Which Chinese eCommerce Stock Is A Better Bet For Your Portfolio?
- JD.com to report Q1 2020 Financial Results on May 15
- JD.com is expanding its cloud and AI presence
- What does JD.com’s Upcoming IPO Mean For U.S. Investors?
If you are a fan of the Chinese e-commerce industry. You will almost certainly be familiar with the two giants of Chinese e-commerce: Alibaba (BABA Stock Report) and JD.com (JD Stock Report). Comparing Alibaba to JD is like comparing Amazon to eBay.
As the coronavirus ravages the U.S. economy, investors may want to look across the Pacific for new investments. The Chinese tech stocks have rallied over the past several weeks. Despite the resurgence of U.S.- China political tensions, analysts believe that these two tech stocks may push higher. Both companies tap into the local consumer culture on an epic scale, placing them among the largest tech stocks in the world. Among the two tech giants, here are a few reasons why JD stock may be one the best stocks to buy this week.
JD Stock Price Run Up In Anticipation Of Strong First Quarter Results
JD stock price has been up more than 50% for the past 6 months. Just last week, the stock price was up more than 10%, from $42.25 to $46.78. This came as the e-commerce giant has been increasingly partnering with various manufacturers to facilitate product development and marketing. The trend propelled the emerging e-commerce models such as consumer-to-manufacturer (C2M), resulting in highly competitive pricing. For instance, JD.com is partnering with LG to sell RMB 5 billion worth of goods, one of the latest examples of the C2M initiative.
JD.com is also working with SAIC Volkswagen to provide a vehicle-mounted smart system that enables users to control their home appliances while inside their cars. The smart home system, which is powered by JD Whale, the company’s IoT platform, will be available to certain Volkswagen models this year.
The large retailer introduced its mini program open platform last month. JD is relatively late to the game in its adoption of mini programs. But that is not necessarily a bad thing to JD.com, thanks to the company’s strategic partnership with Tencent. The mini programs can be adapted for the WeChat platform, allowing retailers to shop without leaving the most famous app in China.
For investors that are not familiar with the importance of mini programs, I don’t blame you. After all, this is only huge in China, why should I pay attention to it you ask? Well, the reason is simpler than you think. These mini programs are essentially additional channels for users to make purchases. Many believe the potential sales generated from these mini programs could be huge.
Cloud and AI Business To Lift JD Stock
China’s largest direct retailer and second-largest e-commerce platform recently partnered with Cloudflare (NET Stock Report) to strengthen its cloud and AI business. Cloudflare has been in the Chinese market for five years and is currently operating in over 200 cities worldwide. The most notable partnership in China is its data centers partnership with Baidu (BIDU Stock Report).
JD integrates new AI, analytics and cloud computing services into its e-commerce and logistics platforms. While this will definitely bring the company to greater heights, it will take time to materialize. For example, JD’s deal with Cloudflare will bear fruit after the new data centers come online. Once ready, Cloudlfare will pay JD to use the infrastructure, which will generate a fresh stream of recurring revenues for the cloud and AI unit in JD.
JD.com’s Upcoming Hong Kong IPO Implications To U.S. Investors
I totally understand your concerns of the upcoming Hong Kong IPO. I have heard questions like “will this heavily dilute my current holdings” or “will it affect the U.S. investors in any sort”. The answer to both is a big NO. This is only in our discussion because Chinese companies want to diversify their shareholder base. This also helps mitigate risks in case the trade and tech war between the two largest economies evolves into a new Cold War, which would certainly affect the flow of capital.
When investors bought American Depository Receipts in JD Stock, they actually bought equivalent stakes in these holding companies. However, U.S. investors don’t have any direct voting rights in JD. But that’s not a major concern as the founder and CEO Richard Liu, who owns about 15% of the company, controls nearly 80% of voting rights via the dual-class share structure.
What’s next?
The strategic shift for JD to focus more on cloud and AI business segments is crucial in the company’s next phase of growth. The ongoing partnerships with various manufacturers to diversify the company’s income stream is also another plus point, signaling its abilities to weather any external shocks. JD stock remains a long-term buy.
