Few stocks have delivered the kind of returns that Amazon (NASDAQ:AMZN) has.
The e-commerce stock has gained more than 150,000% since its 1997 IPO, and the company is so powerful that it's created its own shopping holiday, Amazon Prime Day, which major retailers like Walmart and Target, have mimicked, making it one of the biggest shopping days of the year in the U.S. For Amazon, it's even bigger than Black Friday and Cyber Monday.
However, you might be surprised to learn that China's Singles Day, the Nov. 11 shopping holiday celebrating the country's bachelors and bachelorettes, dwarfs its American counterparts.
While Amazon brought in an estimated $10 billion in gross merchandise volume (GMV) over the two-day Amazon Prime Day bonanza in October, Alibaba (NYSE:BABA), China's biggest e-commerce marketplace, reported $74.1 billion in GMV over the 11-day shopping festival, and JD.com (NASDAQ:JD), the country's biggest direct online seller, posted $41.1 billion worth of transactions, equal to what Amazon might see in a month.
E-commerce stocks have almost universally surged during the pandemic as consumers have avoided stores and are instead shopping online, but American investors, focused on domestic e-commerce sensations like Amazon, Etsy, and Wayfair, may be missing out on the even greater growth potential in China as the blowout Singles Day numbers show.
East meets West
China is by far the world's biggest e-commerce market. Online sales were expected to reach $1.9 trillion in 2019, which compares to just $600 billion in U.S. e-commerce sales. China's online sales are also growing much faster than in the U.S., rising at a rate of 27% in 2019 compared to a pre-pandemic growth rate around 15% in the U.S.
China has even passed the U.S. as the world's biggest retail market, and that gap is only likely to widen as China's economy is growing faster than the U.S's, and it has recovered much faster from the coronavirus pandemic, putting its economy in a better position to grow over the coming quarters.
Compared to Amazon's domestic market, in other words, Alibaba and JD.com have their eyes set on even bigger prizes. Alibaba's GMV reached $945 billion in its most recent fiscal year, well ahead of estimates for Amazon, which does not report such a figure. Like Amazon with Amazon Web Services, Alibaba also has a fast-growing cloud computing business that generated $5.6 billion last year on 60% revenue growth.
JD.com, meanwhile, has a logistics operation that's arguably more advanced than Amazon as it was able to deliver 93% of first-party orders in one day during the Singles Day festival, and the company is deploying 100 self-driving robots to handle deliveries in Changshu. Those investments in automation help the company build a long-term competitive advantage.
Alibaba and JD have historically grown revenue about as fast as Amazon, or faster in Alibaba's case, as the chart below shows.
However, despite being smaller companies with larger core markets to penetrate, both Alibaba and JD trade at significant discounts to Amazon based on their price-to-earnings ratios. Alibaba carries a P/E of 38, compared to 43 for JD.com and 91 at Amazon, essentially making them less than half the price that Amazon is, and only slightly more expensive than the average S&P 500 stock, which currently trades at a P/E of 36.
The China discount
Chinese stocks generally trade at a discount to their American counterparts for a number of reasons. Investors are skeptical of lax regulations in the country, which has seen a number of fraudulent publicly traded companies, such as Luckin Coffee earlier this year. Similarly, China's authoritarian government is also unpredictable, and can surprise investors as it did earlier in the month by standing in the way of the IPO of Alibaba subsidiary Ant Group. Finally, the Trump administration's trade war with China also led some investors to balk at Chinese stocks, which pressured the sector for much of 2018 and 2019.
However, the Biden administration is likely to have a more balanced approach to China without the sudden threats from the Trump administration that have at times rocked markets. Additionally, fraud and government crackdowns seem like extremely low risks with Alibaba and JD, as these companies have been around since the early days of e-commerce and are closely connected with American brands and products.
Both stocks also face little competition from Amazon or other foreign companies, though upstart social commerce champ Pinduoduo also deserves investor attention.
Amazon has been a great stock, and there's no reason to sell it today, but investors may get more growth over the long term by looking to Alibaba and JD.com. Both companies are growing fast, ramping up profits, have huge markets to penetrate, and are priced at a discount.
The bargain price may not be around forever, though.