For online retail investors, there are two main questions: Do you want to own Amazon.com, Inc. (NASDAQ:AMZN) stock or one of its competitors? After all, AMZN remains the undisputed global leader in e-commerce. Or would you rather try to own the next big thing — the company that could topple Amazon?
If so, you’re probably thinking about China, since that’s where two of the larger and more disruptive firms are located. At first glance, Alibaba Group Holding Ltd (NYSE:BABA) seems like the bigger competitor to Amazon.
If you’re wanting more upside than Amazon, however, a more nimble player would be in order. Perhaps, JD.Com Inc(ADR) (NASDAQ:JD) is that upstart that can make it to the big leagues.
JD Stock Could Be Ready for an Upswing
JD has traded in a range since going public, reaching $40 at one point and falling back to $20 more recently. However, JD stock recently rebounded and now finds itself in the upper part of its 52-week range.
The stock is up lately on news that it is selling its online-to-offline “O2O” business for as much as $2 billion. This comes on top of its divestment of a logistics unit. JD.com is doubling down on its core business — retail sales and its online marketplace.
Richard Liu, JD.com’s CEO, is a visionary, and is sometimes compared with Amazon’s Jeff Bezos himself. JD.com differentiates itself from rivals, including Alibaba, with its focus on quality. The company has always prioritized authentic merchandise, taking steps to stamp out counterfeit goods. While JD.com may have a higher cost structure than Alibaba, it makes up for this with its superior reputation.
The company also has taken Amazon-like steps with delivery speed, commissioning almost a dozen fulfillment centers. This allows JD to fulfill 90% of its orders in a single day. The company often reimburses customers if an order doesn’t arrive on time.
Alibaba, on the other hand, offers far more variety. This is due to its lack of strong efforts to ensure that goods are genuine. While Alibaba often wins on price and a range of contents, it loses in the other elements of the customer service battle.
How Much Upside Is in JD Stock?
Estimates suggest China will have a $1.1 trillion online addressable market in 2020. Experts anticipate that this will rise to $2.5 trillion or so in 2025. Currently, JD.com serves about 10% of the market in China. Over the past 12 months, JD.com has produced about $33 billion in revenue. Given the projected market in 2020, JD.com could see sales triple to $100 billion. That’s if JD.com merely maintains its current market share.
If JD.com can double its market share, you’re looking at a $200 billion per year business in 2020. With a market cap of under $40 billion today, JD.com looks really cheap if it can get anywhere close to those revenue numbers four years from now. You could easily see JD stock triple right in line with that rate of rising sales.
Of course, there are risks. Alibaba appears intent on making life difficult for JD.com. It has engaged in aggressive pricing battles with JD.com on groceries, clothing and other product lines. Due to network effects, there is a tendency for the larger company to trample the smaller one, all else held equal. That’s why it is important for JD.com to maintain its superior customer service including lightning-fast deliveries.
Is AMZN Stock Still The Best Pick?
While it can be a challenge to pick between JD.com and Alibaba, in the US, there is no contest. AMZN stock is pretty much the only game in town for US online retail. Wal-Mart Stores, Inc. (NYSE:WMT) is the No. 2 U.S. online retailer, but it trails Amazon by a huge margin. Few people own Wal-Mart for its online operations. That’s because Amazon arrived early to the space and has a huge lead in most areas. Be it branding, logistics, robotics or whatnot, Amazon is probably doing it best.
There is one area where Amazon can no longer compete: revenue growth. Analysts estimate Amazon won’t double revenues again until at least 2019 and more likely 2020. JD.com, on the other hand, is expected to double revenues within two years. Will that give JD stock the leg-up?
Investors in AMZN stock shouldn’t necessarily panic. While JD.com is growing faster, Amazon has four times as many sales at the moment. So while JD.com is doubling up sales at a faster rate, in total dollars, Amazon is still scaling up faster than JD.com.
Additionally, Amazon is now growing while generating profits. After a long run of producing accounting losses, with the company investing heavily back into the enterprise, Amazon is now meaningfully profitable. And if analyst estimates are even close to accurate, Amazon is about to become very profitable, with per-share earnings to top $20 by the end of the decade.
JD stock, on the other hand, is unlikely to see much support from earnings. The company currently loses money. And analysts only see earnings hitting 10 cents annually over the next couple years. JD.com appears to be following Amazon’s model, but is much earlier along in the process. As such, it is a higher-risk, higher-reward opportunity. Whereas Amazon is so entrenched in the online marketplace, in many countries, that AMZN stock represents a more stable enterprise going forward.
Bottom Line on JD and AMZN Stock
If you’re looking for an investment that could triple your money before the decade is out, JD stock is the one to consider. If JD.com merely triples revenues by the end of the decade, as current growth rates suggest, the stock is likely to top $100 per share.
Amazon, however, already is worth $400 billion. It would take a phenomenal string of events for its stock to top $1 trillion in market capitalization this decade. So AMZN stock has less upside than JD stock.
On the downside, Amazon is a more secure investment. It doesn’t come with much China risk, and it doesn’t have a larger peer, like JD with Alibaba, that could derail its plans.
At the time of this writing, Ian Bezek owned shares of WMT. You can reach him on Twitter at @irbezek.
