buy may not be as familiar to some as the other internet giants, the company has a strong pedigree as the former online arm of New Oriental Education (EDU.US; 9901.HK), which pioneered a Chinese after-school tutoring sector that became a huge money-spinning machine before being snuffed out in a government clampdown in 2021. While New Oriental shifted to education areas still allowed after the crackdown, such as study abroad consulting services, East Buy charted a completely new direction into e-commerce.

Both companies are the brainchildren of Yu Minhong, one of China’s most overlooked superstar entrepreneurs, who personally took the microphone and went before the cameras as one of East Buy’s first livestreaming hosts when it made its e-commerce shift.

The instant commerce initiative is the latest step in a long march for East Buy as it transforms into an online version of the hugely successful Costco (COST.US) and Walmart’s (WMT.US) Sam’s Club, which rely on private label products sold through a membership system.

East Buy is currently building up same-day delivery capabilities in its top 10 cities by order volumes, it disclosed in its latest financial report for the six months through last November, the first half of its fiscal year. That means customers in those cities who place orders before 10:30 a.m. can expect same-day delivery, while orders placed after that through 11 p.m. can receive their products by 3 p.m. the next day.

At the same time, the company said it plans to trial instant retail fulfillment capabilities in the top-tier cities of Beijing, Shanghai and Guangzhou. It added that it is currently building up a system of massive warehouses to underpin the instant commerce drive, including two commissioned last year and two more currently under construction. East Buy also plans to leverage New Oriental’s huge network of brick-and-mortar learning centers across China, and said it has deployed more than 40 vending machines nationwide and already achieved profitability from that initiative in some cities.

“We plan to gradually roll out this business, and will further expand its coverage in different scenarios including office buildings, residential communities and learning centers, so as to complement our offline exposure,” the company said.

East Buy didn’t specify if it would use its own drivers to deliver its instant commerce goods, or whether it might use one of the other companies. Streets of major Chinese cities have become increasingly congested with such deliverymen, including drivers from Meituan, JD.com, Alibaba’s Taobao and online grocer Dingdong (DDL.US). Adding to the congestion are another cohort of deliverymen from about a half dozen major logistics companies.

Investors applaud

Investors were quite excited about East Buy’s latest report, which also included a return to profitability for the six-month period. The stock shot up 14.2% on Thursday after the report’s release, and rose another 8% in the Friday morning session. The shares are up about 50% over the last 52 weeks, and now trade at a rich price-to-sales (P/S) ratio of 5.4, roughly double the figure for Alibaba, and nearly quadruple the 1.52 for Costco.

The company certainly deserves kudos for coming back from such a devastating blow after the education crackdown of 2021. It also survived another major setback after it became embroiled in a major clash with its star livestreaming host, Dong Yuhui, who left the company in 2024, taking a big chunk of East Buy’s business with him.

Since then, Yu Minhong has learned the lessons of relying too heavily on individual livestreaming hosts, which are all the rage on China’s e-commerce scene right now. He has also learned a lesson from Sam’s Club and Costco in China, which have thrived even as many other brick-and-mortar supermarkets and other retailers are struggling.

Despite all the hype, the company’s actual financials were a bit less impressive. Its revenue for the six months to November rose just 5.7% year-on-year to 2.31 billion yuan ($332 million), though the rise would have been 17% excluding year-ago contributions from Dong Yuhui’s program.

The company also pointed out that growth for its private label business, which it sees as its primary focus going forward, rose 18.1% in the latest six-month period to 2 billion yuan from 1.7 billion yuan a year earlier. East Buy said that business provided about 53% of the company’s gross merchandise value (GMV) in the six months, up from around 40% in June, the latter figure based on data from Feigua.

Most of the company’s other metrics tell a story of improving profitability as it refines and scales up its private label business, and also lowers its costs as it moves past the Dong Yuhui conflict. All of that is reflected in its gross margin, which rose to 36.4% in the latest six-month period from 33.6% a year earlier. Those factors helped the company return to the black with a profit of 239 million yuan for the latest period, reversing a 97 million yuan loss a year earlier.

East Buy’s general direction looks quite positive, though it’s heading into tough terrain with its plan to challenge such giants as Alibaba, JD.com and Meituan in instant commerce. The stock itself also looks a bit overvalued on the hype about the company’s comeback and Yu Minhong’s star power, which could limit its near-term upside potential.

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The cross-border e-commerce company has found a comfortable home in Indonesia, but has yet to find a place in the rest of a fragmented Southeast Asian market

Key Takeaways:

• Woke Technology has filed to list in Hong Kong, boasting status as Indonesia’s top cross-border digital retail platform for computer and phone accessories
• With Alibaba affiliate Hangzhou Haoxing as an investor, and a valuation of $215 million, the e-commerce company’s IPO could raise more than $50 million

By Edith Terry

At a time when Chinese consumer-facing companies are racing to set up footholds in Southeast Asia, Shenzhen Woke Technology Co. Ltd. is way ahead of the game. Founder and Chairman Xu Longhua, a former executive from home electronics giant TCL, began building his business in Indonesia a decade ago in 2015, and has begun expanding in Vietnam, Thailand and the Philippines more recently.

When Woke filed for a Hong Kong listing last week, with midsized underwriter Huatai International as sole sponsor, it looked like a winner. According to its preliminary prospectus, it ranked first among China-based cross-border e-commerce companies in its core product line of “3C” accessories: computers, communications and consumer electronics. It was also sixth among that group in small appliances, its fastest growing business.

While the company looks quite comfortable in its niche, it also faces a number of challenges. Most notably, the market is becoming increasingly crowded with other players, including a growing number from China. And despite its efforts at regional diversification, Woke is still largely confined to Indonesia.

The company has an e-commerce pedigree in the form of Alibaba affiliate Hangzhou Haoxing as one of its major investors. Its most recent financing in 2024 valued it at 1.53 billion yuan ($220 million), meaning an IPO could raise roughly a quarter of that, or around 400 million yuan ($58 million).

The Southeast Asian retail market has huge growth potential, feeding off a rising middle class, rapid urbanization and high penetration of smartphones and digital payments. According to third-party research in Woke’s prospectus, the region’s retail market expanded 6.1% annually from $693.4 billion in 2020 to $879.9 billion in 2024. Indonesia represents the largest chunk of that, growing from $243.4 billion in 2020 to $313.3 billion in 2024.

Woke’s business model is relatively common for China-based cross-border e-commerce companies, combining Chinese supply chains with local logistics in countries where it sells its products. In this case, Woke has 17 warehouses in Indonesia alone. It sells its products both directly over its Wook app, as well as over popular regional e-commerce platforms like Shopee and Tokopedia, and via livestreaming e-commerce platforms like TikTok. Its distribution network also extends offline, reaching some 85,000 warungs, or mom-and-pop retailers, through a network of 40,000 offline distributors.

Woke’s business segments are targeted at local populations whose buying habits are similar to China in the 1990s, when aspirational consumers had relatively little money but were willing to spend on items that made life more convenient. Its offline store partners sell not only to individual households but also small construction and renovation contractors.

Reflecting the importance of its offline network, online sales represented only 28.5% of Woke’s total in the first nine months of 2025, with sales to distributors accounting for nearly all the rest. But online sales have been growing fast, rising from 17.2% in 2023, fueled by growing use of digital payments and increasing mobile phone penetration.

Woke’s main product lines are 3C accessories, such as power banks and charging cables. It also sells small appliances like food choppers, ovens and air fryers, as well as home furnishings and building materials.

Rising revenue

The company’s revenue has grown steadily, rising between 15% and 18% annually over the last two years to reach 880 million yuan ($127 million) in the first nine months of 2025. Its net profit growth accelerated over the same timeframe from just 11% in 2024 to 26% in the first nine months of last year, when the figure reached 41.65 million yuan. The acceleration owes to improving margins, including a net margin that rose from 2.0% in 2023 to 4.7% in the first nine months of last year.

3C accessories currently account for about two-thirds of Woke’s revenue, with small appliances and home furnishings each making up 10% to 15%. But small appliances are growing the fastest among Woke’s main product categories, with revenue leaping from 40 million yuan in 2023 to 116 million yuan in the first nine months of 2025, tripling from 4.4% of total revenue to 13.1% over that period.

The company’s fortunes are firmly tethered to Indonesia, which accounted for 94.1% of its sales in the first nine months of 2025. The remainder came from Vietnam, Thailand and the Philippines. Woke has clearly managed to diversify from its core business of 3C accessories, and is also quite diverse in its online versus offline business mix.

Despite its lack of geographic diversity, Indonesia is certainly a good choice if you have to choose just one country in Southeast Asia. The country is not only the most populous in the region, but also its largest economy.

Woke hopes to use funds from the IPO partly to tackle its lack of geographical diversity. But the landscape in other countries has changed quite a bit since its early arrival in Indonesia. While Chinese consumer-facing companies were relatively rare back then, many retailers, restaurants and other brands and manufacturers are turning to Southeast Asia now to escape the hyper-competition and saturation in their home China market. Southeast Asia has always been a natural first choice for many such companies as it has similar demographics to China, and many countries also have large ethnic Chinese populations.

Brands such as Midea and Supor already have a lead in Indonesia’s home appliance market, and leading smartphone maker Xiaomi has its own ecosystem in mobile accessories across the region. All of those, along with other Asian brands, will be formidable opponents as Woke explores the 3C accessories and small appliance markets beyond Indonesia.

There are also some niggling issues with Woke’s balance sheet, including net current liabilities that rose at a faster rate than its net current assets last year. The company is also curbing its R&D spending, which dropped from 2.3% of revenue in 2023 to 1.3% in the first nine months of 2025. Given the rapid embrace of the digital economy throughout Southeast Asia and heated competition, such cutbacks don’t necessarily look so prudent.

In short, Woke looks relatively strong thanks to its early mover status into Indonesia and its cross-border e-commerce model leveraging China’s low manufacturing costs to sell to the fast-growing Southeast Asia market. But its relatively late arrival to other markets outside Indonesia may limit its success. And Woke’s China sourcing advantage could also come under pressure if governments in Indonesia and other countries start pressuring it to source more of its products locally.

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China’s leading e-commerce company is reportedly considering a spinoff and separate listing for its chip-making unit, following a similar plan by Baidu

Key Takeaways:

• Alibaba is reportedly weighing a plan to spin off and list its T-Head unit, hoping to join the ranks of other Chinese AI chipmakers with extremely high valuations
• Shares of rival chipmaker Biren have nearly doubled since their Jan. 2 Hong Kong trading debut, while Moore Threads is up nearly fivefold since its December Shanghai listing

By Doug Young

If opening one lock doesn’t work, then try another. That seems to be the latest story at e-commerce giant Alibaba Group Holding Ltd. (BABA.US; 9988.HK), which is reportedly considering a spinoff and separate listing for T-Head, its chip-making division.

If it happens, the spinoff, often called “unlocking shareholder value,” would come nearly three years after the company announced a much bigger plan to split itself into its six main divisions and make separate listings for some or all of those. Company watchers will know that plan ultimately got scrapped, and Alibaba has largely remained intact in its current form since then.

Somewhat ironically, the T-Head division now being planned for a potential spinoff is closely tied to Alibaba’s Cloud Intelligence Unit, though T-Head’s website only describes itself as “a wholly-owned semiconductor chip business entity of Alibaba Group.” The cloud unit was one of the first of Alibaba’s six units to scrap its spinoff under the original breakup plan. At the time, one of the stated reasons was U.S. restrictions that banned Chinese companies from buying advanced AI chips from Nvidia (NVDA.US) and other U.S. suppliers.

T-Head and a growing group of other Chinese chip startups are working hard to fill that gap by developing their own AI chips, formally known as graphics processing units (GPUs). Some of those companies are parts of larger names like Huawei’s HiSilicon and Baidu’s (BIDU.US; 9888.HK) Kunlunxin.

Others are standalone startups like Moore Threads (688795.SH), Cambricon (688256.SH) and Biren (6082.HK), whose shares have all soared lately. Since its listing on Jan. 2, Biren’s shares have nearly doubled. Moore Threads are up more than fivefold since their December IPO. All three companies have triple-digit price-to-sales (P/S) ratios, with Moore Threads and Biren both above 200.

By comparison, Nvidia currently trades at a lowly P/S ratio of just 24, while Marvell Technology (MRVL.US), considered a second-tier GPU maker, trades at just 9.2. The sky-high valuations for the Chinese companies, which is clearly a factor behind the timing of Alibaba’s potential spinoff plan, are being driven by expectation that China will provide generous state support for these companies as part of its plans to wean itself from reliance on Western technology.

Still, you can’t help wondering if these valuations are a bit over-the-top and due for a correction when the current stock market rallies in Hong Kong, Shanghai and Shenzhen finally subside.

Against that backdrop, it’s no surprise that Alibaba may be putting its own plan to spin off T-Head on a fast track, seeking to ride the wave of inflated valuations and raise some big money to keep the unit humming. Nearly all of these GPU companies are massive money-burners, meaning capital markets are one of the main engines that allow them to keep working.

Under its potential spinoff plan, Alibaba would restructure T-Head as a business partly owned by its employees, before exploring a potential IPO, according to a Blomberg report that broke the story. While the report says timing of a potential IPO has yet to be determined, we would expect it to come pretty quickly, perhaps as soon as the next three or four months, as the company races to take advantage of the current hot market.

Joining Baidu

Alibaba isn’t the only one racing to spin off its chip unit for a separate listing. Just last month, leading search engine operator and autonomous driving aspirant Baidu announced plans to spin off its Kunlunxin unit, in a deal that media reports said could raise up to $2 billion. That unit started out mostly as an internal supplier of chips for Baidu’s own use, but more recently has begun selling them to third parties as well, such as leading wireless carrier China Mobile.

T-Head is similar, selling its chips outside the company to China’s second-largest carrier China Unicom. China Mobile and Unicom are two of the nation’s most aggressive builders of new data centers that are expected to become many of the AI computing centers of the future, and thus require huge amounts of chips to power their operations. Alibaba’s cloud unit is also a major operator of such data centers for its own cloud services, both in China and abroad, which was one of the original reasons for setting up its own internal chip unit.

The potential spinoffs have been a boon for both Alibaba’s and Baidu’s shares. Alibaba’s New York-listed stock jumped 5% on Thursday after the Bloomberg report came out. The stock has more than doubled in the last 52 weeks, outpacing a 56% gain for Tencent, China’s largest internet company, over that period. Alibaba’s recent rise has lifted its valuation to $423 billion, narrowing the gap with Tencent, which is still China’s largest internet company with a market cap of $693 billion.

But Alibaba’s recent rally has helped it catch Tencent in terms of price-to-earnings (P/E) ratios, with both companies now trading at 24 times, ahead of the 19 for takeout dining leader Meituan (3690.HK) and just 11 for PDD (PDD.US), owner of the Temu app.

It remains to be seen where T-Head and Kunlunxin might list. Our best guess is the pair would both target the more internationally focused Hong Kong, reflecting their global aspirations and also that market’s more rational valuations. Meantime, you have to wonder if Huawei might also be considering a similar spinoff for HiSilicon, whose Kunlun chips are generally considered the most advanced in China.

A T-Head spinoff would continue a string of relatively positive developments for Alibaba, whose stock languished for a while after it scrapped its original breakup plan. The company’s latest results showed its revenue rose 5% to 248 billion yuan ($35.6 billion) in the quarter through September, though the gain would have been 15% excluding two big brick-and-mortar retailing assets being sold off.

The company’s cloud unit continued to be one of its star performers, reporting 34% revenue growth for the quarter, lifting it to about 40 billion yuan, or about 16% of the company’s total. Another exciting area for the company is instant commerce, which has seen Alibaba merge its Ele.me takeout dining unit into its more general delivery Taobao Instant Commerce service. That unit shows up in Alibaba’s “quick commerce” segment, which reported 60% year-on-year growth to 23 billion yuan in the September quarter, lifting it to 17% of revenue for the company’s core e-commerce unit.

The bottom line is that Alibaba’s latest spinoff plan is quite opportunistic, driven by the huge valuations investors are giving to Chinese AI chip makers right now. That step, together with the strong growth for the company’s cloud and instant e-commerce stories, could provide some continued momentum for the stock as it tries to regain some of its former glory.

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The hotel operator expects to report 35% revenue growth for all of 2025, up from a 25% forecast at the start of the year, thanks to strong performance for its retail business

Key Takeaways:

• Atour reported 38.4% revenue growth in the third quarter, and raised its full-year guidance to 35% from a previous forecast of 25% growth
• The hotel operator’s revpar continued to decline in the third quarter, but it said the situation should improve after a strong performance during the weeklong Oct. 1 holiday

By Doug Young

The year 2025 could well go down as the “Year of the Pillow” for Atour Lifestyle Holdings Ltd. (ATAT.US).

In its third-quarter financial results, announced last week, the upscale hotel operator said it expects to report 35% revenue growth this year, marking a strong upgrade from the 25% rise it forecast at the start of the year. The main engine behind that growth is the company’s retail business, which allows customers to buy products they see in their rooms through Atour’s online store. That business has done especially well, led by strong performance for its bedding products, including pillows.

Investors were broadly encouraged by the company’s latest report, sending Atour’s stock up 8.5% in the five trading days last week after the announcement. Analysts also quite like the company, with all 19 who follow the stock rating it either a “buy” or “strong buy” – a relative rarity these days due to uncertainty surrounding China’s economic slowdown.

Atour wasn’t immune to that slowdown, recording another quarter of declines for revenue per available room, or revpar, the most widely watched industry metric that combines room prices with occupancy rates. Atour and most of its peers saw their revpar start contracting last year, after recording strong gains in 2023 fueled by a wave of post-pandemic “revenge travel.”

In a slightly encouraging sign, Atour’s rate of revpar declines has been moderating through the year, and fell by a relatively small 2.4% year-on-year in the third quarter to 371 yuan, as the company lowered room prices to attract guests. Not surprisingly, a bright spot for the company was its Atour Light brand, which attracted budget-conscious travelers due to its positioning at the lower end of Atour’s mid- to upper-end range of offerings. One other encouraging sign came from a rise in revpar for the company’s hotels during China’s weeklong National Day Holiday starting Oct. 1, which will be reflected in its fourth-quarter report.

“For the hotel sector, the overall market has shown a moderate recovery since the third quarter,” said Atour founder the Chairman Wang Haijun on the company’s earnings call. “While travel and leisure demand continues to be robust, the industry is also characterized by rapidly shifting hotspots and uneven recovery across regions,” he added, without giving specifics.

Like many consumer-facing industries in China, the country’s leisure and travel sector experienced a strong rebound in 2023 after taking a drubbing during the pandemic. But it began to sag again last year under the weight of China’s slowing economy. Against that backdrop, Atour and some of its peers have helped to keep their growth stories alive partly by aggressively opening new hotels.

Atour opened 152 new hotels during the quarter, raising its total to 1,948 by the end of September. That number was roughly equal to the total number of hotels it opened in the first half of the year, showing it is accelerating its rate of new openings. That acceleration looks set to continue into the fourth quarter, as the company said on the earnings call it had “full confidence” of meeting its goal announced early this year of operating 2,119 hotels by the end of 2025. That means it will need to add 171 during the quarter to meet that target.

Million-yuan pillow

Atour’s revenue grew 38.4% year-on-year in the third quarter to 2.63 billion yuan ($372 million), picking up from the previous two quarters on its accelerated new hotel openings. That brought its revenue growth for the first nine months of the year to 35.5%, which is why the company felt confident raising its full-year revenue forecast to 35% growth from the previous 25%.

The retail business has been the company’s “secret sauce” behind the strong revenue growth, with revenue from that part of the business rising 76.4% to 846.3 million yuan during the quarter from 479.7 million yuan a year earlier. By comparison, revenue from its core hotel business rose by a much slower 25.5% to 1.72 billion yuan from 1.37 billion yuan a year earlier. In that process, Atour’s retail business has grown to account for nearly a third of its revenue compared with about a quarter a year earlier.

The company has found particular success in selling bedding products. It noted one of the retail business’ recent best sellers was its Deep Sleep Memory Foam Pillow, which recorded 100 million yuan in gross merchandise value (GMV) in the first 25 days after its launch, with 8 million of the pillows sold since the product went on sale.

Revenue from the retail business is now up 75% in the first nine months of the year, giving the company confidence to forecast the figure will rise “at least 65%” for the full year. Here, however, we should note the figure was up by a much larger 126% in 2024, which shows the growth rate is likely to keep slowing rapidly as the business matures.

The retail business is a unique feature to Atour, and probably one of the reasons analysts like the company so much, as it carries far higher margins than the hotel business. Atour said its gross margin for the retail business stood at 52.7% in the third quarter, unchanged from a year earlier, while the figure for its hotel business rose 1.3 percentage points year-on-year to a much lower 37.3%.

On its bottom line, Atour reported its profit rose 24.6% year-on-year to 474 million yuan. The slower rise compared with revenue growth was mostly due to non-operational factors including higher tax expense. The company also announced its payment of a second dividend for the year, which will bring its total dividend distributions for the year to a little over $100 million.

While analysts are bullish on the company, investors seem to have more mixed feelings. Even after a 45% increase for its stock this year, Atour’s shares trade at a forward price-to-earnings (P/E) ratio of just 20. That’s well behind the 35 for rival H World Group (HTHT.US; 1179.HK), whose core China business is also suffering, with revpar down 4.7% in the third quarter. But H World also owns a large overseas hotel portfolio, which was suffering for years but has begun to show signs of improvement, including a 6.1% revpar increase in the third quarter.

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“In the current economy… this whole thing seems to me to be almost a zero-sum game. There's a finite amount of money that Chinese consumers can or are willing to spend on discretionary items.”

By Doug Young & Rene Vanguestaine

Diverging fortunes on China’s retail landscape have been on full display recently, characterized by a coffee giant’s audacious global ambitions and the quiet fizzling of what was once the world’s largest shopping extravaganza. On one hand, Luckin Coffee, having already eclipsed Starbucks domestically, looks poised for a massive international breakout with reports linking it to a bid for the British chain Costa Coffee. On the other, the "Double 11" shopping festival – once billed as China’s answer to Black Friday – rang hollow this year, marked by muted media coverage and a lack of concrete sales data. They offer a combined snapshot of the current Chinese economy: a saturated, cautious domestic consumer market driving fierce competition at home, compelling the strongest players to seek growth beyond China's borders.

A caffeinated global ambition

Luckin Coffee’s (LKNCY.US) growth has been nothing short of lightning-fast. With more than 29,000 stores globally – the vast majority in China – it has firmly established itself as the nation's largest coffee chain. However, reports suggesting Luckin may bid for Costa Coffee, currently owned by Coca-Cola (KO.US), indicate a strategic pivot. While Costa is significantly smaller by store count, with roughly 4,000 shops, its footprint spanning 52 countries and regions would immediately propel Luckin onto the global stage.

We believe such a deal is plausible, despite the ghosts of Luckin’s past. It’s true that the company faced a major accounting scandal in 2020 involving fabricated sales. However, that occurred under a previous management regime. The individuals responsible for that era's strategy and malfeasance are long gone. The current leadership has spent years cleaning up the business and pursuing an aggressive expansion strategy, not only to compete with Starbucks but to distance themselves definitively from domestic rivals like Cotti Coffee.

There’s a limit to expansion within China, particularly given the depressed state of consumer sentiment. For a company pursuing high growth, international expansion is the logical next step. While Luckin has begun opening stores in Southeast Asia and the United States, organic growth is slow. Acquiring a well-established chain in Europe offers a shortcut to a global logistics network and 4,000 points of sale.

If this deal proceeds, we suspect Coca-Cola would prioritize two things: valuation and a clean break. Given Luckin’s history, a cash deal seems most likely, as the seller would presumably wish to avoid holding Luckin stock. Luckin appears cash-rich and capable of securing financing, making a purchase feasible.

The question remains: What would Luckin do with Costa? The British brand has struggled to thrive under Coke’s ownership, often criticized for closing stores rather than opening them. We see multiple paths forward. Luckin could leverage its superior technology – particularly in mobile ordering – to modernize Costa’s operations. While rebranding is risky given Costa’s existing following, a co-branding strategy or a holding company structure could allow Luckin to manage the assets without alienating European customers or investors wary of the Luckin name.

However, challenges abound. Expanding into Europe involves navigating a cultural landscape vastly different from China’s. European unions are powerful, and we have seen many Chinese companies stumble in the region due to challenging labor relations. Furthermore, while Costa has a presence, the brand quality is debatable.

The fading glory of the shopping marathon

While Luckin looks outward, the domestic retail scene is suffering from fatigue. This year’s Double 11 festival might be dubbed as "Dud Ball 11." In the past, this event was a sensation, with e-commerce giants releasing breathless updates on sales figures. This year, the silence was deafening. JD.com vaguely claimed turnover reached a new high, and Alibaba noted that 35 brands logged more than 100 million yuan ($14 million) in sales during the first hour, but specific gross merchandise value (GMV) totals were largely withheld.

We view this not merely as a temporary blip, but as a sign that the novelty has worn off. The "ship has sailed" on the excitement that once defined the event. While consumers everywhere love a bargain, the Chinese consumer economy is not in the robust shape it was pre-Covid. Shoppers are significantly more cautious.

Furthermore, the event itself has diluted its own impact. What began as a single day of frenzied shopping has morphed into a marathon lasting over a month, filled with confusing pre-sales and post-sales. Much like Black Friday in the U.S., which has extended into a longer seasonal promotion, Double 11 has become a routine part of the calendar rather than a "circus." The days of Jack Ma dressing like a rock star to celebrate sales records are over, partly due to the government’s crackdown on such extravagance in recent years.

Ultimately, in the current economic climate, Double 11 has become a zero-sum game. There is a finite amount of money Chinese consumers are willing to spend on discretionary items. With more platforms joining the fray, they are simply taking business from one another rather than growing the overall pie. This saturation explains the muted numbers and suggests that we should not expect the festival to bounce back to its former glory anytime soon.

The cosmetic surgery specialist’s top line is growing as it opens new ‘light medical aesthetic’ clinics, but its bottom line is sagging as its older platform business evaporates

Key Takeaways:

• Nearly half of So-Young’s revenue came from its growing chain of “light medical aesthetic centers” in the third quarter, just two years after it opened its first such clinic
• But as its clinic revenue quadrupled in the quarter, the other half of its business declined sharply, leading to a net loss for the period

By Edith Terry

A few years can sometimes seem like a lifetime, especially in China’s fast-moving beauty scene. That’s certainly the case lately for So-Young International Inc. (SY.US), which has pivoted from social media and e-commerce in China’s beauty market to become the operator of the nation’s largest chain of “light” medical aesthetic clinics. But the company’s latest quarterly report, released last week, shows the transformation has left it bleeding red ink, raising questions about the viability of its new dual-track business model.

So-Young opened its first self-operated clinic at its headquarters in Beijing in August 2023, and has rapidly expanded the concept since then. As of this month, it had 42 such centers, one of those franchised, according to Jin Xing, So-Young’s founder and chairman.

That makes the company China’s largest light medical aesthetic clinic chain, putting it on track to meeting its target of 50 new centers by year end, said Jin, who earlier this year gave a long-term goal of establishing 1,000 centers across China in the next eight to 10 years.

“Going forward, we will continue to expand our aesthetic center network in a disciplined manner and drive healthy, sustainable growth through a higher standard system and deeper brand equity,” Jin said. He added that So-Young’s new chain of clinics had logged 600,000 cumulative service visits through the end of September.

The transformation is clearly moving ahead at a rapid clip, but not without a cost. As So-Young builds revenue from its new brick-and-mortar clinics, it is losing ground in what was once its core business operating an online community for people interested in cosmetic procedures and products.

Investors seem to like the overall story of transformation, but aren’t completely convinced. Despite more than tripling since the beginning of the year, So-Young’s shares fell 23% in the four days after its latest earnings announcement, and have lost about half of their value from a multiyear high in mid-July.

Which way the company goes will be pivotal to how investors view it. Out of total third-quarter revenues, aesthetic services associated with its clinics provided 183.6 million yuan, up 305% year-over-year. But revenue from information and reservation services associated with its older online community were down by 34.5% to 117.2 million yuan. Sales of medical products and maintenance service also dropped 25% to 67 million yuan.

Those various segments gave So-Young total revenue of 386.7 million yuan for the quarter, up 4% from 371.8 million yuan a year earlier.

As its new clinic openings moved into high gear, the company swung to a net loss of 64.3 million yuan in the latest quarter from a profit of 20.3 million yuan a year earlier. Its cash fell by about a quarter, from 1.25 billion yuan at the end of 2024 to 943 million yuan at the end of the third quarter. But that’s to be expected when you consider the pace of its chain expansion.

Online roots

To understand So-Young’s evolving picture, a look back at its history may be in order. At the time of its IPO in 2019, So-Young was an e-commerce platform where users could search for and book medical aesthetic services, linking some 6,000 medical service providers in 300 cities with more than 1 million active users.

Originally an online community for cosmetic surgery when it was founded in 2013, the company branched into e-commerce in 2014 by connecting with medical aesthetic hospitals and clinics. Its medical service providers were a main source of revenue, using the site as an advertising and booking platform. It also earned commissions from bookings made on its site.

It began selling cosmetic ‘injectables’ like Botox and hyaluronic acid early on. Chairman Jin’s mother was a plastic surgeon, and Jin shared his own experiences with face-slimming shots, hair transplants and injectable hyaluronic acid on the So-Young app.

Jin started So-Young to make it easier for people to find information about cosmetic surgery and related products, as Chinese consumers discovered and embraced such services when the economy was booming. In 2021, So-Young acquired Wuhan Miracle, a producer of medical products for hospitals. Revenue from both its third-party injectables and Wuhan Miracle products have become a separate, significant revenue stream since 2023.

Its latest business structure is a bit contradictory, since the independent practitioners who pay So-Young for referrals in its original online community now find themselves competing with So-Young’s self-operated clinics. This is an obvious long-term negative, since such independent practitioners may hesitate to work with someone offering a rival service.

But operating its own clinics also has clear advantages over working with third parties, since So-Young can control quality at a higher level. The proliferation of small-scale clinics in the cosmetology industry, many offering service of questionable quality, has been a major target of regulatory clampdowns in recent years.

“As we increase store density and bring prices closer to those in Korea, I believe more and more consumers will choose to receive these treatments domestically,” Jin told Bloomberg recently. He said that So-Young’s strategy of mass procurement and its ability to keep marketing expenses down due to high consumer familiarity with the company’s products were helping it to keep its prices low.

China’s medical aesthetics market is huge and growing fast, with penetration metrics lower than South Korea, the U.S., Brazil and Japan. A recent report on the industry by KPMG estimates the market will quadruple by 2030, from 311.5 billion yuan in 2023 to 1.3 trillion yuan. Around 38% of the market is in non-surgical cosmetology, which is So-Young’s niche. Among people new to such treatments last year, 56.9% were young, between the ages of 21 and 30, and another 22% were between 25 and 31.

Its pivot from online services means So-Young will no longer need to compete with China’s internet giants offering similar booking services. But it will face new rivals from companies like Lancy Co. (002612.SZ), which recently acquired the prominent Beijing LiDu hospital, and is partnering with Pumen, a medical aesthetics company to develop new products. Even after its big gains this year, So-Young’s price to sales (P/S) ratio of 1.45 is still slightly behind the 1.59 for Lancy.

It may not be a bad thing that So-Young is saying ‘so long’ to its legacy business, and investors seem to be giving the move a thumbs-up with the big gains in the company’s shares this year. Still, the transition is likely to have some hiccups along the way, as the company shifts from the online to the more capital-intensive brick-and-mortar realm.

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The operator of the Yangxiaomie lifestyle platform has filed to list in Hong Kong – its seventh such attempt – hoping it can succeed in the current hot market

Key Takeaways:

• Quantgroup has filed to list in Hong Kong, reporting a profit of 126 million yuan for the first five months of this year
• The operator of two consumer-facing online platforms has net current liabilities of more than 770 million yuan

By Lau Chi Hang

Hong Kong's red-hot IPO market shows few signs of cooling, with even the more mundane among of a flood of new listings often attracting frenzied demand. As for investment value, the prevailing attitude seems to be: Who cares? Speculate first!

Quantgroup Holding Ltd., an online consumer website operator, is hoping to capitalize on that market momentum by dusting off and refiling its Hong Kong listing application, aiming to overcome earlier setbacks. Its goal: Raising funds to stabilize its sizable debt.

Quantgroup operates two core businesses: its Yangxiaomie lifestyle platform, and its online-to-offline (O2O) auto retail Consumption Guide. It generates money by matching merchants with consumers through product displays, online payments, order processing and logistics.

Quantgroup is hoping the seventh time will be the charm for its latest listing application, having filed and failed in its previous six attempts. The company was founded in 2014 by Zhou Hao, who was on this year’s Forbes list of “China Pioneer Innovators in Industry Development.” Its original platform, Credit Wallet, was a peer-to-peer (P2P) lending platform that linked financial institutions with borrowers, both businesses and individuals, with Quantgroup collecting handling and service fees.

That business was part of an early group of P2P lenders that thrived as China opened its financial services market to private companies. But the government cracked down on such lending starting in 2017, worried about fraud and also companies’ inability to manage risk. That forced Quantgroup to transform from a lending platform into a digital solutions provider, which it did by setting up Yangxiaomie in 2020. Two years later it launched Consumption Guide, connecting local merchants and consumers by distributing government consumption vouchers and merchant subsidies. More recently, that platform has shifted to auto-related consumption.

The most recent transformation hasn’t been easy, creating volatility for the company's business. Its revenue has been on a relatively steady growth track, rising from 475 million yuan ($66.6 million) in 2022 to 530 million yuan in 2023, and then jumping to 990 million yuan last year. Its bottom line has also been improving, rising from a loss of 281,000 yuan in 2022, to profits of 3.64 million yuan and 147 million yuan in 2023 and 2024, respectively. In the first five months of this year, its revenue rose 38.1% year-on-year to 414 million yuan, while its profit jumped 261% to 126 million yuan.

Mounting marketing costs

While Quantgroup's transformation looks successful on the surface, a closer look at its financials could be cause for concern.

The company's revenue has grown steadily in the last three years, but its sales and marketing expenses have risen even faster. Such spending more than doubled, rising 127% from 47.92 million yuan in 2022 to 109 million yuan in 2023. Then, the figure more than quadrupled to 470 million yuan last year, far outpacing its 87% revenue growth that year. Clearly, the company’s impressive revenue growth is being driven by even more impressive promotional spending.

What’s more, revenue from the company’s Consumption Guide has fallen steadily in the transition to its new auto focus, dropping from 200 million yuan in 2022 to just 32.81 million yuan last year. The erosion continued in the first five months of this year, with the figure tumbling 43% year-on-year to just 7.92 million yuan. The company blamed the declines on its business transformation to 4S auto retail.

Advertising revenue from the Consumption Guide site has taken an especially hard beating as China’s auto sector suffers from massive overcapacity that has pushed many companies into the red, causing them to slash their marketing budgets. The site’s revenue tumbled by more than half from 7.17 million yuan in 2022 to 3.05 million yuan in 2024. And in the first five months of this year, it plummeted to just 123,000 yuan from 2.24 million yuan a year earlier.

Low returns, heavy debt

The company's return on equity (ROE) has also been alarmingly low, at just 0.1% in 2022, before dropping into negative territory with figures of negative 0.3% in 2023 and 14.7% in 2024. It eroded further still to negative 36.1% in the first five months of this year.

Liability concerns also exist. The company’s current liabilities have swollen over the last three years, from nearly 1.5 billion yuan in 2022 to about 2 billion yuan by the end of May this year. It remains submerged in a state of negative equity, with net current liabilities exceeding 1 billion yuan in 2022 and 2023. While that situation has improved in the last two years, the company still had net current liabilities of 770 million yuan at the end of May this year.

Adding to its woes, the company’s receivables ballooned from 258 million yuan in 2022 to 638 million last year, and escalated further still to 743 million by the end of May. While the company reduced that amount by 123 million yuan as of the end of July, its receivables still stand at an elevated level of more than 600 million yuan.

Controversial related-party dealings

The swelling receivables owes partly to money the company is owed by Yingtan Xinjiang Guangda — a microlender controlled by Quantgroup's major shareholder Zhou Hao until he sold his stake in April this year, not long before the latest IPO filing. That timing, coinciding with Quantgroup’s extension of its credit terms to Guangda, has inevitably raised some red flags among investors.

The challenges it’s facing are clouding Quantgroup’s outlook. As an operator of consumer-facing platforms, the company must vie with far more aggressive giants like Meituan, JD.com, and Douyin — which can use their scale, brand dominance and massive user bases to get new business and pressure customers to pay their bills. Critically, Quantgroup’s platforms lack the breadth of content and related user appeal, making it harder to attract consumers that are key to bringing in new business customers.

At the end of the day, even if Quantgroup finally makes it past the IPO finish line this time, it may have a hard time winning over investors, despite the current appetite for just about any new shares. Even short-term traders may shun the stock, especially given the steady flow of other new IPO flavors entering the market.

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The listing plan by China’s leading B2B marketplace for industrial buyers has received a green light from the country’s securities regulator

Key Takeaways:

• Jingdong Industrials has received the regulatory nod from China’s securities regulator for its Hong Kong IPO, paving the way for the listing to proceed
• The company could raise more than $1 billion, based on a likely valuation between $4 billion to $7 billion

By Doug Young

After three years of waiting, the latest offspring from e-commerce giant JD.com (JD.US; 9618.HK) may finally be close to making its market debut. That’s our latest assessment, after a stalled Hong Kong IPO by Jingdong Industrials Inc., JD.com’s B2B marketplace, was formally registered this week on the China Securities Regulatory Commission’s (CSRC) website. Such registration is a key regulatory step all Chinese companies must clear before they can list in offshore markets, mostly in the U.S. and Hong Kong.

According to the CSRC announcement, Jingdong Industrials plans to sell 253 million ordinary shares in the listing. The company first filed to list in Hong Kong in 2023, and filed a second application last year. It tried again with a new filing this March, though that will expire at the end of this month. That means we’re likely to see it file again before the end of the year.

Jingdong Industrials will offer a relatively new option for e-commerce investors with its focus on B2B products and services, unlike the vast majority of Chinese operators that focus on selling to consumers. B2B typically offers bigger volumes per transaction than B2C, since business buyers tend to make bigger purchases than individual consumers. But such bulk comes at a cost, since bigger volumes often carry much lower margins.

Jingdong Industrials is a case in point. Its gross margin for 2024 stood at a relatively low 16.2%, far less than the 41% for Alibaba (BABA.US; 9988.HK) and 58% for Pinduoduo (PDD.US) in the 12 months through June. That discrepancy also helps to explain why Alibaba ultimately delisted its own original Alibaba.com B2B marketplace in 2012, after the stock stagnated during five years as a listed company.

All that said, Jingdong Industrials could still be relatively attractive due to its sheer size and the size of the China market. The company is the leader in B2B products and services from the maintenance, repair and operations (MRO) segment, which includes things like office and cleaning supplies and production maintenance tools. It operates in a Chinese industrial supply chain market that was worth 11.4 trillion yuan ($1.6 trillion) in 2024, according to third-party market data in its listing document filed in March.

The company points out that just 6.2% of that huge market was digitalized in 2024, though the rate is expected to grow to 8.2% by 2029. As that digitalization rate grows, the size of China’s industrial supply chain technology and service market where Jingdong Industrials operates is expected to grow nearly 10% annually from 700 billion yuan in 2024 to 1.1 trillion yuan in 2029.

Jingdong Industrials didn’t provide any fundraising targets in its March document, though the deal has some big backers, including BofA, Goldman Sachs and Haitong as underwriters, and Citic Securities and UBS as financial advisors. The company was reportedly seeking to raise $1 billion at the time of its 2023 application, and we wouldn’t be surprised to see it try for considerably more in the current hot Hong Kong IPO market.

Big backers

Jingdong Industrials was formally spun off from JD.com as a separate operating entity in 2017, and an IPO would make it the group’s fifth listed company, alongside the original JD.com, and its JD Health (6618.HK), JD Logistics (2618.HK) and Deppon (603056.SH) subsidiaries. The company also attempted to list its JD Technology fintech arm in Shanghai in 2020 and submitted a similar plan for its property arm last year, but neither deal made it to market.

From a valuation perspective, JD Industrials was last valued at $6.7 billion after a $300 million financing in 2023, whose backers included HongShan, formerly known as Sequoia China, and Mubadala, a sovereign wealth fund of the Abu Dhabi government.

If the company succeeded in its earlier listing plans, we seriously doubt it could have maintained that earlier valuation. But things look considerably better now, as Hong Kong stocks rally amid one of the strongest IPO markets in years. Comparable global MRO majors Applied Industrial Technologies (AIT.US) and W.W. Grainger (WWG.US) both trade at price-to-earnings (P/E) multiples of about 25 and price-to-sales (P/S) ratios of around 2.5. Similar ratios for Jingdong Industrials would value the company at between $4 billion and $7 billion, based on its sales and adjusted profit for 2024.

The company’s financials look relatively solid, especially in the current climate where most companies are reporting sluggish growth and even revenue contraction. One of Jingdong Industrials’ strengths is its asset-light model, which sees it mostly pool requests from customers before placing actual orders with suppliers, limiting its inventory risk. That differs from JD.com’s main B2C marketplace, which holds far higher inventory levels of products that it purchases first and then gradually delivers to consumers as orders come in.

“Such approach allows a great part of our orders to be delivered directly from the supply end to the demand end,” it said. “With our asset-light model, we have developed an expansive business, which enables us to scale rapidly and efficiently.”

The company’s revenue from continuing operations grew 18% year-on-year to 20.4 billion yuan in 2024 from 17.3 billion yuan in 2023. While that looks quite healthy, we should point out it marks a slowdown from the 23% growth the previous year.

The big majority of the company’s revenue – about 94% last year – comes from product sales, with the rest from its services business. But the services business contributed a much larger proportion of the company’s gross profit last year, about a third of the total, reflecting its far higher margins than the product business. Unfortunately for Jingdong Industrials, service revenue has been flat over the last three years, while all of its revenue growth has come from higher product sales, which is ultimately dragging down its overall gross margin.

Despite that, the company’s bottom line still looks relatively attractive, including a 2024 profit of 762 million yuan and adjusted profit of 1.1 billion yuan. For investors, the bottom line is that Jingdong Industrials looks relatively attractive for its dominant market position, asset-light model and relatively strong profitability. Those factors, combined with Hong Kong’s hot IPO market right now, should probably translate to relatively strong demand for its listing, though investors will undoubtedly be looking closely at how it values its stock.

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The Alibaba-backed e-commerce company will pay 994 million yuan for 25% of Jin Tong Ling, a maker of industrial equipment now undergoing a court-led restructuring

Key Takeaways:

• Huitongda will pay nearly 1 billion yuan for 25% of the struggling Jin Tong Ling, representing a steep discount to the Shenzhen-listed company’s recent stock price
• Huitongda believes Jin Tong Ling will quickly return to profitability following a quick court-led restructuring, and could become an important supplier for its e-commerce business

By Doug Young

What do you do when you’re sitting on a large pile of cash from an e-commerce business that’s big but not extremely profitable? If you’re Huitongda Network Co. Ltd. (9878.HK), you spend a chunk of that money to buy a sizable stake at a big discount in a supplier that’s fallen on hard times but could soon return to health following a reorganization.

The story seems positive enough for Huitongda, which announced on Friday it would acquire 25% of Shenzhen-listed Jin Tong Ling Technology Group Co. Ltd. (300091.SZ) for 994 million yuan ($139 million). The deal’s financial terms look quite good for Huitongda, whose proposed purchase of 711 million Jin Tong Ling shares at a price of 1.3996 yuan per share represents a 50% discount to the stock’s average price over the last 120 trading days.

The investment also seems to make strategic sense for Huitongda, which buys industrial and other goods in bulk and sells them over its e-commerce platform to businesses in smaller Chinese cities and towns, locally referred to as “sunken markets.” As a relatively large maker of industrial blowers, compressors, steam turbines and industrial boilers, Jin Tong Ling’s products should be a good match for Huitongda’s customers.

But investors in both companies didn’t seem to think too highly of the deal. Huitongda’s investors were the least satisfied, with the stock falling as much 12.4% in Monday morning trade after the deal was announced before closing down 10.1% at the midday break. Jin Tong Ling investors initially applauded the deal, sending the stock up when trading began, only to change their minds and bid the shares down by about 2.2% at the middle of the trading day.

The deal looks relatively sound for Huitongda, as it will provide the company with more products for its platform, presumably at nice discounts from Jin Tong Ling. The big risk, of course, is whether Jin Tong Ling can return to its earlier days of strong growth and profits following its ongoing restructuring. That could be easier said than done in China’s current economic climate, where many businesses are struggling amid sluggish demand.

From Jin Tong Ling’s perspective, the deal also looks reasonably sound, though some investors might not be happy about the big discount Huitongda got for its stake. But a struggling company can’t afford to be too selective about such matters, and the new investment will not only bring Jin Tong Ling more than $100 million in much-needed cash, but could also provide a major new sales outlet for its products.

“(Jin Tong Ling) operates in the high-end manufacturing sector, with its core business ranking among the first tier domestically, possessing strong industry standing and competitiveness. Due to historical circumstances, (it) currently faces temporary operational difficulties and aims to overcome its predicament and regain operational capability through this bankruptcy restructuring,” Huitongda wrote in its announcement. “It is anticipated that upon the completion of the restructuring, it will swiftly achieve profitability and enter a phase of rapid development, bolstered by the dual injection of capital and assets.”

Steady business, low margins

Huitongda could certainly use a catalyst like the Jin Tong Ling investment to perk up its own business, which is relatively steady but also extremely low-margin due to the company’s status as an e-commerce middleman. Huitongda, backed by e-commerce giant Alibaba, went public in 2022 at an IPO price of HK$43, hoping to entice investors with its story of e-commerce targeted at China’s sunken markets. But since then the stock has lost about two-thirds of its value to trade around HK$15.

That said, Huitongda is profitable, and has strong support among both the investment and analyst communities. Even after its stock declines of the last three years, its shares still trade at a forward price-to-earnings (P/E) ratio of 20, nearly double the 11 for PDD Holdings (PDD.US), which targets consumers in China’s sunken markets. It’s also nearly triple the forward P/E ratio of 6 for Vipshop (VIPS.US), another e-commerce company that targets discount shoppers. All five of the analysts surveyed by Yahoo Finance rate Huitongda a “buy” or “strong buy.”

The high P/E ratio and strong analyst support are slightly surprising for Huitongda, since its own financial picture isn’t that exciting lately. The company was growing strongly as recently as 2023, with revenue up 24% that year. But things went into reverse last year with a 29% revenue decline. The situation continued to deteriorate in the first half of this year when the figure fell by another 26% year-on-year to 24.3 billion yuan from 32.9 billion yuan a year earlier.

The company said the declines owed partly to its divestment of inefficient businesses and the establishment of its own brands. That may help to explain why, despite the revenue declines, the company’s profit rose 11% in the first half of this year to 139 million yuan from 125 million yuan a year earlier. Its gross margin also improved to 4.6% in the first half of this year from 3.5% a year earlier. Both figures are quite low due to Huitongda’s middleman business model, but their improvement shows the company is working to stay profitable.

Huitongda had 6.74 billion yuan in cash and cash equivalents at the end of June, showing it could easily purchase the Jin Tong Lin stake using its own financial resources.

Jin Tong Lin’s situation looks a bit more uncertain. The company has been undergoing a restructuring since April following an application by one of its creditors. The court overseeing the matter in the city of Nantong has accepted the company’s pre-reorganization application, showing the case is advancing relatively quickly. Jin Tong Lin’s own finances look a bit shaky at the moment, with its revenue plunging 48% year-on-year in the first half of 2025 to 370 million yuan, as its loss more than doubled to 202 million yuan from 76 million yuan a year earlier.

The rapid resolution of Jin Tong Lin’s case by the court appears to show the company’s difficulties aren’t too severe, which is probably why Huitongda is confident its new partner will quickly return to profitability. If that happens, the purchase could provide a strong template for Huitongda going forward, with the company using its strong cash position and solid profitability to acquire strategic stakes in potential supplier partners.

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“The issue is not the will. I think the will is there on the part of the government, very clearly. The more pressing issue is the money.”

By Doug Young & Rene Vanguestaine

A massive, state-led intervention to save China’s hemorrhaging solar industry and a nimble company’s ambitious pivot to replicate the wildly successful Western warehouse club model may seem unrelated. Yet both stories reveal the complex forces shaping China’s economy today. One is a tale of industrial overcapacity and a government-forced correction; the other, a story of shifting consumer tastes and a bottom-up search for a winning formula.

For more than a year, China’s solar sector has been a major bloodbath, a sea of red ink where manufacturers sell their products for far less than they cost to produce. This "involution," or race to the bottom, is fueled by the kind of massive overcapacity that has become a common theme in China. The situation is dire. Daqo (DQ.US; 688303.SHG), a leading maker of polysilicon, recently revealed it spent $7.26 to produce each kilogram of its product in the second quarter, only to sell that same kilogram for just $4.19. To staunch the bleeding, the company is now operating at a mere one-third of its capacity. Daqo’s woes are emblematic of the entire industry.

In response, Beijing has launched yet another campaign to clamp down on cutthroat pricing and shut down older, inefficient production lines. We believe the chances of success this time are probably higher than we would have thought a few months ago. The government is making a great deal of noise, with even President Xi Jinping recently opining on the matter. There are reports on a new initiative that would force the sector to eliminate 30% of its overall capacity, starting with the most obsolete facilities. The reported price tag is a staggering $7 billion, with the government expected to provide about $5 billion in loans or cash injections and top manufacturers covering the rest.

We think the issue is not the will, but the money and the execution. Unlike the fragmented EV sector with its hundreds of players, the solar industry is dominated by a handful of key players who are closely aligned with Beijing’s strategic goals of reducing coal use and meeting its climate targets. These companies have little choice but to pay close attention to what the government wants.

The more pressing issues are logistical. First, it remains to be seen if this plan will materialize into an executable strategy with firm numbers. Then comes the question of who must cut and by how much. While smaller, less profitable players with older technology are expected to be shuttered, that alone won’t account for 30% of China’s existing capacity. The big players are going to have to sacrifice some of their own production. This is further complicated by politics; while it would make business sense to close capacity in Xinjiang to appease U.S. and European concerns over forced labor, we doubt Beijing would allow it, as it would be viewed as caving to international pressure. Finally, the industry must still deal with a large and persistent inventory overhang. In summary, we think a correction will happen, but the key questions are how quickly it can be implemented and who will ultimately bear the cost.

An online upstart aims to be the Sam's Club of China

At the other end of the business spectrum is East Buy (1797.HK), a company that has been through several iterations. It began as an online educator, Koolearn, before a government crackdown forced it to shut down that business. It then pivoted to livestreaming e-commerce, only to stumble after a public clash with its star host. Now, the company is trying again, this time with a plan to become the "Sam's Club of China" by selling its own private-label goods — mostly food — through an online, membership-style format.

We find this move intriguing. First Costco (COST.US ), and then Walmart’s (WMT.US) Sam’s Club, found immense success in China, with the latter almost single-handedly reviving Walmart’s struggling operations there. Yet, no domestic company has managed to successfully replicate this warehouse-style discount model. The question is whether East Buy, which for now remains an online-only presence, can be the first.

We think this is a valiant effort to build a business that is not dependent on a small number of online influencers. For a change, the company is entering a space where it will have little to no competition — at least before it really proves successful, after which we would expect dozens of copycats to emerge, because this is China, after all. The membership model itself has huge advantages, providing a steady and substantial stream of recurring revenue from fees. The explosive success of Costco’s first store in Shanghai a few years ago is indicative of the real potential for this model, which offers Chinese consumers the novelty of buying in bulk.

Of course, everything will come down to execution. The core attraction for shoppers at both Costco and Sam's Club is the powerful belief, and reality, that they are getting a much better deal. This is achieved through bulk purchasing, hyper-efficient sourcing, and a strong private-label program that offers savings over traditional brands. In China’s current consumer climate, where it seems every shopper wants to pay less for everything tomorrow than they do today, this value proposition is more powerful than ever. While there is also an element of "destination shopping" that makes a trip to these stores an exciting event, that novelty will likely fade as the stores become more common. The enduring appeal lies in the price.

The livestreaming e-commerce company’s revenue rose 8.7% in the first half of 2025, as it uses a matrix-based operation model and AI to rebuild after losing its popular lead host

Key Takeaways:

• Be Friends reported 8.7% revenue growth in the first half of the year, but its profit dropped a significant 32.7%
• The livestreaming e-commerce company’s gross margin tumbled from 53.8% to 43.7%, mainly due to higher traffic acquisition costs and heavier technology investment

By Lee Shih Ta

China’s internet is offering up a new “Tale of Two Livestream E-Commerce Companies,” showcasing the rapid rise of the popular format and how celebrity hosts can be both an asset but also a huge potential liability if they depart. But the paths forward for Be Friends Holding Ltd. (1450.HK) and East Buy Holding Ltd. (1797.HK) are shaping up quite differently, following the high-profile departure of star host Luo Yonghao for the former, and a colorful breakup with charismatic online salesman Dong Yuhui for the latter.

Both cases highlight key fundamentals about the livestreaming e-commerce business, namely the importance of personal charisma to generate big sales, but also the need to avoid too much reliance on individual personalities to ensure a company’s longer-term viability.

Of the pair of companies, Be Friends started its de-personalization process first. Now, the company’s latest financials show it is at a critical juncture as it slowly rebuilds its business. Its revenue rose 8.7% year-on-year to 676 million yuan ($94.8 million) in the first half of 2025, with new media services as its main breadwinner, supplying more than 90% of the total.

But its profit moved in the opposite direction, falling 32.7% year-on-year to 56.35 million yuan, with profit from new media services down 37% to 55.36 million yuan. Its gross margin also fell sharply during the period from 53.8% in the first half of 2024 to 43.7% in the latest period. The company blamed higher user acquisition costs and stepped-up R&D investment in areas including its “Friends Cloud” system for the profit erosion, even as its revenue rose.

Let’s make friends

Be Friends’ story started with Luo Yonghao, a trailblazing serial entrepreneur who shot to fame in the pre-internet era with his popular English language instruction materials. In the internet age he leveraged his name to launch the Smartisan smartphone brand, which ultimately folded under a flood of competition. From there he ventured into the livestreaming e-commerce sector in 2019, claiming that he had “debts to pay.” “Let’s just make friends, no money involved,” became his signature tagline kicking off all his livestreaming sessions, drilling his “Be Friends” brand into viewers’ minds.

While he may have been sincere about wanting to make friends, the “no money involved” was hardly what he had in mind, as the enterprise thrived financially. But then he announced in June 2022 that he would be leaving the company’s management team.

The company made its own new friend just two months later, when it signed an agreement with Century Sage Scientific, which took over the operation of Luo’s account on the livestreaming platform Douyin, China’s version of TikTok. The next year, Hong Kong-listed Century Sage acquired 100% of Be Friends and changed its own name to Be Friends Holding Ltd., effectively completing a backdoor listing for the livestreaming e-commerce operation.

But the problem remained of how to maintain its growth after losing its star anchor. The answer so far is threefold: adopting a matrix-based operation, using a multi-platform strategy and through the adoption of new technologies.

The matrix-based operation lies at the center of its new model. Vice president Cui Dongsheng pointed out last year that the company had cured itself of the “single leading anchor” reliance by putting in place a “vertical matrix-based operation model” consisting of a range of product segments like cosmetics, drinks, sports and home appliances. Revenue from Luo’s two primary accounts now accounts for less than 3% of the total, the company says, signaling it has transformed from “Luo Yonghao’s livestreaming room” to the “Be Friends Matrix.”

The second prong in its transformation is the company’s multi-platform strategy. Besides Douyin, Be Friends has set up on other livestreaming platforms, including Alibaba’s Taobao and JD.com, and Baidu’s Youxuan, as part of its diversification efforts.

Virtual AI anchor

Lastly, Be Friends is trying to move past Luo Yonghao by harnessing the power of AI and other new technologies. The company continues to invest in its “Friends Cloud” system with an aim of creating a digital platform that combines goods selection, distribution and other operations, ultimately boosting its own efficiency. During this year’s June 18 online shopping festival in China, the company launched a digital avatar version of “Luo Yonghao’s livestreaming,” whose first session lasted 6.5 hours, got over 13 million views and generated 55 million yuan in GMV. Still, the continued need for Luo’s digital avatar highlights the reality that even with AI’s help the company is still somewhat reliant on its former celebrity host.

At the same time, Be Friends is also trying to develop and sell its own goods and take a more hands-on approach to supply chain management, hoping such steps can stabilize its tumbling gross margin.

Investors didn’t seem too impressed with the results from Be Friends in its new form, with the stock falling about 4% the day after the midyear report’s release, leaving it down over 10% year-to-date. The shares currently trade at a very so-so price-to-sales (P/S) ratio of just 1.02 times. That’s well below the 6 times for East Buy, which is also trying to figure out its own way forward after its blowup last year with Dong Yuhui.

East Buy isn’t doing much better, recently reporting a net profit from continuing operations of only 6.19 million yuan for its latest fiscal year through May. The company is in the process of “de-Dong”-ing itself and shifting towards selling private label goods in a membership format, positioning itself as an online version of Walmart’s popular Sam’s Club.

Be Friends started its de-personalization process earlier and its matrix-based operation model and multi-platform strategy are already taking shape. But while its revenue has stabilized, higher traffic acquisition costs have eaten into its profitability and it has yet to find a relatively greenfield area like East Buy. The two companies are on different courses as they find their way forward. But their similar difficulties testify to what’s shaping up as a new basic fundamental principle for the livestreaming e-commerce business, namely avoiding overreliance on individual hosts.

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The two Chinese internet giants have sued each other in South America’s largest nation over unfair competition related to their food delivery businesses

Key Takeaways:

• Meituan and DiDi filed lawsuits against each other in Brazil this month as both look to build up food-delivery operations in the country
• The move to Brazil is part of both companies’ efforts to expand overseas as they seek relief from their fiercely competitive home market

By Warren Yang

As Chinese companies seek new markets to hedge against increasing competition, a weak economy and regulatory risks at home, they may inadvertently find themselves exporting their trademark cutthroat competition to the countries they enter. A rather extreme version of that scenario is playing out now between leading food delivery company Meituan (3690.HK) and ride-hailing giant DiDi Global.

The two companies have become embroiled in a messy legal fight in Brazil as their rivalry in food delivery heats up in Latin America’s largest market. In the latest episode of the drama, DiDi’s Brazilian food delivery unit, 99Food, last Tuesday sued Meituan’s overseas food delivery brand, Keeta, in a São Paulo court, alleging trademark infringement and unfair competition, according to a report in financial media outlet Caixin. Less than a week earlier, Meituan accused 99Food of dangling cash advances to its restaurant partners to stop them from working with Keeta. The apparent tit-for-tat moves mark an intensification of the legal battle between the two that just started this month.

The clash is just the latest battle between a growing number of internet-based Chinese service providers bringing their intensely competitive ways to foreign markets. In another similar case, online fast fashion sensation Shein and discount e-commerce company PDD’s (PDD.US) Temu international arm have become embroiled in a series of suits in the U.S. accusing each other of everything from copyright infringement to bullying each other’s suppliers.

Meituan and DiDi are clashing in Brazil after competing briefly in China’s food-delivery market. In 2018, DiDi, best known for its ride-hailing app, expanded into food delivery to chip away at Meituan’s dominance, launching a service similar to Uber Eats. But that venture didn’t last long, and DiDi exited the business in 2019. It later tried other variations of food-delivery services in China but none gained much traction.

Meituan controls more than two thirds of China’s food-delivery market, competing with smaller but well-funded rivals like Alibaba’s Ele.me and JD.com (JD.US; 9618.HK). That leaves little room for DiDi or any other newcomers.

Instead of continuing a losing fight in China’s food-delivery market, DiDi has focused on overseas expansion, particularly in Latin America, which offers rapid urbanization, a large young population and accelerating adoption of digital and delivery services.

DiDi’s move into Brazil’s food delivery market comes after it entered the country by investing in ride-hailing startup 99 in 2017. It fully acquired the company the following year and rolled out 99Food in Brazil in 2019, only to fold it in 2023. But it revived the unit in April this year.

Elsewhere in Latin America, DiDi Food debuted in Mexico in early 2019 and became the most downloaded food app in the country by 2022. Didi now has food-delivery operations in Columbia, Costa Rica, the Dominican Republic and Peru, where it also provides its core ride-hailing services.

Meituan is also looking for growth outside China as the domestic food-delivery market saturates and consumers grow increasingly cautious with their spending. Its international push, being personally led by founder Wang Xing, started with the launch of Keeta in Hong Kong in 2022 and extended to the Middle East last year. Then Meituan unveiled a plan in May this year to invest $1 billion in Brazil. The company hasn’t even started operating in the Latin American country yet but its feud with Didi there escalated quickly.

Small victory

Meituan sued 99Food this month for trying to divert traffic on Google away from Keeta by buying search terms related to the app. It won a small victory as a São Paulo court ordered 99Food to stop the practice within three days or face a daily fine. Meituan has also accused 99Food of offering cash payments to merchants for not working with its competitors, including Keeta. Such demands for exclusivity are generally considered anti-competitive, and resulted in a record $2.8 billion fine against Alibaba in China in 2021.

In the suit filed last Tuesday, 99Food says Keeta’s branding, including its color scheme and fonts for its delivery bags and website interface, looks too similar to its own, and that can confuse Brazilian consumers. The company is seeking damages and a ban on Keeta’s use of similar designs. Meituan hit back by saying yellow has been the main color of its branding for more than 14 years.

Meituan is doing pretty well financially in China, at least for now. Its revenue increased about 18% year-on-year to 86.6 billion yuan ($12 billion) in the first quarter, and its net profit jumped 87% to 10 billion yuan as its margins improved.

By comparison, DiDi’s gross transaction value increased 13.5% year-on-year to 102 billion yuan in the first quarter as contributions from its international businesses grew about 28% to account for a little less than a quarter of the total. The company’s net profit also surged during the three months, tripling from a year earlier.    

DiDi, which acquired Uber’s China business in 2016, is as dominant in ride-hailing services in China as Meituan is in food delivery. But it is facing growing pressure from local competitors, with its market share slowly shrinking.

DiDi also previously fell victim to a regulatory crackdown in China. The company made a New York IPO in 2021, only to raise the wrath of China’s cybersecurity regulator for failing to undergo a data security review before the listing. As punishment, its app was removed from domestic app stores, and it was ultimately forced to delist from New York and fined a huge amount for data breaches.

That saga highlights the high regulatory risks Chinese companies face at home, especially in the sensitive tech sector, which has been a factor behind the international expansion efforts by many. So DiDi will probably continue to step up its overseas campaign, just as Meituan and others like Shein and Temu are doing. That means many of these companies may find themselves in a growing number of clashes outside China, both in the marketplace and also potentially in court.

Meituan shares have lost 20% of their value this year, although they still trade at a price-to-earnings (P/E) ratio of 17, much higher than about 9 for JD.com. Neither valuation is particularly high, however, showing investors remain cautious on the group due to a slowing economy and regulatory risks in China, and potential for similar problems as they move abroad.

Meituan’s stock decline suggests that investors are growing skeptical about its ability to continue to deliver juicy earnings growth in China. The surest solution to address that concern is overseas expansion. But many others are thinking the same, including formidable competitors like DiDi.

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The former educator-turned-livestreaming e-commerce company is trying to become an online version of discount specialist Sam’s Club with its own private label business

Key Takeaways:

• East Buy returned to profitability in the six months to May, buoying investor optimism about its latest business model
• Declining revenue, profit and GMV in the recently minted e-commerce company’s latest fiscal year show its new business model is still a work in progress

By Edith Terry

When an online educator called Koolearn refashioned itself as a livestreaming e-commerce company in January 2023, the future for the newly named East Buy Holding Ltd. (1797.HK) looked promising. The former online subsidiary of private tutoring giant New Oriental Education (EDU.US; 9901.HK) made its unusual pivot after Beijing banned for-profit after-school tutoring in 2021.

East Buy charged out of the gate in its new format, reporting record revenue and profits of 4.5 billion yuan ($628 million) and 971 million yuan, respectively, in its fiscal year through May 2023, after a difficult previous year when it lost money. Things looked even better in its next fiscal year, as its revenue jumped to 7 billion yuan and its profit reached 1.7 billion yuan.

But the company’s rebound hit some sudden turbulence last year as it became embroiled in a high-profile spat with its star livestreaming host, causing its revenue, profit and gross merchandise value (GMV) to all fall sharply in its latest fiscal year through May, according to its new annual resultsreleased last Friday.

Those results show East Buy’s revenue from continuing operations tumbled 32.7% year-on-year in its latest fiscal year to 4.4 billion yuan. Most of its profits from the previous year were also wiped out, as it reported an annual profit of just 5.7 million yuan. And GMV for its core e-commerce and private label business tumbled 40% to 8.7 billion yuan from 14.3 billion yuan the previous year.

The latest results lacked any contribution from “Time with Yuhui,” the company’s wildly popular livestreaming show hosted by Dong Yuhui, a former English teacher who parted ways with East Buy after their big falling out last year. Including contributions from Dong’s show, the revenue, profit and GMV declines in the latest fiscal year would have been even larger.

The market wasn’t exactly charmed by the results, with East Buy’s shares falling 13% on Monday, the first trading day after the announcement. But even after that decline the stock is still up 76% from where it started the year.

While the latest annual declines were large, one hopeful sign was that revenues in the second half of the latest fiscal year were up marginally from the first half. And equally important, the company returned to the black with a second-half profit of 102.4 million yuan, after reporting a 96.7 million yuan loss in the first half.

According to Guosen Securities, the latest report “preliminarily validates the transformation effect of the company.” The brokerage added its view that East Buy’s new growth model, based on private-label products and a membership system, will drive new growth momentum through the creation of blockbuster products.

Guosen is not alone. Investors seem to like what they see in East Buy’s current strategy, which takes it away from over-reliance on individual livestreaming hosts and towards an online version of Walmart’s popular Sam’s Club chain of discount warehouse-style stores. The strategy appears to be gaining traction based on performance metrics.

Textbook overreliance case

East Buy’s experience with Dong Yuhui is a textbook case of a company’s overreliance on a single person for its business. By the time Dong left the company in July 2024, he took with him a livestreaming “Time with Yuhui” platform that had 20 million followers.

Dong’s popularity has only grown since then, with his fan base now up to 30 million followers, based on data from Feigua. By comparison, East Buy has lost 1.86 million followers since Dong’s departure and is down to 22nd place in the Feigua ranking. Other key influencers have also left East Buy, including “golden generation” anchors Jingwen and Dundun. East Buy CEO Yu Minhong told the departing stars good riddance, saying at a shareholder meeting that the company wouldn’t allow any of its hosts to establish their own independent platforms while at the company in the future.

Its clash with Dong aside, East Buy has also faced difficulty diversifying its livestreaming e-commerce channels beyond Douyin, the wildly popular Chinese version of TikTok. The company’s paid orders on Douyin fell by about half in its latest fiscal year to 91.6 million from 181.1 million the previous year as Dong’s contribution evaporated. Still, Douyin accounts for 70% of East Buy’s GMV.

CEO Yu has admitted that reliance on a single channel is unhealthy, but has also pointed out the new private-label membership system is a way of mitigating the risks associated with the host-oriented livestreaming e-commerce model. But its efforts to develop channels on other popular platforms, including Taobao, JD.com, Pinduoduo, RedNote and the WeChat mini store, have yet to produce the desired counterbalance to Douyin.

East Buy launched its ‘Sam’s Club’ strategy focusing on private label products and discounted prices using a members-only system back in April 2022, well before Dong’s departure. That system has been hugely successful, generating revenue of 3.5 billion yuan from private label products for the latest fiscal year – nearly 80% of the total.

East Buy sees its membership business as its future, selling its private-label products both through its livestreaming e-commerce channels and over its private membership app. The company says the East Buy brand has become “increasingly prominent in the industry, and has become synonymous with quality, accessibility and lifestyle culture.” Paid subscriptions for its private membership app, introduced in October 2023, rose 33% to 264,300 in its latest fiscal year from 198,600 the previous year.

The GMV of private-label products on the app increased to 28.8% of total GMV in the latest fiscal year from 16.3% the previous year, as individual private-label items increased to 732 from 488 over that period. Out of total GMV of 880 million yuan in June this year, 350 million yuan came from private label products, up 15% year-over-year, according to Feigua.

With a current market cap of HK$38 billion ($4.9 billion), and price-to-sales (P/S) ratio of 5.52 times, East Buy is quite a mixed bag in the analyst community. Seven of those analysts surveyed by Yahoo Finance rate the company a “strong buy” or “buy,” but another three call it a “hold” and two rate it an “underperform.”

On average, analysts expect the company’s revenue to grow about 25% in its current fiscal year, while they see its profit more than doubling as the Dong Yuhui controversy fades into the past.

Guosen Securities lowered its profit forecasts for the company for the next three years after its latest earnings release, while retaining its “outperform” rating. Huatai Securities also kept its “buy” rating and raised its revenue forecasts for the next three years. It also raised its profit forecast for the company by a slight 1% for its current fiscal year. “We are bullish on the company’s long-term development potential for steady transformation to branding,” it said.

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The B2B e-commerce site’s stock jumped 30% after the release of its latest earnings report, which was filled with signs of turbulence from the U.S.-China trade war

Key Takeaways:

• GigaCloud reported 4% revenue growth in the second quarter and forecast flat growth ahead, as it suffered from fallout of the U.S.-China trade war
• Even after a 30% rally for its shares following the ho-hum report’s release, the e-commerce company’s stock still trades at a relatively depressed P/E ratio of 9

By Doug Young

When does a rather ho-hum earnings report, filled with slowing growth and no major turnaround in sight, look impressive?

The answer to that question appears to be: When your name is GigaCloud Technology Inc. (GCT.US), a B2B cross-border e-commerce site whose shares soared 30% after it released just such an earnings report last Thursday. Following the big gain on Friday, GigaCloud’s stock is up 56% this year, and its close of $28.91 is more than double its 2022 IPO price of $12.25.

Among other things, GigaCloud disclosed its revenue grew just 3.8% in the second quarter, down sharply from the 65% growth it reported for all of last year. What’s more, it forecast its revenue is likely to flatline in the current quarter, due in no small part to disruptions caused by the U.S.-China trade war.

There were also a few positive signals in the report, including signs that the company is making steady progress in turning around a troubled acquisition it made in 2023, and steady progress in developing Europe as an alternate market to the volatile U.S. But nothing seems to really justify the 30% stock rally, which added nearly $200 million to GigaCloud’s value and pushed its market cap above the $1 billion mark.

So, why the sudden interest in this company, which makes its living by matching Chinese, Vietnamese and Malaysian manufacturers of bulky products like furniture, home appliances and fitness equipment with buyers in the U.S., Europe and Japan? The answer could be a big valuation gap that’s developed over the last four years, leaving many U.S.-traded Chinese stocks grossly undervalued compared with their global peers.

We’ve written about a couple of these stocks recently, which we’re calling “Chinese Easter Eggs” because they’re undervalued companies that have been hiding in plain sight all this time. Shares of one of those, cosmetic surgery center operator So-Young (SY.US), have risen more than fivefold since mid-June, while another, wearable device maker Zepp Health (ZEPP.US), has risen nearly tenfold since the start of July.

GigaCloud has a similar profile to that pair in that its business is basically sound and it trades at relatively low valuation ratios. Even after the big rally last Friday, the stock still trades at a lowly price-to-earnings (P/E) ratio of just 9.4. That’s well below domestic peer EDA Holdings (2505.HK) at 25, and light years behind the U.S. pair of Salesforce (CRM.US) and Shopify (SHOP.US), which trade at ratios of 38 and 83, respectively.

While Salesforce and Shopify are obviously much bigger, GigaCloud could have some potential due to its position as a platform linking developing world manufacturers with retailers in developed markets.

It initially sourced most of its products from China, but has added Vietnam and Malaysia, and is likely to add other similar markets in a bid to distance itself from the U.S.-China trade war. At the same time, it was once highly reliant on U.S. buyers for most of its sales, but is making rapid headway into Europe and also has a presence in Japan.

Stalling revenue growth

Having explained why investors may now be discovering GigaCloud, we’ll return to the company’s latest report that looks like quite the mixed bag. Commentary within the report and from executives on the company’s earnings call was filled with references to turbulence from the U.S.-China trade war, describing a “challenging environment” with an “unprecedented level of uncertainty.”

“We have a few curveballs,” Chairman and founder Wu Lei, who also uses the English name Larry, said on the earnings call.

On its top line, the company managed to post some year-on-year revenue growth, though only slightly, as the figure rose to $323 million from $311 million a year earlier. GigaCloud managed to keep signing up new users to its platform, though the rate of new signups for both active buyers and sellers slowed down.

And in a less-than-encouraging trend, spending per active buyer for the 12 months to June fell 13% to $131,359 from $151,276 in the 12 months to June 2024. The company blamed the drop on the addition of new buyers, who typically start by making small purchases and then scale up their buying as they become more comfortable with the platform.

Things look set to worsen in the third quarter, with the company forecasting revenue of $295 million to $310 million for the three-month period. The midpoint of that range would represent flat growth from the $303 million GigaCloud reported a year earlier.

Geographically, GigaCloud’s U.S. domestic product sales fell 11% year-on-year during the quarter, though the company didn’t give an actual dollar figure. That was offset by a 59% year-on-year jump in its revenue from Europe, as the company opened an additional fulfillment center in Germany during the quarter, bringing its total to six such facilities in the country. Following the strong growth, Europe now accounts for about a quarter of GigaCloud’s revenue, the company said.

“Europe is emerging not only as a growth region, but as a strategic pillar of our global expansion,” said President Iman Schrock. “Over time, we see Europe as having the potential of becoming a business of comparable scale and significance to our domestic U.S. operations in the years ahead.”

As it felt the effects of tariff disruptions, including a brief but big spike in U.S. tariffs on Chinese goods in April, the company’s gross margin dropped to 23.9% from 24.6% a year earlier. But a steep drop in general and administrative expenses, mostly due to lower stock-based employee compensation, helped the company to boost its net income by 28.1% year-on-year to $34.6 million.

GigaCloud has been growing organically, as well as through acquisitions. One of the largest was its $85 million purchase in 2023 of Noble House Furnishings, a bankrupt American B2B distributor of indoor and outdoor home furnishings. Company officials made numerous references to their efforts to clean up Noble House on the earnings call, noting the company’s product offerings have now been “rationalized” and its operations integrated into GigaCloud.

We’ll need to wait a few more days or weeks to see whether GigaCloud can sustain its recent stock gains, or whether the sharp uptick was the result of short-term speculation. If it can hold on to the gains, and perhaps even add to them, the company could well become the latest member of this new class of “Chinese Easter Eggs.”

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The car-trading services provider reported a fourth consecutive quarter of revenue decline in the second quarter, as its gross margin plunged more than 10 percentage points

Key Takeaways:

• Autohome’s revenue fell about 6% in the second quarter, as Chinese car manufacturers and dealers slashed their advertising budgets amid a bloody price war
• The company launched an international edition of its core car-trading platform in June, aiming to tap China’s growing prowess as the world’s top auto exporter

By Doug Young

China’s overheated car market is leading Autohome Inc. (ATHM.US; 2518.HK) to look outside for relief, as the country’s largest car-trading services provider tries to jumpstart its growth that began stalling in the second half of last year. Autohome revealed it launched an international version of its website in June, as it reported a fourth consecutive quarter of contracting revenues for the latest three-month period through June.

The company’s advertising services took the biggest hit during the quarter, plunging 36% year-on-year in revenue terms, as carmakers and dealers that are Autohome’s biggest customers slashed their marketing budgets amid a bloody price war that has dragged on for more than a year. Company executives noted the government has taken steps this year to try to ease the price war, optimistically predicting the situation could improve in the second half of the year.

Autohome’s online marketplace was also a small bright spot as the only one of its three main business segments to report revenue growth in the latest quarter. That growth, combined with an 11% slump for the company’s leads generation services, allowed the former to overtake the latter to become Autohome’s biggest breadwinner for the quarter.

Truth be told, Autohome looks like one of the few bets in China’s struggling auto market that still holds some promise right now. That’s largely because the company is quite adamant in sticking to an asset-light business model, meaning it never shoulders any inventory risk and related exposure to the huge recent volatility in China’s car market.

Instead, the company relies mostly on fees for its various services, which are largely based on transactions as well as advertising. On the transactions side, Autohome should be doing relatively well, as new car sales in China actually rose more than 10% in the first half of this year, with about 15.6 million vehicles produced and sold, according to the China Association of Automobile Manufacturers (CAAM).

CAAM doesn’t publish average selling prices for cars, but it’s probably quite safe to say that prices were down a bit in the first half of the year due to the price wars. As that happened, auto manufacturers’ profits dropped 12% in the first five months of the year, according to data from the National Bureau of Statistics. Falling prices probably hit Autohome by lowering the average commission it received for each car sold. And as the company pointed out, the plunging profits also caused many automakers to sharply cut their advertising spending.

Investors were relatively sanguine in response to the latest report, with Autohome’s shares rising 0.26% in New York on Thursday after its publication. The stock is up 3.5% this year, which doesn’t seem too exciting on the surface. But that’s notably stronger than the 17% decline for SAIC Motor (600104.SH), the Chinese joint venture partner of GM and Volkswagen; and the 7.3% decline for Hong Kong-listed shares of GAC (2238.HK; 601238.SH), the joint venture partner of Toyota and Honda.

Despite its wobbly position, Autohome’s stock still trades at a relatively strong forward price-to-earnings (P/E) ratio of 15, similar to the 16 for U.S. peer CarGurus (CARG.US). That may explain why the analyst community is quite cautious on Autohome at the moment, with nine of the 13 polled by Yahoo Finance rating the company a “hold.”

Overseas drive

Next, we’ll take a deeper dive into the nuts-and-bolts under Autohome’s hood, starting with the new export drive that didn’t seem to excite investors too much. CEO Yang Song said Autohome’s recently launched international site features over 1,900 vehicle models from 52 Chinese automobile brands seeking to expand in the global market.

Autohome is hoping to ride a recent wave that has seen Chinese carmakers rev up their overseas sales, pushing the country past Japan to become the world’s biggest exporter. The movement is being driven partly by huge overcapacity within the Chinese car manufacturing sector, the result of a huge buildup over the last two decades.

“So far, we cover six countries and regions, including China, Hong Kong, Thailand, Saudi Arabia, the United Kingdom, Australia and Brazil,” said Yang on the company’s earnings call. “I think that this kind of overseas business deployment will also become the new growth curve for our business.”

Back at home, Autohome’s business continued to stumble with a fourth consecutive quarter of contraction in the three months to June. The figure fell 5.9% year-on-year to 1.76 billion yuan ($245 million) in the second quarter from 1.87 billion yuan a year earlier. Within that figure, media services tumbled by more than a third to 279 million yuan, making up just 16% of the revenue total. Revenue from leads generation fell 11% to 733 million, while online marketplace revenue rose 21% to 746 million yuan.

In a worrisome trend, the company noted its gross margin dropped by more than 10 percentage points to 71.4% in the second quarter compared with 81.5% a year earlier. Autohome executives blamed the erosion on “higher transaction costs associated with the company's innovative business in lower-tier cities,” and weren’t more specific. But investors will almost certainly be watching that metric in the next few quarters to make sure it stabilizes.

The company partly offset the lower gross margin with a 14% drop in its operating expenses. A sizable portion of that may have come from layoffs, as Autohome reported having 4,360 employees at the end of June, down 14% from 5,078 a year earlier. But on the bottom line, the company still reported its profit fell 22% to 399 million yuan from 510 million yuan a year earlier.

As to the future, Autohome tried to sound a positive note about an end to the price wars in the second half of the year that could improve its advertising and leads generation businesses. But price wars are really just a symptom of China’s underlying economic weakness right now, which is dampening consumer sentiment. While such wars may entice some consumers with lower prices, stabilization of China’s economy and a return to stronger consumption-led growth will be necessary to put the domestic car market back on a sounder footing.

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The agricultural B2B marketplace operator has filed for a Nasdaq IPO, reporting its revenue declined last year as it engages in aggressive cost-cutting

Key Takeaways:

• Yimutian has filed for a Nasdaq IPO that could raise up to $23 million, as its cash runs dangerously low due to heavy spending
• The B2B marketplace operator’s revenue fell last year on cost-cutting, but it looks well placed to benefit longer term from China’s efforts to modernize its agricultural sector

By Doug Young

Agricultural B2B marketplace operator Yimutian Inc. is used to harvesting crops, or more precisely, to helping crop producers sell their harvests to buyers. But now the company is turning its sights to harvesting investor dollars through a Nasdaq listing that could raise up to $23 million, as its cash reserves run dangerously low.

The company, whose name translates roughly to “an acre of land,” looks quite good conceptually, boasting extremely high margins and a leading position in a space that China wants desperately to modernize. But its historically high spending – which Yimutian has been cutting aggressively in the last two years – means the company has been consistently cash-flow negative and money-losing, according to an updated prospectus filed last week.

Yimutian is also seeking a very aggressive valuation compared with other industry peers, which means its shares are likely to come under pressure if and when it completes its listing.

The company is quite typical of e-commerce and internet firms in China, which enjoyed a heyday for much of the first two decades of the 21^st century as China’s online economy boomed. Yimutian has strong credentials in that area, founded by Deng Jianhong, who left his job as a product manager in the marketing department of internet search giant Baidu in 2009 to start his foray into agricultural e-commerce.

Back then, investors were happy to throw millions of dollars at such startups, regardless of their profitability, as China’s economy boomed and everyone was looking for the next Baidu or Alibaba. Deng took advantage of that environment to build up a platform that has become China’s largest agricultural B2B marketplace, which hosted 39 million merchants offering 21 million products for sale at the end of March.

The company appears to be in a sweet spot as China tries to transform its agricultural sector from one featuring millions of small family farms to a more modern landscape of megafarms using advanced planting and harvesting techniques.

Last month we wrote about another IPO candidate, Weichai Lovol, which detailed how its smart agricultural machinery was set to benefit from the modernization wave. That coming movement was detailed in two recent national plans, the “Plan for Accelerating the Construction of an Agricultural Powerhouse (2024-2035),” and the “National Smart Agriculture Action Plan (2024-2028).” Such plans often signal that Beijing will make big amounts of money and other resources available to companies and other entities that can help it achieve those goals.

Market data in Yimutian’s prospectus hints at a coming boom, noting China’s agricultural B2B e-commerce market is expected to grow 17.5% annually over the next five years – more than triple the GDP growth rate – to reach 284.2 billion yuan ($40 billion) in 2029. Yimutian looks well positioned to capture some of that growth, though its revenue is much smaller due to its status primarily as a middleman collecting fees for connecting buyers and sellers.

But such heady growth rates are notably absent from Yimutian’s own top line revenue, which has been falling since at least last year. The company’s revenue dropped 14% year-on-year to 161 million yuan in 2024 from 188 million yuan in 2023. And it continued to decline in the first quarter of 2025, dropping 12.6% year-on-year to 34.3 million yuan from 39.2 million yuan.

Cost cutting

The company wasn’t too specific on the reasons behind its declining revenue, vaguely blaming the trend on how it “strategically prioritized our agricultural sourcing and trading business, reallocating resources and budgets to accelerate our retail network expansion in key production regions.”

But the most likely explanation is probably related to the headier times we mentioned earlier when the company was founded in the 2010s and China’s economy was still booming. In those days, internet companies aggressively pursued market share at any cost, often recruiting less profitable customers simply to boost their user numbers, even as such practices drained their resources.

In fact, Yimutian’s gross margins are quite enviable, rising to 79.1% in the first quarter of 2025 from an already-respectable 73.8% a year earlier. The company’s gross margin for all 2024 was an even higher 81%, probably reflecting the fact that the first quarter of each year is a relatively weak one for trading in agricultural goods.

But the company’s marketing, administrative and R&D expenses are quite high, roughly equal to its entire revenue last year. As a result, Yimutian has been consistently cash-flow negative, resulting in a loss of 34.9 million yuan last year and another 2.64 million yuan loss in this year’s first quarter. Here, however, we should note that both loss figures are big improvements over the year-ago periods.

Yimutian seems to be finally waking up to the fact that the heady days of the 2010s are in the past, and is aggressively cutting costs in a bid to become profitable. That drive is most apparent in its administrative spending, which the company has slashed by more than half since the start of 2024. A big part of that has come from headcount reductions, with Yimutian’s total staffing down by more than a quarter to 573 at the end of March from 789 at the end of 2023.

The consistently high spending has taken a toll on Yimutian’s cash reserves, which fell to just 632,000 yuan at the end of March, or less than $100,000, from an already-low 2.77 million yuan at the end of last year. There’s no major discussion of the danger of closure in the prospectus, so presumably the company has access to credit that can keep it going for at least the next year or two while it slims down its spending in a bid to become profitable.

Yimutian’s 2024 revenue and its targeted valuation of between $467 million and $572 million translate to a price-to-sales (P/S) ratio of between 21 and 26, which looks quite aggressive. By comparison, B2B e-commerce furniture seller GigaCloud (GTC.US) trades at a ratio of just 0.86. And even e-commerce giant Alibaba (BABA.US; 9988.HK) trades at a ratio of just 2.13, though its 40% gross margin is about half of that for Yimutian.

The bottom line is that Yimutian needs to bring its costs under better control, most likely by ditching its less profitable customers and rationalizing its staffing. If it can do that and maintain its relatively high margins, it could be well positioned to thrive in the future if and when it returns to revenue growth and eventual profitability.

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The infant products e-commerce platform has filed for a Hong Kong IPO, hoping investors will buy into its transformation story after its revenue flatlined last year

Key Takeaways:

• Yangtuo’s infant products e-commerce platform targets lower-tier Chinese cities, towns and villages that account for 85% of its newborns
• The company’s revenue flattened in 2024 and it lost money, as it shifts from its original B2B e-commerce focus to a direct sales model with its own brands

By Edith Terry

China’s dairy industry may be past its prime, as plunging fertility rates cause demand for infant formula and other dairy products to slowly dry up. But Yangtuo Technology Inc. hopes to convince investors that there’s still potential in the field, saying it understands moms in the nation’s smaller markets better than any of its competitors.

The operator of an e-commerce platform selling infant formula and other baby products filed for a Hong Kong IPO at the end of June, boasting an all-star cast of Citic Securities as its underwriter and Fosun, Hillhouse and Lei Jun, co-founder of smartphone giant Xiaomi, among its backers. The company has already raised nearly $200 million over six previous funding rounds, suggesting the Hong Kong IPO could raise another $100 million or more.

Yangtuo’s core management team also boasts strong e-commerce credentials, with many of its members harkening from industry leader Alibaba (BABA; 9988.HK). Zhao Chen, the company’s 43-year-old founder and CEO, worked for nine years at Alibaba, where he played a key role in the launch of its Tmall Global. COO Xu Hong managed Taobao Coins, Alibaba’s consumer loyalty program, and CTO Xiao Jiantao was part of the launch team for Juhuasuan, a group buying site on Tmall. 

Yangtuo’s target market is growing, though not very fast, reflecting plateauing demand for infant nutritional products. According to third-party market data in the listing document, China’s family care and nutrition product market grew from 2.2 trillion yuan ($307 billion) in sales in 2019 to 2.6 trillion yuan in 2024, averaging just 2.9% annual growth during that time.

The market is dominated by lower tier cities that are Yangtuo’s focus and account for nearly three-quarters of national sales. That segment grew from 1.6 trillion yuan in 2019 to 1.9 trillion yuan in 2024, translating to a faster growth rate of 3.4%. The lower-tier market is expected to increase to 2.4 trillion yuan by 2029, driven by its massive consumer base and growing health awareness and spending power among local residents.

Regions beyond China’s largest first- and second-tier cities have a population of 1.2 billion, accounting for 83.5% of the country’s population and 85% of its newborns in 2024, according to the listing document.

Yangtuo’s biggest sales areas are in Central China’s Henan province, as well as the relatively affluent coastal provinces of Zhejiang and Guangdong, which has China’s highest birth rate. Yangtuo cites research showing that per capita consumption of family care and nutrition products is rising faster in lower-tier markets than in China’s big cities, growing at an average 5.5% annually in the former versus 3.1% in the latter in recent years.

Yangtuo is best known in China for Hipac, its B2B e-commerce app that connects manufacturers with retail shops. But the company is shifting to an online-to-offline (O2O) business model where it sells directly to those shops, rather than simply acting as a middleman between buyers and sellers. It’s the top player in its niche in terms of retail sales, with gross merchandise value (GMV) of 8.6 billion yuan ($1.19 billion) in 2024, and 10.1% of the family care and nutrition products market in lower-tier cities.

Weak financials

Despite the market’s huge size, Yangtuo’s recent financials look relatively weak, as consumers throughout China grow increasingly cautious. The company’s revenue flatlined between 2023 and 2024, dropping slightly from 1.07 billion yuan to 1.03 billion yuan over that period. Its gross margin has also dropped steadily over the last three years, falling from 43.9% in 2022 to 32.5% last year.

The company’s bottom line looks similarly unimpressive, including losses of 52.1 million yuan in 2023 and 78.4 million yuan in 2024, reversing a profit of 1.8 million yuan in 2022. On an adjusted basis, which excludes the impact of convertible redeemable preferred shares and equity-settled share-based payments to its investors, the company was profitable in the last two years.

Yangtuo blames the weak numbers on its strategic shift to a business model that gives it more control of its supply chain but typically carries lower margins. Its original B2B e-commerce business, started in 2015, specialized in selling infant formula from major China-based brands to stores in lower-tier cities. The newer O2O model sees Yangtuo sell directly to a huge network of buyers, many of them small mom-and-pop stores.

Yangtuo has spent the last six years building a self-operated business that gives it more control over its supplier network, as it sells directly to its buyers. That business includes a growing number of the company’s own products and brands, such as its rice crackers for babies called “Wonder Miao” and its Doctor Jepson line of nutrition drinks.

Revenue from Yangtuo’s self-operated business reached 802 million yuan in 2024, or about 80% of its total that year, though its self-operated brands were just a small portion of that, with revenue of 222.2 million yuan last year. Revenue from the company’s digital marketplace business, where it acts as a middleman between buyers and sellers, has been declining over the last two years, falling to just 229 million yuan – or 22% of total revenue – in 2024.

The shift to a more asset-heavy model could raise risks associated with inventory management and the potential for non-payments by retail customers. The company’s inventory rose by more than 30% from 59.5 million yuan to 74.7 million yuan between 2022 and 2024, while its trade receivables also rose from 3.2 million yuan to 13.5 million yuan over that time.

While much larger e-commerce companies like Pinduoduo (PDD.US) also target buyers in lower-tier cities, Yangtuo is tightly focused on its niche of child-care and family nutritional products. It plans to use proceeds from the IPO to build up its self-operated business in that niche, including through deeper collaboration with leading infant formula brands and better control over pricing terms.

Many of Yangtuo’s competitors in the infant products area have imploded in recent years, including BabyTree Group, which delisted from Hong Kong last December, and cross-border e-commerce company Mia.com, which shut down its app in 2022.

Many of these companies, including Yangtuo, are exposed to China’s declining birthrate, which dropped for seven consecutive years until rising slightly in 2024 to 6.77 births per thousand, according to the National Bureau of Statistics. 2024 was the Year of the Dragon, an auspicious year on the Chinese zodiac favored by expectant parents, which could explain the slight uptick. But many expect the declines to resume over the longer term, posing challenges for Yangtuo and other companies chasing China’s dwindling infant market.

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The merger of its Ele.me service with its core e-commerce business marks a new stage in the e-commerce giant’s three-way “on-demand retail wars” with Meituan and JD.com

Key Takeaways:

• Alibaba has shut down its money-losing local services segment, absorbing its Ele.me takeout dining service into its main e-commerce business group
• On-demand commerce has become the company’s new mantra in its restructured e-commerce business as it shelves a previous breakup plan

By Edith Terry

When reports surfaced this week of an internal memo detailing yet another new restructuring at Alibaba Group Holding Ltd. (BABA.US, 9988.HK), investors cheered by bidding up the e-commerce giant’s shares by nearly 4% over the next few days. The move marked the latest dismantling of a breakup plan announced by the company two years ago, throwing it squarely into China’s growing “instant retail” wars that let consumers buy anything online and get it shipped to their homes within hours.

The original breakup plan in 2023 aimed to let Alibaba’s six main units operate more independently to make them more efficient. But its strategy shifted just a year later as longtime CEO Daniel Zhang departed, with reports in January 2024 that it was considering sales of consumer assets under Eddy Wu, who became the company’s new CEO in September 2023.

Both Zhang and Wu were trying to reverse a slide that saw Alibaba’s shares lose about half their value over the last five years. Wu started by dumping some of Alibaba’s brick-and-mortar retail assets, a relic of a “new retail” model that combined e-commerce and traditional retail, including its sale of its Intime department store chain and Sun Art grocery chain for about $3 billion combined.

Alibaba’s latest financial results for its fiscal year through March were considered a disappointment despite a 6% increase in revenue for the year to 996.3 billion yuan ($139 billion) and non-GAAP net income that was flat at 158 billion yuan.

Its local services group, consisting of takeout dining service Ele.me and its Fliggy travel service, was also underwhelming. The segment’s revenue rose 12% to 67 billion yuan for the fiscal year, and lost 3.7 billion yuan in adjusted earnings before interest, taxes, depreciation and amortization (EBITDA). The segment reported EBITDA losses in the three previous fiscal years as well, making it look like a candidate for another asset sale as the company returned to its e-commerce roots.

But instead, Alibaba has taken just the opposite tack by drawing Ele.me and Fliggy into its core e-commerce business, which includes the Taobao and Tmall marketplaces that are considered the company’s crown jewels.

The move looks set to turn up the heat in China’s recently intensifying instant retail wars. The addition of Ele.me to Alibaba’s new e-commerce group could quickly turn up its fire power as the meal delivery company battles longtime rival Meituan (3690.HK) and newcomer JD.com (JD.US; 9168.HK) in the fiercely competitive market for on-demand or instant delivery services.

The battle is no longer just about takeout dining, which saw a huge upsurge during the pandemic and has become a part of everyday life in China. Now everyone wants everything on demand all the time, the faster the better. And companies are trying to deliver that. According to a report from the Chinese Academy of International Trade and Economic Cooperation, the country’s instant retail delivery industry has grown by an average annual rate of more than 50% since 2018, to reach 650 billion yuan in 2023. 

Challenging Meituan and JD.com

Alibaba’s new on-demand retail services are challenging Meituan, the traditional market leader, as well as JD.com, which was providing such services through its separately listed Dada Nexus arm that it recently privatized. Bargain e-commerce upstart PDD (PDD.US), operator of the Pinduoduo service, may also be trying to get in on the act.

Ele.me’s future role as an important part of Alibaba’s core e-commerce business has been obvious since at least April, when Taobao rebranded its one-hour delivery service, formerly known as Xiaoshida, as Taobao Instant Commerce. As part of that shift, it recruited Ele.me as its logistics provider, taking advantage of the service’s 4 million riders. All of the company’s instant retail operations were consolidated under Taobao, with Ele.me offering up its huge fleet of riders for both delivery of food and other products.

As part of the ramp-up, Taobao and Ele.me said they would offer over 10 billion yuan in subsidies to attract merchants and buyers to its new instant retail network. By early June, they had achieved over 40 million daily deliveries.

Alibaba made its move more than a year after JD.com, which launched its Miaosong, or “one second delivery,” instant demand retail platform in May 2024, followed by a new food delivery service in February. In a research report in early June, HSBC noted that JD.com had achieved 25 million daily deliveries since it launched the food delivery service, advertising zero commission fees for restaurants that signed up before May 1.

In April, JD.com said it would hire 50,000 more full-time couriers for Miaosong, delivering items from its network of 100,000 JD.com-branded offline stores, and adding to its existing 1.2 million to 1.3 million active riders. The same month JD.com also privatized Dada Nexus, and has pledged 10 billion yuan in subsidies for its instant retail initiatives over the next year.

Also in April, Pinduoduo announced it would invest 100 billion yuan to transform and upgrade its platform for merchants, which many interpreted as showing it would enter the instant retail race.

Meituan, the takeout dining leader with 65% of the market, double Ele.me’s 33%, rebranded its 7-year-old on-demand retail business in April as well. It positioned its “Meituan Flash Purchase” as a “new generation shopping platform that accompanies consumers 24 hours a day”, selling everything from home appliances to pet supplies.

Meituan said on its latest earnings call last month that its delivery network was processing 20 million orders per day. According to CFO Chen Shaohui, non-catering orders were up 60% in the quarter.

Given the intense competition, heavy spending on subsidies and continued regulatory scrutiny, who will come out on top in the new instant retail era is anybody’s guess. “We see quick commerce as a huge opportunity,” said Alibaba’s e-commerce chief Jiang Fan on the company’s latest earnings call. “It addresses a widespread, everyday need for consumers across Chinese society. Today it could be a market of 500 to 600 million consumers. Going forward, that could easily become 1 billion consumers.”

Alibaba seems to have a leg up over JD.com in the instant retail race, at least in investors’ eyes, with a trailing price to earnings (P/E) ratio of 18 that’s well ahead of JD.com’s 11. But Meituan, known for its aggressive tactics and good execution, is the clear favorite with a P/E ratio of 61.

The analyst community likes all three companies, with 35 of 42 surveyed by Yahoo Finance giving Meituan a “buy” or “strong buy” rating. JD.com looks similar, with 34 out of 37 analysts rating it a “buy” or “strong buy,” while 38 out of 40 give Alibaba those two ratings. That seems to show analysts aren’t ready to call a winner in the building instant retail race just yet, and much will depend on how the landscape develops in the next few years.

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Embedded links in recommendation notes on the popular lifestyle platform will take buyers directly to items for sale in Alibaba’s Tmall and Taobao marketplaces

By Doug Young

Taobao and Tmall, two core marketplaces operated by Alibaba Group Holding Ltd. (BABA.US; 9988.HK), recently entered a landmark partnership with lifestyle social media sensation RedNote, in the former’s latest step to bring its core e-commerce services closer to consumers in their everyday lives. The tie-up is just the latest by two of China’s largest e-commerce marketplaces, as they look for new and innovative ways to engage consumers through steps like integrating links to products in online conversations and videos.

At the same time, Taobao and Tmall are giving their thousands of online merchants better tools to make their marketing and back-office functions more efficient, often using the power of AI. A company spokesperson discussed those developments and more in a recent interview with Bamboo Works.

Q: Taobao and Tmall have recently announced a partnership with RedNote. Could you tell us more about the collaboration?

A: Taobao and Tmall’s strategic partnership with RedNote represents a significant step in bridging content and commerce, offering consumers a seamless path from product discovery to purchase. The partnership enables merchants to embed product links from their Taobao and Tmall stores directly into recommendation posts on RedNote. Users can tap on these links and be redirected to the Taobao app to complete their purchases.

The partnership also includes the launch of joint merchant accounts and performance dashboards, allowing merchants to track the full journey from content exposure on RedNote to completed orders on the Taobao app in real-time. To further support merchant success, Taobao and Tmall will invest in amplifying hero products featured in RedNote posts, providing marketing resources and performance advertising tools to boost product visibility and engagement.

Q: Is this the first time Taobao and Tmall have struck such a major partnership with an outside company and what’s the strategic importance?

A: We have a strong track record of successful partnerships with other platforms as part of our “user-first” strategy and merchant-friendly initiatives. Currently, Taobao and Tmall work with over 200 internet platforms, ranging from social media to mobile payments, supporting brand growth through expanded traffic channels, diversified content formats, and omni-channel operations.

Last September, Taobao and Tmall partnered with WeChat Pay, which expanded payment options for consumers. Additionally, last October, JD Logistics fully integrated with Taobao and Tmall, providing comprehensive services to Taobao and Tmall merchants that encompass the entire supply chain process, including warehousing, express delivery, and freight.

These developments represent significant milestones for China’s cross-platform interconnectivity and enhancing Taobao and Tmall’s competitiveness. All these partnerships create a more seamless and convenient experience for consumers while opening up new business opportunities for merchants, benefitting both.

Q: Do you see content-driven e-commerce as key to driving further user and business growth, and can you elaborate on how?

A: The partnership between Taobao and Tmall and RedNote bridges content with commerce, reflecting our commitment to supporting brands. At its TopTalk annual merchant conference in March, Tmall announced a series of new initiatives to support brands in 2025, including measures to attract users across channels and the extension of its commission rebate scheme to cover all categories.

Tmall President Liu Bo said the RedNote collaboration marks a new chapter in the marketplace’s support for brand growth in 2025. He added that combining Taobao and Tmall’s commerce expertise with RedNote’s strength in lifestyle content, will help brands reach consumers more effectively and drive incremental growth.

Q: What other initiatives are Taobao and Tmall taking to enhance overall user experience and overall stickiness?

A: With 1 billion annual active consumers, Taobao and Tmall are continuously introducing new initiatives to enhance user experience. To convert more new users into loyal consumers and ultimately VIP members, Taobao and Tmall will increase investment in initiatives such as exclusive 88VIP benefits this year, aiming to cultivate repurchasing habits and deepen long-term engagement.

To boost repeat purchases, Tmall is increasing investment in not only platform-wide loyalty programs like 88VIP but also in brand-specific ones. Brands will be able to increase member engagement through more membership access points across Taobao search results, personalized recommendations, and shopping carts.

Q: I understand Alibaba has leveraged AI-powered technology to support merchants on your e-commerce platforms. Can you tell us more about these tools?

A: Taobao and Tmall have been integrating advanced AI technologies into every stage of the e-commerce process, from product recommendations and bidding optimization to content creation and performance analytics. These AI tools are designed to transform the digital shopping experience while boosting operating efficiency for merchants.

At the 2025 TopTalk conference, we introduced major upgrades to the merchant AI toolkit, including new image-to-video generation capabilities within the AI-generated Content (AIGC) tool and an advanced marketing bidding model that has demonstrated an average 12% boost in campaign ROI through automated bidding strategies. Additionally, our AI customer service chatbots have continued to evolve, offering increasingly sophisticated support.

To date, Taobao and Tmall’s AI-powered e-commerce toolkit, launched last year, has served 7 million merchants. This May alone, merchants reduced their marketing expenses by generating over 100 million marketing images, videos, and text and conducted over 1.8 million AI agent services for traffic analysis and more.

Our new "Image-to-Video" AIGC product has generated over 1.5 million videos since its beta launch in April. It enables merchants to generate up to 20-second videos from one or more product images, and provides additional features such as one-click editing, smart refinement, and script-based production

Q: Can you tell us about your Quanzhantui marketing solution?

A: Quanzhantui launched in April 2024 and is an important AI-powered marketing tool to help merchants market effectively and drive business growth. Over 1.4 million merchants have enhanced their marketing efficiency with the aid of Quanzhantui. As our CEO Eddie Wu explained in our earnings call last August, achieving strong sales performance requires more than just having a product in place, and Quanzhantui can help merchants to streamline operations and optimize marketing efficiency.

For the quarter through March this year, our customer management revenue grew 12% year-over-year to 71.1 billion yuan ($9.8 billion), primarily driven by the improvement of take rate, which benefited from the impact of software service fees and the increasing penetration of Quanzhantui.

Q: How are these new products and offerings driving user growth?

A: Taobao and Tmall are committed to enhancing support for product launches, providing brands with powerful tools and resources to capture market share and attract new consumers. Specifically, Taobao and Tmall have introduced new marketing tools that leverage AI and data analytics, along with more prominent ad placements and an extended new product incubation cycle from 30 days to 90 days, giving brands more time to build awareness and gain traction.

The “Tmall Super Launch” campaign has been particularly successful, enabling 34,000 new products to achieve sales exceeding 10 million yuan each. This feature alone generated a total of 100 billion yuan in sales in 2024.

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The company said it is contemplating winding down its last-mile delivery service after stiff competition caused its revenue to plunge in the first quarter

Key Takeaways:

• Qudian’s revenue fell by more than half in the first quarter, as the company said it is considering closing its last-mile delivery business due to intense competition
• The company’s outstanding share count has shrunk by about a third over the last three years, and it could use its large cash holdings to keep buying back stock and privatize

By Doug Young

What do consumer loans, education, prepared foods and last-mile delivery services have in common?

They’re all businesses that Qudian Inc. (QD.US) has dabbled in over the last decade, and ultimately discarded for different reasons. The company’s most recent gambit has been last-mile delivery, as it sought to leverage its Chinese connections to help logistics companies complete delivery of their packages from China to customers in Australia and New Zealand.

Now, Qudian has revealed that its last-mile delivery business has run into massive headwinds from intense competition, causing its revenue to plunge by around half in the first quarter of this year. As a result, the company is considering giving up on its latest business foray, it said in its first-quarter earnings report released a week ago.

We certainly aren’t experts on the last-mile delivery business, so we can’t comment too specifically on what might have happened to Qudian. But China’s delivery business is extremely competitive already, dominated by about a half-dozen companies that are rapidly building up their global networks to help Chinese companies deliver millions of packages each day.

Qudian was helping some of those companies to complete their deliveries to customers in Australia and New Zealand. But it undoubtedly faced competition from local rivals with much longer operating histories and better infrastructure. What’s more, the Chinese logistics companies are also building their own local infrastructure outside China that would compete with Qudian’s services. With so many factors working against it, combined with Qudian’s own lack of history and experience, it doesn’t come as much surprise that Qudian failed.

What sets Qudian apart from many other struggling Chinese companies is its huge cash pile, which is only growing despite the company’s repeated business failures. That points to some smart investing by founder and Chairman Luo Min, who seems to be slowly privatizing his company by steadily buying back Qudian’s shares, even as he keeps looking for a viable business to pour his cash and other resources into.

“The company's last-mile delivery business continued to face intense competition in the first quarter of 2025,” Qudian said in its latest announcement. “After assessing current market conditions, the company is contemplating winding down its last-mile delivery business. Moving forward, the company expects to remain steadfast in its commitment to executing its business transition and simultaneously maintaining prudent cash management to safeguard its balance sheet,” Qudian said.

Qudian’s shareholders didn’t seem too worried by the company’s latest failure, with its shares unchanged on the day of the latest announcement. They barely budged in the next four trading days either, indicating investors aren’t too worried about the situation.

For a company without a business model, Qudian still boasts some surprisingly big-name shareholders. Those include UBS, with 3.45% of the company’s shares, Morgan Stanley with 1.36%, Citi with 0.57% and JPMorgan with 0.36%, according to Yahoo Finance. We suspect those big names are probably less interested in Qudian’s long-term prospects and probably hope to make some quick profits if and when Luo Min tries to privatize his company.

Plunging revenue

Luo was considered an industry visionary when he launched his original fintech company in 2014 and quickly found big profits in lending money to students for purchases like smartphones and computers. But China cracked down on such private fintech lenders starting around 2017, the same year that Qudian went public on the New York Stock Exchange.

Many fintech lenders went out of business during the crackdown, and most survivors abandoned direct lending to become loan facilitators between banks and borrowers. But Qudian, flush with cash from its IPO and several years of strong business results, decided to abandon its fintech roots completely. From there it tried brief forays in education and prepared foods between 2021 and 2023, before abandoning both after one to two years due to stiff competition.

The company thought it had found a winner when it launched its Fast Horse last-mile delivery service at the end of 2022 and scaled up the business by the middle of 2023. The business briefly boomed, logging 216 million yuan ($30 million) in revenue last year, up 71% from 2023. But it began to contract in last year’s fourth quarter, and the figure fell by more than half to 25.8 million yuan in the first quarter from 55.8 million yuan a year earlier.

Not surprisingly, the last-mile delivery business lost money. But Qudian generated 165 million in interest income from its large cash holdings, which allowed it to report a 150 million yuan profit for the first quarter.

The company had 5.6 billion yuan in cash and restricted cash at the end of March, which is up quite a lot from its 3.5 billion yuan at the end of 2022. That seems to show that Luo is quite a good investor, even if he isn’t so good at running a business. What’s more, Qudian has been steadily buying back its shares. Its total outstanding American depositary shares (ADS) stood at 172 million at the end of March, down by about a third from 265 million at the end of 2022.

Luo owned about 35% of Qudian’s stock at the end of last year, according to the company’s latest annual report. That means other investors held about 112 million ADSs worth about $335 million at the company’s latest closing price of about $3. Qudian’s huge cash holdings would be more than enough to buy back all that stock at a premium, and still leave plenty for Luo to look for a new business model without having to continue as a public company.

In fact, Qudian still has $250 million left from a $300 million share buyback program it launched in March 2024. That could allow the company to keep reducing its public float by accelerating its share repurchasing, before making an offer to take the company private. Such a move would once again show how Luo is quite the savvy financier, even if he’s not very good at the education, prepared foods and last-mile delivery businesses.

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The maker of beauty apps will sell $250 million worth of convertible bonds that could make the e-commerce giant its third-biggest shareholder

Key Takeaways:

• Meitu and Alibaba have formed a major new partnership that will see the latter leverage the former’s skills in video and photo apps
• The deal could give Alibaba nearly 7% of Meitu’s shares, and is one of Alibaba’s biggest investments since it was fined $2.5 billion for anti-competitive behavior in 2021

By Doug Young

Beauty app operator Meitu Inc. (1357.HK) is a company of many faces. After starting off as a popular but not very profitable app used by people to pretty up selfies, the company later found better business in providing similar software to professional outlets like cosmetic stores and photo studios that were more willing to pay for such products.

But the company always had an important asset in its huge base of more than 250 million users, mostly average consumers. More recently, it’s been using the power of AI and social media to finally monetize that user base, which has once again become its main growth driver. Now, it’s aiming to take its newfound success in the consumer market to the next level through a major new partnership announced last week with e-commerce giant Alibaba (BABA.US; 9988.HK).

Under the deal, Alibaba will purchase $250 million worth of three-year convertible notes from Meitu with a conversion price of HK$6 per share. A full conversion in three years would give Alibaba 6.85% of Meitu’s enlarged share capital, making it the company’s third largest shareholder behind only Meitu co-founders Cai Wensheng and Wu Zeyuan.

From Alibaba’s perspective, the tie-up is noteworthy because it’s one of the company’s largest investments in recent years and appears to show it is increasingly aware of the importance of social media and photo and video applications to the future of its core e-commerce business.

Alibaba was once quite acquisitive, buying billions of dollars worth of assets in areas from entertainment to media, takeout dining and brick-and-mortar retailing at the height of its buying binge in the 2010s. But that buying spree largely came to a halt in 2021 after the company was fined a record 18 billion yuan ($2.5 billion) for anti-competitive behavior as it grew too powerful and abused its market dominance.

This new partnership also looks notable for its international overtones, since both Alibaba and Meitu are trying to leverage their strengths by expanding overseas as growth in their home China market slows. More on that shortly.

Investors were quite excited by the announcement, at least initially, bidding up Meitu’s shares by 19% the day after it came out last week. At their close of HK$7.02 that day, the stock was already 17% above the HK$6 exercise price for Alibaba’s convertible bonds.

The shares have given back much of those gains since then, but are still up 6% from pre-announcement levels and have more than doubled since the start of the year. The analyst community is also quite bullish on Meitu, with three of the nine polled by Yahoo Finance rating the company a “strong buy,” and the other six giving it a “buy.” Still, we should also note that the company’s Monday close of HK$6.26 is well below the HK$8.50 that it sold shares for at the time of its 2016 IPO.

“The board believes that this strategic collaboration will serve as the foundation of a long-term partnership between the company and the subscriber,” Meitu said. “It will also allow the company to seize the opportunities brought by AI, driving the company’s long-term growth.”

E-commerce tools

Meitu’s growing business that incorporates e-commerce tools appears to be at the center of this deal. Whereas its earlier apps mostly allowed people to beautify photos of themselves, Meitu’s latest apps are far more sophisticated, drawing on AI and faster computing power to let people do things like virtually sample makeup and try on clothes. Equally important, they allow people to make in-app purchases of products after trying them out.

That business falls under the “photo, video and design products” segment in Meitu’s financial reports, and is the fastest growing of its three main revenue sources. Revenue from that category jumped 57% year-on-year last year to 2.09 billion yuan, growing to 63% of the company’s 3.34 billion yuan for the year. By comparison, its business of selling software as a service (SaaS) to companies like makeup stores and photo shops, known as “beauty industry solutions” in its reports, fell 32% year-on-year to 385 million yuan, accounting for 12% of its total. The rest of its revenue came from advertising.

The takeoff of the “photo, video and design products” business is directly tied to the company’s huge base of 266 million monthly active users (MAUs) at the end of last year. Meitu is increasingly able to convert those to paying users with its more sophisticated products. Its number of paying subscribers rose 38.4% last year to 12.6 million.

Equally important is Meitu’s success growing its user base outside China, especially as the Chinese economy slows and consumers become more cautious. Its China-based users totaled 171 million at the end of last year, roughly the same as a year earlier. But its international user base grew 22% to 94.5 million, accounting for 36% of its total.

Alibaba no doubt likes Meitu’s in-app selling ability, and also its growing international user base. Meanwhile, Meitu is undoubtedly salivating at a chance to get its apps into the smartphones and PCs of Alibaba’s hundreds of millions of users worldwide.

Alibaba will “prioritize the promotion of (Meitu’s) AI e-commerce tools on its global e-commerce platforms, assisting the company in developing new tools and/or features for data-driven e-commerce image and video generation,” Meitu said in its announcement. It added that the two companies will also “cooperate and jointly develop various foundational models and vertical-domain large language models, including video generation models, image generation models, multimodal models and voice models.”

As part of the deal, Meitu has also agreed to buy 560 million yuan worth of services from Alibaba’s cloud unit within the first 36 months of the agreement, suggesting another area where the pair could collaborate in the future.

Following the rally for its stock this year, Meitu’s shares currently trade at a price-to-earnings (P/E) ratio of 31. While that looks somewhat high, it’s actually well below the 43 for Salesforce (CRM.US) and even higher 83 for Shopify (SHOP.US). That suggests Meitu’s stock could still have some further upside potential, especially if it leverages the new Alibaba tie-up to maintain or even accelerate its recent growth.

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Chenghe Acquisition II Co. shareholders will vote later this month on a merger with the Asia-focused B2B e-commerce company Polibeli

Key Takeaways:

• Chenghe Acquisition II Co. hopes to soon complete its SPAC merger with Polibeli, which would then become a U.S.-listed company
• Polibeli operates a B2B e-commerce platform that supplies a wide range of products to Asian retailers, with an initial focus on Indonesia, Japan and Hong Kong

By Doug Young

Chenghe Acquisition II Co. (CHEB.US), a special purpose acquisition company (SPAC) that raised $86.25 million through its June 2024 IPO, is expecting to soon complete a merger with target company Polibeli Group Ltd., a B2B e-commerce platform headquartered in Indonesia, according to its latest regulatory filing. Upon completion of the proposed transaction, Chenghe II will become a wholly owned subsidiary of Polibeli, which plans to become a publicly listed company on the Nasdaq.

Polibeli signed its initial business combination agreement with Chenghe last September, and a special meeting has been scheduled on May 23 for Chenghe shareholders to vote on the deal. Closing is expected not long afterwards if shareholders give their approval, subject to meeting closing conditions, including the Nasdaq listing approval.

Polibeli’s platform connects suppliers with small- and medium-sized businesses, mostly retailers, with a focus on providing a wide range of consumer products, including electronics, home appliances, toys, watches and accessories, cosmetics and skin, oral and other healthcare products. The company currently provides services to customers across key markets in Asia and Europe.

Polibeli’s revenue rose 32.7% year-on-year in 2024 to just over $30 million, representing respectable growth for such a young company. The company’s operations in Japan and Indonesia are its core revenue engines, accounting for the vast majority of total sales — Japan contributed about 52% and Indonesia at 38% in 2024, as disclosed in the latest filing. The company achieved positive gross profit in 2024, though its gross margin for global goods trading fell last year, partly due to its use of a low-price strategy to boost its Indonesia presence.

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The logistics provider’s market share fell as its parcel volume growth trailed the industry last year, signaling its profit-oriented development strategy was facing headwinds

Key Takeaways:

• ZTO’s parcel volume increased 12.6% last year to 34 billion units, slower than the industry growth rate
• The logistics company’s market share dropped from 22.9% in 2023 to 19.4% last year, falling below the 20% mark for the first time since 2020

By Lee Shih Ta

Weakening household consumption in China has yet to dent the country’s love affair with e-commerce, as a broader trend of ever-smaller packages drives the latest growth wave. Such a move towards “good things in small packages” has charged up the industry, at least in terms of parcels delivered. That was true in 2024 for industry leader ZTO Express (Cayman) Inc. (2057.HK; ZTO.US), whose latest annual results show it recorded yet another bumper year.

The results show ZTO’s revenue rose 15.3% year-on-year in 2024 to 44.3 billion yuan ($6.12 billion), while its profit increased 0.8% to 8.82 billion yuan.

Data from China’s State Post Bureau shows a massive 174.5 billion packages were delivered nationwide last year, up 21% year-on-year, accelerating from the 19.4% growth in 2023. But the industry’s total revenue grew just 13% to 1.4 trillion yuan, slowing from the 14.5% growth in 2023.

While ZTO’s revenue growth slightly outperformed the broader industry, the growth of its parcel volume showed signs of slowing. Last year the company’s volume of parcels delivered totaled 34 billion units, up 12.6% year-on-year. While that was enough to make the company the industry’s largest courier by parcel volume for a ninth consecutive year, its volume growth was well behind the industry average of 21%. As a result, ZTO’s market share dropped from 22.9% in 2023 to 19.42% in 2024, falling below the 20% mark for the first time since 2020.

China’s delivery rankings based on parcel volume were roughly the same in 2024 as 2023. ZTO led the way, followed by runner-up YTO Express (600233.SH), which delivered around 26.6 billion parcels for the year. Yunda (002120.SZ) was third at 23.8 billion units, followed by STO Express (002468.SZ) with 22.7 billion, J&T Express (1519.HK) with 19.8 billion, and S.F. Holding (6936.HK; 002352.SZ) with 13.3 billion.

While retaining its crown in terms of parcels delivered, ZTO’s 12.6% volume growth was well behind its rivals, all of which grew by at least twice that rate. STO Express, J&T Express and Yunda achieved growth of 29.83%, 29.1%, and 26.14%, respectively, last year, while YTO Express grew by a similarly strong 25.33%.

Holding on to market share is key to surviving in such a sector where rivals typically lack much differentiation. That means ZTO is likely feeling some pressure to maintain its lead as its rivals nip at its heels.

Smaller packages

The rapid rise of new-generation of bargain-oriented e-commerce platforms such as Pinduoduo, Douyin and Kuaishou is fueling a flood of deliveries for low-value packages, driving the trend of ever-smaller packages that often contain just single, small item. As the packages have gotten smaller, so have the prices for delivering them. Industry data shows the average delivery price fell from 9.1 yuan in 2023 to 8 yuan last year, eroding profit margins for delivery companies.

The package miniaturization trend is behind the rapid growth in parcel deliveries for companies like YTO Express, STO Express, J&T Express and Yunda, which focus on low delivery prices as a key selling point. By comparison, ZTO was more focused on delivering more high-value parcels in 2024. 

Last year the company listed “accelerating profit growth” as a business priority as it tried to extricate itself from the ongoing price wars that are a constant feature in the ultra-competitive sector. So, while its peers were busy cutting prices, ZTO’s price per unit actually rose 2.7%, and its average transportation cost dropped 8.9%. That translated into a 17.6% rise in its gross profit to 13.72 billion yuan, and gross margin growth from 30.4% in 2023 to 31% last year.

The bottom line was ZTO sacrificed some market share in exchange for better profits. But was it worth it?

Founder and Chairman Lai Meisong said a top priority this year will be to exceed the industry-average growth rate for its parcel volume. The company is targeting a volume of between 40.8 billion and 42.2 billion parcel deliveries for the year, representing 20% to 24% growth, showing ZTO isn’t ready to give up more market share in pursuit of better profits just yet.

Betting on retail market

ZTO has been shifting its focus to the higher end of the market lately with a focus on retail parcel deliveries, which are more profitable than higher-volume bulk deliveries. Retail parcels refer to parcels sent by individuals or non-e-commerce vendors, as well as e-commerce returns.

ZTO’s average daily volume for such retail parcels in the fourth quarter of last year exceeded 7 million units, up nearly 50% year-on-year from 2023, much faster than the volume growth of all of its e-commerce parcel deliveries. The volume of e-commerce returns grew even faster, roughly doubling.

Lai said that of the 7 million retail parcels ZTO delivers on an average day, 3 million come from individuals and 4 million are returned e-commerce items. He said he sees expanding the retail parcel business as key to improving the company’s revenue structure, and believes consumers are motivated by ZTO’s value-preposition associated with online purchases.

Hive Box Holdings, the express delivery locker operator, projected the volume of e-commerce return parcels will grow at an annual rate of 20.7% between 2023 and 2028, rising from around 3.6 billion units in 2019 to 8.2 billion in 2023 and further to 20.9 billion in 2028, according to its previous filing to Hong Kong’s stock exchange in preparation for an IPO.

The 2023 figure of 8.2 billion returned parcels translates to approximately 20 million daily returns, rising to 57 million by 2028. As such returns grow, they could become a major growth driver for ZTO and its peers in the future. 

Valuation-wise, ZTO currently trades at a price-to-earnings (P/E) ratio of 13.6 times, higher than the 11 for YTO Express but lower than STO Express’ 25 times and S.F. Holding’s 18.5 times. That shows it’s valued in the middle-to-lower range among its peers, implying some upside potential.

That said, investors need to ask certain questions, including whether parcel deliveries will continue to post strong growth in defiance of China’s slowing economy. Will ZTO’s bet on the retail parcel market pan out? And how will it manage the balance between parcel volume and profit margin? Answers to such questions will be key to how the company fares in this fast-moving and ultra-competitive industry.

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The e-commerce services and brand management company’s revenue rose 7.7% in the fourth quarter, as it announced plans to open a net 40 new Gap clothing stores in China this year

Key Takeaways:

• Baozun reported its first net profit in more than three years in last year’s fourth quarter, as its brand management and e-commerce services business posted strong growth
• The company had 152 Gap stores across China at the end of last year, and plans to open another 40 net new stores in 2025

By Doug Young

The latest quarterly report from Baozun Inc. (BZUN.US; 9991.HK) had something for everyone. Its topline revenue continued to grow at a respectable rate, and its network of China-based Gap clothing stores posted same-store sales growth – a rare feat in the current environment of weak consumer sentiment. On the bottom line, the company also reported its first quarterly profit in more than three years and promised 2025 would be “transformative.”

But investors weren’t buying into any of that. The stock fell 12.7% on Thursday after the latest earnings announcement, throwing a damper on what otherwise looked like a very respectable report. Even after the selloff the stock is still up 15% over the last six months, which seems to show the investment community is becoming more confident in the company.

Reflecting that, five of seven analysts polled by Yahoo Finance rate Baozun a “buy,” while the other two rate it a “hold.” But investors don’t think nearly as highly of the company, giving it a price-to-sales (P/S) ratio of just 0.17. By comparison, The Gap Inc. (GAP.US) trades at 0.52, and rival retailer Giordano (0709.HK) trades at 0.63. The discrepancies get even worse when we compare Baozun to other e-commerce services providers, which is Baozun’s other main business. Domestic rival Weimob (2013.HK) trades at a P/S ratio of 3.12, while U.S. giant Salesforce (CMS.US) trades at 7.18.

To better understand why investors are so down on Baozun, we need to trace the company’s history. It began as a provider of software services to e-commerce merchants, and was closely tied to Alibaba’s (BABA.US; 9988.HK) ecosystem. To this day, Alibaba remains one of its major shareholders. But that business has largely stagnated in recent years.

More recently, the company made headlines in 2023 when it purchased Gap’s China operations, launching Baozun’s move into brand management. Not long afterwards, it also formed a joint venture with Authentic Brands Group to bring the U.S. brand owner’s Hunter brand to Asia.

The move into brand management initially raised a lot of eyebrows due to its relative distance from Baozun’s core service of providing e-commerce services. That brand management business also created a drag on Baozun’s overall performance initially, as the company closed many Gap stores and tried to reposition the brand to make it more competitive. Those efforts appear to be finally yielding some results, and the brand management business now accounts for about a fifth of Baozun’s revenue.

The company’s total revenue rose 7.7% year-on-year in the fourth quarter to 3 billion yuan ($414 million) from 2.78 billion yuan, as it reported a second consecutive year of annual revenue growth for all 2024 after the figure contracted in 2021 and 2022. Fulfillment costs were flat year-on-year, while sales and marketing costs rose 17%.

As those two factors offset each other, the company reported a 100,000 yuan profit for the quarter, marking its first net profit since the second quarter of 2021. Chairman Vincent Qiu indicated the momentum is continuing in 2025, as analysts forecast the company will report an annual profit this year – its first since 2020.

“The year 2025 marks a combination of our strategic transformation and sets the stage for future growth,” Qiu said on the company’s earnings call. “We have strengthened our senior management team to drive this next phase.”

Gap expansion

Next, we’ll take a closer look at the company’s two main businesses, starting with its newer brand management business that is entering a growth mode after an initial period of retrenchment. The Gap-brand stores still make up the bulk of that business, though Baozun said it recently opened its first Hunter outlets in Shanghai and Malaysia.

Product sales for its brand management business, mostly from Gap stores, rose 17.3% in the fourth quarter year-on-year to 535 million yuan from 456 million yuan a year earlier.

The company said it opened 40 new Gap stores in the second half of last year, including 16 in the fourth quarter, bringing its total to 152 Gap stores across China by the end of 2024. It said it plans to open another 50 Gap stores this year, which, when combined with closure of underperforming outlets, would give it 40 net new stores for the year.

Notably, the company said its Gap stores reported “low single digit same-store sales growth” in the fourth quarter, which looks quite promising in the current economic climate where many retailers are reporting declines. In one other noteworthy development, the company said it is working with franchisees to expand the chain into second-tier cities – a strategy increasingly used by many brands for expansion into China’s smaller cities.

“While we opened new stores throughout the year, we also strategically closed underperforming locations to optimize our offline network, making 2024 a year of structural upgrades,” said Ken Huang, CFO of Baozun Brand Management, on the earnings call. “Looking ahead, we plan to accelerate our expansion by prioritizing high traffic locations that maximize sales potential.”

Huang added that following the recent openings of a Hunter store in Shanghai, the company is looking to expand that brand into other Chinese markets, such as Beijing, Shenzhen and Hangzhou.

On the e-commerce side, the company said its services revenue rose 9.3% year-on-year to 1.89 billion yuan in the fourth quarter from 1.73 billion a year earlier, fueled by double-digit gains for its online store operations and marketing services. But that was partly offset by a 4.3% decline for its e-commerce product sales to 572 million yuan from 598 million yuan a year earlier, as weak consumer sentiment hit that part of the business.

The positive performance by the brand management business, combined with strong results from e-commerce services offset the weakness in e-commerce sales, lifting Baozun’s operating income to 73.2 million yuan from 6.4 million yuan a year earlier. And as we’ve already noted, the company also returned to a profit after more than three years of losses.

So, why the stock selloff? The one slightly worrisome sign was a drop in the gross margin for Baozun’s brand management business, which fell to 50.4% in the fourth quarter from 52.9% a year earlier, with the company blaming store discounts offered as part of promotions. But such a small decline in one part of its business doesn’t seem to justify the big stock selloff. Accordingly, the shares could have some potential upside if 2025 turns out to be as transformational as the company hopes.

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The employment app faces big opportunities, but also challenges, as more people enter the workforce and signs emerge that companies may be ramping up recruitment

Key Takeaways:

• Kanzhun’s net profit jumped by 42.6% to 1.57 billion yuan last year
• The operator of the Boss Zhipin recruitment app saw its number of monthly active users grow by 25.3% last year to 53 million

By Lee Shih Ta

A line from a popular TV drama says that “The choppier the water, the more expensive the fish that live there.” The implication is that the tougher the environment, the greater the payoff if you can successfully see your way through it.

China’s recruitment industry fits that bill, made choppy by significant growth in recent years that’s the direct result of growing unemployment in an economic slowdown after three decades of breakneck growth. That landscape is providing plenty of job applicants for recruitment services, even if these companies will only truly thrive when the broader economy picks up and companies step up their hiring again.

The latest financial report from Kanzhun Ltd. (BZ.US; 2076.HK), operator of China’s biggest online recruitment platform, Boss Zhipin, was sending signals that such an economic recovery might be just around the corner.

Kanzhun announced solid gains on both its top and bottom lines last year, with annual revenue up by 23.6% year-on-year to 7.36 billion yuan ($1.02 billion) and net profit up by an even greater 42.6% to 1.57 billion yuan. The company was sitting on 14.7 billion yuan in cash and short-term investments by the end of last year, up by 13.8% from the 12.9 billion yuan at the end of 2023. 

In terms of quarterly performance, Kanzhun’s revenue grew by 15.4% year-on-year in the fourth quarter to 1.82 billion yuan, marking a sixth consecutive quarter of double-digit growth. Its net profit for the three months grew by 34.1% to 444.2 million yuan. The company’s U.S.-listed shares rose by nearly 5% after the release of its latest report, as investors applauded its ability to continue posting double-digit growth even as many other companies are shrinking and falling into the red.

Kanzhun’s business growth owes in no small part to its ever-growing customer base. Its monthly active users (MAU) reached 53 million in 2024, up 25.3% year-on-year, though the figure declined from 58 million in the third quarter to 52.7 million in the fourth. That said, Kanzhun’s third-quarter user base was roughly equal to the combined total for three of its biggest rivals, Zhaopin, 51job, and Tongdao Liepin (6100.HK), according to Questmobile, showing just what a giant the company is in China’s recruitment sector.

Expanding enterprise-user base

Job seekers are like fish in the sea: The choppier the waves, the more they tend to swim together. Recruitment websites sell resumes of potential employees to employers, and such paid services constitute a large chunk of Kanzhun’s revenue.

The company said its paying enterprise customers grew by 17.3% year-on-year to 6.1 million last year. That helped to fuel a jump in revenue from online recruitment services for such enterprise customers from 5.89 billion yuan in 2023 to 7.27 billion yuan last year, acting as a key driver of the company’s revenue growth. Revenue from the company’s value-added services for job seekers was much smaller but also logged 36.2% year-on-year growth to 85.7 million yuan.

It’s also worth noting that Kanzhun is keeping its own costs under control. Its marketing expenses grew 4.1% from 1.99 billion yuan in 2023 to 2.07 billion yuan in 2024, mostly due to an increase in its own employment costs. That was partially offset by a decline in advertising and marketing expenses. By the end of last year, Kanzhun itself employed 5,688 people, up by 6% from 5,346 in 2023, representing an increase of 342 employees. Marketing and sales staff accounted for half of that.

Enter DeepSeek

In terms of technology, Kanzhun has integrated DeepSeek-R1 into Boss Zhipin and is conducting gray-box testing in some of the app’s scenarios. It is also using its self-developed Nanbeige AI model to provide services. The company says the combination of Nanbeige and DeepSeek will allow it to cut costs further while ensuring the same level of service to users.

Among its services for recruiters, the platform’s AI function can automatically select the most suitable candidates from the Boss Zhipin’s vast database of job seekers and recommend them to employers, also providing explanations for its recommendations. More advanced services allow employers to engage with job applicants. Meanwhile, job seekers can use the platform’s interactive interface that lets them articulate their needs in more natural language. They can also use the interface to access position and employment-related information and seek answers to their queries, as well as take part in simulated interviews.

UBS expressed its positive view on the company in a report, citing reviving recruitment sentiment from companies since the beginning of the year. It raised its first-quarter and full-year revenue projections for the company by 3.5% and 0.4%, respectively, translating to year-on-year growth to 12.2% and 12.1%. It maintained a “neutral” rating for the stock and increased its target price for Kanzhun’s U.S.-listed shares from $17 to $19.50.

Kanzhun currently trades at a price-to-earnings (P/E) ratio of around 40 times, higher than the 19 times for Manpower Group (MAN.US), showing investors are fairly optimistic about the company's future growth. The real test now will be whether China’s economy will be able to turn a corner, with such hopes already reflected in the recent rallies for Chinese stocks.

The employment challenge has always been a great concern for China, and that focus will be even bigger this year as the economy remains weak. An estimated 12.22 million college graduates are expected to enter the workforce in the summer, and it will quickly become clear if the job market has enough demand to absorb so many newcomers. That represents both a challenge and opportunity for job recruiters.

Kanzhun continues to boast leadership in the human resources industry thanks to the steady rise in people looking for jobs, and its ability to keep providing better service through its use of AI and other means. It will need to keep using such advantages to stay ahead of its adversaries, which includes not only rival recruitment agencies but also conservatism among its core enterprises customers as they wait to see if China’s economy has indeed turned a corner.

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The movie ticketing platform was dragged down by a 23% decline in China's box office last year, but held out hope for a stronger 2025

Key Takeaways:

• Maoyan said its profit fell by more than 80% in 2024 on a weak performance at China’s box office
• The movie ticket seller has gotten off to a strong start this year as it benefits from the record box office for animated blockbuster ‘Ne Zha 2’

By Lau Chi Hang

China's box office got a bounce post-pandemic from people eager to return to theaters, many of which were previously shut or operated on a limited basis to keep Covid-19 in check. But that bounce has faded lately as life returns to normal. A weak economy isn’t helping matters either, causing China’s box office to shrink by more than 20% last year as people reined in their spending on non-essential items like movie viewing.

The gloom cast a shadow over leading online movie ticketing platform Maoyan Entertainment (1896.HK) last year, causing its business to sag. Late last month, the company warned that its revenue last year fell around 14% to between 4.05 billion yuan ($560 million) and 4.15 billion yuan, as its profit plummeted around 80% to between 150 million yuan and 200 million yuan. Despite that gloom, it held out hope for better times this year on a strong performance for the Chinese box office over the recent Lunar New Year holiday.

Slumping box office

Maoyan attributed the profit decline mainly to the drop in China’s box office last year. The number of moviegoers also fell 22.3% year-on-year to 1.01 billion viewings. The situation was especially grim in the second half of the year, when the box office plunged 35.1% year-on-year, sending a chill through Maoyan’s core movie ticketing business.

As a movie investor, Maoyan also took a hit from poor performance for some of its productions, leading to a substantial decline in profits from its content services business.

One bright spot for the company was the live entertainment market, which managed to grow in 2024 to historic highs. But revenue related to that business is relatively small for Maoyan, with movie production and ticket sales much larger, leading to the company’s sharp profit decline.

Despite the grim year, Maoyan was quite optimistic about 2025. It pointed out that China’s national box office exceeded 22.2 billion yuan as of Feb. 26, with new records set during the important Chinese New Year holiday season. It said “Detective Chinatown 1900,” for which it was the lead distributor and producer, was the second highest gross film during the period, taking in more than 3.3 billion yuan.

Furthermore, it said some of the other films it helped to produce or distribute, including “Endless Journey of Love,” have been scheduled, while “The Litchee Road,” “De Xian Jin Zhi,” “The Dumpling Queen” and many others are steadily progressing for release at the right time.

Maoyan’s bullish eye on this year owes largely to the strong Chinese New Year box office performance, which was mainly attributable to the blockbuster animated film “Ne Zha 2.” Not only did the film become China's top-grossing movie, but it also entered the global box office top 10 and became the highest-grossing animated movie of all time. Its box office already exceeds 14 billion yuan, equivalent to one-third of the Chinese box office in 2024.

Serendipitous success

Maoyan commands a majority 60% China’s online ticketing market, which means the company automatically benefits from a higher box office. But whether the box office can continue its strong year as “Ne Zha 2” inevitably fades remains an open question. It’s hardly guaranteed that more blockbusters will emerge this year. Moreover, an element of serendipity in the unprecedented popularity of “Ne Zha 2” won’t be easy to replicate.

On a broader time horizon, China’s box office has gradually returned to normal in the post-pandemic era. It plunged during the pandemic, falling from 47 billion yuan in 2021 to just 30 billion yuan at the peak in 2022, before bouncing back to 55 billion yuan in 2023 with the end of restrictions. But then it slipped again to 42.5 billion yuan in 2024 as the rebound ran out of fuel. Generally speaking, the annual figure should normally fall between 40 billion yuan and 50 billion yuan, meaning Maoyan, as the largest online ticket seller, is unlikely to achieve any major breakthrough as long as it stays in that range.

Maoyan’s other major revenue source, movie distribution and production, also depends on hit movies, which is beyond its control. In that regard it’s certainly not alone, as even Hollywood has yet to figure out a guaranteed formula that can spell the difference between success and failure for a movie.

Viewing blues

China’s sluggish economy is the most important factor in the current environment, making people naturally more cautious with their money. Even though movie tickets are relatively cheap, it’s even cheaper to watch them online not long after their theatrical releases, and cautious consumers may be happy to wait to save some money. That bodes poorly for companies like Maoyan over the longer term, despite the strong start to 2025.

Maoyan’s stock currently trades at a price-to-earnings (P/E) ratio of about 9 times. We can ignore comparisons to its major shareholder, “Ne Zha 2” creator Enlight Media (300251), whose ratio has skyrocketed to 140 times on the success of its huge hit. In fact, Maoyan’s actual ratio is probably a bit higher than 9 times, based on its latest profit guidance, which would place it at 30 to 40 times. But such movie-related stocks may be shunned by long-term investors put off by their unpredictability.

“The one that shapes my destiny will always be myself rather than the God,” the heroine in “Ne Zha” utters at one point in the movie. But piloting their own destinies may be difficult for movie-related companies like Maoyan, whose fate can hinge on just one or two successes or box office flops.

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The company reported a fourth consecutive profit in last year’s fourth quarter, while noting that competition in 2025 will be ‘more intense’

Key Takeaways:

• Dingdong’s revenue rose 18.3% in the fourth quarter, as it returned to annual growth in 2024 after a year of contraction
• The company reported a fourth consecutive profit during the quarter as it shifts its focus to the affluent Yangtze Delta area centered on its home base in Shanghai

By Doug Young

After returning to revenue growth and ringing up its first-ever profits in 2024, online grocer Dingdong (Cayman) Ltd. signaled that more change is in the air for 2025 as competition in its already-competitive sector heats up even more.

Among other things, the company said it will start working more with partners, marking a departure from its current business model that relies heavily on a self-operated business. The company’s latest quarterly report also hinted that after posting profits in each of last year’s four quarters, Dingdong might return to the red in the first quarter of 2025.

Life hasn’t been easy these last few years for Dingdong, which has struggled to find a sustainable business model since its inception in China’s fast-evolving online grocery market. After starting out with an eye to selling basic groceries to people throughout China, the company has been slowly retrenching to focus on its home base in Shanghai and the similarly affluent surrounding Yangtze Delta area in Jiangsu and Zhejiang provinces.

The company has also been trying to build up its business offering its own private label products, as well as customized seasonal products that help to differentiate it from peers and also offer higher margins.

The company’s latest remarks that it will start looking for more partnerships also indicates it plans to diversify from its current self-operated business model that offers customers better quality but is also more capital intensive. Bringing on partners would not only lower Dingdong’s capital costs but could also leverage those partners’ greater expertise in certain product areas where Dingdong has less experience.

“In terms of our business model, we plan to open up key categories for collaboration with our partners. This approach will allow us to leverage the strength of both parties leading to mutually beneficial and successful outcomes,” Dingdong founder and CEO Liang Changlin said on the company’s earnings call after the release of its latest results on Thursday. “We aim to move beyond the traditional supplier-retailer relationship and foster deeper, more cooperative partnerships where we can support one another effectively.”

At the same time, Liang also hinted of some turbulence ahead after the company’s banner year in 2024, though he declined to be very specific.

“In 2025, the competition we face will be more intense. And we're also in the process of transitioning from pursuing short-term scale and profitability, so focusing on quality and long-term competitiveness, which may impact us,” he said. “Nonetheless, we're confident in the long-term development of the company's business.”

Despite that cautionary note, investors welcomed the latest report by bidding up Dingdong’s shares by 13.4% in Thursday trade after the announcement. The stock has jumped 160% over the last year, which has become the norm for Chinese tech stocks in a rally dating back to last fall, especially for e-commerce companies.

Even after the rally, Dingdong’s stock trades at a relatively low forward price-to-earnings (P/E) ratio of 13, though that’s not too far behind the 14 for e-commerce giant Alibaba (BABA.US; 9988.HK). But it’s well behind other grocery-oriented e-commerce stocks, such as the 21 for Meituan (3690.US), and the far-higher 58 for U.S. giant Costco (COST.US) and 37 for Walmart (WMT.US). That implies there could be more potential upside for the Chinese names as global investors rebalance their portfolios away from a U.S. market that looks increasingly overvalued.

Return to revenue growth

Dingdong has been evolving nearly nonstop these last few years as it looks for a sweet spot that can provide sustainable profits and revenue growth. Its smaller former chief rival Missfresh was making similar efforts but ultimately collapsed after burning cash too rapidly while searching for the right business model. That left Dingdong as China’s main online grocer with its own direct operations, different from rivals like Meituan and PDD (PDD.US) that used a lower-cost model relying heavily on partners.

As Dingdong struggled to compete with those rivals, it retrenched to focus on the Yangtze Delta where consumers are more affluent and willing to pay for its better service and self-developed products. That caused its revenue to contract in 2023 after peaking the previous year, before returning to growth last year under its new focus on wealthier customers.

The company’s revenue grew 18.3% in last year’s fourth quarter to 5.9 billion yuan ($814 million), while its gross merchandise value (GMV) rose by a similar 18.4% to 6.55 billion yuan. The fact that revenue and GMV are quite similar is no coincidence, and owes to the self-operated model that sees Dingdong mostly sell products directly to consumers. But we can probably expect these two figures to diverge more as Dingdong takes on more partners in the future.

Most of Dingdong’s customer-focused metrics also improved in the fourth quarter, reflecting growing loyalty among those customers. Those included a 3.7% increase in average revenue per user (ARPU), and a similar 3% increase in average monthly orders per user.

Notably, the company’s fulfillment expenses rose just 9.1% year-on-year during the latest quarter, about half the rate of revenue growth, as it built out a network of “frontline fulfillment stations” that are both more efficient and allow for quicker order fulfillment. That helped to raise the company’s operating margin to 1.1% in the fourth quarter from negative 0.4% a year earlier, though we should point out that level is still below the 3.5% for Costco and 2.0% for U.S. grocery giant Kroger (KR.US).

The improved margin helped Dingdong to post 91.6 million yuan profit for the quarter, reversing a 4.4 million yuan loss a year earlier, as it reported its sixth consecutive quarter of positive cash flow. But as we noted earlier, the company hinted it could fall back into the red in the current first quarter, stating in its guidance that it aims to “achieve non-GAAP profits” in the first quarter of 2025. That’s different from the previous quarterly report, when it said it was looking to achieve both GAAP and non-GAAP profits in the upcoming quarter.

Investors don’t seem too worried about a dip back into the red, probably because such a drop would be due to non-operational one-time factors. But the overall cautionary tone for 2025 in general could be more cause for concern.

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By Doug Young & Rene Vanguestaine

China’s massive takeout delivery market, long dominated by the duopoly of Alibaba’s Ele.me and Meituan, is undergoing a pivotal transformation. Two recent developments — a likely government-led push to expand worker benefits and JD.com’s bold entry into the sector — signal a new era of challenges and opportunities. The shifts reflect broader economic priorities and strategic maneuvering in a hyper-competitive industry.

The social contract: From gig work to benefits

For years, the backbone of China’s food delivery ecosystem — its more than one million of riders — operated as gig workers, earning fees per delivery with minimal extra benefits. This changed abruptly when Ele.me and Meituan announced plans to provide riders with retirement and medical insurance, a move that will significantly inflate their operational costs. The impetus here appears twofold: Beijing’s “common prosperity” agenda and a pragmatic need to bolster consumer confidence.

Sluggish post-pandemic consumption stems partly from household fears of unmanageable healthcare and pension costs. Gig workers, often financially vulnerable, epitomize this anxiety. Extending social safety nets to this group could stimulate spending by lessening the need for precautionary savings — a subtle but critical lever for economic revival. What’s striking is how little protection riders previously had, despite their visibility in urban life. Many had wrongly assumed these workers enjoyed basic benefits — a misconception underscoring the fragmented nature of China’s labor protections.

The financial burden now falls on Ele.me and Meituan, though questions linger about cost-sharing. Delivery platforms typically contract riders through third-party agencies, muddying accountability. While some costs may trickle down to consumers via higher delivery fees, there’s skepticism that the government would permit full pass-through pricing, given the political sensitivity of household budgets. This creates a delicate balancing act: platforms must absorb margin compression while maintaining service affordability.

JD.com’s calculated gamble: Differentiation over duplication

Enter JD.com, which recently declared its intent to disrupt the market using its logistics subsidiary Dada Nexus. Unlike incumbents, JD plans to target high-end restaurants and chains, avoiding the “kitchen sink” approach of Meituan and Ele.me. This differentiation strategy — emphasizing premium service over scale — could carve a niche in an otherwise saturated market.

JD’s disciplined track record in e-commerce logistics suggests it won’t wage a price war. Instead, its focus on quality aligns with its brand reputation for reliability. The timing is strategic: as incumbents grapple with rising labor costs, JD’s narrower focus on higher-margin segments could shield it from margin erosion. Yet challenges abound. The duopoly’s entrenched networks and price-sensitive customer bases won’t be easily unseated. Moreover, government pressure to serve lower-end restaurants and low-income consumers may limit incumbents’ ability to retreat upmarket, trapping them in a low-margin scenario.

A market in flux

These developments underscore a maturing industry where government oversight and competitive innovation collide. The mandate to expand worker benefits reflects Beijing’s broader socioeconomic priorities, while JD’s entry highlights opportunities for differentiation in a homogenous market.

For Ele.me and Meituan, the path forward involves navigating higher costs without alienating cost-conscious users. For JD.com, success hinges on executing its premium playbook while avoiding the margin pitfalls that plague its rivals. The market’s sheer size — serving everything from tier-one city professionals to small-town households — suggests room for multiple players, but profitability will depend on strategic discipline.

In many ways, this mirrors China’s tech sector evolution: pioneers blaze trails, but latecomers with sharper execution often thrive. JD’s bet is that in a market reshaped by regulation and shifting consumer demands, a premium niche could prove more sustainable than competing at scale. Whether this logic holds will depend as much on economic pragmatism as on the invisible hand of policy.

The ‘daily deal’ e-commerce company reported a third consecutive quarter of declining revenue, though the declines are moderating

Key Takeaways:

• Vipshop’s revenue fell for a third consecutive quarter in the final three months of 2024, though it could return to growth this year
• The company’s stock has been relatively overlooked during the recent China tech rally, up just 16% in the last six months compared with much larger gains for Alibaba and JD.com   

By Doug Young

What China stock rally?

While Chinese stocks have jumped dramatically over the last six months, especially tech companies, you would never know from looking at Vipshop Holdings Ltd. (VIPS.US). The discount e-commerce company was once an investor darling, known for its “deals of the day” bargains that it offered by working directly with well-known brands.

But these days the company’s growth has flatlined in sync with growing consumer caution in China. That trend was front-and-center throughout the company’s latest quarterly report released last Friday, which saw nearly every major metric fall for the three-month period. Making matters worse, one of the few metrics to rise was Vipshop’s spending as it ramped up promotions to stimulate demand, eroding its margins.

On the more positive side, the company saw strong performance from its Super VIPs, echoing a trend seen from much larger rival Alibaba (BABA.US; 9988.HK), which also announced its latest quarterly results last week. Chairman Eric Shen also may have heartened investors with his assessment on the company’s earnings call that “We think everything should get back to the positive trajectory” this year. Still, he was quick to add the caveat: “That's what we hope.”

While hardly encouraging, the number of positive signals coming from Vipshop’s latest report seemed to slightly outnumber the negative ones, helping to lift its shares by 1.4% on Friday after the announcement. But the stock is up just 16% over the last six months, and is actually down 13.3% over the last year.

By comparison, Alibaba is up 68% over the last six months, and rival JD.com (JD.US; 9618.HK) is up 58%. Former superstar PDD (PDD.US) is doing even worse than Vipshop, with its shares down 6.1% over the last six months. But much of PDD’s recent woes owe to strong pushback lately against its international Temu bargain e-commerce service, especially in the U.S.

The broader rally, which has seen Hong Kong’s Hang Seng Tech Index soar by more than 70% in the last six months, has also breathed new life into Alibaba’s price-to-earnings (P/E) ratio, which now stands at relatively respectable 21. JD.com and PDD are a bit behind that at 14 and 13, respectively, while Vipshop has gotten completely left behind with a ratio of just 7.5.

We’ve always noted that this company is quite conservative, though such conservatism should be a strong selling point in this kind of difficult consumer environment. Reflecting its conservatism, the company managed to increase its cash holdings to 27 billion yuan ($3.72 billion) at the end of last year from 26.3 billion yuan a year earlier. It also reiterated its intent to continue buying back shares and pay another annual dividend, after launching its dividend program last year.

But at the end of the day, investors are probably worried that PDD and Alibaba can leverage their larger sizes to better chase and capture the value-oriented customers that are Vipshop’s bread-and-butter.

Shrinking revenue

Vipshop’s revenue fell 4.3% in last year’s fourth quarter to 33.2 billion yuan from 34.7 billion yuan a year earlier. That marked the third quarterly decline for the company, but was an improvement from the 9.2% drop in the third quarter. The company forecast its revenue will be flat to down 5% in the current first quarter, making it quite likely the rate of decline will continue to moderate and could even return to growth later this year.

The old saying goes that food, shelter and clothing are the three basic necessities that everyone needs, and Vipshop’s results seem to confirm that truth. Despite the overall quarterly revenue decline, the company said one area that grew during the quarter was its core apparel business, showing that even in difficult times everyone still needs clothes. Chairman Shen said apparel accounted for 75% of the company’s gross merchandise value (GMV) during the quarter, the highest level in the company’s history.

Two other areas that did relatively well during the quarter were home appliances and digital products. But that bump is unlikely to continue, since it owed largely to a government-funded program aimed at boosting consumption by offering subsidies for people who traded in old home appliances and other devices for new ones. 

Vipshop didn’t say which products performed so poorly to bring the overall revenue figure down for the company. But other major categories featured on its website include luxury goods, jewelry and makeup, most of which are the types of discretionary products where consumers are likely to cut back in difficult times.

The other bright spot for Vipshop was its Super VIP customers, which “demonstrated strong momentum with double digit growth” during the quarter, according to Shen. The number of such super-spenders grew 50% during the quarter year-on-year, and accounted for 51% of online spending during the period. Alibaba, which also reported its latest quarterly earnings last week, noted a similar trend, pointing out that its 88VIP membership grew by double-digits in the three months to December to reach 49 million. Vipshop’s Super VIP membership was much smaller, at 8.8 million members for all of last year.

On the negative side, Vipshop’s overall active customer base fell 5.8% during the latest quarter, while its total orders dropped 7.2%. As we previously pointed out, the company’s expenses were the one major metric that rose during the quarter, up 4.1%, led by a 10.3% jump in marketing expenses and an even larger 20% rise in general and administrative expenses.

That increase eroded the company’s gross margin, though the drop wasn’t that dramatic, falling to 23.0% in the latest period from 23.7% a year earlier. As a result, Vipshop’s non-GAAP net income, which excludes certain non-cash items like stock-based employee compensation, fell 6.3% to 3 billion yuan from 3.2 billion yuan a year earlier.

The bottom line for this company is that its days of heady growth are in the rear-view mirror and unlikely to return until China’s economy improves. Still, its shares really do look left behind in China’s recent tech rally, meaning they could see some potential upside if and when they get discovered by value-oriented investors.

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The e-commerce giant is working with major chains and ‘high-quality’ restaurants as it prepares to challenge the duopoly of Meituan and Ele.me

Key Takeaways:

• JD.com has signaled it’s preparing to enter China’s massive takeout dining market, most likely using its Dada Nexus local delivery service as a foundation
• The initiative is likely to do well over the longer term by targeting large chains and using existing infrastructure, but could weigh on JD.com’s profits over the shorter term

By Doug Young

China’s duopoly Ele.me and Meituan (3690.HK) looks set to get a major new competitor, as e-commerce giant JD.com (JD.US; 9618.HK) looks for a place at the country’s massive but highly competitive takeout dining table.

Reports of the move abounded in Chinese media earlier this week, after JD.com posted an ad looking for “high quality dine-in restaurants” to join its program. Equally eye-catching were the terms JD.com was serving up, including zero commissions for restaurants that join before May 1. That should be a huge incentive for new restaurants, since Ele.me and Meituan currently typically charge anywhere from 5% to as much as 25% of the price of each order for restaurants that participate in their services.

Another interesting twist to this story comes from JD.com’s recent launch of a plan to privatize its Dada Nexus (DADA.US) subsidiary, which operates a local delivery business working with partners like grocery and drugstore chains. That network would immediately give JD.com the basic delivery infrastructure it needs to operate such a takeout dining service.

If the privatization succeeds, which seems almost guaranteed, since JD.com currently controls 63% of Dada Nexus, it’s quite possible JD.com could re-list Dada in Hong Kong to raise fresh funds to finance this new takeout delivery initiative. Like many offshore-listed Chinese companies, JD.com is showing a growing preference for Hong Kong, rather than the U.S., for listings of its various units as a hedge against growing U.S.-China tensions.

The company made its own second listing in Hong Kong in 2020, complementing its original U.S. listing dating back to 2014. It also listed both its JD Logistics (2618.HK) and JD Health units (6618.HK) in Hong Kong in 2021.

China’s takeout dining business has become all the rage over the last decade, made possible by the country’s huge number of restaurants and technology that makes centralizing delivery orders quite fast and easy. Ele.me was the first major player to enter the business and was followed by Meituan and Baidu (BIDU.US; 9888). Ele.me already counted e-commerce giant Alibaba (BABA.US; 9988.HK) as a major investor when it bought Baidu’s service in 2017, and Alibaba fully purchased Ele.me a year later.

That brings us to the present, where Meituan and Ele.me currently dominate the market that was worth an estimated $51.5 billion in 2023, according to one online report. Ele.me said it had 750 million users in 2023, and partnerships with 4 million restaurants, according to the report. Meituan, meanwhile, had 670 million users and worked with 6.9 million restaurants.

Alibaba’s latest quarterly report shows that revenue from its local services group, which includes Ele.me, rose 14% year-on-year to 17.7 billion yuan ($2.43 billion) in the three months to last September. The group reported a loss of 391 million yuan on an earnings before interest, taxes and amortization (EBITA) basis, though that was a big improvement over its 2.56 billion yuan EBITA loss a year earlier.  

Meantime, Meituan reported its revenue from delivery services, which includes takeout dining, grew by a similar 13% in last year’s second quarter to 23 billion yuan from 20.4 billion yuan a year earlier. Here, however, we should also note the second quarter growth rate represented a sharp slowdown from the 24.6% growth the company logged in the first quarter.

Dada infrastructure

Next, we’ll look at how JD.com is likely to roll out and expand its takeout dining business as it vies for a piece of the pie. Analysts pointed out that JD.com’s call for “high quality dine-in restaurants” shows it may want to focus on the higher-end of the business and leave the many smaller eateries that compete mostly on price for Ele.me and Meituan.

Such an approach seems smart, at least to start, as the big national chains and higher-end restaurants have better quality control and management in general, which should make them better partners for JD.com. One report notes that JD.com is already working directly with several big national chains, including locally owned Champion Pizza and Yuanji Dumpling, as well as the China operation for Burger King.

A look at Dada Nexus’ two main apps, Dada Now and JD Now, shows that the former will be the likely home for the new takeout dining service. The other major service, JD Now, currently offers mostly grocery delivery services working with big chains like Walmart, Sam’s Club, Aldi and Lianhua. Dada Now’s offerings are more diverse, and the service already offers a takeout dining channel with participation from major chains including McDonald’s and Shake Shack, as well as coffee and tea chains Starbucks, Nayuki and HeyTea.

Among the two major Dada Nexus apps, Dada Now has been growing strongly lately, while JD Now has been moving in the opposite direction. Whereas JD Now used to be the company’s dominant revenue source, Dada Now has taken over that role in the last year and now accounts for about 60% of the company’s revenue. The existence of these two separate services is the result of merger that formed Dada Nexus in 2014, and it’s quite possible that JD.com might just merge the pair into a single service following the privatization.

Investors weren’t particularly impressed by news of JD.com’s intent to challenge Ele.me and Dianping, perhaps worried by the big losses the company will incur from the move initially. JD.com’s U.S.-listed shares fell 6.1% over the three trading days after the reports, though they’re still up 52% over the last six months, much of that from a major rally since mid-September.

Even after that rally, JD.com’s stock currently trades at a price-to-earnings (P/E) ratio of just 13. That’s well behind the 25 for Alibaba, and the even bigger 45 for Meituan, though it’s about the same as the 12 for PDD (PDD.US), which has come under pressure lately due to scrutiny of its popular low-cost Temu international e-commerce site.

At the end of the day, JD.com’s takeout dining move looks like a smart, targeted foray that has good chances of success over the longer term by focusing on big chains and using the company’s existing infrastructure. But the new initiative will also be a money pit over the next few years, which could become a significant damper on JD.com’s profits.

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The livestreaming e-commerce company’s revenue declined and it fell into the red in the first half of its fiscal year after the departure of its key online salesman Dong Yuhui

Key Takeaways:

• East Buy’s revenue fell over 20% in the six months to November and it swung into the red following the departure of its star online salesman
• Shares of the company’s parent, New Oriental, dropped 23% last week, weighed down by East Buy’s results and softness in its core education market

By Edith Terry

Who knew a migrant-worker-turned-English-teacher-turned-Internet-salesman could do so much harm? When Dong Yuhui left East Buy Holding Ltd. (1797.HK) last July, it seemed like a healthy move. The company’s livestreaming super salesman had sowed chaos at his employer by inflaming his followers against East Buy’s then-CEO Sun Dongxu, who was ultimately fired as a result. In the end, the two sides parted ways after East Buy agreed to pay a substantial sum to Dong and let him leave with his popular show “Time with Yuhui.”

The divorce was painful for East Buy in the huge volume of negative headlines, and the company’s latest financial report released last week shows it was equally painful on its finances. East Buy’s revenue fell 21.8% to 2.2 billion yuan ($303.7 million) in the first half of its fiscal year through last November, while it fell into the red with a loss of 96.8 million yuan.

The revenue decline was a bit milder, down 9.3%, after excluding discontinued operations from East Buy’s former education business in the year-ago period. Still, the decline was a painful reminder of Dong’s departure, since East Buy’s revenue jumped 34% and the company was quite profitable just a year earlier in the six months to November 2023.

Gross merchandise value (GMV) sold over the company’s channels declined from 5.7 billion yuan a year ago to 4.8 billion yuan in the latest six-month period, and the number of paid orders on Douyin, China’s equivalent of TikTok and one of East Buy’s most important platforms, declined from 59.6 million to 50.1 million in the latest six-month period.

One bright spot in the otherwise dismal report was paid memberships on East Buy’s app, which nearly doubled from 123,800 in the six months to November 2023 to 228,300 in the latest reporting period.

While Dong’s departure was well known, making big headlines at the time, investors still reacted negatively after the seeing the latest report. In the three trading days after the announcement, East Buy’s shares dropped about 4%, bringing its declines over the last year to 30%. Its parent, education company New Oriental (EDU.US; 9901.HK), was doing even worse after it released its own latest financial report on the same day as East Buy’s.

To make the point that it would have performed better without East Buy, New Oriental presented its latest results both with and without East Buy’s. With the East Buy business included, its revenues increased by 19.4% to $1.04 billion; but without East Buy, revenue rose 31.3% to $894 million.

Though its results were far better than its e-commerce offspring’s, New Oriental’s shares tumbled 23% the day of its announcement and have remained at that level since then.

Macquarie slashed its outlook on New Oriental from “outperform” to “underperform” and reduced its price target by a hefty 44% to HK$34.30, based in part on softer projections for its education business and overseas revenue. JPMorgan downgraded the company’s shares from “overweight” to “neutral” while CLSA lowered its revenue and earnings forecasts for the fiscal year but maintained an “outperform” rating.

Education concerns

The big concerns at New Oriental were largely over softness for the company’s core education business. By comparison, concerns were less pronounced at East Buy, whose loss of Dong was a one-time event and whose e-commerce business looked more stable in the current environment.

CICC actually raised its price target for East Buy by 74% to HK$20 after the latest financial report’s release and said it was optimistic about the company’s prospects. Huatai Securities raised its target price by 48% to HK$17.41 and said it saw a “steady trend of quarterly recovery.” Six out of 12 analysts canvassed by Yahoo Finance now rate East Buy a “buy”, though the rest are still cautious on the stock.

While East Buy’s business appears to have stabilized, lingering market jitters still come from last year’s tussle with Dong Yuhui, which spotlighted the dangers of too much reliance on key influencers in the internet age. A former English teacher, Dong rose to fame in 2022 for quoting poetry and using his English-language skills to sell products in his online shows. His influence grew so much that after Dong got in a spat with East Buy’s CEO, the company fired the CEO in a bid to placate its celebrity salesman.

In July last year, Dong left the company after reaching an agreement to acquire his popular program for 76.6 million yuan.

New Oriental Chairman Yu Minhong was quoted in a statement saying he would “make arrangements” for a payment to Dong of undistributed profits from his show as part of the package that would essentially give him his livestreaming program for free, though without East Buy’s logistics and supply chain support. The result on East Buy’s financial report was an 180.7% year-on-year surge in administrative costs to 391.9 million yuan in the six months to last November from the year-ago period, the company said in its latest earnings report.

East Buy had ample liquidity to cover the payments to Dong. It had 1.7 billion yuan in cash at the end of last November, down from 2.3 billion yuan six months earlier before the settlement. It also had 1.4 billion yuan in term deposits and financial assets of 1.7 billion yuan as of Nov. 30, showing its financial position looks quite solid as it heads into a future without its former cash cow.

Meantime, Dong seems to be doing just fine without his former employer. He was first on the 2024 China Internet Anchor Net Income ranking with a net income of 2.8 billion yuan, beating other big-name influencers like Li Jiaqi and Crazy Little Yang by nearly 1 billion yuan.

In the year to January 2025, “Time with Yuhui” sold over 10.2 billion yuan worth of merchandise on Douyin, equal to 20% of the GMV of Dong’s former employer, according to statistics from Xindou, a Douyin data tool. Dong had 27.32 million followers as of January 2025, compared to 29.03 million for East Buy’s channel on Douyin.

In October 2024, Dong said that his company had a staff of 300, far fewer than East Buy’s 1,733, and he was no longer simply a solo operation. How long Dong can sustain his momentum is an open question, though complaints have already surfaced about product fraud and food safety issues in his operations. But such questions, and other issues involving a superstar internet host with a big ego, are no longer any concern for East Buy.

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The fast fashion giant’s lack of transparency about its cotton sourcing could hurt its valuation in the long and turbulent journey to its IPO

Key Takeaways:

• Shein’s reported plan to list in London as soon as April could face a new hurdle after British regulators grilled the company about its cotton sourcing
• Controversy about its business practices and rivalry with PDD’s Temu may force the fast fashion sensation to eventually consider listing in Hong Kong

By Xia Fei

It’s known for its slick business model that delivers low-cost dresses from factories in Guangdong to teenagers in the West within days. But Chinese fast-fashion retailer Shein’s own path to going public has been anything but smooth.

After several rounds of delays, including shelving plans for a New York IPO as China-U.S. relations soured, the fast fashion sensation is now on track for a listing as early as April on the London Stock Exchange, according to a Reuters report last week. Revival of the London plan comes about half a year after the Financial Times reported Shein’s London listing plan had collapsed and the company had already given up on New York due to deteriorating geopolitics.

News of the London plan’s death was probably premature. Still, it’s far from clear that Shein will ultimately find a home in London, which has managed to attract few, if any, major Chinese stocks despite its status as one of Europe’s largest stock exchanges.

Details about Shein’s IPO plan remain fuzzy. But the company is reportedly negotiating with Britain’s financial regulator to waive the usual rule requiring all companies to sell at least 10% of their shares in a new listing, Reuters reported in December. Shein was last valued at $66 billion, meaning a 10% floatation would raise $6.6 billion, dwarfing the 2.5 billion pound ($3 billion) listing by French media group Canal+ (CAN.L) that was London’s largest last year.

The London bourse may welcome such a blockbuster listing to help inject some vitality into an otherwise dull market, as only 18 companies debuted on the exchange last year. Shein’s listing plan may have gotten a quiet show of support as recently as this past weekend, when British treasurer Rachel Reeves said London was a “natural home” for Chinese finance during her trip to Beijing and Shanghai. Reeves was the most senior British government official to visit China since former Prime Minister Theresa May’s talk with President Xi Jinping seven years ago.

Despite that positive signal, Shein’s date with destiny in London is far from set in stone.

At a hearing in front of the British Parliament last week, Shein’s general counsel Zhu Yinan refused to directly say whether the company’s products contain cotton from China’s Xinjiang region, where the West alleges that labor violations have been common in recent years.  

“You have given us almost zero confidence in the integrity of your supply chains,” said Liam Byrne, chair of the Business and Trade Committee. He added that Zhu’s evasiveness “bordered on contempt of the Committee” and urged the LSE and Financial Conduct Authority to check Shein’s disclosures.

Such controversies over the company’s sourcing of raw materials, along with its ESG practices and alleged intellectual property infringement, could all undermine Shein’s ability to fetch a desirable valuation on the public market. At the same time, governments in countries from the U.S. to South Africa are canceling or reconsidering exemptions that help Shein and other cross-border e-commerce companies avoid paying import tariffs on goods they ship abroad. Such moves could wreak havoc on Shein’s business model, which has won over consumers with ultra-cheap fashion products, such as cocktail dresses costing as little as $10.

Losing its shine

Founded in Nanjing and now based in Singapore, Shein’s meteoric rise is a textbook case of China’s ability to harness supply chains and the huge troves of data they generate with laser-like precision. Drawing on such data, Shein has brought new meaning to the “fast” in fast fashion by churning out new garments at lightning speed by working closely with a network of manufacturers in China.

But outside its huge fanbase of young consumers who love its cheap clothes, Shein has an equally large and more influential base of detractors who criticize the company for more than just its questionable cotton sourcing.

Last September, Italian authorities investigated the firm over alleged “greenwashing” due to its “generic, vague and misleading” claims about its environmental practices on its website. In Vietnam, Shein, along with rival Temu, have been forced to halt operations as they work to register their businesses with the government. The company, founded by 40-year old Chris Xu in 2008, has also become mired in multiple lawsuits over alleged copyright infringement.

The jury is still out as to how much damage Shein’s business model will suffer following the recent U.S. decision to end its “de minimis” exemption, which allows the import of items worth less than $800 to the country duty free. Some analysts believe Shein can weather that storm, partly by shipping its products in bulk to the U.S. and storing them in local warehouses, so that sales are for goods already in the country.

Meanwhile, Shein’s profits are also facing pressure, as Temu, owned by e-commerce giant PDD Holdings (PDD.US) lures away Shein suppliers and customers. According to Sensor Tower, Temu’s app had more than 8 million downloads in the third quarter of 2024, compared to less than 6 million for Shein. Shein’s revenue growth also slowed to 23% during the first half of 2024, while profits plunged over 70% to below $400 million, according to a report by The Information.

Some investors are already expressing a lack of confidence in the company with their feet. Private market exchanges of Shein’s shares valued the firm at $45 billion to $55 billion in late 2023, according to Bloomberg. That could fall further as investors worry about the company’s shrinking profitability.

Homecoming?

Reports of Shein’s IPO plan first emerged as early as in 2022, but the company may have had second thoughts after Russia’s invasion of Ukraine led to high market volatility. As the London plan advances in fits and starts, there are good reasons to believe that Shein may ultimately be forced to go to its Plan C and list in Hong Kong.

While the company tried to strip away its Chinese identity by relocating to Singapore, its listing outside Mainland China, where most of its supply network is based, may still require a green light from China’s securities regulator. Yet the company’s name has yet to appear on lists of companies that have applied for offshore listings with the China Securities Regulatory Commission.

The company’s biggest obstacle to such a listing still seems to come from overseas lawmakers. The imminent ban by U.S. politicians of TikTok, a video app sensation owned by Chinese firm ByteDance, serves as a chilling reminder that close ties to China can easily draw national security concerns. Shein, which controls troves of personal data on American teenagers, has already been in the crosshairs of the U.S. Congress concerned about similar data risks.

Such factors may leave Shein with no choice but to go to Hong Kong, even if that means accepting a lower valuation than New York-listed global peers like Amazon (AMZN.US) and H&M (HNNMY.US). Hong Kong stocks now trade at an average price-to-earnings (P/E) ratio of 14.4, versus 16.1 in London. While such lower multiples may be tough to swallow, Shein may find it has no choice but to sell its shares closer to home where regulators would undoubtedly welcome its stock with open arms.

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