China's e-commerce landscape continues to evolve rapidly despite recent macroeconomic headwinds, with PDD Holdings PDD and JD.com JD emerging as two dominant players with contrasting business models. PDD, parent company of Pinduoduo and Temu, has disrupted the market with its social commerce approach and aggressive global expansion. Meanwhile, JD.com has established itself as China's supply chain-based technology powerhouse with a reputation for authentic products and reliable logistics.

Both companies recently released their fourth-quarter and full-year 2024 results, offering investors fresh perspectives on their financial health and strategic positioning. With China's economy showing signs of stabilization and consumer confidence gradually improving, these e-commerce giants present intriguing investment opportunities for those looking to gain exposure to China's digital economy.

Let's delve deep and closely compare the fundamentals of the two stocks to determine which one is a better investment now.

The Case for PDD

PDD Holdings posted impressive revenue growth of 24% year over year in the fourth quarter of 2024, reaching RMB 110.6 billion ($15.15 billion), and a remarkable 59% growth for the full year. The company's transaction services revenues surged 33% in the quarter, demonstrating strong monetization capabilities. PDD has also maintained robust profitability with fourth-quarter non-GAAP operating profit increasing 14% to RMB 28 billion and non-GAAP net income reaching RMB 29.9 billion.

However, PDD's management has signaled potential challenges ahead. During its earnings call, the company acknowledged that significant ecosystem investments have cultivated a fast-changing external environment and intensified competition landscape within short-term financials. The company's operating margin compressed to 24% in fourth-quarter 2024 from 28% in the same period last year, reflecting substantial investments in merchant support programs and platform ecosystem development.

PDD's global expansion through Temu faces increasing headwinds. Management noted that changes in the external environment have been accelerating and competition remains fierce, with changes in macro policies potentially impacting operations. These diplomatic comments likely reference growing regulatory scrutiny in international markets, particularly the United States, where concerns about data security and trade practices have intensified.

The company appears to be taking a long-term approach that may test investor patience through 2025. For 2025, the consensus mark for earnings is pinned at $11.99 per share, suggesting 5.92% growth from 2024. The figure has moved south by 1.8% over the past 30 days.

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Find the latest earnings estimates and surprises on Zacks Earnings Calendar.

The Case for JD

JD.com delivered a strong fourth-quarter 2024 with revenues increasing 13.4% year over year to RMB 347 billion ($47.5 billion), marking a return to double-digit growth. Full-year revenues reached RMB 1.16 trillion, up 6.8% year over year. The company's core retail business showed remarkable resilience with JD Retail revenues growing 14.7% in the fourth quarter, while electronics and home appliances — traditionally JD's stronghold —jumped 15.8%, demonstrating the company's strengthening market position.

What sets JD apart is its consistent margin expansion trajectory. JD Retail's operating margin has improved for 11 consecutive quarters, reaching 3.3% in the fourth quarter and 4.0% for 2024. The company's non-GAAP net income for 2024 increased 36% year over year to RMB 47.8 billion, with net margin expanding to 4.1%. This demonstrates JD's ability to grow profitably while investing in future capabilities.

JD's focus on supply chain capabilities has created significant competitive advantages. The company has strategically expanded into on-demand retail, including food delivery, enhancing user engagement and increasing purchase frequency. Through JD Logistics, which saw revenue growth of 10.4% in the fourth quarter, the company is building a global warehouse network and comprehensive supply chain infrastructure that creates barriers to entry.

The company also offers shareholder returns through both dividends and buybacks, with an annual dividend of $1.0 per ADS (a 32% increase from 2023) and an ongoing $5 billion share repurchase program, providing investors with multiple avenues for returns.

The Zacks Consensus Estimate for 2025 earnings is pegged at $4.76 per share, which has been remained steady over the past 30 days, indicating 11.74% year-over-year growth.

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Price Performance and Valuation

In a year, PDD shares have lost 3.2%, significantly underperforming the Zacks Retail-Wholesale sector’s growth of 16.2%. On the other hand, JD shares have performed comparatively better, returning 52.8% in a year and outperforming its sector and PDD.

JD Outperforms PDD, Sector in 1-Year

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From a valuation perspective, JD trades at a forward P/E of just 8.24x, well below the Zacks Internet - Commerce industry average of 19.25x, making it significantly undervalued based on its improving growth profile and profitability. 

While PDD trades at a seemingly attractive forward P/E of 9.17x, this discount appears to reflect legitimate market concerns rather than an overlooked opportunity. The company's stated focus on high-quality development over immediate financial gains signals potentially volatile revenue and profit performance in the near term, making the investment case more uncertain despite its impressive growth metrics.

JD’s Valuation Attractive than PDD Holdings

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Why JD Offers a Better Investment Opportunity

While both companies face challenges in China's evolving e-commerce landscape, JD.com emerges as the superior investment choice. Its consistent margin expansion, strategic investments in logistics infrastructure, and diversified growth drivers provide a more stable foundation compared to PDD's uncertain growth-at-all-costs approach. JD's substantial valuation discount, combined with tangible shareholder returns through growing dividends and share repurchases, creates a compelling risk-reward profile. As China's consumption recovery gains momentum, JD's established reputation for authentic products and reliable service positions it ideally to benefit from the growing emphasis on quality over mere price competition, making it a more prudent long-term investment in Chinese e-commerce.

JD currently sports a Zacks Rank #1 (Strong Buy), whereas PDD has a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank stocks here.

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This article originally published on Zacks Investment Research (zacks.com).

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