JD.Com company sold its cloud and artificial intelligence operations to its fintech unit in March, taking a 42% stake in JD Digits.
The result is that JD.Com itself is largely insulated from the crackdown, which is focused on cloud, gaming, and finance. While JD.Com stock is down 15% on the year, that’s less than half of Alibaba’s 31% plunge.
JD.Com trades at just under $76 per share. That’s a market cap of more than $118 billion and a price-to-earnings ratio of around 21 on estimated 2021 sales of about $131 billion.
Think of JD.com as being Amazon.com (NASDAQ:AMZN) without the cloud or the media operations.
Founded in 2004, the company has always been focused on the problems of getting merchandise from factories to customers. It makes extensive use of driverless vans and delivery vehicles. It began drone deliveries back in 2016, serving remote areas where infrastructure is poor.
This also means JD can serve urban markets where the speed of delivery is imperative, as with Pacific hairy crabs, which can get from the sea to restaurants in hours.
The drones have made JD a leader in a market that should be worth $5.6 billion in five years. From a public relations standpoint, there is no downside to speedy delivery.
Because JD is a merchant, however, it only takes about 5% of its revenue to the net income line. Contrast this with Alibaba, which only acts as a middleman and regularly takes almost 20% of revenue to net income.
But JD.com was China’s largest retailer even before it began launching physical stores, a move that now makes sense. Unlike Alibaba, which sells a lot of perishables in its markets, the JD Mall mainly sells electronics. Think of it as a BestBuy (NYSE:BBY), only with more interactive elements.
JD Stock and Richard Liu
Founder Liu Qiangdong, known in the west as Richard Liu, is worth about $19 billion and, through 5Y Capital, has been a venture investor for 20 years. His biggest win was Xiaomi (OTCMKTS:XIACF), the mobile phone maker now worth about $73 billion.
Liu himself is no stranger to scandal, having been arrested for rape while visiting the University of Minnesota to get an advanced degree, but he has been ruthless in response and has otherwise learned to walk away from trouble.
Because Liu has been so adept at stepping back from controversy, especially since his arrest, the company has been getting love from analysts.
There are 13 now covering it at Tipranks and all but one has it as a “buy.” The average price target is 31% ahead of where it’s now trading.
The Bottom Line
I made a mistake with JD stock. I sold out in August, with the stock slightly below its current level, booking a profit of 50% over 15 months. I would have been wise to have stayed in. Instead, I played Alibaba, where my investments are down about 20%.
I think China will eventually come good, with economic pressure demanding pro-market reforms. But if I had it to do all over again, I’d have stayed with JD.Com and left Alibaba alone. The ability to lie low in a politicized state should not be underestimated.
On the date of publication, Dana Blankenhorn held long positions in BABA and AMZN. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Dana Blankenhorn has been a financial and technology journalist since 1978. He is the author of Living With Moore’s Law: Past, Present and Future available at the Amazon Kindle store. Write him at firstname.lastname@example.org or tweet him at @danablankenhorn. He writes a Substack newsletter, Facing the Future, which covers technology, markets, and politics.