Alibaba vs. JD.com Stock: Which is Best?

Alibaba vs. JD.com Stock: It’s a complicated time to invest in Chinese companies. Trade relations between the US and China are tenuous at best, and it is unclear whether or when the situation might improve.

Some speculate that the outcome of November’s Presidential election might offer a clear sign as to which direction the relationship will go. If the current administration remains in the White House, the current trend is likely to continue, while a Democratic win might lead to eased tensions. 

A second significant concern among investors with Chinese stocks in their portfolios is the possibility that Congress will pass the Holding Foreign Companies Accountable Act. If the bill becomes law, the Act would require all foreign companies listed on US exchanges to provide third-party audits of their financials. 

Two of the top companies at risk are Alibaba and JD.com. What does the future hold for them?

Sidelining Chinese Companies Could Hurt Returns

Chinese companies have long been excused from audits as a result of pushback from the Chinese government, and passage of the Act is unlikely to have the desired effect of obtaining the audits.

Instead, it is more likely that Chinese companies will be delisted from the New York Stock Exchange and the Nasdaq, leaving current shareholders in a bind and effectively precluding new investors from buying into these companies. 

However, given the extraordinary success of certain Chinese companies – and their prospects for future growth – avoiding them altogether doesn’t feel like the right choice for many investors. Failing to include Chinese companies in an otherwise diversified portfolio rules out shares that could deliver strong returns. 

For those willing to live with the risks currently facing US investors in Chinese companies, the question is, which company is most likely to prosper in the current market? For many, that comes down to one of two choices. In other words, Alibaba vs JD.com stock: which is best?

Alibaba Revenues Continue To Grow Fast

The best way to describe Alibaba is as an eastern version of Amazon. Like Amazon, Alibaba is focused on e-commerce and cloud infrastructure, with Alibaba leading the ecommerce industry among Chinese consumers.

The key difference between the two is that Alibaba generates revenue from its e-commerce division and subsidizes less-profitable cloud infrastructure and digital media services.

The company launched these businesses in an effort to compete with Chinese rivals Baidu, Tencent, and JD.com. 

Since Alibaba’s IPO in 2014, share prices have almost quadrupled. In part, this is due to the extraordinary opportunity presented by China’s expanding economy.

While 2020 may not turn out to be a stellar year due to the novel coronavirus, China’s GDP came in at 6.1 percent for 2019.

More importantly, it has grown at 6 percent or more for the past 27 years. Chinese consumers are growing wealthier, and they are spending like never before.

China is currently home to the second-largest economy in the world, and if growth continues at current rates, it is likely to supersede the United States. 

Given the challenges of the COVID-19 pandemic, it would not have been a surprise to hear that Alibaba’s earnings declined. However, when the company announced its results for its fiscal first quarter 2021 on August 20, 2020, the news was anything but a disappointment.

Alibaba’s revenues grew 34 percent for the quarter, primarily due to the e-commerce side of the business. Given that sort of performance through unprecedented obstacles, most analysts believe Alibaba is a buy. 

JD.com Customers Up Almost 30%

JD.com, another Chinese e-commerce giant, got a lot of attention from investors in August. Despite the disastrous economic impact of COVID-19, the company exceeded expectations by a substantial amount.

Annual revenue went up by an impressive 34 percent for a total of $28.5 billion, which was $1.2 billion more than projected.

Net income increased by 53 percent for a total of $0.50 per share – a full $0.12 more than estimates suggested. 

Some investors and analysts believe that JD.com’s current share prices are as high as they are going to get. If true, this stock wouldn’t be a smart buy.

However, aside from those few detractors, a majority of investors and analysts agree that share prices will continue their upward trajectory. 

In part, that faith is based on the fact that JD.com revenues have grown for ten consecutive quarters. It is also helpful that the company’s consumer base is consistently rising.

The most recent report showed the number of active customers up by 29.9 percent for the year, totaling 417.4 million.

These figures indicate that while share prices might be high, they are on track to move still higher in coming months and years. That makes JD.com a buy. 

JD.com Vs Alibaba Stock: The Bottom Line

As with any investment, both JD.com and Alibaba shares come with risks, and the biggest for both is the potential delisting from US exchanges.

Aside from that Alibaba does have its share of core issues. One concern is that the company has started to become more dependent on its lower-margin brick-and-mortar retail shops, which could backfire in the long run. 

Further, the competition for Alibaba’s market share is fierce, and a number of rivals are pulling out all the stops to pull sales away from the industry leader. Pinduoduo and JD.com are particularly strong in the e-commerce space, and Tencent is making every effort to overtake Alibaba in digital media, fintech, and cloud services.

In short, Alibaba must continue to focus on increasing margins through digital innovation to retain its strong revenues in coming years.

Generally speaking, JD.com carries less risk than Alibaba for several reasons. The biggest is that it manages its own logistics and distribution, which gives it more control over product quality. It has made massive investments in these areas over the years, depressing profits, but that period appears to be over.

Today, the company is seeing margins grow, which is expected to generate earnings that exceed Alibaba’s in coming quarters. That makes JD.com the better buy. 

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The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.