Motley Fool Hidden Gems Investing - Bull vs Bear: Chinese Stock Showdown

Episode Date: November 18, 2025

Chinese stocks are back in the headlines, and we’re putting them on trial. Motley Fool Money flips the script as Jason Hall steps into the host chair to referee a fast-paced bull/bear debate between longtime China investor Emily Flippen and resident skeptic Toby Bordelon. On today’s show, Emily, Jason, and Toby: - Go head-to-head on PDD Holdings - Debate whether Baidu can self-drive its future - Do a speed round between Weibo and iQiYi - deep value or value traps? Companies discussed: BIDU, PDD, WB, IQ Host: Emily Flippen, Jason Hall, Toby Bordelon Producer: Anand Chokkavelu Engineer: Dan Boyd Disclosure: Advertisements are sponsored content and provided for informational purposes only. The Motley Fool and its affiliates (collectively, “TMF”) do not endorse, recommend, or verify the accuracy or completeness of the statements made within advertisements. TMF is not involved in the offer, sale, or solicitation of any securities advertised herein and makes no representations regarding the suitability, or risks associated with any investment opportunity presented. Investors should conduct their own due diligence and consult with legal, tax, and financial advisors before making any investment decisions. TMF assumes no responsibility for any losses or damages arising from this advertisement. We’re committed to transparency: All personal opinions in advertisements from Fools are their own. The product advertised in this episode was loaned to TMF and was returned after a test period or the product advertised in this episode was purchased by TMF. Advertiser has paid for the sponsorship of this episode. Learn more about your ad choices. Visit ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠megaphone.fm/adchoices Learn more about your ad choices. Visit megaphone.fm/adchoices

We're flipping the script today on Motley Fool Money as we put our bullhorns on and sharpen our bear claws to dig into Chinese stock earnings. It's Tuesday, November 18th. Welcome to Motley Fool Money. I'm your usual host, Emily Flippen, but today we're putting Fool contributor Jason Hall in the big chair, so that you, Jason, can help facilitate a fun debate today between myself and Fool analyst, Toby Bordelon. Emily, I am never short on opinions. We know that. But on Motley Fool Money, it's a good idea to align those opinions with expertise.

This morning, we have earnings from four of the largest Chinese companies. I know that you lived in China for four years. You have plenty of bullish thoughts that can be backed up with actual knowledge and expertise. We thought it would be fun to match you up with our notorious Chinese stock skeptic Toby Bordelon to have a bit of a fast-paced bull bear debate. We'll get to iQiyi, Weibo, and Baidu later, but first, let's start with a stock that you actually own in your portfolio. That's PDD Holdings. Ticker symbol is PDD, formerly known as Pinduoduo. It's an e-commerce powerhouse. Shares are down today after what seemed like a pretty solid quarter. Emily, is this a buying opportunity?

I actually do think it's a buying opportunity, Jason. Now, to your point, I do own this in my personal portfolio, so I'm arguably a little biased here. But this was a solid quarter. Revenue growth wasn't anything to write home about, but it was in line with what the company was expecting, given the fact that they are operating in a more competitive and admittedly tariff-ridden environment. But the reason I like this company is because of its business model. I mean, virtually everything flows through to the bottom line with this business. PDD on both its Pinduoduo marketplace in China, as well as its Timu marketplace that serves the global audience doesn't generally own the inventory that it lists. It's just like the payment,

infrastructure, and logistics platform. And on its Chinese side, a majority of the revenue comes from ad placements. So PDD Holdings was able to grow profits at nearly twice the rate of revenue in the quarter, even with all of the craziness going on with issues of dropshipping and the removal of De Minimis in the United States. It has nearly 25% net income margins over the past year. I'm so compelled by this opportunity. Emily, I can feel your energy here. But, Toby, I have a feeling you may be a little bit less glass half-full than Emily is. Yeah, look, I've got to be honest here. I'm not sure I would call 9% growth solid for a company like this.

It's an e-commerce platform in a theoretically fast-growing Chinese consumer economy, right? 9% ain't going to cut it, because it's not meeting investor expectations here. If they can't get the growth rates up, I think the valuation multiples are going to come down. They're going to come down fast. My other problem here is the heavy spending they're doing. Management even went so far as to warn that profits are going to fluctuate due to things like higher marketing costs, merchant subsidies, investment in the platform. It's looking like a lot of what they expect this growth to be is going to be a lot more expensive going forward. And it signals the platform may

not be very sticky for consumers. Oh, my gosh. Toby, you think the valuation multiples are going to come down? I mean, OK, this business has a market cap of somewhere like $180 billion U.S. Nearly $60 billion of that is in cash. So, it has an enterprise value to EBITDA of less than 10 times, while growing its bottom line earnings per share double digits. I mean, even if the top line is only growing 9%, that's downright cheap. That's too cheap to ignore. Now, look, it's only cheap with the assumption that you're going to get a rebound on those growth rates, right? If we are in a permanent growth decline, the market is going to reset to a lower valuation at some point.

From a platform and business investment standpoint, this could be a money pit, not a growth opportunity. The bigger picture, Emily, I think, is we don't know what's driving these results. What's the Timu contribution versus PDD? Who knows? What's the platform gross market value? No idea. Gross market volume, no idea there. What's the retention rate, the take rate? There's no disclosure with these things. Chinese companies, let's put it this way, they historically do not have the best reputation in terms of keeping all the numbers on the up and up. And a refusal to share details on these things doesn't give me a lot of confidence in what's really going on here. Yeah, I think that's fair. I never get the full color that I want from

Chinese companies. And it can feel a little criminal about the fact that they don't even give reportable segments when it comes down to what sales come from Timu versus the Pendle Dwell marketplace. We disagree, but still, I think the valuation is considerable for maybe more risk-tolerant investors. Friends, this is what makes a market right here. Love the foolish disagreement. Up next, we're figuring out if Baidu's autonomous car business can help drive it, self-drive it, to a successful future. Stick with us. Welcome back to Motley Fool Money. Chinese stocks can be a non-starter for many investors, especially if you're talking about Chinese small caps. But Baidu, ticker B-I-D-U, is one of very few exceptions for those that still

want to invest in China, but with less risk. It's been described as the alphabet of China. Baidu has made a name for itself in search, advertising, and its quote-unquote other offerings like self-driving. But similar to its American counterparts, Baidu has been under fire for fears that AI could upend its search and related advertising businesses. Toby, did Baidu's latest results give any clues about how it's navigating those concerns? They did not, Jason, at least not in my opinion. I have to reinforce the belief that Baidu isn't doing it very well. Revenue is falling a little bit. That's problematic for a supposedly dominant platform in their market. Baidu has not done a great job of diversifying

its revenue sources. It's really very ad-dependent still, and that core ad business is shrinking. That's in contrast to some of the U.S. tech giants who have had similar issues right when AI first person on the scene. But their ad revenue is growing for the most part. Cloud AI revenue for Baidu is not yet large enough to offset the decline they're seeing. And that's a problem. Worsening, right? Overall margins are under serious pressure because the parts of the business that are growing, right, that they're investing in are lower margin, meaning they got to go faster, offset the bottom line impact. Toss-on concerns about the overall macro economy in China. and Baidu is just not that compelling to me. Now, you might say, look, hey, the thesis here is AI

growth, right? I get that, maybe. But management is telling us, don't expect serious returns there anytime soon, right? So, we've got a declining core business, a low-margin growth business, and an uncertain future of what AI could, if it does become a meaningful growth driver here, what it could be, and how profitable it's going to be at scale. For me, the upside here is just not justifying the risk I see. Okay. Toby's right. You can't fight. Okay, guys. Thanks for listening to Molly Fulmany. We'll see you tomorrow. Yeah. Unfortunately, you can't fight with the headline numbers here, which is, Toby is right. The ad market in China right now, it's bad across the board. And Baidu in particular,

its dominance in search especially, it's having the alphabet problem, which is, it's still there, but they're losing ground, they're losing market share, and revenue is falling and its core business is ad placements. And that's just been incredibly weak for this company. But I do think we are starting to see some return on investment for these initiatives. And while that hasn't made up for that core business falling, I think we're starting to see what the scale could be if Baidu does eventually get there. And in addition to their search business, of course, they're also a leading cloud infrastructure provider in China. So you can think a little bit like AWS here in the United States and their subscription-based

AI solutions grew 128% year-over-year. Now, these are solutions that were and are really expensive for Baidu to build out initially, but it seems like that scale is starting to come. So it's possible that a lot of the expenses, a lot of the costs that we saw Baidu experience over the last couple of years are going to be largely behind us now as Baidu looks to be a slightly more profitable future. And while management hasn't necessarily guided for that yet, I do think that they can eventually move in that direction. So the counter you're saying is that what we're seeing is lower margins in that growth business should start to improve as scale ramps up. It's possible. And I hesitate only because we haven't heard management come out and outright

say that. Whereas I think if we saw that going to happen over the course of say 2026, management would be very clear in terms of the guidance that they expect to come in. And to Toby's points, a lot of the commentary we're getting from management are just around their AI initiative. all of these other different pies that Baidu's fingers are stuck in right now. And we don't see the actual tangible outcomes coming up from these initiatives yet. But I think it's entirely possible that over the course of, say, the next five years, over the course of, say, the next 10 years, that all it takes is one of these pies to bake particularly well to more than make up for the core search business, even if that core search business

does continue to decline. And I actually think that the area that this could be that doesn't get nearly enough investor attention is self-driving solutions. We talk about Tesla and others. They get all the headlines about robo-taxis, but oh my gosh, Baidu has self-driving robo-taxis already in operation in 22 cities across the world. In many locations, this is 100% fully driverless, actual commercial services being used by the Chinese public on a daily basis. This is not in a controlled environment. Um, this is not something that is, that is otherwise being heavily scrutinized or regulated. This is just a part of everyday life. And, um, I think the fact that Baidu in the opportunity that being a leader in robo taxis has, um, gives a lot of home country

bias because American investors just don't see that the way we see it with Waymo or Tesla. Yeah, my big concern here, you're right, there is potential. But big picture, if you have to be a lot more optimistic than management is being to make a reasonable bull case, I feel like that's a sign there are probably better opportunities elsewhere for your investment capital. What can I say, Toby? I'm an optimist at heart. Got to love it. All right, thanks, guys. Coming up next, we're quick-firing on two smaller Chinese stocks still trying to find their place in the world. And after quite a long time for at least one of them. We've got Weibo and iQiyi next, right after this quick break.

Welcome back to Motley Fool Money. As we wrap up today's show, let's discuss two lesser-known Chinese stocks, Weibo and iQiyi. Weibo, ticker WB, is a bit of a washed-up Chinese blog site. That's a great bull pitch right there, right? It's most commonly in the U.S. compared to Twitter or X. And iQiyi is a video streaming platform with a business model that's kind of similar to Netflix, only it struggled to retain growth. So, not very much like Netflix. Now, both businesses are comparative failures when stacked up next to Baidu and PDD Holdings. Toby, when you look at either of these two companies, does one stand out as redeemable to you, or do you think both are uninvestable? Honestly, Jason, I'd stay away from both of them. Once upon a time,

I actually had a very small investment in iQiyi, but I gave up on that when it was clear that this was going nowhere. Look, Baidu already owns 45% of that business. So, if you really, really want to invest in it, you could just do it that way. As it turns out, it's been terrible for Baidu, too. It's been dragging them down at a time where they really don't need any other drags on their business, as we've already discussed here. IGE is losing money on an operating basis. I've got no expectations that changes anytime soon, honestly. Alright, Emily. I've got to side with Toby a little bit here. He hinted at it, But there's some math that screams caution at me about IGE. It spent more money paying interest

last year than it earned in operating income. That's tough to dig your way out of that. So, what's the bull case that it can see its way forward in a way where investors actually make money? I hesitate, again, to say that. Yes, you're right. Again, these are right at face value. And I certainly have my work cut out to me to make a bull case for either of these businesses. But I I love to play devil's advocate. And to your point, Jason, two sides do make a market. They're a lot less clear cut than Baidu or PDD, but I try to see the forest through the trees. In the case of iQiyi, the financial risk of the debt and the lack of profits are basically non-existent for exactly the reason Toby mentioned. They're fully backed by the cash-generating giant

that is Baidu. Baidu won't, in my opinion, really let this company fail. And iQiyi does have some really valuable properties. Unlike other apps, there isn't a clear competitor to iQiyi in Chinese streaming. So, I could draw comparisons between them and Netflix in the past, getting up to speed in original content and scale in a country with billions of people. It's hard. It's expensive. Maybe they just need more time here. And I think the risk of bankruptcy, given their financial profile, is still low with such smart backing. Okay, let's move on to Weibo. Toby, based on your comments, I assume you think investors should pause here and move on, too, right? Yeah, yeah. That's been my trend for this show. There's a theme, people.

I think. Yeah, right. Look, honestly, I think there are better options elsewhere. Look at Weibo. Ad revenue is declining. That seems to be a trend with Chinese companies generally right now. It makes you wonder about the short-term state of that region's economy, quite frankly. But there's nothing really unique with this business, Jason. There's no compelling reason for consumers to stay on the platform. Users are heading to other platforms in droves here. And honestly, I think investors would be well-served to do the same. Emily, I hate to do it again, but taking Toby's side, this is a smaller, less profitable business than it was seven years ago. Yet another bad quarter. Is there anything redeemable?

I compare Weibo to maybe even a business like eBay, where yeah, you can make the argument, does this company really need to exist? But there's probably still a lot of leverage that management can do with what is otherwise a very profitable, very cash-generating asset. They are losing out on ad dollars to competition like Red Note, of course, and the platform is declining in popularity. But management team seems aware and okay with that. They still have hundreds of millions of monthly active users, and they monetize decently well. They have operating margins north of 27% in the most recent quarter, so much cash that they're actually doubling their operating income just based off the interest income they're generating off of their cash

sitting there in their bank accounts. So on a price-to-earnings basis, the business is trading at a P-E ratio of five times. So quite literally, price like the company is going to disappear in the next decade. Is that possible? Yes, of course it's possible. I think this does not pass David Gardner's snap test. I think if you snap your fingers, it's entirely possible we can replace Weibo with a medley collection of other social media platforms. But with oodles of cash flow, hundreds of millions of dollars of super low CapEx and reinvestment expenses, I think if they can just figure out how to better monetize users that exist on their platform, this could be an underappreciated opportunity. All right. This has been a lot of fun, Toby, Emily, thank you both so much for

having this fun conversation. Emily, I'm going to go ahead and hand you the keys back and you can drive us home. Yes, Jason, thank you so much for coming in and playing host and allowing me to, you know, I guess, entertain you both with four Chinese companies that reported earnings this morning. Yes. But I also, our opportunities that I think are sometimes going underappreciated or missed by opportunities. Jason, thank you for playing host and Toby, thank you for playing the bear to my bull for these opportunities. And listeners, thank you all so much for joining Motley Fool Money today. As always, people in the program may have interest in the stocks they talk about, and The Motley Fool may have formal recommendations for or against, so don't buy

or sell stocks based solely on what you hear. All personal finance content follows The Motley Fool editorial standards and is not approved by advertisers. Advertisements are sponsored content and are provided for informational purposes only. To see our full advertising disclosure, please check out our show notes. For Jason Hall, Toby Bordelon, and the entire Motley Fool Money team, I'm Emily Flippen. We'll see you tomorrow.