Pindudu (PDD 2.07%) When Bilibili (Billi -1.96%) Both recently captivated investors with their latest earnings reports. Pinduoduo shares surged 13% on Nov. 28 after the Chinese e-commerce company’s third-quarter figures easily beat analyst expectations. Gaming, digital media and e-commerce company Bilibili’s share price surged 22% on Nov. 29 after third-quarter earnings also beat analyst expectations.
Is it safe to buy any of these Chinese tech stocks now that their home markets are facing slowing economic growth, COVID-19 lockdowns, social unrest, and unpredictable crackdowns and regulations? Let’s review both companies and determine their near-term challenges and valuations.
Image Source: Getty Images.
Difference between Pinduoduo and Bilibili
Pinduoduo is the third largest e-commerce company in China. Alibaba (Baba -1.85%) When JD.com (JD -2.33%)It pioneered a niche market by initially selling discounted goods in low-rise cities, encouraging shoppers to team up and buy in bulk to get even bigger discounts. It then began selling fresh produce at competitive prices by facilitating farm-to-table buying, skipping intermediate retailers such as traditional grocers and supermarkets.
Pinduoduo’s status as an underdog in China’s e-commerce market has largely shielded Pinduoduo from the antitrust scrutiny that has curbed Alibaba’s growth over the past two years. Pinduoduo may even benefit from strict restrictions on Alibaba. This prevents Taobao and Tmall from locking in merchants with exclusive deals or actively leveraging loss-making discounts to attract new customers.
Bilibili’s streaming video platform hosts a wide range of licensed and user-generated content. It is a popular destination for ACG (anime, comics, games) content and operates on a freemium model. It also publishes video games, hosts digital comics online, and operates an e-commerce marketplace for tie-in merchandise (integrated with Alibaba’s Taobao).
Bilibili’s popularity among Gen Z users has allowed its streaming video platform to continue to win new advertisers and thrive in the shadow of large premium platforms such as: Tencent video and YewThe company’s games business (26% of revenue last quarter) also continued to grow.
What are the fastest growing companies?
Both Pinduoduo and Bilibili have seen their sales growth slow over the past three years as China’s economic growth slowed. Bilibili’s growth was further hampered by restrictions on video games in China and an unpredictable crackdown on user-generated and live-streaming videos.
|
Company |
2019 |
2020 |
2021 |
First 9 months of 2022 |
|---|---|---|---|---|
|
Pinduoduo revenue growth (YoY) |
130% |
97% |
58% |
36% |
|
Bilibili Revenue Growth (YOY) |
64% |
77% |
62% |
16% |
Data Source: Company Earnings Report. YOY = YoY change.
However, Pinduoduo’s year-over-year revenue growth has actually accelerated in the last three quarters as it stepped up promotions and expanded its agricultural business. That farm-to-table sales likely also benefited from his unpredictable COVID-19 lockdown, which closed many brick-and-mortar supermarkets in his past year. Analysts expect full-year revenue to grow by 38% for him, making it grow at a much faster pace than Alibaba and JD.
Bilibili’s year-over-year revenue growth also accelerated in the third quarter, driven by steady expansion in value-added services (VAS), gaming, advertising and e-commerce segments. Total monthly active users (MAUs) grew 25% year-on-year to reach 332.6 million, while total monthly paying users grew 19% to 28.5 million.
These strong revenue and user growth rates are far superior to Tencent, showing that Bilibili still dominates the niche market of ACG content for Gen Z users. Analysts expect full-year earnings to grow by 13%.
Profitability and valuation
After drowning in losses in 2019 and 2020, Pinduoduo is set to curb spending and phase out low-margin first-party product sales in the first three quarters of 2021 and 2022. turned black. Analysts expect net profit to nearly quadruple this year.
Bilibili remains unprofitable, with net losses widening year-over-year in the first nine months of 2022. Analysts expect the low-margin streaming video, gaming, and e-commerce markets to remain unprofitable for the foreseeable future.
Bilibili could narrow its losses by growing its paying subscriber base, but that may be difficult given that less than 9% of its MAUs have so far converted into monthly paying users. The company’s gaming and streaming video businesses also continue to face regulatory headwinds.
Pinduoduo is currently trading at 4x next year’s sales and 24x expected profits. Bilibili is trading at less than double next year’s sales. Bilibili may look cheap at first, but it’s slow growing, unprofitable, and faces many short-term and long-term headwinds, so it’s definitely worth trading at a discount. .
Pinduoduo has decent valuations, skyrocketing profits and is growing faster than its two big rivals, but with far less regulatory scrutiny. These strengths make it a much more balanced investment in the Chinese economy than Bilibili.
Leo Sun has no positions in any of the mentioned stocks. The Motley Fool invests in and recommends JD.com and Tencent Holdings. The Motley Fool recommends Bilibili and iQiyi. The Motley Fool’s U.S. headquarters has a disclosure policy.