2014 To See Consolidation For Web, Retail
It’s quiet outside as markets reopen on this first work day after the New Year, so I thought I’d start off 2014 with some predictions for the year ahead in the sectors that I cover. Generally speaking, I do think the first half of the year will see a continuation of strong momentum that began in late 2013 for many sectors. But that momentum will slow as we near the mid-year mark, and 2014 could end with a whimper as the Chinese economy continues to slow and Beijing pushes for higher quality growth.
E-commerce: E-commerce has been the biggest Internet story in China over the last 2 years, fueled by explosive growth that has helped sector leader Alibaba become one of China’s most valuable private companies. The big e-commerce story of 2013 will be Alibaba’s blockbuster IPO, which could value the company at $100 billion and is almost certain to take place in Hong Kong. Other big stories will include the likely New York IPO of Jingdong, the second largest player. We could also see one or more major mergers, with players like Dangdang (NYSE: DANG), Gome (HKEx: 493) and perhaps even Jingdong as some of the most likely candidates to form major new tie-ups.
Online search: The new year will see a new trio of dominant players emerge in this hotly contested space, led by traditional leader Baidu (Nasdaq: BIDU) and up-and-coming rivals Qihoo 360 (NYSE: QIHU) and Sohu (Nasdaq: SOHU). I predict that Qihoo’s market share will top out in the 25-30 percent range following a year of explosive growth in 2013, while Sohu could grab up to 20 percent of the market following the recent tie-up between its Sogou search service with Tencent’s (HKEx: 700) smaller Soso. That should still leave Baidu with about half the market.
Other Internet: 2014 is likely to see some major mid-sized companies close or get purchased, as they struggle to compete with the bigger players. I suspect that online clothing seller Vancl and group buying site LaShou will cease to exist as independent companies by year end. Meantime, many new instant messaging services aiming to challenge Tencent’s WeChat will struggle to find an audience. Most notable among those is Alibaba’s Laiwang, which will post a disappointing year despite aggressive promotion. Elsewhere in social networking services (SNS), Sina’s (Nasdaq: SINA) Weibo microblogging service will finally become profitable and make a well-received IPO in New York during the year.
Smartphones: Trendy smartphone maker Xiaomi will continue its meteoric rise, helped by one or more major new distribution agreements as the company attempts to go global. But stodgier domestic rivals Huawei, ZTE (HKEx: 763; Shenzhen: 00063) and Lenovo (HKEx: 992) could struggle in their global expansion plans, and also see their margins erode sharply as ongoing price wars intensify for control of their home China market, the world’s largest for smartphones.
Retail: Traditional retailers will continue to struggle amid stiff competition, the rising challenge of e-commerce, and overly aggressive expansion over the last few years. Big global names like Walmart (NYSE: WMT) and Carrefour (Paris: CA) are likely to accelerate their closure of underperforming stores, and could also slow down their new store openings. Fast food giants like KFC (NYSE: YUM) and McDonalds (NYSE: MCD) are also likely to see similar trends. We could also see one or more mergers among some major local players, with names like sportswear specialist Li Ning (HKEx: 2331) or grocery operators like Lianhua (HKEx: 980) as likely candidates for new combinations.
Cars: Growth for the domestic auto market will start the year strongly in the low double digits, but could dip into the single digits in the second half as cities restrict their issue of new licenses in a bid to ease congestion and clean up polluted air. Domestic players like Geely (HKEx: 175) and Chery could face the biggest difficulty, though big foreign names will also be forced to offer strong incentives to maintain their growth.
