JD.com Inc (ADR) (NASDAQ:JD) and Alibaba Group Holding Ltd (NYSE:BABA) are having impressive years up 56% and 104% respectively through October 16. Whether you own JD stock or BABA stock you’ve got to be pretty happy as the duo enter 2017’s home stretch comfortably ahead of the benchmarks.
With both growing like weeds it’s difficult to find fault with either company, making an impartial investment by anyone who’s yet to join the party virtually impossible—but doable.
I’ve covered Alibaba a fair bit this year but I’m new to JD.com so why don’t I go through four things investors like to see from growth companies before getting to the nitty-gritty.
There are so many metrics one can use when it comes to a company’s valuation. But for this comparison, I’m going to use something different—price to research ratio—than you’re likely to see from most finance writers.
I’m doing this because both companies will succeed or fail based upon on their technology, so it’s a way to look at them in a different light.
In JD.com’s second quarter it spent $193 million on technology and content. Alibaba spent $693 million on product development expenses. For the sake of time, I’ll merely annualize both numbers and I’ve included share-based compensation for both.
Based on $772 million for JD.com and $2.8 billion for Alibaba, JD stock is trading at 73 times research and Alibaba at 162 times its research spending.
So, by this metric, and it is very back-of-the-napkin, JD.com wins round 1.
Again, trying to look outside the usual metrics, I’ll go with staff costs as a percentage of sales, but here I’ll be using revenues after costs, not before. Lower is definitely better.
JD.com had general and administrative expenses in the second quarter of $139 million which was 8.6% of its $1.6 billion in net sales. Alibaba’s general and administrative expenses in its first quarter were $543 million or 11.3% of its $4.8 billion in net revenue.
JD.com wins again.