Whenever JD.Com (NASDAQ:JD) is examined it’s compared to bigger rival Alibaba Group Holding (NYSE:BABA), and for the most part, that’s not an unreasonable comparison. Both are e-commerce players. Both are in China, primarily taking aim at China’s consumers.But JD stock is materially different from BABA stock.
There’s a paradigm shift underway, however, that’s drawing a more distinct line between the two. Alibaba is continuing to fly solo, so to speak, while JD.com is partnering up.
It’s not a surprising move.
With control of more than 60% of China’s ecommerce market versus JD’s 24%, the smaller competitor would likely never dethrone the bigger player as the market leader. Indeed, without the same scale, Alibaba’s Tmall enjoys, it’s likely that Alibaba would eventually capture market share from JD.com. Finding well-armed partners with the same interest in keeping Alibaba in check is the only viable long-term play.
Its chosen partners, however, are a reason for Alibaba to sweat at least a little.
Ganging up on Amazon
Neither enjoys the kind of dominance of the western hemisphere’s eommerce market Amazon.com (NASDAQ:AMZN) enjoys. But, Walmart (NYSE:WMT) and Alphabet (NASDAQ:GOOGL, NASDAQ:GOOG) are no slouches either. The former is the world’s biggest brick-and-mortar retailer, while the latter operates the world’s most fruitful ad-supported search engine.
They’re both also teammates of JD in its battle against Alibaba, which has quietly been escalating while investors have focused on the bigger trade war picture. Namely, in July, Google overhauled its e-commerce platform in preparation for more Chinese sellers. JD, which already sells some goods to U.S. shoppers via Google’s platform, will find and vet these providers.
Owners of GOOGL or JD stock need not hold their breath waiting for remarkably better bottom lines. They won’t see them soon, if at all. Google still contends with Amazon in most places outside of Asia and hasn’t yet made much of a dent in its dominance.
Still, it’s a development that sets the stage for growth in a market where Google has seen little, and where Chinese merchants have struggled even when utilizing Amazon.com.
As Juozas Kaziukenas, founder of Marketplace Pulse, explained it, “It’s probably a much better approach to have a Chinese company to deal with Chinese sellers, Obviously JD has much more experience in this. They have existing local relationships. They have an existing local experience.”
Walmart and JD Stock
As for Walmart, its relationship with JD has been solidified even longer.
Walmart’s first store in China was established in 1996, and has since grown to a count of more than 400 units. It’s a figure that pales in comparison to the more than 4,700 U.S. stores the retailer operates though, serving as evidence that big-box brands that thrive in the United States don’t necessarily thrive elsewhere.
That’s not necessarily the case when that organization partners with a local player, however, like Walmart partnered with JD.com in 2016 by opening an online store of its own at JD.com. The partnership was expanded in 2017 when the two players integrated much of their co-efforts in China to streamline the operation. Walmart and JD established a means of looking at one another’s inventory, for instance, to determine where a particular order should be packed and shipped from.
That partnership is letting Walmart capture a piece of a market where Amazon struggled to make capital investments pay off. In April, Amazon shuttered its China marketplace.
Think Bigger Picture for JD Stock
Both relationships remain obscured, partly by design, and arguably partly because none of the three players truly knows what the foreseeable future holds. They’re all keeping their options open as they learn from the initial efforts of both partnerships.
There’s little doubt as to the underlying motivations though. Amazon.com owns the North American ecommerce market, along with a sizable piece of the market on this half of the planet. Alibaba owns a similar share of the other half. Nobody’s going to beat either giant on their own, but in league with frenemies, at least Amazon and Alibaba can be contained.
They’re admittedly slow-burn projects, but they’re both projects that play right into the hand JD.com is holding.
JD is above all else a logistics expert, which Walmart needs particularly in China. And, a U.S. market that’s been otherwise difficult to penetrate with and without the help of Amazon could be opened up a great deal more now that Google has handed JD the keys. Thomas Niel succinctly said it well earlier this month, writing: “These partnerships provide opportunity for the company to leverage its market power both China and across the globe.”
It’s not a reason to buy JD stock, but, it’s absolutely something serious JD.com shareholders need to put on their radars.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities. You can learn more about James at his site, jamesbrumley.com, or follow him on Twitter, at @jbrumley.