eCommerce: Pinduoduo Stock Rising

Pinduoduo's rise over Alibaba: Key Insights

• Pinduoduo's Ascendance: Pinduoduo has rapidly risen to become the second-largest eCommerce company globally, surpassing Alibaba in market capitalization. The company's strategic focus on discounts, subsidies, and expansion into international markets, particularly through its subsidiary Temu, has fueled its impressive growth.

• Competitor Acknowledgment: Competitors like JD.com and Alibaba are acknowledging Pinduoduo's success and are contemplating strategic changes in response to the fierce competition. The comments from industry leaders, such as Richard Liu and Jack Ma, highlight the urgency for established players to adapt to evolving market dynamics.

• Challenges for Alibaba: Alibaba, once the leader in the Chinese eCommerce landscape, has faced challenges due to government regulations, resulting in a significant fine and a subsequent decline in market capitalization. The company's stock value has also experienced a notable decrease, reflecting the impact of regulatory actions on its performance.

“We must change, otherwise there is really no way out for us,” is a comment made from Richard Liu, founder of JD.com, referring to the rise of competitor Pinduoduo in an internal chat. The wake-up call refers to the recent rise of Pinduoduo, which has become one of the biggest issues for JD.com and Alibaba in the Chinese market, as both players are based in the largest eCommerce market.

Rivals Comment on Pinduoduo’s Success

As shown in our recent ranking of the world's top 10 online shops by market capitalization, Pinduoduo is the second largest eCommerce business behind Amazon but ahead of Alibaba, making it the largest Chinese eCommerce company. The previous year's ranking showed a different picture, with Alibaba as the second largest eCommerce player and Pinduoduo only in fourth place, but already on the rise. While Pinduoduo increased its market capitalization by 80.7% to US$186.38 billion, Alibaba fell by 21% to US$184.2 billion.

JD.com founder Richard Liu made the comment after an employee posted an internal comment about JD.com's poor execution and lack of coordination. According to the employee, the eCommerce company is not effectively implementing its low-cost strategy and is reacting to China’s weakened economic recovery. "I think this brother's words are well said," Liu commented on the employee's comments.

Just two weeks before Lui's comment, Alibaba co-founder Jack Ma used similar words of "change and reform" in an internal forum after observing Pinduoduo’s growth. Ma was referring to Pinduoduo’s "stunning" third-quarter results, in which the Shanghai-based company nearly doubled in value to US$9.4 billion. Alibaba's recent plans were to restructure the group and split Alibaba into six so-called "mini Babas", but those plans were recently canceled. A few days after Jack Ma's comments, Pinduoduo overtook Alibaba in market capitalization. But the question remains, how did Pinduoduo outperform its local rival and achieve higher sales than Alibaba?

Pinduoduo's Moves to the Top

Pinduoduo has found a better way in terms of discounts and subsidies while the Chinese economy has not been in the best shape lately. Meanwhile Pinduoduo is doing a good job in its primary market of China, it is constantly expanding outside of Asia with its subsidiary Temu. According to Reuters, Temu is projected to have ended the 2023 with a revenue of US$16 billion in the U.S., Europe, Middle East, Southeast Asia and Australia markets.

Pinduoduo is crushing the market with its very low prices. The company had fantastic results in the third quarter, which was crucial to overtaking fellow Chinese company Alibaba. Pinduoduo also pays attention to building relationships with customers by adding them on WeChat to notify them with relevant discounts.

With these strategic moves, Pinduoduo is leaving its competitors far behind. Looking at its year-on-year growth since its inception, the other Chinese eCommerce companies don't even come close to its growth. After a drastic growth of 239.6% in 2017, the following year saw a growth of 688.5%, which means a total market cap of $25 billion, improving to $196 billion and surpassing Alibaba after surpassing JD.com in 2022.

What Happened to Alibaba?

The recent battle between Pinduoduo, Alibaba and JD.com can be explained by Chinese policy decisions. The Chinese tech sectors were in trouble after the government imposed new regulations. Especially Alibaba was hit hard during this time, as the eCommerce giant faced a US$2.8 billion fine, after an anti-monopoly investigation by Chinese regulators came to the conclusion the company abused its market dominance. Only Pinduoduo was able to recover and even improve after these turbulent times.

From 2014 to 2020, Alibaba improved its market cap by a CAGR of 20.7%, starting from US$259 billion and peaking at US$648 billion in the pandemic year of 2020, before suffering from the restrictions and fines. Since 2020, Alibaba's market cap decreased by a CAGR of -34.4% and was recently overtaken by Pinduoduo.

Alibaba's troubles are also showing up in the stock market. With a current value of US$70.88, the Chinese stock has fallen 21.6% since the beginning of the year, when it started at US$107.4. Its rival Pinduoduo, with its PDD Holding, has fared much better. A change from US$95.96 at the beginning of the year to US$147.3 represents an improvement of 68.9%.

Expectations for Alibaba

Alibaba's tmall.com remains the largest online grocery store in the Greater China market with net sales of US$10,427 million, representing a market share of 6.3%. According to ECDB's forecast, it will grow 8.4% and 5.8% year-on-year in the next two years. Growth has been slowly declining in recent years, after reaching 448.9% in 2017, the latest growth in 2022 was an increase of 20.6%.

The development of the grocery market revenue for the current year is reported at US$166.36 billion, which is projected to increase to US$255.5 billion by 2027, indicating a large growth potential for tmall.com. Its net sales are projected to increase from US$22.19 billion in 2022 to US$25.05 billion in 2024.