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Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.
It has been years since Alibaba founder Jack Ma left the Chinese ecommerce giant, yet he can still move the stock.
A memo of encouragement from Ma to Alibaba this week lifted the shares — which had been on a downward spiral since 2020 — 6 per cent. But the landscape of China’s ecommerce sector has become increasingly complex since Ma departed.
Alibaba had been the uncontested leader for almost a decade. But Temu-owner PDD Holdings has shaken up the industry. PDD Holdings overtook Alibaba in December as the most valuable domestic ecommerce group. Getting its position back as Temu continues to expand its presence around the world, especially in the US market, is a tall task.
Every day, ecommerce platform Temu and Chinese fast-fashion group Shein send about 600,000 packages to the US, according to a congressional investigation published in 2023. Global demand for products from these platforms is causing capacity shortages at airlines and freight forwarders, and raising airfreight costs.
Uniting individual Chinese sellers and offering direct mailing to customers around the world has given Temu its global growth and the scale to pose competition to multinational companies. Temu’s model of low operational costs and lower spending on warehousing and inventory gives it an edge.
PDD’s shares have gained 70 per cent in the past year. In contrast, Alibaba’s stock is down a quarter despite it having many promising business units, including cloud and logistics. Temu’s second-largest rival, JD.com, has also been no match: it has been slow to adapt to changing shopping trends. Its share price is down one-third over the same period.
Buying into PDD is not without risks. Pressure from US lawmakers has led competitors to tighten up rules about vendors on their platforms. Temu’s Chinese roots mean investors cannot ignore the potential risk of wider geopolitical fallout. Moreover, a loophole that waives import tariffs for shipments into the US with a fair retail value of below $800 is a vital part of Temu’s success.
PDD’s shares reflect these risks: it trades at just 14 times forward earnings, a wide discount to global rivals, and less than half that of Amazon. Yet even with that conservative valuation, Alibaba and JD.com still lag behind, trading on a multiple of about 9 times.
Competition from TikTok and its shopping platform TikTok Shop could fall away in the US as the video-sharing platform comes under regulatory scrutiny there. Alibaba has scrapped a listing for its Cainiao logistics arm, which investors had hoped would bring in fresh funds to counter PDD’s rapid rise. For now, the gap between PDD and the rest of the sector looks set to widen.
