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Alibaba vs. JD.com: Which Chinese Stock Will Better Withstand the Retail Headwinds?
Stock Analysis & Ideas

Alibaba vs. JD.com: Which Chinese Stock Will Better Withstand the Retail Headwinds?

The Chinese economy is battling multiple headwinds this year, including the COVID-19 pandemic and a drop in retail sales, due to a fall in consumer demand. This has resulted in analysts revising the Gross Domestic Product (GDP) forecast for the country for 2022.

Amid these macroeconomic headwinds and regulatory pressure, it remains to be seen how Chinese e-commerce companies will perform this year.

Using the TipRanks stock comparison tool, we will compare two Chinese retail giants, Alibaba and JD.com, and see whether we can gauge their performance for the December quarter, using the Website Traffic tool on TipRanks. We will also look at what Wall Street analysts are saying about these stocks.

Alibaba (NYSE: BABA)

Alibaba, the Chinese retail giant, had a turbulent 2021 as the company came under increasing regulatory scrutiny. This was reflected in the BABA stock price, as shares have tanked 41.6% in the past year.

In addition to the company’s regulatory woes, China’s retail sales are slowing down. According to a CNBC report, citing data from China’s National Bureau of Statistics, retail sales in December grew year-over-year only by 1.7%, while analysts were expecting growth of 3.7% year-over-year.

The NBC report quoted China’s National Bureau of Statistics, which commented, “We must be aware that the external environment is more complicated and uncertain, and the domestic economy is under the triple pressure of demand contraction, supply shock and weakening expectations.”

The deteriorating macro-economic environment in China also prompted J.P. Morgan analyst Alex Yao to cut his estimate for BABA’s customer management revenues (CMR). He now expects them to decelerate by 2% year-over-year for the December quarter, instead of his earlier estimate of an increase in CMR of 5% year-over-year.

Indeed, in fiscal Q2, CMR revenues made up 36% of BABA’s total revenues in fiscal Q2 and grew only 3% year-over-year. The proportion of CMR as a part of total revenues for BABA also decelerated from 45% in the September quarter of 2020 to 36% in the September quarter of 2021.

But will this deceleration in CMR continue? Yao thinks that it will most likely reverse by the end of the June quarter this year.

The analyst remains more cautious about Alibaba’s future earnings outlook, as he believes that the company’s future strategic investments will take place over multiple years and it will face rising competition.

When it comes to the Chinese ecommerce market, Yao thinks that Alibaba’s growth in this market will be dependent on the “success in lowly penetrated categories (e.g. home furnishing, pharmaceutical, grocery, etc.) and competition for consumer wallet share, both of which require extensive investments.”

As a result, the analyst anticipates an earnings cut in the upcoming quarter, given the weak growth in retail sales. Moreover, he anticipates that the stock will continue to be under pressure over the short term.

While Yao continued to be upbeat about the stock with a Buy rating, he lowered the price target from $210 to $180 (39.9% upside) on the stock.

Overall, the rest of the analysts on the Street, are also bullish about Alibaba, with a Strong Buy consensus rating based on 21 Buys and 3 Holds. The average BABA stock prediction of $193.89 implies upside potential of approximately 50.7% to current levels for this stock and Alibaba continues to be one of the best Chinese stocks on TipRanks.

The Street’s bullish outlook on the stock is also supported by the Website traffic data tool available on TipRanks. This tool indicates that in the month of December alone, Alibaba’s unique visitors across all its domains were up 1.4% year-over-year to 214.7 million. In calendar Q4, Alibaba’s unique visitors across all its domains have increased year-over-year by 1.6% to 675.2 million.

JD.com (NASDAQ: JD)

Shares of Chinese retailer JD.com, which had seen a pullback in the past year with a drop of 19.5%, have seen a recovery in the past month, as shares have risen 7.6% in the past month.

J.P. Morgan analyst Andre Chang believes that the stock’s recovery has been aided by easing investor concerns regarding the disposal of Tencent Holdings’s (TCEHY) stake in the company.

In December last year, JD.com announced that Tencent Holdings will reduce its shareholding in the company from an earlier 17% to 2.3%, after disposing of 460 million shares valued at around $16.4 billion, as dividends to Tencent shareholders.

But analyst Chang still thinks that the stock will continue to remain under pressure for the next three to six months as some of Tencent’s shareholders could sell their JD shares after they receive it in March. In addition, a slowdown in consumption could act as a headwind.

Pressure on the stock price aside, JD.com remains one of Chang’s top sector picks for a number of reasons. The analyst is of the opinion that there is still room for JD to gain market share in various retail categories, including electronics, fast-moving consumer goods (FMCG), and apparel.

What’s more, the analyst thinks that the company’s focus on selling its merchandise through its own website (1P) and fulfillment efficiency “offers differentiation against major competitors.”

Furthermore, Chang believes that the company is past its investment peak, and as a result, going forward, any incremental investments will not drag down its margins.

As a result, the analyst thinks that “JD may consistently give investors 20%+ EPS growth on mid to high teens revenue growth p.a. [per annum] in the coming years.”

Chang remains upbeat about the stock with a Buy rating and a price target of $100 (36.2% upside) on the stock.

Other analysts on the Street are also bullish about JD.com, with a Strong Buy consensus rating based on 14 Buys and 1 Hold. The average JD.com stock prediction of $107.73 implies upside potential of approximately 46.7% to current levels for this stock.

This bullish outlook on the stock aside, the Website traffic data tool available on TipRanks seems to suggest otherwise. This tool indicates that in calendar Q4, JD.com’s unique visitors across all its domains have decelerated year-over-year by 15.1% to 15 million.

Bottom Line

While analysts are bullish about both stocks, based on the upside potential over the next 12 months, BABA seems to be a better Buy.

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