To The Moon

With total revenue of $1.543 trillion in 2021, China has become the largest e-commerce market in the world, even outpacing the United States. The Chinese e-commerce market size increased by 15% on a year-over-year basis in 2021, thus contributing to the worldwide growth rate of 29%.

Revenue in the global e-commerce market is anticipated to grow at a CAGR of 11.35% over the next three years, hitting $5.726 trillion by 2025,Statista reports. This growth rate should be achieved due to e-commerce expansion in East and Southeast Asia amid their augmenting middle class and poor offline shopping infrastructure.

With this in mind, today, I am going to analyze and compare two Chinese stocks, JD.com, Inc. ($JD.com(JD)$ ) and Pinduoduo Inc. ($Pinduoduo Inc.(PDD)$ )$), to determine which one is a better buy at the moment.

Founded in 2006, JD is one of the largest companies in the Chinese e-commerce market. It operates across three business segments: JD Retail, JD Logistics, and New Businesses. PDD is a Shanghai-based e-commerce platform that operates a mobile platform, Pinduoduo, offering a wide range of products.

Year-to-Date (YTD), shares of JD have dropped about 12%, while PDD stock has plunged 31%.

Recent Developments

On March 13th,JD.com announced that its subsidiary, JD Logistics, had agreed to purchase Chinese logistics firm Deppon Logistics. The deal is valued at about 9 billion yuan ($1.42 billion) and aims to expand JD’s network infrastructure in China. Under the terms of the deal, JD Logistics will acquire a 99.99% equity stake in Deppon Holdco, which owns about 66.5% of Deppon Logistics, with a follow-up launch of a mandatory general offer for all Deppon shares at 13.15 yuan ($2) a share.

Financial Overview & Analysts Estimates

In the fourth quarter, ended December 31st, 2021, JD’s total revenue rose 23.0% year-over-year to $43.3 billion, driven by a 22.1% YoY increase in net product revenues and a 28.3% YoY increase in net service revenues. Moreover, the company’s top-line figure stood in line with the Wall Street revenue consensus.

JD’s Non-GAAP EBITDA was up 56.2% year-over-year to $0.7 billion in Q4, while annual active customer accounts rose by 20.7% YoY to 569.7 million in 2021. The company’s fourth-quarter net loss stood at RMB5.2 billion (US$0.8 billion) compared to a net income of RMB24.3 billion as of 4Q2020. However, its Non-GAAP EPADS came in at $0.35, beating analysts’ estimates by $0.08.

The company’s EPS is expected to decrease 21.17% year-over-year to $0.30 in its first quarter of 2022. At the same time, analysts expect JD’s revenue to advance 19.63% year-over-year to $37.77 billion in the current quarter.

On March 21st,Pinduoduo released earnings for the fourth quarter of 2021. In Q4, the company’s total net revenues increased by just 3% year-over-year to $4.27 billion, mainly due to an increase in revenues from online marketing services and transaction services. However, the company missed analysts’ revenue estimates by $440 million. Besides, Non-GAAP net income grew to $1.33 billion in Q4, leading to a Non-GAAP EPS of $0.92, which was well above analysts’ consensus of $0.37.

It is also important to note that the average monthly active users in the fourth quarter came in at 733.4 million, representing a modest 2% year-over-year increase.

Currently,Wall Street expects PDD’s EPS to improve in the first quarter of 2022 to $0.36 a sharecompared to its year-ago figure of ($0.24). However, analysts expect its first-quarter revenue to decrease 6.11% YoY to $3.26 billion.

Comparative Valuation

In terms of Forward P/E,JD is currently trading at 29.66x, which is higher than PDD,whose multiple is currently standing at 20.21x. However, both companies trade with a premium compared to the sector’s median threshold of 13.36x.

When it comes to the Forward EV/Sales multiple, PDD’s EV/Sales multiple of 2.22x is about 382.6% higher than JD’s 0.46x.

The Bottom Line

While both JD and PDD are expected to gain from the e-commerce industry’s growth, I believe JD.com is currently the better buy, based on its higher top-line growth, better users growth, superior growth prospects, and relatively cheaper valuation.