Shopify, Inc. (SHOP) and JD.com, Inc. (JD) are two emerging e-commerce and retail infrastructure service providers. SHOP provides merchants with a single view of business and customers in various sales channels, including mobile storefronts, physical retail locations, and social media storefronts. JD operates in two segments, JD Retail and New Businesses, in the People’s Republic of China.
E-commerce stocks have hit unprecedented heights this year, largely due to the widespread adoption of virtual shopping and contactless transactions amid the pandemic as traditional brick-and-mortar stores were forced to close. Both stocks have generated solid returns over the past year. While SHOP returned 193.4% over this period, JD gained 179.1%. In terms of one-month performance, SHOP is the clear winner with 6.7% gains, versus JD’s 4.9% returns.
But which of these stocks is a better pick now? Let’s find out.
On December 1, Ottawa-based SHOP announced record breaking Black Friday/Cyber Monday sales results of more than $5.1 billion derived from more than one million Shopify-powered brands around the world. This demonstrates the company’s strong independent and direct-to-consumer business platform.
Earlier this year, the company announced completion of the sale of additional shares with proceeds of $1.14 billion. This capital infusion should allow the company to grow substantially in the coming months.
On December 5, JD announced that it has become China’s first virtual platform to accept the country’s digital yuan as payment for some products on its online mall. We think this should be beneficial to the company’s position and help it to serve its customers better.
Recent Financial Results
In the third quarter ended September 30, 2020, SHOP’s revenue surged 96% year-over-year to $767.40 million, driven primarily by the growth of gross merchandise volume. The company’s gross profit rose 87% from the year-ago value to $405.10 million, while its EPS grew 348.4% year-over-year to $1.59.
SHOP’s merchant solutions revenue has increased 132% year-over-year to $522.10 million, while monthly recurring revenue grew 47% over this period. The company’s subscription solutions revenue has risen 48% from the prior-year quarter to $245.30 million, primarily due to more merchants joining the platform
JD’s revenue has increased 29.2% year-over-year $25.70 billion for the third quarter ended September 30, 2020. The company’s revenue from the sale of general merchandise products rose 34.8%, while service revenue increased 42.7%. 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
SHOP’s revenue and total assets have grown at a CAGR of 61.7% and 89.2%, respectively, over the past three years. The company’s tangible book value has grown at a CAGR of 81.9% over this period.
Analysts expect the company’s revenue to increase 79.4% in the current quarter, 80.7% in the current year, and 32.5% next year. SHOP’s EPS is expected to grow 195.3% in the current quarter and 1123.3% in the current year.
In comparison, JD’s revenue and total assets have grown at a CAGR of 27.8% and 27.5%, respectively, over the past three years. The CAGR of the company’s tangible book value has been 57.6%.
Analysts expect the company’s revenue to increase 37.5% in the current quarter, 37.6% in the current year and 22.9% next year. JD’s EPS is expected to increase 200% in the current quarter, and 59.2% in the current year.
JD’s trailing-12-month revenue is more than 41 times SHOP’s . But SHOP is the more profitable with a gross profit margin of 53% versus JD’s 8.2%.
However, JD’s ROE and ROA of 21.3% and 2.2%, respectively, compare favorably with SHOP’s 4.4% and 0.02%.Valuation
In terms of trailing-12-month P/E, SHOP is currently trading at 415.36x, which is much more expensive than JD, which is currently trading at 61.77x. Moreover, in terms of trailing-12-month Price/Sales SHOP’s 55.87x is much higher than JD’s 1.31x.
Thus, JD is the more affordable stock here.
SHOP is rated “Buy” in our proprietary POWR Ratings system, while JD is rated “Strong Buy”. Here are how the four components of overall POWR Rating are graded for SHOP and JD:
SHOP has an “A” for Trade Grade, a “B” for Buy & Hold Grade and Peer Grade, and a “C” for Industry Rank. In the 37-stock Internet – Services industry, it is ranked #11.
JD has an “A” for Trade Grade, Buy & Hold Grade and Peer Grade, and a “B” for Industry Rank. It is ranked #2 out of 115 stocks in the China industry.
Both SHOP and JD are good investment bets considering their market dominance and continued expansion. However, JD appears to be a better buy because it is a cheaper and more profitable investment option.
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JD shares were trading at $87.52 per share on Thursday morning, down $2.00 (-2.23%). Year-to-date, JD has gained 148.42%, versus a 17.60% 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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