When you think about making an e-commerce play in China, one name almost certainly comes to mind — Alibaba Group Holding Ltd (NYSE:BABA). However, even though BABA has been called the Amazon.com, Inc. (NASDAQ:AMZN) of China, it doesn’t have the same unshakable stronghold on e-commerce that Amazon does.
As online shopping is only just starting to take off in China, there are several other players in the e-commerce space that investors should consider. JD.Com Inc (ADR) (NASDAQ:JD) is one such company with a business model that is much closer to Amazon’s.
The JD stock price started to level off during the second half of 2017, but that stagnation makes for a good entry point before JD stock resumes its upward trajectory in the coming year.
What JD Has That BABA Doesn’t
While both Alibaba and JD stock take China’s top two spots in the nation’s e-commerce industry, the two are actually very different. While Alibaba acts as an intermediary between buyers and sellers, JD.com owns the majority of its inventory. The firm’s asset-heavy model means that JD has a much larger footprint than Alibaba with more than 7,000 delivery stations and 335 warehouses.
Yes, it’s true that JD will incur higher costs than BABA because the firm’s infrastructure comes with operating costs. But I think the costs are worth it because that network puts JD in an excellent position to develop a cutting-edge logistics company.
JD has been delivering its own packages to customers for some time, and the company is now working to build out a logistics service arm that would be able to make deliveries not only for JD.com, but for other businesses as well. In April, the company announced that JD Logistics, which works with other companies to improve their supply chains, was open for business.
Unlike in the U.S., the logistics space has a lot of room for growth in China. The Chinese population is more spread out than in the U.S., so rural deliveries are much more prevalent.
It’s tricky to find an efficient way to deliver to people who live in remote areas because the delivery cost JD incurs per order is higher. However, to date no logistics company has been able to solve this problem effectively, so JD will be a trailblazer.
The fact that JD is building out its own logistics network is a huge competitive advantage for the firm not only because it opens up the possibility of facilitating deliveries for other companies, but also because it makes shopping at JD.com all the more appealing.
Much like Amazon has done in the U.S., JD will have the ability to offer its consumers convenience. This strategy has allowed Amazon to retain customers despite the fact that its prices are often higher than competitors’.
JD.com Partner News
Another reason JD.com stock looks so promising is the fact that the company is constantly seeking out strategic partnerships that expand its reach and improve its offerings.
Last year, we saw JD team up with U.S. discount behemoth Wal-Mart Stores Inc (NYSE:WMT) in a deal that allowed the two to merge their supply chains. Walmart was able to utilize JD’s impressive logistical network in China, and JD was able to offer customers imported products.
This year, JD has teamed up with Tencent Holdings Ltd (OTCMKTS:TCEHY) in order to buy shares of Vipshop Holdings Ltd – ADR (NYSE:VIPS). The deal will give JD greater exposure to apparel and female customers, something that JD.com has been struggling with after many merchants left the site in order to join Alibaba’s Tmall.
Many believe that JD purchasing shares of Vipshop will be the firm’s first step toward eventually acquiring the business, a move that will put JD in a stronger position against BABA.
The Bottom Line on JD Stock
Investing in China’s e-commerce market is a smart play. Although there’s a lot of risk that comes with Chinese stocks, it’s important to consider that the nation’s online shopping industry is only in its early stages, and there’s a huge amount of room for growth in the future.
While I don’t think Alibaba is a bad stock to invest in for China’s e-commerce market, I like JD stock’s push into logistics and the fact that the firm owns its own inventory. For that reason, JD.com looks much more like Amazon than Alibaba does, so it’s worth considering if you’re looking for long-term growth.
As of this writing, Laura Hoy was long AMZN.