Alibaba and JD.com, Chinese E-Commerce Showdown
Recently, investors in Chinese companies have a rough time due to the trade war. Aside from that, it also took its toll on the country's full growth. And the Chinese yuan broker down significantly against the U.S. dollar. As a result, every dollar that a Chinese firm earns, it has a lesser worth in dollars to U.S. investors.
But the current depressing situation might actually give long-term investors an opportunity. The massive slowdown in China passed through the country's industrial and manufacturing sectors, which contracted for the past three months.
However, the economy of China does not only revolve around its manufacturing sector. And similar to the U.S. economy, the country is also moving more due to consumer spending. And looking at the recent results from leading e-commerce platforms Alibaba and JD.com, they did not show any sign of a downturn. Also, they both announced a robust growth surpassing analysts expectations. So let's compare the two firms for people who plan to invest.
E-commerce Platforms with Different Business Models
Alibaba and JD.com are both e-commerce platforms that are little different when it comes to their business models. Alibaba is more of a pure platform. It makes money from commission fees and advertising. And the capital-intensive parts of e-commerce such as inventory management and shipping of the firm is handled by its merchants.
On the other hand, JD.com grasp the hard work of selling first-party goods as its initial business model. The firm established its own huge warehouse footprint across China. And also, it took ownership of physical goods itself. But even though it is less profitable than Alibaba's model, JD can control better the quality of the customer experience. And for well-off consumers, it initially focused on high-value goods such as appliances and electronics.
Now, the two e-commerce giants are developing. Alibaba is planning to use its massive profits and investing to turn into an integrated online-and-offline retailer. Alibaba manages to build its large Hema Supermarkets, bought out food delivery and platform Ele.me. And it also took a controlling stake in logistics and delivery platform Cainiao. Alibaba is more of a diversified conglomerate. It is a Chinese leader in cloud computing and has a big role in entertainment
through its Alibaba Pictures and streaming service Youkou Tudou. But these latest businesses have much lower margin compared to their core platforms. And most of them even lose money. On the other hand, JD.com mostly paid attention to its e-commerce platform and its logistics business. It ceded its cloud and entertainment business to Tencent, a significant minority investor, and partner of JD. Nonetheless, it still adopted new businesses like third-party sales from other merchants that use the firm's massive warehouse and logistics footprint. Also, increased digital advertising on its platform.
Which is Better?
When it comes to the overall growth, no doubt Alibaba is superior to JD. From its high-growth cloud computing and first-party sales to its core legacy businesses in Tmall and Taobao sites are growing much quicker than JD.com.
However, JD.com, on the other hand, is starting to leverage its investments and expand its margins. In the recent quarter, the firm's adjusted operating income boosted. Its adjusted gross margin flew to 14.7%, and its adjusted operating income was up by 2.1%.
Now, choosing between the two e-commerce giant is not easy. But if an investor is more of a risk-off mentality, then it's better to stick with Alibaba. And this was because it has a higher profit margin and more diverse business. Nevertheless, JD.com might have more upside because it is just starting to scratch the surface of profit growth. And for investors who look for more upside, JD.com may be the one for you.
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