JD.Com Inc (ADR) (NASDAQ:JD) and Amazon.com, Inc. (NASDAQ:AMZN) are both growth stocks. In recent months, I’ve recommended both JD stock and AMZN stock, and I think both would be welcome additions to any investment portfolio.
However, if you could only own one of them, which is the better buy?
The Pros and Cons of JD.com
In December, I argued that JD stock remained a buy as long as it continued to turn its inventory every 38 days or faster. Successful businesses turn their inventory regularly, a sign that customers are clamoring for more product.
JD.com is scheduled to report its Q4 2017 earnings Mar. 1. Keep an eye on that inventory figure. In the third quarter, it was slightly lower than in the same period last year. I expect it to continue to improve modestly, but we’ll see in a month’s time.
The other positive for JD is that it’s transitioning from money loser to moneymaker, a key ingredient to moving stock prices higher.
On the negative side of the ledger, InvestorPlace contributor Lawrence Meyers does a good job highlighting the risks of investing in Mainland China stocks.
“China is a black box,” Meyers wrote recently. “You have no control over what will happen, so if you invest in a business over there, you’re taking on massive risk.”
He’s not wrong.
A few years ago, I can remember a friend telling me about a speech he attended given by the CEO of a Canadian gold company that outlined the difficulties of doing business in China.
Sure, things have gotten slightly better, but it’s still the Wild West, which ratchets up the risk.
As I was writing this article, it suddenly dawned on me that JD.com is only four years younger than Amazon.
Amazon was founded in 1994. Today, founder and CEO Jeff Bezos is worth more than $100 billion. JD.com got its start on June 18, 1998, although it wasn’t until 2003 that founder Richard Liu started selling products online.
In my opinion, it makes sense to compare the two companies’ financial histories over the same number of years. Unfortunately, JD.com only became a public company in 2014, so I’m going to use nine years of data starting in 2009. I’ll use nine years of data for Amazon from 2005 through 2013.
May the best company win.
JD.com vs Amazon.com – Financial History Over Nine Years
Revenue (2009) = 2.92B RMB
Revenue (2017) = 333.4B RMB
CAGR = 80.8%
Operating Profit/Loss (2009) = -103M RMB
Operating Profit/Loss (2017) = -471M RMB
CAGR = -20.9%
Revenue (2005) = $8.5B
Revenue (2013) = $74.5B
CAGR = 31.2%
Operating Profit/Loss (2005) = $432M
Operating Profit/Loss (2013) = $745M
CAGR = 7.1%
JD.com vs. Amazon: A Conclusion
If you take the Amazon numbers from 2009 through 2017, the compound annual growth rate for revenue drops by more than half to 14.9%, approximately six times less than JD.com’s growth rate.
Combine the difference in growth rates with the analyst estimate that JD.com will earn $0.33 per share in fiscal 2018 and $0.75 in fiscal 2019, and you’ve got a clear winner.
Unless you’re unwilling to take the risk of owning Chinese stocks, history tells me you should go with JD.com. However, if you can own both, you should.
As of this writing, Will Ashworth did not hold a position in any of the aforementioned securities.