Pinduoduo (NASDAQ: PDD) Steals Some Of Alibaba's (NYSE: BABA) Limelight

A 15% jump in Tuesday’s session was enough to make shares of Chinese e-commerce giant Pinduoduo (NASDAQ: PDD) among the best performing of US equities on the day. It means shares head into the final trading days of 2020 up a full 130% since October and nearly 500% since March.

For a $200 billion name, that’s not bad going. What makes it all the more impressive is that Pinduoduo has managed this kind of performance against the backdrop of rising concerns over Chinese antitrust measures. The prevailing view in Beijing seems to be that some of these mammoth-sized tech and e-commerce companies are getting a little too big and powerful.

Making Hay While The Sun Shines

In November, the pressure really started to increase, culminating in a single day $260 billion selloff. However, for investors, it’s important to know who’s in Beijing’s crosshairs and who isn’t. As the star of the show, $600 billion Alibaba (NYSE: BABA) has certainly caught most of the negative attention as they’re most vulnerable to any new anti-monopoly regulations.

This increased vulnerability can be seen in Alibaba’s share price, which through the end of last week had fallen more than 30% since the start of November. Compared against Pinduoduo’s blistering run over the same time period, it’s clear that the winds of change are blowing. As Morgan Stanley recently pointed out in a research note, “we believe potential implementation of the new antitrust regulations has negative implications for major Internet companies with dominant positions across segments. That said, competition has already intensified in recent years, with 'incumbents' (e.g., Alibaba, Tencent) losing market share to 'disruptors' (e.g. Pinduoduo, Bytedance), so the consequences will likely be less meaningful given reduced dominance across segments compared to a few years ago."

With Pinduoduo having already eaten into Alibaba’s market share, they’re in a good position to continue this expansion in the face of any fresh headwinds. Last week’s news that Chinese authorities were launching an anti-monopoly investigation into Alibaba specifically sent their shares down more than 17% in a single session. Conversely, Pinduoduo’s stock jumped by more than 14% the same day.

Strong Fundamentals

But the strong performance in Pinduoduo’s stock isn’t just due to Alibaba’s difficulty being their opportunity. As November’s Q3 earnings report showed, there’s some serious momentum internally that’s also fuelling the rally. The company was able to report close to 90% year on year in revenue, while EPS was firmly in the black, shocking analysts who’d been expecting a red print.

Their average monthly users were up 50% compared to the same quarter in 2019 which helped the company to report non-GAAP profitability in net income for the first time ever. So while Alibaba’s headwinds are certainly acting as tailwinds for Pinduoduo, these numbers go a long way to also underlining how organically fuelled the trajectory is that the stock is on.

Even with the recent run, the stock’s RSI is still well under 70 and the MACD is on the verge of a bullish crossover, both strong signals that suggest a ton of room to the upside. With all that being said, investors getting involved should be conscious that even though Beijing seems to be picking on Alibaba for now, Pinduoduo isn’t immune to any widening of the scope. But with that extra risk comes extra opportunity which we’re already seeing in their share’s performance. Since IPO’ing in August 2018, Pinduoduo shares have rallied 522% compared to a paltry 21% in Alibaba’s. Added risk or not, it’s clear which one investors are backing.