To The Moon

$MEITUAN-W(03690)$ $Alibaba(BABA)$

Investing is never just about numbers. It’s also about narratives, conviction, and the trade-off between safety and opportunity. This week, that age-old question resurfaced in dramatic fashion as two of China’s biggest internet companies, Meituan (03690.HK) and Alibaba (BABA), unveiled earnings that sent their stock prices in opposite directions.

The divergence was striking. Meituan’s latest report showed pressure on profitability, triggering a sharp sell-off in its shares. In contrast, Alibaba surprised to the upside, rallying more than 12% in a single day after its earnings release.

On the earnings call, Meituan CEO Wang Xing tried to reframe the market’s disappointment:

“In a big competition, being the underdog is the most exciting position to be in. That’s why this is so thrilling.”

This wasn’t just spin. It raised a genuine dilemma for investors: do you side with the underdog, accepting volatility for the promise of asymmetric returns, or do you ride with the winners where momentum is already established, but upside may be capped?

The Allure of the Underdog

There’s something deeply compelling about underdog stories — in sports, business, and investing. It’s the belief that smaller, scrappier players can beat the odds, upset incumbents, and reward those who believed early.

1. Asymmetric Payoffs

Underdog investments often come with a skewed risk-reward profile. Because expectations are already low, bad news is usually priced in. If the company delivers even modest improvements — a surprise earnings beat, cost reductions, or market share stabilization — the upside can be explosive.

For Meituan, despite its current struggles, the long-term growth potential in China’s on-demand services market remains vast. Local commerce, food delivery, and instant retail are still growing as consumer habits evolve. If Meituan can capture efficiency gains while expanding into new verticals, its valuation could rerate quickly.

2. Contrarian Advantage

Markets are driven by psychology. When consensus turns negative, prices often overshoot on the downside. Contrarians who step in during despair can lock in positions at attractive valuations.

Investing legends from Howard Marks to Warren Buffett have repeatedly stressed that superior returns often come from buying when sentiment is poor. Underdogs like Meituan, currently out of favor, may offer exactly that scenario.

3. Innovation and Agility

Smaller or underdog players often innovate more aggressively because they have no choice. They experiment, adapt, and take risks that larger incumbents — constrained by bureaucracy and brand — avoid.

In Meituan’s case, the company is experimenting with AI-driven logistics, new service verticals, and partnerships to fend off rivals. While risky, these moves could position the company well if consumer trends shift in its favor.

The Comfort of Following the Major Trend

If underdogs represent potential upside, market leaders embody stability and momentum. There’s a reason the old Wall Street saying exists: “The trend is your friend.”

1. Scale and Moats

Major players enjoy advantages in size, resources, and brand recognition. Alibaba, for instance, operates across e-commerce, cloud computing, payments, and logistics. Its diversified ecosystem provides resilience even if one segment faces headwinds.

Economies of scale allow these giants to operate at lower costs, maintain pricing power, and invest in new initiatives without jeopardizing profitability.

2. Lower Risk of Ruin

Perhaps the most compelling reason to ride the major trend is the reduced risk of permanent capital loss. Leaders like Alibaba, Nvidia, or Apple may face cyclical downturns, but their long-term survival is rarely in question. Underdogs, in contrast, can sometimes face existential threats if competition intensifies or cash flow dries up.

For investors seeking to preserve wealth first and grow it second, market leaders provide a safer balance.

3. Market Validation

Price momentum isn’t meaningless. When a stock is trending higher, it often reflects improving fundamentals, stronger institutional support, and growing confidence. Buying into strength can sometimes be less risky than catching a falling knife.

Alibaba’s recent rally exemplifies this. After a period of stagnation, its earnings beat served as a validation point for investors waiting for signs of stabilization. Momentum then fueled further gains.

Case Study: Tesla vs. General Motors

To better illustrate this dynamic, consider a U.S. example: Tesla vs. GM.

• For much of the 2010s, Tesla was the quintessential underdog — cash-burning, heavily shorted, and doubted by Wall Street. Yet for contrarians who saw its potential in EVs, the payoff was life-changing.

• General Motors, by contrast, represented the major trend — stable, profitable, but with slower growth prospects. It provided dividends and predictability, but without the meteoric upside.

The lesson: both paths had merit. The right choice depended on the investor’s time horizon, risk tolerance, and belief in disruption.

Applying This Lens to Chinese Internet Stocks

China’s tech sector adds another layer of complexity. Regulatory pressures, geopolitical tensions, and slowing domestic growth make both underdog bets and leader plays more volatile.

• Alibaba (Major Trend): With regulatory overhangs easing and a renewed focus on shareholder returns, Alibaba is regaining investor trust. Its scale, ecosystem, and cloud computing potential make it a safer long-term bet.

• Meituan (Underdog): Facing intense competition from Pinduoduo and Douyin, Meituan’s path is steeper. Yet if it can weather the storm, expand beyond food delivery, and monetize its ecosystem more effectively, the upside could be significant.

The Investor’s Crossroads

The decision ultimately boils down to your own investment philosophy:

• Underdog Investors value conviction, patience, and the thrill of backing a contrarian bet. They are willing to endure volatility for the chance of outsized returns.

• Trend Followers prefer predictability, alignment with market momentum, and lower risk of permanent loss. They may sacrifice potential upside, but in exchange, they sleep better at night.

Neither approach is inherently right or wrong. Both have historically produced success stories — from Apple’s rise as a major trend leader to Netflix’s improbable climb from underdog to industry disruptor.

Final Takeaway

Wang Xing’s words highlight a truth often overlooked in markets: being the underdog can be thrilling, but thrill doesn’t always equal profits. Investors must decide whether they want the excitement of a potential turnaround or the steadiness of riding established leaders.

• The underdog path offers asymmetric opportunity but requires resilience, patience, and a strong stomach.

• The major trend path offers stability and validation but may provide more modest returns.

In the end, investing is as much about knowing yourself as knowing the market. The better you understand your risk tolerance and philosophy, the clearer the path becomes.

Will you follow the wave with Alibaba, or bet on Meituan’s comeback? Both roads are open. The choice is yours.