Growth Dragons Weekly: PDD Slows as Alibaba Reshapes, Huawei Surges While Apple Falters, Trip.com Thrives, and China Mobile Eyes HKBN
What happened in China this week:
PDD Growth Slows as Alibaba Combines E-commerce Units and Launches New Bond Issue for Debt Repayment and Share Buybacks
Huawei Grows 7% While Apple Faces Double-Digit Decline in China Singles’ Day Sales
Trip.com Revenue Grows 16%, Reflecting Chinese Consumers' Improving Appetite for Travel
China Mobile in Talks to Acquire HKBN, Is This Time for Real?
#1 PDD Growth Slows as Alibaba Combines E-commerce Units and Launches New Bond Issue for Debt Repayment and Share Buybacks
PDD reported a 44% increase in revenue to RMB99,354 million and a 46% rise in operating profit to RMB24,292 million. However, net cash generated dropped from RMB32,537 million to RMB27,522 million. Falling short of sales forecasts, this disappointing performance triggered a sell-off in PDD’s stock, which is down 14% this week. The slowdown in PDD's revenue growth reflects its larger base, intensifying competition, and supplier challenges, marking a stark contrast to its stellar performance in 2023.
Key Drivers of the Slowdown
Unsustainable Price Competition
PDD’s aggressive pricing strategy has weighed on its net profit margins. For instance, Nongfu Spring’s CEO criticized PDD’s pricing model for harming the industry, while the Politburo’s condemnation of “involution” in July highlighted the diminishing returns from such intense competition.Supplier-Unfriendly Business Model
PDD’s approach prioritizes customer benefits over supplier profitability, straining relationships with merchants. This is evident in its Accounts Payable (AP) days, which are 35 times higher than its Accounts Receivable (AR) days, creating cash flow pressure for suppliers. This imbalance discourages merchants from listing on PDD’s platform.Geopolitical Scrutiny
Pinduoduo and its sister platform Temu face increasing scrutiny in Western markets, which hampers operational efficiency and poses growth barriers.
Alibaba’s Strategic Moves
Amid this competitive landscape, Alibaba Group is consolidating its e-commerce platforms under a single entity, the Alibaba E-commerce Business Group. This restructuring will integrate Taobao, Tmall, Alibaba International Digital Commerce, 1688 Marketplace, Idle Fish, and other e-commerce operations. The goal is to streamline processes, enhance efficiency, and sharpen focus to outcompete rivals.
Alibaba has successfully maintained its market share in e-commerce, stabilizing revenue while making significant strides in the cloud market, where it remains the leader. The cloud business offers substantial growth potential, serving as a buffer against challenges in its e-commerce segment.
Additionally, Alibaba is set to issue bonds denominated in US dollars and Chinese yuan to repay debt and fund stock repurchases. The bond tenors include:
US Dollar Bonds: 5.5 years, 10.5 years, and 30 years
Yuan Bonds: 3.5 years, 5 years, 10 years, and 20 years
This move comes amid an 18% rise in liabilities to RMB202.2 billion (US$27.9 billion) as of September 30. Earlier this year, Alibaba raised US$5.5 billion from a convertible bond issue. By leveraging lower interest rates, Alibaba aims to enhance shareholder value through debt minimization and share repurchases. During the September quarter, the company repurchased US$4.1 billion worth of shares, reducing its outstanding shares by 2.1%.
PDD now faces a renewed Alibaba, heightened competition from Douyin, TikTok Shop, and Amazon's low-cost platform Haul, alongside weak Chinese consumption, supplier dissatisfaction, and geopolitical tensions. These headwinds make it increasingly challenging for PDD to sustain its previous growth trajectory.