Superstar Analyst Bob Peck Went To China; Here's What We Learned

SunTrust Robinson Humphrey analyst Bob Peck recently spent two weeks travelling across China. His remarks were published in a circulated note on Monday.

Commenting on the overall macroeconomic environment and recent stock market declines in China, Peck noted that recent negative headlines may be overblown, as only 10 percent of household wealth is invested in the stock market. The analyst added that a more important driver of consumer activity in China is employment and wage growth.

Moving on to logistics, Peck observed that the e-commerce market is growing at a "rapid" pace and the logistics system will require continued investments to improve warehousing, long haul and "last mile" delivery.

Finally, Peck saw first hand that national brands continue to "dominate" in China, as foreign based firms find the regulatory landscape "cumbersome" and "restrictive."

Related Link: Why This China ETF Should Continue Working

Comments From Alibaba's Management

Peck met with Alibaba's management. A key theme discussed was their reiteration that user growth remains "strong" and that any gross merchandise volume (GMV) pressure is from the size of orders.

Peck also noted that Alibaba has several monetization levers it can pull to stabilize PC take rates (such as new PC ad units), while Mobile take rates continue to grow "robustly."

The analyst also highlighted that the company is exploring initiatives to satisfy Cainiao's logistics, where it expects to deliver 100 million packages per day versus its current approximate 30 million daily deliveries.

Finally, approximately 1.6 billion shares have passed the post-IPO lockup period, but Peck pointed out that approximately 213 million shares will likely be available for sale, with another 384 million shares (representing Yahoo's stake) possibly sold, spun or held. The remaining shares are held by Jack Ma, Joe Tsai and SoftBank – all of whom have already publicly stated they will not sell their shares.

Comments From JD's Management

JD's management has already warned of weakness from the macroeconomic environment during its earnings conference call in August. Peck pointed out that margins on 1P products (JD's own inventory) continue to stabilize in the 6 to 7 percent range.

Meanwhile, Peck suggested that JD will face "fierce" competition following the Alibaba and Suning tie up, but the company will continue to expand its logistics capabilities, which will serve as a "strong selling point" for consumers.

Additional Company Commentary

• Amazon.com, Inc. AMZN is a "small player" in China and may partner with Tmall.
• Google Inc GOOG GOOGL may potentially be looking to re-enter mainland China, but restrictive search results and sharing of data with the government remain areas of concerns.
• LinkedIn Corp LNKD's China portal is "growing well" following partnerships with WeChat, Sequoia China and others.
• eBay Inc EBAY, Facebook Inc FB and Twitter Inc TWTR are all non-existent players and/or not available to the public.