Shares of JD.com (NASDAQ: JD) have been on a tear in 2020 as China's No. 1 direct online seller is up 42% year to date. As a Chinese company, JD escaped the sell-off that racked the U.S. stock market in March, and its gains have accelerated in recent weeks as the region's economy appears to be getting back on its feet and after the company turned in a strong first-quarter earnings report in spite of the pandemic.
JD is often compared to Amazon (NASDAQ: AMZN) and thought of as the Amazon of China. While there's no perfect analog for the two companies, and Amazon is unique in a number of ways, JD does have a number of things in common with the American e-commerce giant. JD is not only the No. 1 direct online seller in China but also operates its own logistics and delivery network that carries packages for other sellers as well. The company has branched out into areas like healthcare and operates as both a direct seller and as a marketplace operator.
The company is significantly smaller than Amazon with 2019 revenue of $83.5 billion compared to $280.5 billion for Amazon, and its market cap is just 6% of Amazon's at $73 billion. Though Amazon is worth more than 16 times what JD is, the Chinese e-commerce operator is well ahead of Amazon in some key areas.
Image source: JD.com
1. JD is China's leading supermarket operator
JD sells groceries both online and offline in China and is now the leading supermarket business in the country. It operates the 7Fresh supermarket chain, which it launched in 2017, and plans to open 1,000 locations by 2023. It also owns a 12% stake in Yonghui, one of China's leading supermarket chains, and has a strategic partnership with Walmart, which has 438 stores in the country.
On its first-quarter earnings call, JD said that its omnichannel supermarket group -- meaning both online and offline -- reached more than $16 billion in revenue last year, making it 20% larger than the biggest brick-and-mortar supermarket chain in the country. JD has grown most of its supermarket division organically, and the segment saw 47% revenue growth in the first quarter.
Amazon, by contrast, has struggled to build a supermarket business, acquiring Whole Foods in 2017 after a decade of slow growth at Amazon Fresh. Even with Whole Foods, Amazon still has a fraction of grocery sales that category leaders in the U.S. like Walmart and Kroger do.
2. JD has China's largest pharmacy
Just as it saw strong growth in groceries during the pandemic-ridden first quarter, JD Health also saw a boom with sales growing 65%, topping revenue at China's largest online pharmacy, and active customers grew by triple digits in the quarter.
JD Health launched apps for Android and iOS in March, offering pharmaceutical and healthcare products and services, as well as medical consultations. Its free online consultation service has handled 11 million requests as of April 30.
CFO Sidney Huang said on the call that the company's growth in areas like general merchandise, groceries, and pharmacy are helping it transition to an "everything store" as Amazon has been dubbed, rather than just a seller of big-ticket items like electronics and home appliances, which are more commonly purchased online in China.
Like groceries, Amazon has long had aspirations in healthcare, acquiring online pharmacy Pillpack in 2018, launching the Amazon Care healthcare pilot last year, and forming a joint venture, Haven, with JPMorgan Chase and Berkshire Hathaway. However, all of those ideas seem to still be in their infancy. While the opportunity in healthcare is there for Amazon, it has not yet captured a significant share of the market.
3. JD has more fulfillment capacity
JD and Amazon are both known for their logistics prowess, but JD has significantly more warehouses than Amazon, with 730 compared to Amazon's 175. Amazon's are bigger, but JD still has more total square footage with 183 million square feet against Amazon's 150 million square feet.
Since JD's total sales are still far behind Amazon's, that would seem to indicate that JD has plenty of capacity to ramp up sales just with its current warehouse footprint. Additionally, both JD and Amazon are leaders in warehouse automation and are experimenting with drone delivery and other futuristic techniques.
While there are a lot of good reasons to own Amazon stock, at a $1.2 trillion valuation, its fastest growth days are behind it. JD, meanwhile, is excelling in areas that have confounded Amazon, and success in retail segments with huge addressable markets like pharmacy and grocery could enable JD to one day catch up to the e-commerce leader.
On top of that, among tech stocks, JD stock has a reasonable valuation at about 35 times forward earnings estimates. If the company can continue to execute in areas like grocery and health, the stock could have a long way to run from here.
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John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Jeremy Bowman owns shares of Amazon and JD.com. The Motley Fool owns shares of and recommends Amazon, Berkshire Hathaway (B shares), and JD.com and recommends the following options: long January 2021 $200 calls on Berkshire Hathaway (B shares), short January 2021 $200 puts on Berkshire Hathaway (B shares), short June 2020 $205 calls on Berkshire Hathaway (B shares), short January 2022 $1940 calls on Amazon, and long January 2022 $1920 calls on Amazon. The Motley Fool has a disclosure policy.
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