To The Moon

$PDD Holdings Inc(PDD)$

The battle for dominance in China’s e-commerce market has been nothing short of dramatic. Over the past year, Pinduoduo (PDD) emerged as the clear growth champion, outpacing long-time giant Alibaba (BABA) with its aggressive pricing strategies and global expansion through Temu. Investors poured in, sending PDD’s shares to new highs.

But the tide is turning. Following its latest earnings release, Pinduoduo executives admitted that current profit levels are not sustainable, signaling that earnings will fluctuate sharply in upcoming quarters. That single line from management was enough to rattle markets: the stock quickly retreated to $130, shaving billions off its market cap.

Meanwhile, Alibaba is preparing to release its results on August 29, with analysts expecting RMB 266 billion in revenue (+9.4% YoY) but adjusted EBITA of RMB 35.3 billion (–21.7% YoY). The figures highlight Alibaba’s transitional phase: revenues are stabilizing, but margins remain under pressure.

This dual narrative raises pressing questions: Is PDD’s uncertainty too high to justify its premium valuation? Is Alibaba a better long-term hold at today’s discounted levels? And how will the intensifying food delivery war in China weigh on Alibaba’s profitability?

PDD’s Growth Story Meets Reality

Explosive Growth, Unsustainable Margins

Pinduoduo’s meteoric rise has been driven by its unique “social e-commerce” model, where users join group-buying deals to secure deep discounts. Combined with heavy subsidies and a gamified shopping experience, the strategy resonated with value-conscious Chinese consumers and even global shoppers on Temu.

Revenue growth has been stunning—often outpacing peers by a wide margin. But profitability remains fragile. During its recent call, management cautioned that “this quarter’s profit level is not sustainable” and that future profits would likely fluctuate.

This acknowledgement confirms what many analysts already suspected: PDD’s profits are heavily dependent on how much it spends on subsidies and promotions. Unlike mature platforms, PDD cannot simply scale back on marketing and still maintain growth momentum.

Valuation Risk Creeps In

PDD has been trading at a valuation multiple that reflects its hypergrowth status. But with earnings volatility looming, investors may start questioning whether such a premium is justified. If margins prove weaker than expected, or if revenue growth moderates as competition intensifies, PDD could face a sharp multiple compression.

The stock’s pullback to $130 may represent the first step in that process. For long-term investors, the risk is not that PDD disappears—it still has powerful momentum—but that returns will become more volatile and less predictable.

Alibaba: A Resilient but Undervalued Giant

A Shift in Investor Perception

Once seen as the undisputed king of Chinese e-commerce, Alibaba has endured a brutal three years. From regulatory crackdowns to eroding market share, to founder Jack Ma’s diminished role, sentiment around the company shifted from growth darling to value trap.

But while PDD and JD.com captured headlines, Alibaba quietly maintained an immense ecosystem spanning:

• Core e-commerce platforms (Taobao, Tmall, Lazada, AliExpress)

• Logistics (Cainiao)

• Digital payments (Alipay via Ant Group)

• Cloud computing (Alibaba Cloud)

• Food delivery and local services (Ele.me)

This diversification makes Alibaba less dependent on any single segment. While margins are under pressure, the company continues to generate robust free cash flow, giving it flexibility to reinvest, buy back shares, or sustain dividends.

Upcoming Earnings: A Mixed Picture

On August 29, Alibaba will report its latest quarterly results. Market expectations are:

• Revenue: RMB 266 billion (+9.4% YoY)

• Adjusted EBITA: RMB 35.3 billion (–21.7% YoY)

The revenue growth suggests Alibaba is regaining momentum, but the EBITA decline underscores that competitive intensity is still biting into profitability. Still, compared to PDD’s “unsustainable” profits, Alibaba offers more predictable earnings streams.

The Food Delivery War: A Margin Killer

Ele.me vs. Meituan

One underappreciated risk in Alibaba’s portfolio is its food delivery business, Ele.me, which competes with Meituan. The market has become a fierce battleground where companies engage in subsidy wars to capture users.

For Alibaba, food delivery serves a strategic role in locking consumers into its ecosystem. Ordering meals, groceries, and daily necessities keeps users active across platforms. However, the downside is that logistics costs and promotional subsidies make food delivery structurally low-margin.

Investor Implications

Even if Ele.me gains share, the question is whether it can contribute meaningfully to Alibaba’s bottom line. For now, it looks more like a strategic necessity than a profit engine. Investors should expect food delivery to remain a drag on group EBITA, even as it helps Alibaba maintain engagement.

Broader Context: China’s Regulatory and Macro Backdrop

Regulatory Overhang

Both PDD and Alibaba operate under the shadow of Beijing’s regulatory oversight. From antitrust probes to data security rules, the government has made clear it wants to prevent tech giants from becoming too dominant.

For Alibaba, the regulatory storm peaked earlier, with Ant Group’s IPO cancellation and record fines. While conditions have stabilized, investors still price in a “China discount” on valuations.

For PDD, regulatory risk is more about international expansion. Its Temu platform has already drawn scrutiny in the U.S. and Europe for labor practices, product quality, and alleged unfair competition. This could cap its global ambitions over time.

Macroeconomic Conditions

China’s economy is facing headwinds: weak consumer demand, a sluggish property sector, and deflationary pressures. For e-commerce players, this means slower transaction growth and more price competition.

Alibaba, with its scale and ecosystem, may be better positioned to weather a consumption slowdown. PDD’s reliance on aggressive discounting could actually play well in a weak economy, but it will likely continue to pressure margins.

Valuation Breakdown

PDD

• Trading at a forward P/E in the mid-20s to 30s

• Valuation reflects sustained high growth

• Downside: if growth slows or profits fluctuate, multiple compression risk is significant

Alibaba

• Trading at a forward P/E of ~10–12x, deeply discounted relative to U.S. peers like Amazon

• Still generates tens of billions in annual free cash flow

• Shares trade at levels implying little to no growth ahead, despite evidence of ongoing top-line expansion

This asymmetry makes Alibaba a classic contrarian value play, while PDD remains a high-risk, high-reward growth story.

Investment Verdict: Prefer Alibaba at Today’s Levels

For long-term investors, the decision between PDD and Alibaba comes down to risk appetite.

• PDD offers rapid growth and global expansion, but its profit model is volatile, and its premium valuation leaves little room for error.

• Alibaba has slower growth but is cheap, diversified, and cash-flow rich. Its valuation already bakes in pessimism, giving investors a margin of safety.

At current prices, Alibaba looks like the more promising long-term bet. If earnings on August 29 confirm steady revenue growth and manageable margin pressure, the stock could re-rate higher.

Entry Zone: Below $80 per ADR remains attractive, though even at current levels Alibaba trades at a compelling discount.

Key Takeaways

1. PDD’s growth is real but unstable – management itself admitted current profit levels aren’t sustainable.

2. Alibaba offers undervalued stability – slower growth, but predictable cash flows and broad diversification.

3. Food delivery remains a drag – Ele.me strengthens user engagement but continues to pressure margins.

4. Regulatory risks persist – China’s oversight and U.S.–China tensions will remain structural headwinds.

5. Verdict: Prefer Alibaba – For long-term investors, Alibaba offers a more attractive risk-reward balance, especially if bought at discounted levels.