JD.com Stock Forecast: A Threat To Alibaba?

JD.com Stock Forecast: While the United States has been plodding along with annual gross domestic product (GDP) growth rates at 3 percent or less, China has enjoyed massive economic expansion.

In 2010, China’s GDP grew by 10.64 percent, followed by four years above 7 percent. Total growth has drifted down in the most recent four years, and it is projected to be approximately 6.2 percent for 2019.

This decline has investors wondering whether Chinese e-commerce stocks like JD.com are still a smart decision. What is the JD.com stock forecast?

China’s e-Commerce Explosion 

Chinese consumers are responsible for $4.9 trillion in annual economic activity. A large percentage of spending can be credited to Chinese millennials – a group that launched into the adult world with expensive educations and no student debt. With their own economic power, along with support from their parents, this group has created a massive market for cars, mobile devices, and all manner of luxury goods.

The gradual contraction of the Chinese economy has prompted changes in spending behavior over the past year, and there are signs of harder times to come as consumer debt rises.

The cost of living is starting to go up, and jobs are harder to come by. Even so, GDP growth above 6 percent is impressive in comparison to the results other nations are seeing, and major Chinese retailers aren’t yet ready to declare a crisis.

In fact, the Chinese government is actively working to offset the impact of world politics with moves like lowering the reserve requirement ratio for the country’s banks. This is intended to inject cash into the economy at a time when tensions over trade between the US and China are high.

JD.com [NASDAQ: JD] is positioning itself as a leader when it comes to digitally connecting Chinese consumers with all manner of goods and services, and many investors are confident this company will continue to grow.

JD.com Vs Alibaba

JD.com [NASDAQ: JD] markets itself as the country’s e-commerce leader when measured by revenue, and it is a member of the Fortune Global 500.

While the massive Alibaba is often classified as the largest e-commerce business in China, JD.com considers itself in a different category.

JD.com uses a direct retail, first person model, selling goods through its network of warehouses and distribution centers. Alibaba connects buyers and sellers in its online marketplace, leaving the logistics up to individual merchants.

JD.com’s fulfillment infrastructure sets it apart from competitors in the e-commerce space. Instead of leaving the customer experience up to partner merchants, JD.com handles the entire transaction end-to-end.

It’s distribution network includes around 600 warehouses and thousands of pickup/delivery stations across 2,655 counties and districts nationwide. All of that means greater control over customer service, and more focus on consumer needs.

JD.com Has Massive Consumer Reach

More than 320 million people use  JD.com’s websites and apps to make a purchase each year, and 80 percent of orders are placed through mobile devices.

The company invests heavily in its technology to ensure that customers enjoy the most advanced and secure digital shopping features in the industry. For example, the company employs autonomous delivery robots to ensure orders reach customers quickly and efficiently.

That is appealing to the platform’s end users, and it has  the added benefit of cutting expenses for the business. As a result, JD.com has seen record growth since it was founded in 2010.

JD.com Competition

Going forward,JD.com [NASDAQ: JD] is developing new tools to compete with Alibaba and its other primary competitor, Pinduoduo.

It is increasing opportunities for independent merchants to connect with consumers, and it recently launched a new platform, Jingxi, to challenge Pinduoduo.

Like Pinduoduo, Jingxi creates opportunities for customers to connect with each other to form purchasing groups. The groups take advantage of significant cost savings when they buy key items in bulk.

Today, Alibaba controls approximately 55.9 percent of the Chinese e-commerce market, and JD.com has 16.7 percent. Pinduoduo is in distant third with its 7.3 percent share of the e-commerce market, but it boasts that it has more individual shoppers than JD.com. That may be, but JD.com’s users already spend more per transaction, and the foray into Pinduoduo’s group sales territory through Jingxi could pull bargain shoppers into the JD.com family.

JD.com’s leaders believe this is likely for three compelling reasons.

First, JD.com can leverage its existing infrastructure to fill bulk orders, which means faster delivery for Jingxi users.

Second, at least half of JD.com’s current users come from the geographical areas Pinduoduo targets. It should be relatively simple to persuade them to try JD.com’s group sales alternative.

Third, JD.com plans to integrate Jingxi with Tencent’s WeChat – a social media platform with 1.1 billion monthly active users. Through WeChat, it will be easy for groups to combine their purchasing power to enjoy the savings offered on Jingxi.

Some analysts believe JD.com’s astonishing growth in recent years is just the beginning. They say this organization has barely scratched the surface of the market’s full potential. If that prediction is accurate and JD.com [NASDAQ: JD] can exceed historic rates of growth, there is substantial reward potential for investors.

JD.com Stock Forecast: Is It A Buy?

While JD.com [NASDAQ: JD] hasn’t been able to recapture its stock highs of January 2018 when shares were trading over $50, recent financial reports have boosted prices considerably.

Second quarter results exceeded analysts’ expectations by quite a bit, with annual revenue growing 23 percent to a total of $21.9 billion. That’s $1 billion more than predicted, making second quarter growth the company’s strongest in nine months.

Adjusted net income increased by more than seven times, coming in at $518.4 million.

Business leaders predict additional revenue growth in the third quarter, suggesting figures as high as 20 percent – 24 percent.

These results have quieted naysayers who suggested that a slowing economy, an escalating trade war, and increased competition from Alibaba and Pinduoduo would push JD.com revenues way down. Better still, the results suggest that continued pressure from these forces will not stifle future growth.

For the coming year, analysts have predicted double-digit revenue growth – perhaps around 17 percent. Earnings are expected to grow even more, going 34 percent higher year over year for 2020.

These estimates take into consideration that economists expect China’s GDP growth to fall below 6 percent for the first time in many years.

If the US-Chinese trade disagreements are resolved and/or China’s economy doesn’t slow as quickly as predicted, JD.com’s revenues and earnings could go even higher. Though the investment is not without risk, these combined factors make JD.com a 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.