BABA vs. PDD: Which Chinese E-Commerce Giant is a Stronger Pick?

Core Insights - The article compares Alibaba Group (BABA) and PDD Holdings (PDD) as leading players in the Chinese e-commerce sector, highlighting their growth strategies and market positions [1][2]. Alibaba Group (BABA) - Alibaba's core e-commerce business is showing renewed momentum, with customer management revenues from Taobao and Tmall growing 9% year over year in the latest quarter [3]. - The cloud business is a significant growth driver, with revenues increasing 13% year over year in the December quarter, supported by a planned investment of RMB 380 billion ( $53 billion) in cloud and AI infrastructure over the next three years [4]. - International expansion through platforms like AliExpress and Lazada is gaining traction, and the company has divested non-core assets totaling approximately$ 2.6 billion to focus on core growth areas [5]. - The Zacks Consensus Estimate for fiscal 2025 revenues is $137.03 billion, indicating a 5.01% year-over-year growth, with earnings expected to be$ 8.92 per share, reflecting a 1.4% upward revision [6][7]. PDD Holdings (PDD) - PDD has shown exceptional revenue growth, with a 24% year-over-year increase to RMB 110.6 billion ( $15.15 billion) in the fourth quarter of 2024, driven by its innovative "team purchase" model [10]. - Transaction services revenues surged 33% year over year, indicating strong monetization capabilities [11]. - PDD maintains a non-GAAP operating profit margin of 24% in the fourth quarter of 2024, focusing on sustainable growth through a RMB 10 billion fee reduction program for over 10 million merchants [12]. - The company’s global expansion through Temu has seen early success, particularly in the U.S. and Europe, with full-year 2024 revenues increasing 59% year over year to RMB 393.8 billion ($ 53.96 billion) [13][14]. Valuation and Performance Comparison - Both companies trade at discounts to the broader industry, with BABA having a forward P/E of 11.91x compared to PDD's 9.51x, while BABA's price-to-sales ratio of 2.17x indicates better value relative to revenue generation [17]. - Year-to-date, BABA shares have surged 55.3%, outperforming PDD's 23.2% gain, reflecting greater investor confidence in Alibaba's diversified business model [20]. Conclusion - Alibaba is positioned as a more compelling investment choice due to its diversified business model, strategic AI investments, improving cloud growth, and attractive valuation, suggesting a balanced risk-reward profile [21].