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Alibaba Gains An Upper Hand As Arch-Rival Stumbles

Bluesea Research profile picture
Bluesea Research


  • ByteDance recently filed an anti-monopoly suit against Tencent.
  • Tencent’s ecosystem is much more vulnerable to anti-monopoly regulations compared to Alibaba.
  • Alibaba also has a massive lead in the cloud business which can be a decisive factor in their rivalry.
  • The competition between Alibaba and Tencent is very intense but Alibaba has a number of advantages in this battle.
  • Alibaba is trading at a significant discount to Tencent in terms of valuation multiples which should give Alibaba stock more room to grow.

Alibaba’s (NYSE:BABA) arch-rival Tencent (OTCPK:TCEHY) has started facing anti-monopoly headwinds of its own. Recently, ByteDance, the owner of TikTok, has filed an anti-monopoly suit against Tencent. ByteDance has claimed that Tencent is using its market power to block Douyin, the Chinese version of TikTok, from its platform and is promoting Tencent’s own short-video app. Tencent has blocked Douyin for the last few years which severely limits the ability of its customers to seamlessly access this app.

A lot of coverage has been given to the headwinds faced by Alibaba due to new regulations in China. However, it is likely that Tencent will face equal or greater obstacles due to the new anti-monopoly regulations in China. Alibaba also has a significant lead in the cloud and advertising segment which will become more important over the next few quarters. Tencent has made significant investments in competitors of Alibaba like JD (JD), Pinduoduo (PDD), Meituan, and others. Any headwind for Tencent will boost Alibaba's ability to improve its own market share in a number of business segments. Alibaba is also trading at a much lower valuation multiple compared to Tencent. This can give Alibaba stock a bigger upside in the near term.

Tencent’s Regulatory Troubles

ByteDance has been the biggest social media platform to come out of China in recent years. Douyin, the Chinese version of TikTok, is widely popular among the younger crowd. ByteDance is looking to raise funds at a valuation of $180 billion and has estimated that its 2020 revenue is close to 200 billion yuan or $29 billion. Tencent has mini-programs within its apps which can be used to reach customers from Tencent’s ecosystem. However, Tencent has blocked ByteDance’s Douyin and news aggregator app called Toutiao. Tencent has instead promoted its own short video and news aggregator app. This can be seen as a

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Bluesea Research profile picture
I have worked in the technology sector for over 4 years. This included working with industry stalwarts like IBM. I have done my MBA in finance and have been covering various blue chip stocks for the past 6 years. Having hands-on knowledge in the technology sector has helped me gain valuable insights into the ups and downs of this sector and predict winners and losers more accurately.

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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Comments (27)

Neither China nor the US can afford to do significant damage to their top tech companies. The race for AI supremacy will determine which country will dominate the world. It's not only a matter of economics but national security.

Currently, China is much more deliberate and organized in this race. Baidu, Alibaba, Tencent, and Huawei are China's top AI champions. Do you really think China is going to kill their golden geese? These companies are so undervalued in my opinion...

I highly recommend reading the recent report that the U.S. National Security Commission on AI published.

Summarizing article: www.cnbc.com/...
Full report: www.nscai.gov/...
Charles Ian Tan profile picture
It’s already tough to value each individually seeing the spiralling web of businesses within, let alone attempting to compare valuation of both on a PE basis. Tencent for example, if you remove 100% of its marketable securities, the resultant PE to its earnings from core businesses is just 10x. While Alibaba, for all its troubles and deep current correction, has a core commerce earnings multiple of about 22-23x. One can even make an argument that Tencent has a cheaper valuation - and that’s mind boggling seeing how badly beaten Alibaba has been.

I am long both.
@Charles Ian Tan
Hard to valuate BABA since no one knows if the number they reported are accurate. At least Tencent follows our guidelines. Today smart investors use cash flow, not PE to compare companies.
Charles Ian Tan profile picture
@Up and Away on Baba - they appoint reputable auditors. If one cannot trust Baba's auditors, just don't invest in Baba at all I suppose. My views are of course based on fundamental belief that all figures and reports are honest and correct facts.

On cash flow - I fully agree. I usually use operating or free cash flow too. That's the only qualm I have with this piece comparing both businesses via the PE lens.
@Charles Ian Tan
The accounting is done in the Cayman Island where the company was incorporated. We have no jurisdiction there. The information is given to China and the auditors only see what they want you to see. Do we really know what we see is the truth. Jack Ma no longer has anything to do with BABA and Ant is also owned now by the CCP. Not sure I felt comfortable owning the stock so I sold it before it crashed. Just saying....
Jack ma! Shut up and let’s us get rich....long live BABA
Comparing Alibaba and Tencent is like comparing apples and oranges at this time . IMO both companies have both equal risks and advantages over the other . Tencent has so much other businesses that they have a stake that likely to be profitable in the future , both long term and short term . Alibaba is definitely have better valuations in terms of their current stock price and their cloud services as you point out . In the end when all is said and done ,
I think both companies will be good investments for stock holders- in a couple of years time frame .
Convoluted profile picture
I noticed several comments about what Jack Ma said that upset the Chinese government. Personally, I don’t know what he said.

But, here’s the thing-if you want him to not make public statements, which upsets the government-and, in return lowers the value of subject stock-do YOU not understand that, in a small way, your acquiescence subverts your own freedom?

Perhaps the man hoped a few more people would show a little courage and not run away with their tail between their legs.
Can someone shed some light into the different between owning BABA and BABAF? I can see one is listed on NYSE while the latter is traded OTC. Does BABAF have something to do with the Hong Kong listing?
09 Mar. 2021
@luffyman the main ticker is BABA and BABAF has nothing so to with Honk Kong. The honk kong ticker is 9988.

So get either 9988 if you can or the NYSE counterpart BABA.
vanaik profile picture
@luffyman Should not make much of a difference in practice, although the details might be important in the unlikely event of financial sanctions on China. One might add that both stocks only give you a share in a Cayman Island investment vehicle not direct equity. The reason is that foreign investors are not allowed to own any stocks in Chinese internet companies. This legal construct is not specific to Alibaba and a lot of Chinese companies do this.
Here is an article about the two types of stocks:
@whoken honk kong. Lols
Admiral Risky profile picture
"Tencent’s ecosystem is much more vulnerable to anti-monopoly regulations compared to Alibaba."

Sorry, but I strongly disagree with this assessment - as would almost anyone who has followed this space closely for years.
Mario Silva profile picture
@Admiral Risky in my view, I dont know if Tencent's ecosystem is more vulnerable, but I am sure that China without Alibaba, people would have a lower quality of life in terms less transactions, less confortability, less dynamic in its economy. China without Tencent, would not be so different as it is now. The e-commerce is something very critical, for China, Alibaba is KEY to its future growth perspectives (thanks to its e-commerce and cloud and all the businesses that could be developed having a strong piece of the market share in both )and that explain why the CCP was focused on Alibaba not in Tencent. Over time, the chinesse government will take care more to Alibaba than Tencent.
Admiral Risky profile picture
NoTimeToCry profile picture
With 220 BABA shares at average of $220 I hope it will give me some good returns in a year or so.
@Motale it will for sure
Fininho Da Vida profile picture
@Motale depends mostly on whether Ma can keep his thoughts to himself. He should have kept his mouth shut.
NoTimeToCry profile picture
@Sascha Rado Agreee!! I sure hope he keeps quiet when it comes to criticism of China establishments.
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