SE: JD.com vs. Sea Ltd: Which E-Commerce Stock is a Better Buy?

JD.com, Inc. (JD) and Sea Ltd. (SE) are two world renowned e-commerce platforms. While JD operates mainly in China, SE operates primarily in Southeast Asia. JD operates through its own website and mobile applications. SE operates through Garena, Shopee, and SeaMoney.

E-commerce has become the de facto shopping solution for many customers amid the pandemic. As the online shopping trend is not expected to change even after the pandemic, both JD and SE are expected to keep climbing.

While JD has returned 131.5% over the past three years, SE has gained 1376.5%. In terms of year-to-date performance, SE is a clear winner with 356.3% returns versus JD’s 144.9%. But which of these stocks is a better pick now? Let’s find out.

Latest Movements

JD is expected to launch three SEVEN FRESH LIFE stores in Guangzhou, China between December 18^th to 25^th. The stores began offering their online services today, providing doorstep delivery service to customers. The stores will be open 24 hours a day.

The company has cooperated with Beijing No.3 Intermediate People’s Court and rolled out its digital solutions to put in place digital court solutions to increase efficiency and facilitate visitors. Through its Consumer-to-Manufacturer (C2M) initiative, JD has launched 5G-enabled smart phones for elderly people in collaboration with several mobile phone brands. In a joint effort with ZTE, JD has also launched an adult smartwatch that can connect to its tailor-made smart phones for the elderly.

JD acquired a controlling interest in Kuayue-Express Group Co., LTD. (Kuayue Express) during the summer to provide customers with high quality service. A survey conducted by SE revealed that there is a huge growth opportunity for Malaysian sellers using the company’s Shopee platform. Some sellers even anticipate a five-fold increase in their sales from the 11.11 Big Sale. Shopee launched Shopee Premium in September to provide digital shoppers with direct access to authentic premium products.

A couple of months ago, SE entered a five-year strategic partnership with Visa Inc. (V) through which it will create unique shopping experiences for Shopee users facilitated by V’s exclusive sponsorship platforms. Moreover, the partnership will also provide Micro, Small, and Medium Enterprises (MSMEs) with marketing and campaign support to drive awareness, traffic, and sales to online stores.

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The company teamed up with Google in July to launch Google Ads with Shopee, which is a first-of-its-kind marketing solution for brands to drive sales online.

Recent Financial Results

As the Chinese economy has recovered rapidly from the deadly virus, JD’s total revenue has surged 29.2% year-over-year to $25.7 billion for the third quarter ended September 2020. The company’s net income increased 1277.4% year-over-year to $1.1 billion. For the 12 months ended September 2020, annual active customer accounts increased 32.1% year-over-year to 441.6 million. Non-GAAP diluted net income per ADS increased 64.4% year-over-year to $0.50.

SE’s top line climbed 98.7% year-over-year to $1.2 billion for the third quarter ended September 2020. Digital entertainment revenue increased nearly 73% year-over-year to $569 million. Gross profit increased 100.6% year-over-year to $407.6 million. And quarterly active users (QAUs) in the digital entertainment segment increased 78.3% year-over-year to 572.4 million.

Past and Expected Financial Performance

JD’s revenue grew at a CAGR of 27.8% over the past 3 years. The market expects the company’s revenue to increase 36.8% for the quarter ending December 2020, 36.9% this year, and 22.8% next year. JD’s EPS is expected to grow 78.6% for the quarter ending March 2021, and 43.5% next year.

SE’s revenue grew at a CAGR of 111.7% over the past 3 years. The market expects SE’s revenue to increase 108.5% for the quarter ending December 2020, 82.3% in the current year, and 43.8% next year. The company’s EPS is expected to grow 32.7% for the quarter ending March 2021, and 37.8% next year.

Profitability

JD’s trailing-12-month revenue is 28.39 times SE’s. However, SE is more profitable with a gross margin of 30.1% versus JD’s 8.2%.

JD’s ROE and ROA of 21.29% and 2.20%, respectively, compare favorably with SE’s negative values.

Valuation

In terms of forward P/E, JD is currently trading at 52.74x, which is much more expensive than SE. However, SE is more expensive in terms of trailing-12-month P/S (23.98x versus JD’s 1.26x), and its trailing-12-month EV/S of 24.90x is also higher than JD’s 1.22x.

In terms of trailing-12-month price/cash flow as well, SE’s 264.60x is higher than JD’s 24.32x.

Though SE looks much more expensive compared to JD, it’ may be worth paying this premium considering SE’s higher earnings growth potential.

POWR Ratings

Both JD and SE are rated “Strong Buy” in our proprietary POWR Ratings system. Here are how the four components of overall POWR Rating are graded for both these stocks:

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

SE holds an “A” for Trade Grade, Buy & Hold Grade, Peer Grade, and Industry Rank. It is currently ranked #6 out of 59 stocks in the Internet industry.

The Winner

Both JD and SE are good investment bets considering their market dominance and continued expansion. However, SE appears to be a better buy despite trading at a significantly higher valuation based on its higher revenue growth potential.

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SE shares were trading at $200.68 per share on Friday afternoon, up $17.15 (+9.34%). Year-to-date, SE has gained 398.96%, versus a 16.29% rise in the benchmark S&P 500 index during the same period.

About the Author: Manisha Chatterjee

Since she was young, Manisha has had a strong interest in the stock market. She majored in Economics in college and has a passion for writing, which has led to her career as a research analyst. More...