Baidu, Inc. (BIDU) and JD.com, Inc. (JD) are two of China’s most well-known tech companies. They are expanding globally at an exponential rate. BIDU operates through two segments, Baidu Core and Iqiyi, to provide search related services and online entertainment services. JD operates through JD Retail and New Businesses segments and offers its products through its website jd.com and mobile apps as well as directly to customers.
China is looking forward to a better economic year ahead with the COVID-19 pandemic essentially brought under control and economic activities regaining lost ground. But the country’s heightened friction with the United States, and the Chinese government’s increased regulations to root out monopolistic practices in its domestic internet industry, could serious threats to tech behemoths like BIDU and JD that dominate China’s burgeoning internet and e-commerce industries. Despite their record profitability and robust business models, the recent regulatory scrutiny could jolt investors’ confidence in these stocks significantly.
BIDU has gained 85.9% over the past five years, while JD returned 274.5%. In terms of their past-year performance, JD is the clear winner with 140.4% gains versus BIDU’s 136.4% returns. But which of these stocks is a better pick now? Let’s find out.
This month, BIDU deployed a multi-modal autonomous driving MaaS platform that will offer AI-driven city transportation services in China. The company believes that this diverse platform should optimize the travelling experience of users consistent with combined platform strategies.
Last December, BIDU released new intelligent vehicle solutions for automakers and several high-end intelligent driving products during the second Apollo Ecosystem Conference. BIDU also announced a partnership with ride-hailing app Shouqi to allow users to hail a Robotaxi through the app.
Meanwhile, also in December, JD announced that it had become China’s first virtual platform to accept the country’s digital yuan as payment for some products on its online mall. We believe this should help the company to better serve its customers and benefit its business.
Recent Financial Results
In the fourth quarter, ended December 31, 2020, BIDU’s revenue increased 5% year-over-year to RMB30,263 million. Its operating income grew 4% from its year-ago value to RMB4,977 million. However, its non-GAAP net income decreased 25% year-over-year to RMB6,868 million, while its EPS declined 24% from the year-ago value to RMB20.08. The company’s adjusted EBITDA under its core segment declined 4% from the prior-year quarter to RMB9,422 million.
JD’s revenue has increased 29.2% year-over-year $25.70 billion for the third quarter ended September 30, 2020. The company’s new business segment generated an operating loss of $101.31 million. Its non-GAAP net income grew 80.1% year-over-year to $0.80 billion, while its EPS grew 64.4% over this period.
Past and Expected Financial Performance
BIDU’s revenue and EBITDA grew at a CAGR of 7.3% and 4.5%, respectively, over the past three years. Also, the CAGR of the company’s total assets has been 9.7% over the same period.
Analysts expect the company’s revenue to increase 30.5% in the current quarter, and 18.4% in the current year. BIDU’s EPS is expected to grow 31.7% in the current quarter, and 5.2% in the current year. Moreover, its EPS is expected to grow at a rate of 2.6% per annum over the next five years.
In comparison, JD’s revenue and EBITDA grew at a CAGR of 27.8% and 61%, respectively, over the past three years. The CAGR of the company’s total assets has been 27.5% over the same period.
Analysts expect JD’s revenue to increase 38.2% in the current quarter and 23.3% in the current year. The company’s EPS is expected to grow 78.6% in the current quarter and 37.8% in the current year. Moreover, JD’s EPS is expected to grow at a rate of 6% per annum over the next five years.
JD’s trailing-12-month revenue is more than six times BIDU’s. But BIDU is more profitable, with a gross profit margin of 48.5% versus JD’s 8.2%.
However, BIDU’s net income margin of 21% compares favorably with JD’s 4.2%.
In terms of trailing-12-month ev/sales, BIDU is currently trading at 5.66x, 313.1% higher than JD’s 1.37x. Also, in terms of trailing-12-month price/cash flow, the company is currently trading at 27.07x, 2.9% higher than JD’s 26.32x.
Both BIDU and JD have an overall rating of C, which equates to a Neutral in our proprietary POWR Ratings system. The POWR Ratings are calculated by considering 118 different factors with each factor weighted to an optimal degree.
BIDU has a Momentum Grade of B, which is consistent with its price returns over the past five years. In comparison, JD has a Momentum Grade of A.
In terms of Value Grade, BIDU has a C and JD has a D, given their higher-than-industry p/e ratio.
Both BIDU and JD have a Quality Grade of C, which is consistent with their lower-than-industry free cash flow margins.
Of 52 stocks in the C-rated China group, BIDU is ranked #14 while JD is ranked #32.
Our POWR Ratings system has also rated both BIDU and JD for Sentiment, Stability, and Growth. Get all BIDU’s ratings here. Click here to see the additional POWR Ratings for JD.
The POWR Ratings are calculated by considering 118 different factors with each factor weighted to an optimal degree.
While both BIDU and JD can be considered good long-term investments due to their global market dominance and the huge potential of the Chinese tech industry, this is perhaps not the right time to get involved in either of these two stocks.
Our research shows that the odds of success increase if one bets on stocks with an Overall POWR Rating of Buy or Strong Buy. Click here if you want to know about the top-rated stocks in the China group.
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JD shares were trading at $93.64 per share on Friday afternoon, up $0.28 (+0.30%). Year-to-date, JD has gained 6.53%, versus a 2.85% rise in the benchmark S&P 500 index during the same period.
About the Author: Imon Ghosh
Imon is an investment analyst and journalist with an enthusiasm for financial research and writing. She began her career at Kantar IMRB, a leading market research and consumer consulting organization. More...
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