Forget Alibaba（BABA)! These 3 Chinese technology stocks are more worth buying
Hello everyone, Alibaba is China's largest e-commerce and cloud company. From January to late May, Alibaba's market value has shrunk by nearly 10%, lagging behind many peers. Antitrust investigations in China, stricter auditing standards in the United States, and funding from growth stocks to value stocks have all dragged down Alibaba's stock price.
Alibaba’s stock is trading at an expected price-to-earnings ratio of 18 times, which may seem cheap, but analysts still expect Alibaba’s earnings to fall by 3% this year because it has absorbed a record US$2.75 billion in antitrust fines. It also needs to stop exclusive deals with big brands, which may weaken the company's defenses against smaller e-commerce markets.
But this is not all. Alibaba may be forced to divest media assets and share user data with the government, and the group's financial technology subsidiary Ant Group, as a financial holding company, will be subject to stricter supervision. Alibaba may be able to withstand all these headwinds and recover for a long time, but the company's stock may still be dead money in the foreseeable future.
Investors should not bet that Alibaba may make a comeback, but should consider buying Chinese technology stocks that are not under supervision. These three e-commerce companies meet the requirements: JD.com, Pinduoduo, and Baozun.
1. JD.com(JD)
JD is the second largest e-commerce company in China after Alibaba. However, it is actually the largest direct retailer in the country because most of its revenue comes from the company's first-party market.
Unlike Alibaba, most of Alibaba's e-commerce revenue comes from third-party sellers on Taobao and Tmall. Jingdong is responsible for inventory and fulfills orders through its own logistics network. This business model is more capital intensive, but it can protect buyers from counterfeit products.
Alibaba co-founder Jack Ma once said that JD.com’s low-profit business model will end in "tragedy", but economies of scale gradually come into play to enable JD.com to generate sustained profits. JD’s logistics department also balances costs by providing services to third-party customers.
In 2020, JD’s revenue and adjusted profit increased by 29% and 57%, respectively. The company has nearly 500 million active consumers in the first quarter of this year, and analysts expect JD.com's revenue and profit to grow by 26% and 13% respectively this year.
JD.com is not facing regulatory heat like Alibaba. Its profit margin is expanding. The expected price-to-earnings ratio is only 28 times and the market-to-sales ratio is less than 1 time.
2. Pinduoduo(PDD)
Pinduoduo is the third-largest e-commerce company in China, but in terms of total shoppers, it is actually bigger than JD.com, with 628 million active buyers every year. Like Alibaba, Pinduoduo generates most of its revenue through third-party merchant listing fees and advertising.
Pinduoduo has opened up a niche market in the discount market, encouraging shoppers to form groups to enjoy group discounts. This strategy relies heavily on users to share links on social networks and is popular in low-end cities in China.
Pinduoduo subsequently expanded to China's top cities and cooperated with big brands to challenge Alibaba and JD.com. It has also gained a first-mover advantage in online agriculture by helping 12 million farmers ship products directly to customers.
Pinduoduo's revenue surged 97% in 2020 and then increased by 239% in the first quarter of 2021. Analysts predict that the company's full-year revenue will grow by 92%. For a stock that trades at 8 times this year's market-to-sales ratio, these estimates are impressive.
Pinduoduo is still unprofitable because of aggressive discounts, subsidies for sellers, and the company's logistics network expansion. However, the company's adjusted operating and net losses narrowed year-on-year in the last quarter. As the scale expands, the company may gradually become profitable.
3. Baozun e-commerce(BZUN)
Baozun is sometimes referred to as the "Shopify of China", but this comparison is misleading. Unlike Shopify, which provides self-service e-commerce services for small businesses, Baozun mainly provides end-to-end e-commerce solutions for large international companies.
For large American companies, it may be difficult to establish a Chinese website, carry out marketing activities, and establish an e-commerce market, so Baozun is a "one-stop" store that can meet all these needs. It also helped companies integrate their online marketplaces with Tmall, JD.com, and Pinduoduo, which enabled Baozun to play a balancing role in China's booming e-commerce sector.
Baozun’s business model is capital-intensive, but in recent years, it has shifted from a “distribution-based” model of direct fulfillment of orders to a “non-distribution”-based model, thereby expanding profit margins and allowing Baozun’s customers to directly sell products. Ship to their customers.
Baozun’s 2020 revenue and adjusted earnings will grow by 22% and 50%, respectively. 92% of the company's website transaction value comes from a non-distribution business. Analysts expect the company's revenue and adjusted earnings to grow by 35% and 5% respectively this year.
This often-overlooked stock has a price-to-earnings ratio of only 19 times and a price-to-sales ratio of 1.5 times this year. If investors fall in love with Chinese technology companies again, this may make it an undervalued growth stock. The above analysis is only a personal opinion and does not constitute any investment advice. The stock market is risky and investment needs to be cautious.
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