Baidu (NASDAQ: BIDU) and Alibaba (NYSE: BABA) were both once considered relatively safe plays on the Chinese economy’s long-term growth. Baidu owns the country’s leading search engine, while Alibaba operates its largest e-commerce marketplaces and its most widely used cloud infrastructure platform.
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Baidu’s Struggle with Maturing Business
Baidu still controls 60% of China’s search market, according to StatCounter, but it faces fierce competition from other popular platforms like Tencent’s Weixin (called WeChat overseas), ByteDance’s Douyin (known as TikTok overseas), and Alibaba’s e-commerce marketplaces, which all offer their own integrated search tools.
Adapting to Change
Baidu is making strategic moves by expanding its Managed Business Pages, upgrading its cloud infrastructure platform, and investing in AI technologies like the Ernie natural language processing platform. Although progress is noted, Baidu continues to rely heavily on online marketing revenue. Analysts anticipate an 8% rise in revenue and 15% in earnings for 2024, showcasing a potential turnaround while the stock remains at a modest valuation of 12 times forward earnings.
Alibaba’s Road to Recovery
Alibaba faced regulatory hurdles post-antitrust crackdowns in 2021, leading to a slight revenue increase of 2% in fiscal 2023 compared to a previous 19% growth. The company’s plans to expand overseas e-commerce and enhance logistics services signal a compelling growth narrative for fiscal 2024, with revenue expected to rise by 9% and earnings by 45%. Alibaba’s stock valuation at eleven times forward earnings hints at an attractive investment opportunity.
Shared Regulatory Concerns
Both Baidu and Alibaba navigate unpredictable regulatory landscapes in the U.S. and China. Challenges such as export curbs on advanced AI chips and potential antitrust pressures pose threats to their growth trajectories, reflecting in their current discounted stock prices compared to their American counterparts.
Verdict: Opting for Stability
In the midst of uncertainties, choosing between Baidu and Alibaba remains daunting. Yet, if compelled to pick, Baidu emerges as the more stable growth option due to lower antitrust scrutiny, diversified business models, and consistent growth rates. Alibaba must showcase stabilization in its core Chinese businesses before it can be deemed as an undervalued growth prospect.
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