Alibaba vs. JD.com: Which E-Commerce Stock is a Better Buy?

Alibaba Group Holding Ltd (BABA) and JD.com, Inc. (JD) are two of the world's leading e-commerce platforms based in China. With the world undergoing a rapid digital transformation and China showing economic improvements, both BABA and JD have been witnessing surging demand globally as well as a rise in daily average users.

Both stocks have generated significant returns over the past five years. While BABA returned 242.3% over this period, JD gained 181.6%. In terms of year-to-date performance, JD is a clear winner with 134.7% returns versus BABA’s 34.6% gains. But which of these stocks is a better pick now? Let's find out.

Latest Movements

BABA is set to hold its 11.11 Global Shopping Festival, or ‘Singles Day,’ on November 11th. This year, the company also added a new sales window from 1st to 3rd November. Bravado launched its namesake store on Tmall Global, a core business of BABA, to monetize China’s growing interests and demand for global music and culture. The World’s largest art museum, the Louvre, inked a new partnership with Alibaba Group to launch a flagship store on Tmall.

Last month, Cainiao, the logistics affiliate of BABA, launched end-to-end logistics and supply-chain services for local businesses in South Korea which would reduce the shipping time in half. Cainiao also partnered with Atlas Air Worldwide Holdings (AAWW) on October 13th to extend its extensive logistics network.

BABA and BMW signed a Memorandum of Understanding (MoU) for strategic partnerships in Beijing to enable dealers to provide an end-to-end and online-to-offline digital experience for customers. The company also acquired a controlling Stake in Sun Art, a leading hypermarket and supermarket operator in China. During the Apsara Conference 2020 held last month, BABA unveiled a series of artificial intelligence (AI) powered solutions that will digitalize sports events.

Though currently suspended, Ant IPO was set to be the biggest IPO ever recorded in history, valued at approximately $34.50 billion. BABA currently has a 33% equity stake in the Ant Financial Group and has earlier announced plans to acquire an additional 22%.

JD began the Singles Day Grand Promotion on November 1st, witnessing a huge growth in service consumption on the day. The cloud computing arm of JD along with BiNei built a lab in Wuhan for researching Internet of Vehicle (IoV) solutions.

JD Logistics, a subsidiary of JD is expected to acquire a controlling interest in Kuayue Express to improve delivery services. JD sold its entire stock of the Huawei Mate 40 series in just 11 seconds since the smartphone was released to the Chinese market on October 30th.

Recent Financial Results

For the quarter ended June 2020, BABA’s revenue surged 34% year-over-year to $21.76 billion. The company’s EPS grew by 18% to $0.26.

BABA’s revenue from the cloud computing segment increased by 59% year-over-year to $1.75 million. Online games and membership subscriptions were also significant revenue drivers for the company. Revenue from the digital media and entertainment segment increased 9% year-over-year to $990 million. Annual active consumers for the company increased by 2.2% sequentially to 742 million. BABA’s earnings per ADS grew 18% year-over-year.

JD’s revenue for the second quarter ended June 2020 increased 33.8% year-over-year to $28.50 billion. The company’s revenue from the sales of general merchandise products increased by 45.4% year-over-year to $9.10 billion. Annual active customer accounts increased by 29.9% year-over-year to 417.4 million. JD’s net income per ADS grew 52.6% year-over-year.

Past and Expected Financial Performance

BABA’s revenue and EBITDA grew at a CAGR of 46% and 26.6%, respectively, over the past 3 years. Also, the CAGR of the company’s total assets has been 36.1%.

The market expects the company’s revenue to increase 54.4% for the quarter ended September 2020, 38.3% in the current fiscal year, and 26.6% in the next fiscal year. BABA’s EPS is expected to grow 13.5% for the about-to-be-reported quarter, 24.3% in the current fiscal year, and 27.1% in the next fiscal year. Moreover, its EPS is expected to grow at a rate of 3.7% per annum over the next five years.

On the other hand, JD’s revenue and EBITDA grew at a CAGR of 28.1% and 63.8%, respectively, over the past 3 years. The CAGR of the company’s total assets has been 25%.

The market expects JD’s revenue to increase 32% for the quarter ended September 2020, 32.7% in the current year, and 21.7% in next year. The company’s EPS is expected to grow 37.9% for the about-to-be-reported quarter, 49.5% in the current year, and 45.5% next year. Moreover, JD’s EPS is expected to grow at a rate of 6.2% per annum over the next five years.

Thus, BABA has an edge over JD here.

Profitability

JD’s trailing-12-month revenue is 1.19 times what BABA generates. But BABA is more profitable with a gross margin of 44.5% versus JD’s 8.2%.

Moreover, BABA’s ROE and ROA of 21.51% and 5.50% compare favorably with JD’s 17.68% and 1.85% respectively.

Valuation

In terms of forward P/E, JD is currently trading at 55.28x, 84.7% more expensive than BABA, which is currently trading at 29.93x. Though JD is less expensive in terms of trailing-12-month P/S (1.31x versus 9.76x), its forward PEG of 1.56x is 8.3% higher than BABA’s 1.44x.

In terms of trailing-12-month price/cash flow as well, JD’s 34.61x is 24.3% higher than BABA’s 27.84x.

Thus, BABA is a more affordable stock here.

POWR Ratings

Both BABA and JD are rated “Strong Buy” in our proprietary POWR Ratings system. Here’s how the four components of overall POWR Rating are graded for BABA and JD:

Both BABA and JD have an “A” for Trade Grade, Buy & Hold Grade, Peer Grade, and Industry Rank. While BABA is ranked #1 in the 115-China industry, JD is ranked #2.

The Winner

Being two leading e-commerce companies based in China, both BABA and JD are good investment options considering their market dominance and long-term potential. However, BABA is better positioned in terms of the parameters discussed above. Also, with its market dominance in different segments through its affiliates like logistics and cloud computing, BABA has the potential to outperform JD.

Want More Great Investing Ideas?

Why is the Stock Market Tanking Now?

7 Best ETFs for the NEXT Bull Market

5 WINNING Stocks Chart Patterns

BABA shares were trading at $294.51 per share on Wednesday afternoon, up $8.94 (+3.13%). Year-to-date, BABA has gained 38.85%, versus a 9.00% rise in the benchmark S&P 500 index during the same period.

Since she was young, Manisha has had a strong interest in the stock market. She majored in Economics in college and has a passion for writing, which has led to her career as a research analyst.

More...