JD.com (NASDAQ: JD) and Alibaba (NYSE: BABA) have long dominated the e-commerce landscape in China. JD.com boasts the title of the country’s largest direct retailer by annual revenue, while Alibaba’s Taobao and Tmall platforms reign supreme as top third-party online marketplaces.
Once hailed as promising blue chip investments reflective of China’s economic boom, both JD.com and Alibaba saw their stock prices nosedive over 70% from their peak as they grappled with various challenges on macro, competitive, and regulatory fronts. The question now beckons – are these fallen stars ripe for a contrarian rebound in the eyes of savvy investors?
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Exploring Parallels and Contrasts
While JD.com primarily brings in revenue through its direct marketplace, it has been steadily diversifying into the realm of third-party platforms to broaden its merchant and customer base. On the contrary, Alibaba’s Taobao focuses on facilitating consumer-to-consumer transactions, with Tmall serving as a hub for major merchants and brands.
Both JD and Alibaba manage their shipping logistics via in-house subsidiaries, offering additional fulfillment and delivery services to external clients. JD took this a step further by spinning off its logistics unit, JD Logistics, through an IPO in 2021. In a contrasting move, Alibaba backtracked on its plans to spin off Cainiao, its logistics arm, earlier this year.
Alibaba’s global footprint extends to marketplaces like Lazada in Southeast Asia, Trendyol in Turkey, and the cross-border platform AliExpress. JD.com, however, has yet to make significant strides in expanding its core e-commerce marketplace beyond the borders of China.
Besides e-commerce, Alibaba stands out with Alibaba Cloud, China’s premier cloud infrastructure service – a domain where JD dabbles as well, bundling cloud, fintech, and healthcare under its “new businesses” umbrella. Each company has contemplated unloading their non-core ventures through fresh IPOs to bolster their financial reserves.
While JD and Alibaba once reigned supreme in the Chinese e-commerce sphere, they now face a formidable challenger in Pinduoduo (PDD) on the discount and online produce fronts. PDD’s meteoric growth trajectory surpasses that of JD and Alibaba, signaling a shifting landscape in the digital marketplace.
The Race of Growth
JD.com witnessed revenue upticks of 28% (in yuan) in 2021, 10% in 2022, and 4% in 2023 amidst China’s stringent zero-COVID measures, lackluster economic growth, and mounting rivalry from PDD and Alibaba. Post an ill-fated attempt to rival PDD with Jingxi, a discount marketplace, JD downsized the struggling venture in 2022. Analysts project a 5% revenue surge for JD in 2024 as macro conditions stabilize.
In contrast, Alibaba observed a 19% revenue jump (in yuan) in fiscal 2022, followed by modest 2% and 8% growth in fiscal 2023 and 2024, respectively. Paralleling JD’s woes, Alibaba grappled with macro pressures and cutthroat competition, further exacerbated by a regulatory crackdown in 2021 that curbed exclusive deals and promotional activities. While its cloud sector cooled off due to industry constraints, analysts predict an 8% revenue rise for Alibaba in fiscal 2025 amid China’s economic recalibration and the scaling up of its overseas e-commerce ventures.
Meanwhile, PDD boasts a revenue CAGR of 61% from 2020 to 2023, with a stellar 68% growth anticipated in 2024. Powered by its online agricultural expansion and cross-border platform Temu inching closer to disrupting Amazon’s dominion in the U.S., PDD’s growth narrative is a force to be reckoned with.
Peering into Profitability
With JD.com deriving the bulk of its revenue from its capital-intensive first-party marketplace, its operating margins trail those of Alibaba, which thrives on the higher margins of its third-party platforms.
Source: YCharts.
Over the past three years, both entities endeavored to bolster their operating margins through aggressive cost-cutting tactics. JD’s EPS more than doubled in 2023, with a 28% projected surge in 2024. In tandem, Alibaba witnessed a 14% EPS hike in fiscal 2024, with a 34% growth outlook for fiscal 2025.
Trading at meager forward earnings multiples of 10 (JD.com) and 13 (Alibaba), these stocks present as attractive propositions. Nonetheless, geopolitical tensions and the ongoing tech rift between the U.S. and China have compressed their valuations, barring potential revaluation unless diplomatic relations ease.
The Prime Pick: Alibaba
While both JD.com and Alibaba could mount a swift recovery amidst favorable U.S.-China reconciliation, Alibaba’s diversified portfolio and robust growth projections position it favorably as a comeback contender. In comparison, JD.com may encounter hurdles expanding its market presence beyond the e-commerce core.
Is Investing in JD.com Worth $1,000?
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JD.com: The Overlooked Needle in the Stock Market Haystack
Missed the Cut
When seeking lucrative opportunities in the stock market, it pays to keep a keen eye on the movers and shakers. Yet, when a list of the “10 best stocks for investors to buy now” was recently unveiled, one name was noticeably absent: JD.com.
A Needle in the Haystack
Consider the case of Nvidia, which once found itself omitted from a similar prestigious list back in April 15, 2005. Had an investor disregarded this exclusion and put $1,000 into Nvidia at that time, they would be sitting on a substantial gain of $683,777 by now. Sometimes, the overlooked stock turns out to be the diamond in the rough.
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Seize the Opportunity
While certain stocks may be overlooked in the short term, astute investors understand the value of diligence and critical analysis. JD.com may not have made the current list of top stocks, but history has shown that undervalued gems can shine brightly given enough time.
