E-Commerce: Big Spenders Keep Spending 大型电子商务企业继续挥金如土
News from e-commerce giant Suning (Shenzhen: 002024) and web portal Phoenix New Media (NYSE: FENG) indicate a long-awaited consolidation in e-commerce has begun at the bottom of the Internet food chain, where many smaller players are quietly closing up shop as big names continue their aggressive fight for market share.
Let’s start with Suning, a top electronics retailer that has aggressively built out its website in the last 2 years to become one of the country’s top 5 e-commerce companies offering a wide array of products beyond its core electronics business. Chinese media are reporting that Suning is preparing a massive corporate bond offering of up to 8 billion yuan, or around $1.25 billion, which would be its first-ever such offering since the company went public. (Chinese article)
Suning didn’t give detailed plans for what it intends to do with the money, but a big portion would presumably go to its website, Suning.com, which is engaged in an ongoing bloody battle for market share with rivals like Alibaba’s TMall, Jingdong Mall and Dangdang (NYSE: DANG). The size of this bond offer hints that Suning has no plans to scale back its web blitz anytime soon, and perhaps hopes to simply outspend its rivals until they are forced to give up.
Jingdong Mall is reportedly seeking its own new funding, and Dangdang may also be forced to resort to a similar bond offer in the not-too-distant future if the price wars continue among the major players.
But while the big boys show no signs of easing up their battle, the latest quarterly earnings report from Phoenix New Media hints that many of China’s smaller e-commerce players have already given up. Phoenix reported its ad revenue rose a relatively disappointing 30 percent in the second quarter, well below the triple-digit increases it was reporting as recently as last year, as advertisers sharply curb their spending amid China’s economic slowdown. (earnings announcement)
A more detailed reading of the report reveals even as overall growth slowed, average spending per advertiser actually jumped by 53 percent, implying that the biggest advertisers continue to aggressively boost their spending even as many smaller ones cut back. Leading search engine Baidu (Nasdaq: BIDU) has reported a similar trend in its recent results, with spending per advertiser posting generally healthy gains even as overall ad spending slows.
I suspect that many smaller e-commerce companies are now on the brink of failure, and a growing number may have actually already quietly closed their shops, leaving behind lots of unpaid bills. The situation looks like it will continue to deteriorate, with Phoenix forecasting its ad revenues will only grow by around 5 percent in the third quarter. Look for the situation to gradually deteriorate through the end of the year, and then to drop even more sharply in 2013 as bigger names start running out of cash and closing up or sharply scaling back their web business.
Bottom line: A new mega-bond offer from Suning and new results from Phoenix New Media indicate an e-commerce clean-up has begun, and is likely to accelerate through the end of the year.
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