HONG KONG (Reuters Breakingviews) - JD.com’s good year might get better. Shares of the $149 billion Chinese e-commerce company are rising, even as draft antitrust rules have caused those of its larger, aggressive rival Alibaba to fall. JD’s adjusted quarterly earnings highlight how boss Richard Liu’s inventory model has shone through the pandemic, and why it might now be in line for a longer-term boost as Beijing moves to rein in technology giants.
JD has long been in the shadow of the $700 billion company founded by Jack Ma. While investors have spent years fawning over Alibaba’s asset-lighter business, Liu has struggled to justify his company’s heavy spending and lower profitability as he built out an Amazon-like structure.
Patience has paid off. JD has navigated this year’s pandemic disruptions faster than Alibaba: Results announced on Monday showed net revenue for the quarter ending September rose 29% year-on-year and non-GAAP operating margin hit 3%, continuing an upward trend. After more than doubling since the start of the year, the company’s New York-listed shares slumped some 7% following the results. Even so, JD now trades at about 39 times forward earnings, compared to Alibaba’s 22 times.
Bigger gains may yet come as competition watchdogs increase scrutiny over the sector. Draft rules published last week target practices like restricting businesses from selling on rival platforms. Alibaba not only had about 315 million more annual active customers than JD in the 12 months ended September, but has also been a frequent target of such complaints from merchants. Investors are betting that smaller rivals will benefit: Shares of Alibaba have slid some 11% since Nov. 9, whereas shares of JD are now flat and smaller peer Pinduoduo are up.
After the shock halt earlier this month to the initial public offering of Alibaba’s payments affiliate, Ant, it is easy to wonder if officials are singling out companies built by founder Jack Ma, who has been openly critical of regulations. China’s final e-commerce rules will confirm if smaller really is better or if the pain will be more evenly spread. For now, it’s a good time for JD to be “the other” Alibaba.
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