PDD/Alibaba: nimble rival catches up with Jack Ma’s behemoth

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Alibaba held sway as the Amazon of China for nearly two decades. Launched in 1999 by Jack Ma, it has been China’s most valuable ecommerce group since it listed in the US in 2014.

There is a new contender for that title. On Thursday Chinese-owned ecommerce platform PDD Holdings overtook Alibaba, after its market value swelled to $196bn.

PDD’s global strategy has paid off. It is best known for the hit shopping app Temu, which is the most downloaded app in the US. The platform offers ultra-low prices and a wide range of products, including car accessories, clothing, electronics and furniture. That, coupled with aggressive marketing, has assured its success amid rising inflation.

PDD’s latest earnings have proved that is not just a fad, disarming critics who thought that last year’s growth was too good to be true. Sales doubled in the September quarter, and net income rose 47 per cent, as it ate into Alibaba’s market share.

But Alibaba’s own weaknesses are the main explanation for the change in its ranking. Shares of Alibaba are down 76 per cent from their 2020 peak and trade at just below 8 times forward earnings. That is about a third that of PDD.

Sales started slowing before 2022, but last year revenues flatlined for the first time in its history. Since then, competition has added to its woes. It came from not only ecommerce rivals but also short video companies such as TikTok parent ByteDance.

Its cloud business, which grew rapidly to become China’s largest public cloud services provider, had once promised to offset that weakness. But even this has hit a wall of tough competitors. The most threatening is Huawei. Its market share is closing in on Alibaba’s.

US curbs on exports of artificial intelligence chips pose additional risks to future growth. That lay behind its recent decision to withdraw its plans for a spin-off of its cloud business. That means there is even less for investors to look forward to.