Alibaba Stock vs PayPal Stock: Which One to Buy Now?

Alibaba Stock vs PayPal Stock: Which One to Buy Now?

The online realm has been a lucrative and competitive space for many businesses, especially in the fields of e-commerce and digital payments. Two of the most prominent players in these domains are Alibaba and PayPal, both of which have enjoyed tremendous growth and success in the past. However, since the beginning of 2021, both stocks have faced a downward spiral, losing approximately 80% of their value from their all-time highs. What caused this decline, and which stock is a better choice for investors in 2024?

The Causes of the Decline

There are several factors that contributed to the downfall of Alibaba and PayPal, some of which are common to both companies, and some of which are specific to each one.

Common Factors

One of the common factors that affected both stocks is the valuation concern. Both Alibaba and PayPal reached their peak valuations in 2021, based on optimistic narratives that were hard to sustain. For PayPal, the COVID-19 pandemic boosted its digital payment business, as more people shifted to online shopping and transactions. However, as the pandemic subsided and the economy reopened, PayPal faced increased competition and lower growth rates. For Alibaba, the e-commerce giant benefited from the rapid expansion of the Chinese consumer market, as well as its diversification into cloud computing, local services, and logistics. However, as the Chinese economy slowed down and faced regulatory challenges, Alibaba's growth prospects dimmed.

Another common factor that hurt both stocks is the management change. Both companies underwent leadership transitions in 2021, which raised some uncertainty and skepticism among investors. For PayPal, the longtime CEO Dan Schulman stepped down and was replaced by Alex Chriss, the former CFO and EVP of business platforms. For Alibaba, the founder and executive chairman Jack Ma retired and was succeeded by Daniel Zhang, the former CEO and president. While both Chriss and Zhang are experienced and capable leaders, they also inherited some of the problems and pressures that their predecessors faced.

Specific Factors

In addition to the common factors, there are also some specific factors that impacted each stock differently. For Alibaba, the most significant factor is the political risk. The Chinese government has been cracking down on the tech sector, imposing stricter regulations and fines on various companies, including Alibaba. The crackdown was triggered in part by Jack Ma's controversial comments in 2020, which criticized the Chinese financial regulators and banks. Since then, Alibaba has faced several challenges, such as the suspension of its fintech subsidiary Ant Group's IPO, the antitrust investigation and penalty, and the chip export restrictions from the U.S. These challenges have eroded Alibaba's competitive advantage and market share, as well as its investor confidence and sentiment.

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