To The Moon

If you have been following the news on Chinese consumers, we have not been seeing a very strong recovery to the previous spending level. So whether the consumer spending might boost $Alibaba(BABA)$ or $PDD Holdings Inc(PDD)$ earnings, we might want to look at the sentiment and trends.

In this article, I would be sharing what I have found on the consumer spending sentiment, key trends, and how consumer sentiment could affect both these two stocks, Alibaba and Pinduoduo.

The State of Chinese Consumer Spending Sentiment

Chinese consumer spending sentiment in 2025 has been characterized by a "cautious recovery." While there are signs of stabilization and a return to growth, a key theme is that consumers are becoming more discerning and value-conscious.

If we looked at the housing prices versus the consumer confidence index, we can see that it has not come back to the post-Covid era in 2021, and though it is kind of moving sideways, we could see further decline is we do not see a strong recovery in consumer spending.

Here is a summary of the key trends:

Mixed but Stabilizing Confidence: Consumer confidence remains below pre-pandemic highs, but it has stabilized and is showing signs of gradual improvement. However, this varies significantly by demographic. Lower-income millennials in Tier 1 and Tier 2 cities remain pessimistic, while consumers in lower-tier cities and rural areas are more optimistic.

Rational Consumption: The focus has shifted from aspirational and impulsive purchases to more intentional spending. Consumers are seeking value and are willing to spend on quality products that provide a tangible or emotional return, such as home upgrades, health-related items, and experiences. This trend of "rational consumption" is a direct result of ongoing concerns about job security and a weaker property market.

If we looked at the report on Households' Income and Consumption Expenditure in the First Quarter of 2025 from stats.gov.cn, it looks like in the first quarter of 2025, the consumption expenditure is mainly on food, tobacco and liquor, and holds 31.5 percent of the per capita consumption expenditure, the next one is on residence which account for 20.8 percent of the per capita consumption expenditure. This show that chinese consumer are rational on their spending, focus on essential and quality products and on food and residence.

Growth in Online Retail: The e-commerce sector continues to be a growth driver. In the first half of 2025, online retail sales of physical goods grew faster than overall retail sales. This demonstrates that consumers are still comfortable and actively shopping online, but they are doing so with greater scrutiny on price and value.

Cross-Border E-commerce: The international expansion of Chinese e-commerce companies has become a significant growth driver, with consumers overseas showing strong demand for Chinese goods.

The China e-commerce market generated a revenue of USD 1,264.2 million in 2023 and is expected to reach USD 3,480.4 million by 2030. The China market is expected to grow at a CAGR of 15.6% from 2024 to 2030.

In terms of segment, intermediary-oriented was the largest revenue generating deployment model in 2023. Intermediary-oriented is the most lucrative deployment model segment registering the fastest growth during the forecast period.

How Consumer Sentiment Can Impact Alibaba (BABA) and Pinduoduo (PDD)

The cautious consumer sentiment in China will have a direct and varied impact on Alibaba and Pinduoduo, given their different business models and target demographics.

Alibaba (BABA)

Potential Challenges: Alibaba's core business, the Taobao and Tmall Group (Taotian), has historically focused on a wider range of products, including higher-end and aspirational brands. The current cautious spending environment could create headwinds for this segment. Consumers opting for "rational consumption" might lead to a slowdown in sales of discretionary and luxury goods on its platforms.

Opportunities: To counter this, Alibaba has been strategically shifting its focus. The company's emphasis on its loyalty program (88VIP) and its investments in local services and logistics could help it maintain customer engagement. The growing demand for AI and cloud services is also a major growth driver for Alibaba Cloud, which helps to diversify the company's revenue streams away from core e-commerce. A strong performance in these non-core segments could help offset any softness in its domestic e-commerce business.

Pinduoduo (PDD)

Potential Strengths: Pinduoduo's business model is uniquely positioned to benefit from the current consumer sentiment. Its low-price, group-buying model and focus on value resonate strongly with the "rational consumption" trend. As consumers become more price-sensitive, they are more likely to turn to platforms like Pinduoduo to find the best deals. This could lead to continued market share gains in the domestic market.

International Growth: Pinduoduo's international arm, Temu, has been a major growth engine. The company's international expansion, which is not tied to Chinese consumer sentiment, provides a significant source of revenue and a strong buffer against domestic economic headwinds. Continued explosive growth from Temu is a key metric for Pinduoduo's earnings.

Technical Analysis - EMA - Comparing BABA and PDD

In terms of stock price performance, we can see that though BABA is making a bullish upside move, but the increase is still weaker as compared to PDD, as we need to understand that the consumer sentiment is shifting to “rational consumption” trend, which consumer are more sensitive to price and this is more likely the case that consumer will turn to PDD for better deals.

In terms of performance, the only things to watch out is there might be a small pullback from PDD after its earnings, and that will open up a good chance to get into PDD.

Summary

The cautious Chinese consumer sentiment presents both challenges and opportunities for these two e-commerce giants.

Alibaba's earnings may face headwinds from its core e-commerce business due to the shift in consumer behavior, but its diversified business model, particularly in cloud and international commerce, could provide resilience. A strong showing in these non-core segments is critical.

Pinduoduo is better positioned to thrive in this environment. Its low-price strategy directly aligns with the trend of "rational consumption." Pinduoduo's earnings are likely to be positively impacted by this domestic trend, in addition to the strong performance of its international Temu business.

Ultimately, while the overall consumer spending environment in China is showing signs of recovery, the nature of that recovery—being more cautious and value-driven—may favor Pinduoduo's business model over Alibaba's in the near term.

Appreciate if you could share your thoughts in the comment section whether you think PDD ecommerce is more suitable for current chinese consumer “rational consumption” spending trend?

@TigerStars @Daily_Discussion @Tiger_Earnings @TigerWire @MillionaireTiger appreciate if you could feature this article so that fellow tiger would benefit from my investing and trading thoughts.

Disclaimer: The analysis and result presented does not recommend or suggest any investing in the said stock. This is purely for Analysis.