The pandemic has acted as a tailwind for the e-commerce industry, which witnessed record growth in revenues over the past quarters. With people being confined to their homes, online delivery of electronic items, fast-moving consumer goods and other luxury items increased, bolstering the sales of Amazon.com, Inc. (AMZN) and JD.com,Inc. (JD). In fact, AMZN’s impressive growth rate caused CEO Jeff Bezos’ wealth to hit $200 billion earlier this year, making him the first person to cross the threshold.

While AMZN significantly benefited from the rising global e-commerce demand, JD.com, the second largest e-commerce retailer operating in China, gained from the quick rebound of the economy. China’s GDP grew 3.2% and 4.9% year-over-year in the second and third quarters of 2020, respectively, reflecting reviving consumer demand. Also, China is the biggest e-commerce market in the world, with annual sales of $672 billion each year, and an annual growth rate of 35%.

Both companies have generated significant returns over the past five years. While AMZN gained 402.2% over this period, JD returned 211.4%. In terms of year-to-date performance, JD is the clear winner with 162.5% gains versus AMZN’s 79.2% returns.

But which stock is a better buy now? Let’s find out.

Latest Movements

AMZN recently opened fulfillment centers in Missouri, North Dakota, Nebraska, Texas, and Kansas, consolidating its supply chain in the United States. This move is expected to improve AMZN’s reach to the remote parts of the country, accounting for higher demand and thereby revenues.

In light of the rising demand for cloud services, AMZN announced the construction of a second infrastructure region in India, catering to the Asia Pacific region. Estimated to be operational by 2022, this should boost the Amazon Web services (AWS) operations across the Asian subcontinent, as cloud services are gaining traction under the remote working culture. Construction of a data center for AWS is underway in Switzerland as well, which is expected to operate in the European areas from 2022.

On October 29th, AWS announced the general availability of Nitro Enclaves, allowing users to securely process highly sensitive data. Its high encryption and security measures are likely to appeal to a wider demographic, thereby boosting AMZN’s revenues from its cloud computing segment.

AMZN’s hefty discounts and affordable pricing regime paved the way for $3.50 billion in sales globally during the Amazon Prime Day sale, up 60% year-over-year.

JD, on the other hand, solely focused on expanding its e-commerce reach in China over the past few months to bolster its growth. To that end, the company acquired Kuayue Express, a transportation and logistics company operating in China, for RMB 3 billion. This gives JD access to limited-time express service in China, allowing the company to improve its overall supply chain efficiency, cutting down costs in the long run, as well as enhancing customer experience.

Earlier in June, JD raised approximately HK$30.06 billion through a global public offering of 133 million shares.

Recent Financial Results

AMZN’s net sales increased 37% year-over-year to $96.10 billion in the third quarter ended September 2020. Net income grew 200% from the year-ago value to $6.30 billion, while EPS rose 192.4% from the same period last year to $12.37.

JD’s net revenues grew 33.8% year-over-year to RMB 201.10 billion in the second quarter ended June 2020. This can be attributed to 45.4% and 36.4% improvement in general merchandise sales and net service revenues, respectively. Net income grew 2,633.3% from the prior-year quarter to RMB 16.40 billion. EPS increased 355.2% from the year-ago value to RMB10.47.

Past and Expected Financial Performance

AMZN’s revenue and EBITDA increased at a CAGR of 29.3% and 50.1% respectively, over the past three years. On the other hand, JD’s revenue and EBITDA rose at a CAGR of 28.1% and 63.8% respectively, over the same time period. AMZN’s total assets increased at a CAGR of 34.8% over the past three years, while JD’s total assets rose at a CAGR of 25% over this period.

Analysts expect AMZN’s EPS to increase 9.4% in the current quarter ending December 2020, 51.5% in the current year, 30.1% next year, and at a rate of 36.4% per annum over the next five years. Consensus revenue estimates indicate 36.6% growth in the current quarter, 35.4% in the current year, and 18.2% next year.

JD’s EPS is expected to increase 225% in the next quarter ending December 2020, 51.5% in the current year, 45.5% next year, and at a rate of 6.3% per annum over the next five years. Analysts estimate revenues to grow 34.2% in the next quarter, 34.6% in the current year, and 21.7% next year.

Thus, JD has an edge over AMZN here.

Profitability

AMZN’s trailing 12-month revenue is 3.77 times what JD generates. AMZN is also more profitable with a gross margin of 40.2% versus JD’s 8.2%.

AMZN’s ROE and ROA of 25% and 5.2% compare favorably with JD’s 17.7% and 1.9%, respectively.

Thus, AMZN is a more profitable stock.

Valuation

In terms of forward non- GAAP P/E, AMZN is currently trading at 96.23x, 55.6% more expensive than JD, which is currently trading at 61.83x. In terms of trailing 12-month PEG, AMZN’s 1.88x is 889.5% more expensive than JD’s 0.19x.

AMZN is also more expensive in terms of trailing 12-month price/sales (4.75x versus 1.47x).

Thus, JD is a more affordable stock here.

POWR Ratings

While JD is rated “Strong Buy” in our proprietary POWR Ratings system, AMZN is rated “Buy”. Here’s how the four components of overall POWR Rating are graded for both these stocks:

AMZN has an “A’ for industry Rank, and “B” for Trade Grade, Buy & Hold Grade, and Peer Grade. It is currently ranked #4 out of 58 stocks in the Internet industry.

JD has an “A” for Trade Grade, Buy & Hold Grade, Peer Grade, and Industry Rank. It is currently ranked #2 out of 115 stocks in the China group.

The Winner

While the e-commerce sector is well poised to grow in the upcoming months with the “second wave” of COVID-19 approaching in the absence of a definitive vaccine, several political developments might hinder AMZN fast-paced growth. However, the Chinese e-commerce giant should keep benefitting from both pandemic and economic growth.

JD is also poised to benefit from the halt in Ant IPO, as it is the biggest rival of Ant’s parent company Alibaba Holding Group (BABA). JD’s financial arm JD Digits is expected to make its market debut on Shanghai STAR listing in the upcoming months, scheduled at a similar time frame as Ant IPO. As investors remain bullish about the future growth potential of financial services companies despite government restrictions, people are likely to shift to JD Digits from Ant. This, combined with its higher earnings and revenue growth potential at a cheaper valuation makes JD a better buy. 

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AMZN shares rose $8.00 (+0.25%) in after-hours trading Monday. Year-to-date, AMZN has gained 70.13%, versus a 11.74% rise in the benchmark S&P 500 index during the same period.

About the Author: Aditi Ganguly

Aditi is an experienced content developer and financial writer who is passionate about helping investors understand the do’s and don'ts of investing. She has a keen interest in the stock market and has a fundamental approach when analyzing equities. More...

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