Fashion
Two Chinese behemoths in online retailing that have battled at home may now take their rivalry to the U.S.—and challenge Amazon. Alibaba Group Holding has reportedly held talks with grocer Kroger (KR) to form a U.S. partnership to better compete with Amazon.com (AMZN).
Alibaba’s competitor, JD.Com (JD), is also looking to plant a flag here. Richard Liu, JD’s chief executive, has said he plans to expand his e-commerce platform to the U.S. later this year, with a distribution presence starting in Los Angeles. He could partner with Walmart (WMT), a major JD shareholder and retail partner in China.
To call Alibaba and JD the Amazons of China is an understatement. China mostly skipped the big-box store era that dominated U.S. retail before e-commerce took off, which means few powerful players stand in the way of Alibaba and JD. The two battle each other—sometimes bitterly.
Late last year, after about 100 domestic clothing brands left JD ahead of the Nov. 11, 2017, Singles Day shopping rush, the company blamed “coercive tactics from our competition, which if proven true would be illegal.” Alibaba denied any wrongdoing.
JD management recently told analysts that a few of the companies had come back, and that others said they didn’t receive enough traffic from Alibaba during Singles Day to make up for lost JD business. JD posts fourth-quarter results on Friday.
Last fall, Barron’s said investors should prefer JD shares. Since then, JD has gained 23%, versus 6% for Alibaba and 8% for the Standard & Poor’s 500 index.
The two companies differ in significant ways. Alibaba is larger and more prosperous. JD’s profits are held down by its spending to build its own end-to-end logistics network. That’s an important competitive advantage; JD does better in high-trust items like baby products and scores higher on customer-satisfaction surveys.
One concern for JD is that it will stretch too far, too fast. It is expanding in Southeast Asia. It is building a distribution network in France, and says it wants to make a European push as soon as next year. JD recently opened a brick-and-mortar store in Beijing selling high-end food. For financing, the company last year created a subsidiary called JD Logistics, in which it’s sold an 18.6% stake.
Profits are slim today. Looking out to 2020, estimates for JD earnings range from $1 to $2.30 a share. That’s adjusted for “extraordinary items,” which, for a company in such fast motion, can become all too ordinary.
Assume the high end of earnings forecasts, factor in remaining growth, and consider low interest rates, then squint and perhaps have a belt of whiskey, and the $47 share price might look reasonable, maybe even cheap. It’s becoming difficult to tell.
But one thing we liked about JD is that its stock gain lagged behind Alibaba’s last year for no good reason.
It has since caught up. Time to sell.
