Alibaba Group Holding, the Chinese e-commerce giant, had a setback as its U.S.-listed shares took a hit following a downgrade by Morgan Stanley. The downgrade was based on concerns over slower growth in Alibaba’s key businesses. Coincidentally, Pinduoduo (PDD) has emerged as the most valuable Chinese e-commerce firm, surpassing Alibaba.

Alibaba’s stock dropped by 3.2%, falling to a new one-year low of $72.5. Since the company reported second-quarter revenue that met expectations and cancelled plans to spin off its cloud business, the shares have fallen by nearly 17%. In contrast, PDD experienced a surge in its shares after posting impressive quarterly results. On Thursday, the company’s market capitalization climbed to almost $196 billion, outpacing Alibaba’s market value of $190.45 billion.

Analysts at Morgan Stanley downgraded Alibaba’s rating from “overweight” to “equal-weight” due to concerns over weak customer management revenue and uncertainty surrounding the cancellation of the cloud business spin-off. Morgan Stanley also reduced the price target for Alibaba’s stock from $110 to $90, marking the third downgrade in as many weeks by Wall Street brokerages.

Despite the downgrade, Morgan Stanley named PDD as its top pick in the sector, highlighting the company’s exceptional ability to navigate the current economic environment with its heavy discounting strategies. The analysts believe that PDD’s favorable business model will enable it to continue gaining market share in the domestic market. Additionally, they pointed out that PDD’s cross-border e-commerce business, Temu, is undervalued by the market. PDD’s shares experienced a slight decline of 2.1% to $144.4, but have soared by almost 80% in 2023, surpassing its competitors.

PDD boasts the highest forward price-to-earnings ratio among its rivals, standing at 21.4, which includes and Vipshop Holdings. On the other hand, estimates by the London Stock Exchange Group indicate that Alibaba’s forward PE ratio is 7.62.

Overall, Alibaba’s stock has faced consistent downward pressure this year, experiencing an 18% decline thus far. Consequently, the company is on track for its third consecutive year of losses. Meanwhile, PDD has showcased strong performance and market value, positioning itself as a frontrunner in the Chinese e-commerce sector.

Useful links:
1. Alibaba Group Official Website
2. Pinduoduo Official Website