In the ever-evolving landscape of Chinese e-commerce, two titans stand out: Alibaba Group BABA and PDD Holdings PDD. These tech behemoths have transformed China's digital economy while expanding their global footprints. Alibaba, founded in 1999 by Jack Ma, pioneered China's e-commerce revolution with its Taobao and Tmall platforms, later diversifying into cloud computing, digital media, and logistics. PDD Holdings, parent company of Pinduoduo, emerged as a formidable competitor with its social commerce model that disrupted traditional online shopping.
Both companies are navigating similar challenges in the current environment: adapting to China's regulatory landscape, expanding international operations, and leveraging AI to drive growth. With China's economy showing signs of stabilization and e-commerce spending recovering, investors are increasingly looking toward these sector leaders for opportunities. Let's delve deep and closely compare the fundamentals of the two stocks to determine which one is a better investment now.
The Case for BABA Stock
Alibaba is demonstrating renewed momentum in its core e-commerce business, with customer management revenues at Taobao and Tmall Group growing 9% year over year in the most recent quarter. This rebound comes after implementing a "user-first, AI-driven" strategy that has successfully reaccelerated growth across its platform ecosystem. The company is now focusing on high-quality development with greater emphasis on enhancing user experience and merchant efficiency rather than just pursuing volume growth.
Alibaba's cloud business represents a significant growth catalyst, with revenues increasing 13% year over year in the December quarter. The company is making an unprecedented RMB 380 billion ($53 billion) investment in cloud and AI infrastructure over the next three years, more than its total spending in this area over the past decade. This positions BABA to capitalize on the rapidly expanding AI market, with its AI-related product revenues already achieving triple-digit growth for six consecutive quarters.
The company's international expansion shows promise, particularly through AliExpress and Lazada, which continue to gain traction globally. Management's strategic divestments of non-core assets like Sun Art and Intime (totaling approximately $2.6 billion) demonstrate a disciplined approach to capital allocation, allowing greater focus on core growth areas. With a massive cash position of $51.9 billion as of Dec. 31, 2024, Alibaba maintains substantial financial flexibility to fund growth initiatives while continuing share repurchases.
The Zacks Consensus Estimate for fiscal 2025 revenues is pegged at $137.03 billion, indicating 5.01% year-over-year growth. With the Zacks Consensus Estimate for fiscal 2025 earnings indicating an upward revision of 1.4% over the past 60 days to $8.92 per share, the market appears to be optimistic about Alibaba's growth trajectory.
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Find the latest earnings estimates and surprises on Zacks Earnings Calendar.
The Case for PDD Stock
PDD Holdings has demonstrated exceptional revenue growth, with a 24% year-over-year increase to RMB110.6 billion ($15.15 billion) in fourth-quarter 2024. This strong performance has been driven by the company's innovative "team purchase" model, which creates viral, social shopping experiences that have resonated with value-conscious consumers. PDD's transaction services revenues surged 33% year over year, reflecting the platform's increasing monetization capabilities.
The company's operating margin profile is impressive, with a non-GAAP operating profit margin of 24% in fourth-quarter 2024. Despite increased investments in merchant support, fee reductions, and platform ecosystem development, PDD has maintained strong profitability while continuing to grow. Management's "high-quality development strategy" focuses on sustainable growth rather than just user acquisition, including a RMB10 billion fee reduction program supporting more than 10 million merchants.
PDD's global expansion through Temu has shown remarkable early success in penetrating international markets, particularly in the United States and Europe. Unlike Alibaba's more measured international approach, PDD has aggressively invested in cross-border logistics and marketing to rapidly build global market share. The company maintains a stronger growth trajectory than Alibaba, with full-year 2024 revenues increasing 59% year over year to RMB393.8 billion ($53.96 billion) compared with Alibaba's more modest 8% revenue growth in its recent quarter.
For 2025, the Zacks Consensus Estimate for revenues is pegged at $64.94 billion, indicating growth of 18.74% from the year-ago quarter’s reported figure. The consensus mark for earnings is pinned at $11.99 per share, suggesting 5.92% growth from 2024.
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Valuation and Price Performance Comparison
From a valuation perspective, both companies trade at discounts to the broader industry, but Alibaba offers more compelling metrics when considering growth potential. BABA trades at a forward P/E of 11.91x compared with PDD, which trades at 9.51x forward earnings. While PDD's absolute valuation appears cheaper, Alibaba's price-to-sales ratio of 2.17x (versus PDD's 2.41x) indicates better value relative to revenue generation.
BABA’s Valuation is Attractive Than PDD
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In terms of price performance, BABA shares have surged 55.3% year to date, significantly outperforming PDD's 23.2% gain over the same period. Both have outperformed the broader Zacks Retail-Wholesale sector, with the S&P 500 declining 0.6%. Alibaba's stronger performance comes despite the market's concerns about China's economic slowdown, suggesting greater investor confidence in its diversified business model and strategic direction.
BABA Outperforms PDD & Sector Year-to-date
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Conclusion
While both companies offer strong investment cases, Alibaba emerges as the more compelling choice for investors seeking exposure to Chinese e-commerce and AI. Its diversified business model, strategic AI investments, improving cloud growth, and attractive valuation provide a more balanced risk-reward profile. Alibaba's substantial financial resources and disciplined capital allocation, combined with its renewed focus on core businesses and ecosystem development, position it well for long-term sustainable growth. As China's economy continues to stabilize and AI adoption accelerates, BABA offers investors a stronger opportunity to capitalize on these trends with potentially greater upside and lower execution risk than PDD. BABA currently carries a Zacks Rank #2 (Buy), whereas PDD has a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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