Alibaba Has Been Losing to PDD. Why That's Set to Change. -- Barrons.com

By Adam Clark

While Alibaba has been fighting a losing battle against PDD Holdings, the owner of Temu and Pinduoduo, the tables could turn soon.

PDD's rapid rise, driven by cheap prices and a rapid international expansion, briefly saw it overtake Alibaba in market capitalization earlier this year. Analysts at DBS Bank estimate that Alibaba's share of the Chinese e-commerce market fell to 42% in 2023 from 52% in 2021.

But PDD suffered a record one-day percentage fall in August after warning its revenue growth would inevitably slow. Alibaba is the most obvious beneficiary of any moderation.

"We expect Alibaba to stabilize its market share to mid-thirties percent in the next couple of years. We believe such a market share stabilization will change Alibaba's narrative in the capital market from a 'market share donor' to 'China's largest staple'," wrote J.P. Morgan analyst Alex Yao in a research note on Wednesday.

A slowdown of the amount of e-commerce growth coming via short-video platforms and livestreams will help make competition less intense, according to Yao. He expects growth in the Chinese online shipping industry will slow to a single-digit percentage starting in 2025

Yao said his preferred China e-commerce stock for this new environment was Alibaba, followed by PDD, and finally JD.com.

He isn't the only analyst to become more upbeat about Alibaba. Mizuho's James Lee raised his target price on the company's American depositary receipts to $113 from $92 in a research note, citing an improving environment for e-commerce as Beijing seeks to boost the Chinese economy.

Alibaba's ADRs were 0.2% lower at $ 91.61 in morning trading on Wednesday.

Alibaba has struggled to reassure investors about its broader strategy after abandoning a plan to spin off its cloud unit last year, apparently as a result of U.S. controls on chip exports. Now, the company is hoping that its cloud business and associated artificial-intelligence services can strengthen its position in e-commerce.

The latest effort is the launch of an AI assistant meant to help small businesses source products online. The platform, named Accio, will index wholesalers around the world and be searchable with a text or image prompt, according to an Alibaba presentation on Tuesday at the Web Summit conference in Lisbon, Portugal.

"Google indexes 5% of the world's information...AI will unleash the power of 80% of the world's information," Alibaba President Kuo Zhang said in a speech at the conference.

The next test for the Chinese companies will come when they disclose their quarterly earnings. JD.com is set to report its results on Thursday, followed by Alibaba on Friday.

Write to Adam Clark at adam.clark@barrons.com

This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.

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November 13, 2024 11:03 ET (16:03 GMT)

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