Jack Ma may not be a household name in the U.S, but the Alibaba (NYSE:BABA) founder is one of the richest people in the world and an icon in China, where Alibaba is one of the biggest and most admired companies.
However, Ma may have found himself embroiled in a controversy. Back in October, he criticized Chinese financial regulators at a conference, mocking them and accusing them of "pawnshop" mentality, or not thinking big enough.
Chinese regulators did not take kindly to the speech, and ultimately blocked the IPO of the Ant Group, the former financial arm of Alibaba that was spun off by the tech giant , in November. Then, last month, officials announced an antitrust investigation into Alibaba (NYSE:BABA) erasing $100 billion from its valuation and sending the stock down 13%. More recently, Ma has been reported as "missing" -- though other sources say he is laying low to stay out of the public eye, waiting for the backlash to blow over.
Investors that have been spooked by the crackdown on Ma should be aware that Alibaba isn't the only option in the fast-growing Chinese e-commerce segment. Keep reading to see why JD.com (NASDAQ:JD), Pinduoduo (NASDAQ:PDD), and Baozun (NASDAQ:BZUN) are all appealing options.
JD is China's biggest direct online seller and Alibaba's long-standing rival. Unlike Alibaba, which runs e-commerce marketplaces like Taobao and TMall, JD operates primarily as a first-party seller, though it also operates its own marketplace. Where JD stands out is its strength in logistics. The company now has more than 800 warehouses across China, giving it more fulfillment capacity than Amazon, and which has helped it build out a fast-growing third-party logistics service as well as improving delivery capacity and speed for its own e-commerce business. JD is now pushing the boundaries in logistics technology, operating a highly automated warehouse in Shanghai with just four employees, deploying self-driving cars in Changshu, and innovating in drone delivery, which just got a green light in the regulatory process. Beyond e-commerce, JD is also making advances in areas like telehealth and has rapidly ramped up sales in groceries and pharmacy during the pandemic.
In the third quarter, JD's revenue rose 29% to $25.7 billion, and adjusted per-share profits jumped 64%. Considering the fast-growing e-commerce market in China and JD's innovations in a number of different areas, its future looks bright.
Pinduoduo has a unique approach to e-commerce. The company uses a "social commerce" model where users recruit family and friends to join them in purchasing items to get discounts. The closest analog in the U.S. may be Groupon, which was also born as a group-buying experience, though Pinduoduo is built around products while Groupon started with experiences.
Pinduoduo's model has caught fire in China as it's filled a void in e-commerce by adding some of the fun in real-world shopping to the online experience, and the social aspect has helped the company grow its user base rapidly.
The site launched in 2015, and its annual gross merchandise volume has already grown to more than $200 billion, and continues to surge with GMV up 73% over the last year. Revenue in the most recent quarter jumped 89% to $2.1 billion, and active buyers rose 36% to 731.3 million. The company has spent heavily on its marketing to drive that growth and is still not profitable, but there's no question that the model has resonated with Chinese consumers and has made Pinduoduo a true rival to both Alibaba and JD.
Investors have been enamored with Pinduoduo as well as the stock is up more than 800% since its 2018 IPO.
Baozun offers another way to get exposure to Chinese e-commerce. The company is not an online seller like Alibaba, JD, or Pinduoduo, but a facilitator, helping multinational companies with fulfillment, marketing, and technology to sell online in China.
Baozun, which counts Alibaba as an investor, has 260 brand partners including Nike, Microsoft, and Philips, and that figure is up from 223 the year before and 95 in 2015, showing the company is quickly growing its corporate customer base.
Because of its business model, Baozun is significantly smaller than the companies above. Its GMV reached $10.8 billion in its most recent quarter, up 19.4% from the previous year, which drove overall revenue up 21.7% to $269.4 million. The company's business has been gradually shifting from its product segment, essentially reselling its brand partners' merchandise, to higher-margin services, which include warehousing, fulfillment, IT solution, and customer service. That shift has helped expand its profit margins, and adjusted operating profits jumped 47% in the most recent quarter.
Despite the company's steady growth, the stock has underperformed over the last three years, trading sideways after it surged in 2017. Still, if profits continue to grow, the stock will eventually respond.
A wide-open opportunity
China is the largest e-commerce market in the world with annual sales topping $2 trillion last year, and its growth is expected to remain strong as the country develops lower-tier cities and logistics and delivery continues to improve in rural areas. Considering the high growth rates in both the Chinese economy and e-commerce, investing in Chinese e-commerce stocks, no matter what happens with Jack Ma, should pay off over the long run.