Alibaba Group Holding Ltd (NYSE:BABA) may be the dominant name on China’s e-commerce landscape, but that means it’s largely up to second-place player to JD.Com Inc (ADR) (NASDAQ:JD) to try harder to keep Alibaba in check. Being second in the market makes JD stock perhaps a better investment than BABA stock.
Alibaba Is a Big Target
Whether or not Alibaba really is the so-called Amazon.com, Inc. (NASDAQ:AMZN) is up for debate. BABA is overwhelmingly pervasive there as Amazon is here, Will Healy recently and accurately pointed out there’s a distinct difference between Amazon and Alibaba. That is, while Amazon owns the bulk of the goods it sells, Alibaba is mostly a middleman, more akin to eBay Inc (NASDAQ:EBAY) than Amazon.
For the purposes of making this particular point though, let’s just assume we’re only talking about the amount of-commerce generated per year. On that front, Alibaba’s more-than-$500 billion worth of gross merchandise volume handled per year now easily makes it the biggest online-shopping player in China.
It’s an enviable position to be in, to be sure, though not one without its trappings. Much like Amazon, there reaches a point where growth can’t be bought cost-effectively, and size becomes a liability rather than an asset simply because it’s tough to manage a massive mix of largely-unlike businesses.
Enter JD.com, which has generated a more modest $50 billion worth of revenue over the course of the past twelve months. It may be smaller, but recently-forged alliances and its nimble nature may prove to not only bear fruit, but prove to be a stumbling block for Alibaba.
On the surface the deal doesn’t look terribly significant for Tencent or JD. Tencent will now own a 7% stake, while JD will up its stake from 2.5% to 5.5% of Vipshop.
Those are significant stakes to be sure, enough to ensure a presence on the board of directors, though hardly a commanding stake. Besides, what’s the purpose of spending time and money on buying a piece of a rival (albeit indirect) company when those funds could be deployed in more effective ways “at home”?
The logical answer, in this case, is also the right one.
Method to the Madness
This isn’t about interest in Vipshop as in investment the way the average retail investors might view a position in VIPS or JD stock. This is about owning enough influence at Vipshop to make it a sales partner, further spreading a web before Alibaba spins one there.
And there’s little doubt the new or bigger stakes will facilitate that. See, while Tencent and JD.com appear to be operating independently of one another, Tencent owns about a fifth of JD stock already; the two are undoubtedly working together in their plans to make Vipshop more than just something to do with their idle cash.
Indeed, JD.com and Tencent’s WeChat platform have already been integrated, pointing to similar partnership with Vipshop.
Were it just the interest in Vipshop, that’s an idea not every party that keeps tabs on JD stock would buy into. It’s not just Vipshop though. A look back at several months worth of JD stock news reveals a litany of other partnerships, each of which should at least give Alibaba investors pause.
Case(s) in point: In August, JD.com teamed up with Wal-Mart Stores Inc (NYSE:WMT). Earlier this month, the company announced a newly-forged relationship with Silicon Valley business accelerator outfit Plug and Play, which aims to connect JD with American startups.
It’s not even clear how the Plug and Play deal will ultimately benefit JD. What is clear, though, is that JD.com is looking at anything and everything. It’s trying harder, mostly looking at ways to make a dent in Alibaba’s dominance. At least some of that spaghetti is going to stick to the wall.
Alibaba, meanwhile, isn’t finding as many partners as it once did. Nobody wants to feed a beast that may come back and maul them, so to speak, but plenty of organizations are more than happy to help JD compete with the bigger rival. That bodes very well for JD stock.
Looking Ahead for JD Stock
Will JD.com ever dethrone Alibaba as the kind of China’s e-commerce industry? It’s tough to imagine that ever happening, just as it’s tough to imagine Amazon.com ever not dominating the North American online-shopping market.
Then again, investing is a relative thing. That is to say, current and would-be owners of JD stock should focus on the relative, “per share” results. Everyone’s taking dead-aim at Alibaba, trying to keep its dominance contained, much like Amazon, and with JD.com being in the best position to keep Alibaba in check, it’s getting more than its fair share of assistance in that endeavor.
It’s that reality which makes JD.com stock the name worth watching, even if not yet owning.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities. You can follow him on Twitter, at @jbrumley.