Alibaba (NYSE:BABA) rung in $31 billion in sales in this year’s Singles’ Day. That’s good news for those holding BABA stock. Rival JD.com (NASDAQ:JD) delivered $23 billion at its Singles’ Day event. Also good news.
Both results were excellent.
Which stock should you buy? If the decision were up to me, I’d buy BABA stock over JD, now and in the future. Here’s why.
JD’s Got Legal Issues
You can throw out a million reasons why JD is a great e-commerce company and I’d probably agree. I’ve recommended JD stock several times over the past two years but that all went out the window with CEO and JD founder Richard Liu’s U.S. legal troubles.
Chinese stocks are risky enough without factoring in the CEO having to travel back and forth to the U.S. to carry out his defense. Sure, Minnesota’s Hennepin County has yet to file official rape charges against Liu, who’s maintained his innocence, the mere allegations smear the company’s reputation.
Here’s what I recently said about Liu’s situation:
“Although innocent until proven guilty is the foundation of our democracy, it’s also true that a fish rots from the head down. The mere suspicion that Richard Liu forced himself on a young woman suggests that JD.com’s corporate culture encourages this sort of behavior,” I wrote November 8.
“I, for one, can’t and won’t support a company whose CEO is accused of these types of actions, and consequently I won’t buy JD stock anytime soon. I can’t imagine why any investor would want to own JD stock in the wake of these allegations.”
JD’s Singles’ Day revenue of $23 billion is impressive. However, I believe there are better Chinese equities to own. BABA stock is one of them.
Jack Ma’s Gone But Not Forgotten
November 11 was Alibaba chairman Jack Ma’s last official event before relinquishing the title to current CEO Daniel Zhang.
Ma, the company’s co-founder, said to be worth $41 billion, is going to use this wealth to help solve some of the world’s biggest issues — education, the environment, and public health, to name a few — but will remain on the company’s board until 2020.
The Jack Ma Foundation, in much the same vein as Bill Gates’ foundation, will be the vehicle that returns him to his roots of teaching. It’s hard to argue with this kind of decision. I think we’d all like to be able to devote all of our time to causes we’re passionate about if we could.
Ma can. And will.
Besides, it’s not as if Daniel Zhang is a novice at Alibaba. CEO for the last three years, he’s been working at the company since 2007 when he was hired as CFO of its Taobao Marketplace.
It’s a seamless transition.
Alibaba’s Ambitious Goal
One of Alibaba’s big goals is to generate more than 50% of its annual revenue outside China.
“For sure every year the number is getting bigger and bigger, and people are always asking Daniel what is the ceiling of this and can you still grow so fast,” Zhang said on November 11. “But I say today if you look at the traditional online piece, the online piece is only 20 percent of total consumption. But when we start with the new retail, it greatly helps us extend the total addressable market.”
Zhang is optimistic about the company’s ability to meet its goal.
However, if you consider that its international revenue in Q2 — ending September 30 — probably accounted for no more than 10% of its overall revenue, BABA’s got a lot of work ahead of it.
Jack Ma is as smart and pragmatic as they come. He wouldn’t have stepped aside if he didn’t think the company was in good hands.
The Bottom Line on BABA stock
My InvestorPlace colleague Dana Blankenhorn recently remarked that Alibaba’s P/E of 46 isn’t all that high when you consider its second-quarter revenue grew 54% year over year, a performance that included 90% growth for its cloud-computing business, an area where it plans to take market share from its bigger rivals in the space.
Sure, it missed on the top-line estimate by $50 million and expects some headwinds due to the ongoing trade war, but from where I sit, if Alibaba can hit its goal of 50% revenue outside China within the next five years, $150 is going to seem incredibly cheap.
If you’re going to buy one of these stocks, you’d be wise to make it Alibaba.
As of this writing Will Ashworth did not hold a position in any of the aforementioned securities.
