The e-commerce market in China has been growing at a fantastic rate, and many investors have been trying to profit from this trend by buying Alibaba (NYSE:BABA). But the lesser-known JD.com (NASDAQ:JD) may be an even better play.
Right now, Alibaba is clearly the more dominant company. Its total merchandise-sold figures are more than three times larger than JD’s. But JD’s smaller size gives it more room to grow and more flexibility to move quickly into new areas of opportunity. Investing is about the future, not the past.
JD has been on a consistent growth trajectory for the last four years, with total revenue rising from 69 billion yuan in 2013 to 362 billion yuan in 2017. While its customer base of 293 million is lower than Alibaba’s 552 million, it represents a massive increase over the 47 million customers JD had in 2013.
The publicity about Alibaba’s competition with Amazon.com (NASDAQ:AMZN) has led investors to bid up the price of the stock at a fast rate. Alibaba shares are priced at about 33 times 2017 cash flow. Meanwhile, JD stock is priced around 26 times. even though JD is expanding quicker.
China’s population has now surpassed 1.4 billion, and its economic performance is strong, despite constant rumblings of a trade war from the U.S. government. The other East-Asian economies also provide ample opportunities for e-commerce growth.
The two rivals are actually somewhat different companies. Alibaba concentrates on supplying a platform where individuals and companies can sell goods. It has steered clear of getting involved with making, storing or shipping products.
JD.com, by contrast, has almost 500 fulfillment centers located in different parts of China, with plans to expand this operation into other Asian countries. It has more control over the entire delivery chain than Alibaba does.
This makes it cheaper for JD to guarantee fast delivery. Also, its control over inventory helps to reduce the chance that consumers will get counterfeit products, a constant issue in Chinese commerce.
So while Alibaba has created the larger market of customers, JD does better with buyers who care more about the quality of the products and the timeliness of the delivery. These individuals tend to be more upscale.
Partnership With Google
Some more good news for the company: Alphabet (NASDAQ:GOOGL, NASDAQ:GOOG) plans to invest more than $500 million in JD.com as part of a long-term partnership.
The plan is to leverage the logistics capabilities of JD and Google’s technological know-how. Also, JD.com will begin selling items through Google Shopping, allowing it to reach markets outside of its East-Asian home base.
Bottom Line on JD Stock
So while JD.com still has tests to pass before it could be seen as a safe growth stock, its range of possibilities makes JD stock an appealing high-risk, high-reward play.
As of this writing, the author did not hold a position in any of the aforementioned securities.
