JD.com (JD -1.68%) and Sea Limited (SE -0.10%) are two of the fastest-growing e-commerce companies in Asia. Both companies are also backed by the Chinese tech giant Tencent (TCEHY 1.92%).

JD.com is China's largest direct retailer and second-largest e-commerce company after Alibaba (BABA 1.44%). Sea's Shopee is the largest e-commerce platform in Southeast Asia and Taiwan.

JD went public at $19 per share in 2014, and its stock now trades in the mid $60s. Sea went public at $15 per share in 2017, but its stock is now trading in the low $300s. Let's see why Sea generated much bigger gains than JD within a shorter time, and if that trend will continue over the next few years.

An online shopper inputs a credit card number into a smartphone.

Image source: Getty Images.

The key differences between JD and Sea

JD generates most of its revenue from its first-party marketplace, which takes on inventories and fulfills orders with its own logistics network, and a smaller slice from its third-party marketplace.

JD's logistics division generates additional revenue by providing its services to other companies. It also owns a cloud infrastructure platform, a fintech division, and a telehealth business, but it still generated 96% of its revenue from its core JD Retail business last year.

Sea's Shopee is a third-party marketplace that relies on third-party logistics partners. This model is less capital-intensive than JD's first-party marketplace. Sea's SeaMoney fintech division also provides mobile wallet, payment processing, and credit services across Southeast Asia and Taiwan.

Sea's mobile gaming unit Garena launched the hit battle royale game Free Fire in 2017. This segment, which also licenses games from Tencent, generates higher-margin revenue than either Shopee or SeaMoney. Shopee and Garena each generated roughly half of Sea's revenue last year.

Which company is growing faster?

JD initially grew faster than Sea in 2016 and 2017, but Sea's revenue growth accelerated significantly in 2018 and left JD in the dust over the past three years:

Revenue Growth












Sea Limited






Source: JD and Sea.

Sea's revenue skyrocketed because Shopee, which was initially launched in 2015, finally started generating meaningful revenue in the fourth quarter of 2017. That same year, Garena launched Free Fire -- its first self-developed game -- which became immensely popular in Southeast Asia and Latin America. Free Fire's success boosted Garena's margins by reducing its dependence on licensed games, and the segment's rising adjusted EBITDA offset Shopee's steep adjusted EBITDA losses.

JD's growth decelerated in 2018 as China's economic growth slowed down. The escalating trade war between China and the U.S. exacerbated the pain, while Pinduoduo (PDD 2.28%) -- which popularized discount bulk purchases -- gained ground in China's lower-tier cities. A rape accusation against CEO Richard Liu in 2018, which was dropped nearly a year later, also weighed down the stock.

However, JD's business recovered during the pandemic as more people shopped online, and its aggressive expansion into China's lower-tier cities countered Pinduoduo's growth and brought in new shoppers.

The expectations and valuations

Analysts expect Sea's revenue to rise 91% this year, then grow another 50% next year. Those growth rates are impressive, but its stock already trades at 19 times this year's sales. That frothy price-to-sales ratio, along with Sea's lack of profits, won't limit its downside potential during a market crash.

Wall Street expects JD's revenue to rise 28% this year and grow 25% next year. JD is firmly profitable, but analysts expect its earnings to dip 14% on higher investments this year before rising 62% next year. Based on those estimates, JD's stock trades at 28 times forward earnings and less than one times this year's sales -- which makes it seem like a cheaper and safer stock than Sea.

However, JD's stock valuations will likely remain depressed as long as China continues its crackdown on its top tech companies. That pressure, along with the threats to delist Chinese stocks from U.S. exchanges, could continue to hold JD's stock back -- regardless of how undervalued it may seem.

Sea also faces plenty of risks. Its future adjusted EBITDA growth relies entirely on Free Fire's longevity and Garena's ability to launch new hit games, and Shopee continues to burn cash. But the company could still have plenty of room to grow before it saturates the underpenetrated Southeast Asian market, and the Singapore-based company is immune to the regulatory headwinds in China and the U.S.

I personally own both stocks, but I recently reduced my stake in JD and bought more shares of Sea. JD seems cheaper, but it faces too many unpredictable headwinds. Sea's stock is pricier, but its core businesses are still firing on all cylinders, and it won't be tripped up by hostile regulators.