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Daily Intelligence Briefing

Thursday, January 9, 2020

Identifying Change-Driven Investment Themes - Five sections, explained here.

I. Today's Thematic Investment Idea

A deep dive into a market driver with alpha generating potential.

Social Commerce is Disrupting Retail. Here are the Early Winners. →

We are at the start of a tectonic shift that’s turning social platforms into powerful distribution channels for many businesses. Hundreds of millions of consumers have come online in the past decade. For many of them, WhatsApp or WeChat is the internet and YouTube is television. As a result, social commerce has become a reality that will bring even more disruption to the retail process than e-commerce did. Brands that position themselves to sell socially will do well, but the biggest winners will be the social commerce platforms on which the selling takes place. Read more +

II. Source material for today's market insight

Summaries of articles related to today's featured topic.

Social Commerce: Are You Ready for Next Generation Social Networks?

Social Commerce: What We Can Learn from the Chinese Influencer Ecosystem?

Social Commerce: 5 Chinese Marketing Terms You Must Know In 2020

Social Commerce: The $70B opportunity in India’s emerging social commerce sector

Social Commerce: Instagram's ad sales will jump 47% despite slower user growth

Social Commerce: Alibaba wants its 693 million users to become dropshippers

III. Joe Mac's Viewpoint

Founder Joe McAlinden’s big-picture analyses of macro issues. More about him here.

December 23, 2019: A Review of MRP's Change-Driven Themes →

November 27, 2019: Emergence of Divergence →

October 31, 2019: Receding Recession Fears →

September 30, 2019: Verbal Intervention →

August 30, 2019: The Booming Buck →

IV. Active Thematic Ideas

MRP's active long and short themes, with an archive of follow-up reports.

See Them Here →

V. Macroeconomic Indicators

Key data releases relevant to MRP's Active Thematic Ideas.

See Them Here →

TODAY’S MARKET INSIGHT

Social Commerce is Disrupting Retail. Here are the Early Winners.

We are at the start of a tectonic shift that’s turning social platforms into powerful distribution channels for many businesses. Hundreds of millions of consumers have come online in the past decade. For many of them, WhatsApp or WeChat is the internet and YouTube is television. As a result, social commerce has become a reality that will bring even more disruption to the retail process than e-commerce did. Brands that position themselves to sell socially will do well, but the biggest winners will be the social commerce platforms on which the selling takes place.

The collective reach of the social media giants is staggering. Facebook reported 2.5 billion monthly active users in September 2019, and both Instagram and WeChat have more than a billion users each. As social media's influence grows, social commerce is becoming an increasingly important channel in online shopping.


Social Commerce Outperforms Social Media Marketing


Social commerce is the act of selling products directly within a social network. It is different than social media marketing which attempts to drive referral traffic from a social media site to a website or online store. With social commerce, the store — in fact, the entire shopping experience — happens without the customer ever leaving the social media site.


Shoppers like it because purchases rarely take more than a handful of clicks, thanks to the efficiency of chatbot checkouts and autofill for payment and delivery details. Sellers like it because the sales conversion ratio is multiple times higher than with social media marketing, and that too is thanks to the far more streamlined process of the purchase journey. With social commerce, you are effectively implementing Amazon’s one-click “buy now” button on multiple, popular social media networks.


US Social Commerce


The majority of social commerce in the United States takes place on Facebook (FB), Instagram (owned by FB), YouTube (owned by GOOG), Pinterest (PINS), and Snapchat (SNAP). Facebook, with its 2.5 billion monthly active users, has enormous audience leverage. Facebook also happens to be the parent company of Instagram, the US platform that’s deemed to have the most potential out of the pure plays in the space.


At least 60% of Instagram users look to the platform to find new product, so it makes complete sense to also sell to those users on the platform. In March 2019, Instagram rolled out a native checkout feature (still in beta testing) that lets shoppers pay for products without leaving the app. A study of Instagram users by video technology startup Vidmob revealed that one-third of survey respondents said they had bought something directly from an Instagram ad. Research firm eMarketer is predicting that Instagram's advertising revenue will jump an impressive 47% to $13.9 billion this year from 2019. Shoppable ads will be a key driver of sales growth in the future.


Until now, US social networks have had to rely on digital ad sales to survive. Social commerce, however, can provide them with the type of revenue-generating potential that only Amazon (AMZN) and Alibaba (BABA) could claim. Instagram and YouTube are not publicly-traded companies, so investors would have to use FB and GOOG as respective proxies. Investors can also look to Pinterest (PINS) and Snapchat (SNAP) to gain exposure to US social commerce.


China Social Commerce


Nowhere is social commerce more advanced than in China. In fact, Chinese social networks were built with direct commerce in mind. By the time Facebook, Instagram and Pinterest were mulling the addition of a “buy” button, Chinese platforms had already figured out that social interaction and user-generated content could be an integral part of a consumer’s shopping journey.


One such company, Xiaohongshu (also known as RED), has built an entire ecosystem around the discovery of new products and sharing reviews and user-generated content including photos and videos. At the same time, it lets people purchase those products highlighted in the reviews.


The idea of mixing entertainment, social media, consumer reviews and e-commerce together in one big ecosystem — i.e. “shoppertainment” — is resonating loudly in China where knowledge-based content is extremely popular. As social commerce places people, rather than products, at the center of the purchasing process, it instills a greater level of trust, which, in turn, boosts online sales.


There are now special social commerce incubators that are in the business of creating influencers known as Key Opinion Leaders (KOLs) and providing the infrastructure and resources to help the influencer sell products. These incubator companies will educate the potential KOL and build a strong community of followers around him/her to help establish the KOL’s brand (as an influencer) and hopefully build a recurrent consumer base. Unlike their peers from the West who rely on traditional sponsorships and ad budgets, China’s KOLs are able to create and sell their own products, and after a big sale (e.g., Singles Day sale), they split their profits with their incubators.


Social commerce in China has caught on so rapidly over the last few years that it now accounts for over 15% of online retail sales, growing at twice the rate of the overall online retail sector. By 2023, social commerce could account for a fifth of all online sales in China — a staggering $166 billion. It is because of this potential that brands are cooperating with social-media messaging super-apps such as WeChat, livestreaming platforms such as Yizhibo and Kuaishou and social commerce platforms such as Xiaohongshu, Iqiyi and Bilibili to introduce and sell products.


One app that offers a glimpse into the future is Douyin, TikTok’s counterpart in China. Douyin has just launched a game-changing in-video search function through which users can zoom in on clothing, or other items in the video, and link through to related content and even directly purchase products — all from within the app. These are not videos that are actively selling or promoting products, but rather regular user generated content — any post from anybody could become a potential sale.


Generation Z, the population cohort born after 1996, exhibits the highest tendency to purchase goods via social media. Having been raised on mobile devices, social media isn’t just where GenZ spends time — it’s where they spend cash. In doing so, they are upending the retail industry, especially in China where GenZ now represents 13% of household spending, compared with only 3% for their US counterparts.


Iqiyi (IQ) and Bilibili (BILI) are two publicly-listed companies that provide exposure to the Chinese social commerce market. Their stocks have been on fire lately, significantly outperforming their American peers on a three-month basis.


Online commerce 1.0 (Amazon) removed geographic barriers, allowing brands to access customers in far-off locations. E-commerce 2.0 saw the advent of marketplaces (Taobao, Tmall, Etsy) that enabled small businesses to list their products online, although sellers were limited by the eyeballs they could drive to their products on these marketplaces, or the vagaries of search and advertising on these marketplaces.


With the rise of social commerce, retail is democratized further as regular individual become sellers and influencers, a status that was once the domain of commercial brands and celebrities.


Below is the link to a previously published MRP report on this subject:

How to Trade the Social Commerce Theme That’s Transforming Retail → (May 9, 2019) 



Nelly Nyambi

Managing Director, Research

McAlinden Research Partners

Social Commerce vs Online Retail vs S&P 500

Source material for today's market insight...

Social Commerce

Are You Ready for Next Generation Social Networks?


Social commerce is growing fast. By 2023, it could account for a fifth of all online sales in China — a staggering $166 billion. Brands are cooperating with social-media messaging super-apps such as WeChat, livestreaming platforms such as Yizhibo and Kuaishou and social-commerce platforms such as Xiaohongshu to introduce and sell products.


One app that may offer us a glimpse into the future is Douyin, TikTok’s counterpart in China. Douyin, which is extremely popular with young people, has just launched a game-changing in-video search function through which users can zoom in on clothing, or other items in the video, and link through to related content and even directly purchase products — all from within the app.


These are not videos that are actively selling or promoting products, but rather regular user generated content — any post from anybody could become a potential sale.


Read the full article from The Business of Fashion +


Social Commerce

What We Can Learn from the Chinese Influencer Ecosystem


China has turned into a destination for Western corporate tourism — offering a sneak peek into digital commerce and the role of influencers and key opinion leaders (KOLs), in particular.


China’s shining social media stars can command vast audiences — sometimes millions of loyal followers. They are exceedingly powerful when it comes to social influence. It’s not a surprise that they build brands together with their followers.


Special KOL incubators — players of the e-commerce landscape — provide the infrastructure and resources. They strive on finding the right potential/talent, educating them, building a strong community of followers around them and finally providing the infrastructure for building their own brands. They assist in marketing activities, planning and providing other necessary resources.


This flipped influencer-brand model boosts brand loyalty and builds a recurrent consumer base. Unlike their peers from the West (who rely on traditional sponsorships and ad budgets), China’s KOLs are able to create and sell their own products, and after a big sale (e.g., Singles Day sale), they split their profits with their incubators.


Read the full article from Forbes +


Social Commerce

5 Chinese Marketing Terms You Must Know In 2020


As online traffic has become more expensive in China, the term private traffic became a major buzzword in 2019. The term refers to internet users whom you can directly contact or who come seek out your channels without you having to pay to reach them.


The Western equivalent of private traffic would be a blog or an email list, which are owned channels, however, in China, people rarely visit websites or use email, so influencers and brands are seeking out ways to have private ‘owned’ traffic, although still on social media sites.


Right now, the super app WeChat is the biggest private traffic channel in China. Brands are using personal WeChat accounts and WeChat groups to create communities of consumers. In 2020 we are likely to see more brands running these communities with the help of custom chatbots.


Another way brands are taking advantage of private traffic is by leveraging groups run by influencers. Instead of paying an influencer to post only on their public-facing accounts, they are posting branded content inside of their private groups which usually contain thousands of their most loyal fans.


Read the full article from Forbes +


Social Commerce

The $70B opportunity in India’s emerging social commerce sector


Over 90% of the small and medium businesses we spoke to in a recent survey sell directly through WhatsApp in India — more than 4x the number who sell on Flipkart and Amazon. It’s not surprising given that WhatsApp, at over 400M users, has five times the daily active user base than any commerce platform in India.


Social commerce in China has grown rapidly over the last few years and now accounts for over 15% of online retail sales in China, growing 2x the rate of the overall online retail sector². We think social commerce will track a similar trajectory in India and could account for 15% to 20% of online retail in India in the next 10 years, creating a market worth $70B³ (more than 2x the size of the current e-com market in India).


Group chats across various platforms are proving to be powerful tools for low-cost customer acquisition. By creating communities of people with common interests and sharing content that customers can share with just one click on platform they’re already on, businesses are able to build an ever-expanding direct marketing and direct sales network with virtually zero costs.


Read the full article from YourStory +


Social Commerce

Instagram's ad sales will jump 47% despite slower user growth


Instagram's advertising revenue will jump 47% to $13.9 billion this year from 2019 despite slower user growth in the U.S. for the next few years, according to eMarketer. Instagram's double-digit ad growth comes from the expansion of ad inventory in other sections of the app, such as its Discover tab that helps to find other accounts to follow in the app, eMarketer said. The researcher also forecasts that shoppable ads, currently in beta testing, will be a key driver of sales growth.


TikTok, the social video app that's popular with U.S. teens, and a resurgent Snapchat will impede Instagram's growth among young adults, per the report. While Instagram's user base among people ages 25 to 34 increased more than 11% last year, faster than previously forecast, eMarketer expects that the platform won't maintain that growth rate.


Read the full article from MobileMarketer +


Social Commerce

Alibaba wants its 693 million users to become dropshippers


Alibaba has rolled out a new function in its Taobao app called Taoxiaopu, allowing its 693 million annual active users to set up stores that list other merchants’ goods, with sales yielding commission fees. Through Taoxiaopu, Alibaba is leveraging users’ social contacts to boost transactions. People who set up their own stores through the new feature first select goods sourced by Alibaba, then recommend them to contacts through social media channels like WeChat.


Taoxiaopu is gamified, with sellers separated into tiers. New sellers start by being on a “trial” basis, and have 30 products to stock their online shops with, ranging from fruits to cosmetics. If they secure five transactions, then they become an “L1” seller and gain access to more than 10,000 products. Taoxiaopu now has a standalone app that has acquired nearly 1 million users, half of which are from China’s smaller cities.


Though Taoxiaopu is a new feature in Alibaba’s ecommerce network, it is similar to existing social ecommerce players such as Yunji and Beidian, both of which are membership-based social commerce companies based in Hangzhou.


Read the full article from TechInAsia +


You'll find all of our recent Market Insight reports on the MRP website →

ACTIVE THEMATIC IDEAS

Select a theme to see when and why we added it. Also included is a link to all recent Market Insight reports we've written about that theme, allowing you to track its progress.

LONG

Agricultural Commodities

SHORT

Coal

LONG

Refiners

LONG

Silver Miners

LONG

U.S. Banks

SHORT

Airlines

LONG

CRISPR

LONG

Robotics & Automation

LONG

Solar

SHORT

Aviation

LONG

Electric Utilities

LONG

Silver

LONG

UK Equities

LONG

Vietnam Equities

MACROECONOMIC INDICATORS

1.

US Mortgage Applications Rise: MBA


Mortgage applications in the United States went up 13.5 percent in the week ended January 3rd 2019, data from the Mortgage Bankers Association showed. Refinance applications increased 24.6 percent while applications to purchase a home rose 3.0 percent. The average fixed 30-year mortgage rate went down 4bps to 3.91 percent.


Click here to access the data +

2.

China Inflation Rate Stays at 8-Year High


China's annual inflation unexpectedly was at 4.5% in December 2019, unchanged from the previous month, less than market expectations of 4.7%. Still, it remained the highest inflation rate since January 2012, as pork prices surged 97% on the back of a prolonged African swine fever epidemic. The government previously said it will use the reserves to provide sufficient pork supply to meat demand ahead of Lunar New Year holidays.


Click here to access the data +

3.

Russian Ruble Hits 19-month High, Russian Stocks hit All-Time High


The Russian ruble increased to a 19-month high of $61.553 on Wednesday, after President Vladimir Putin and Recep Tayyip Erdogan issued a joint statement calling for the end of hostilities in Libya following their talks in Istanbul. MOEX increased to an all-time high of 3106.


Click here to access the data +

4.

Mexico Car Production Drops 12.7% in December


Car production in Mexico plunged 12.7 percent year-on-year to 207.62 thousand units in December 2019, following a 13.0 percent tumble in the previous month. Among major automakers, output dropped at Ford Motor (-21.0 percent), Audi (-64.5 percent), Volkswagen (-12.2 percent), FCA México (-44.8 percent), KIA (-11.8 percent), Nissan (-32.6 percent), Honda (-29.9 percent) and Toyota (-15.4 percent). In contrast, production increased at General Motors (63.2 percent) and Mazda (18.5 percent). Considering 2019 full year, auto output fell 4.2 percent over a year ago to 3.75 million units, the second annual decline in succession and the biggest since 2009.


Click here to access the data +

5.

Argentina Industrial Production Falls Further


Industrial production in Argentina declined 4.5 percent year-on-year in November, following a downwardly revised 2 percent fall in the previous month. Output fell further for vehicles (-29.3 percent vs -16.2 percent in October); metal products (-14.5 percent vs -9 percent); chemical products (-3.7 percent vs -2.4 percent); machinery & equipment (-2.5 percent vs -1.3 percent), and basic metallic industries (-5.7 percent vs 3.1 percent). On a monthly basis, industrial output declined 3.3 percent following a 3.9 percent jump in the prior month.


Click here to access the data +

6.

Palladium Hits All-time High


Palladium increased to an all-time high of 2117 USD/t.oz.


Click here to access the data +

ONLINE RESEARCH PORTAL

MRP’s Research Portal includes an archive of current and past Market Insights, Active Thematic Ideas, and Joe Mac’s Viewpoints. You can also search for all of our coverage on any sector or industry either by selecting Research Sectors or by entering a keyword such as “oil”, “housing” or “inflation” into the search bar at the top right of the page.


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ABOUT THE DIBS AND MCALINDEN RESEARCH PARTNERS


McAlinden Research Partners (MRP) publishes daily and other periodic reports on the economy and the markets.


MRP focuses on identifying change in the global economy and offering an investment thesis whenever an opportunity arises that has not yet been recognized by the market. The DIBs are MRP's compilation of articles and data from multiple sources on subjects reflecting change that have potential investment implications for an industry or group of securities. We share these with our clients who may already have or may be considering exposure in the industries affected. The subjects change daily and constitute an excellent update on featured topics.

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