(Bloomberg) – Alibaba Group Holding Ltd. will lose its position as China’s most valuable e-commerce company to eight-year-old upstart PDD, a turning point for an internet industry that has dominated Jack Ma’s iconic company for more than a decade.
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Alibaba fell as much as 1.4% in Hong Kong, putting its market value at about 1.46 trillion Hong Kong dollars ($187 billion), on track to be below that of the U.S., according to Bloomberg calculations listed PDD Holdings Inc. closed at $188.3 billion. PDD, the company best known for hit U.S. shopping app Temu and domestic bargain pioneer Pinduoduo, closed nearly 2% higher in New York on Wednesday.
The once-unimaginable shift reflects the turmoil that gripped Alibaba after Beijing targeted the company and its once-outspoken co-founder in 2020 and launched a sweeping crackdown on the powerful tech sector. It also signals the rise of a generation of upstarts from PDD to ByteDance Ltd. who are shaking up the traditional social media and e-commerce spaces.
On Wednesday, Alibaba’s billionaire co-founder Ma stunned employees when, in an internal forum, he both praised PDD and urged his company’s more than 220,000 employees to “correct course” and get back on track. For many observers, his call to arms – after three years of remaining largely in the background – highlighted the seriousness of the situation.
“In hindsight, you can say that Alibaba was resting on its laurels as they had a big lead but didn’t execute or innovate as quickly,” said Vey-Sern Ling, managing director at Union Bancaire Privee. “When the anti-monopoly came along and they couldn’t use their size to force traders onto their platforms, they were suddenly caught flat-footed.”
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Alibaba, once China’s leading candidate to become a trillion-dollar company, is trading at about its lowest point this year, a fraction of its peak in 2020. The company is struggling with turmoil both internally and externally as China’s economic growth weaker than expected recovery and PDD are undermining the once dominant online retail business.
The company itself has experienced upheaval, starting with the announcement of a plan to split the company into six smaller parts. Then-CEO Daniel Zhang resigned and the company brought in two longtime Ma confidants, Joseph Tsai and Eddie Wu, to lead the group. Months later, the two announced they were shelving the highly anticipated spinoff and listing of their $11 billion cloud division, a surprising about-face that called the company’s direction into question.
On the other hand, PDD has captivated investors with a combination of stunning growth and aggressive global expansion. The market has chosen to ignore rising marketing costs, which have put pressure on margins.
This week, the company founded by billionaire Colin Huang rose 18% after reporting a bigger-than-expected doubling of revenue, driven by the success of Temu and progress domestically.
PDD’s growth far exceeded that of Alibaba, underscoring how the company used promotions to attract bargain-seeking consumers during a time of economic uncertainty. Goldman Sachs estimates that PDD probably saw a 20% growth in transactions during the just-ended Singles’ Day shopping festival, compared to its competitors’ single-digit gains.
Part of this meteoric rise is thanks to Temu, which overtook Shein in sales in just over a year and is now considered one of the most disruptive forces in global e-commerce. The site, which follows the same discount strategy as Shein and PDD’s own Pinduoduo, has expanded to numerous countries.
In contrast, Alibaba first explored foreign markets with AliExpress, the sourcing platform Alibaba.com, and later with international subsidiaries such as Lazada and Trendyol. But despite years of effort, the Chinese business remains by far the biggest revenue generator.
“You can argue that Alibaba had its opportunity and didn’t take advantage of it,” Ling said. “But in recent quarters, Alibaba’s international business has actually grown very quickly as well, so I think they’re increasing their efforts there.”
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