A Chinese e-commerce giant just went public, though it wasn’t the one you were probably anticipating. Still, it’s worth paying attention to.
JD.com JD.COM INC
, known as the Amazon.com of China, debuted on the NASDAQ Thursday and performed slightly better than expected (the shares were up around 6% in their first two trading days). The news gives renewed hope for those waiting with bated breath for the initial public offering for Alibaba, expected later in the summer.
JD.com is a pretty big deal — the company is valued at more than $25 billion. But Alibaba will be much, much bigger. Some analysts believe the Street will value the company at around $170 billion, making it larger in market cap than Amazon AMAZON.COM INC.
or Facebook FACEBOOK INC.
. Brendan Ahern, managing director of KraneShares, said this would make Alibaba instantly “bigger than 95% of the Standard & Poor’s 500 index,” he noted. In fact, he added, “Alibaba will be the most valuable internet company after Google ALPHABET INC.
, which has a market cap of about $347 billion.”
Despite JD.com’s smaller scale, there are plenty of things you can glean from the company’s debut to help you set your expectations for Alibaba. Here are three:
1) Both Chinese stocks and U.S. tech shares have been slumping, but investors still can’t resist China+Internet.
As the chart below shows, investors have lost their appetite for Chinese stocks in general this year — as seen below by the drop in the Markets Vector China ETF; VANECK VECTORS CHINAAMC CSI 300 ETF
. That’s owing to fears over the health of the slowing Chinese economy, which now faces threats to its financial and real estate sectors. Meanwhile, a drop in risk-taking among investors has also pushed the value of tech shares lower in recent months. Take a look at the losses suffered by PowerShares NASDAQ Internet ETF; POWERSHARES ETF - NASDAQ INTERNET PORTFOLIO
However, the bulls are giving Chinese Internet companies — especially Chinese e-commerce firms — a bit more slack, as evidenced by the performance of KraneShares CSI China Internet ETF KRANESHARES TR CSI CHINA INTERNET ETF
2) Even though the IPO market is sluggish, there’s still demand for Chinese IPOs.
In recent months, several IPOs priced below expectations, causing some companies to shelve their plans to go public until the mood of the market improved. And yes, Weibo, the so-called Twitter of China, was one of those disappointing debuts.
However, the JD.com IPO shows that this isn’t necessarily a widespread problem. So does the eye-popping performance of Chinese e-commerce debuts lately. Look at the stunning run for Vipshop Holdings VIPSHOP HLDGS LTD
, a leading Chinese flash sales site, since it went public in March 2012:
3) For Chinese e-commerce companies, it’s still all about potential.
U.S. e-commerce plays don’t have it so easy. Amazon, which has spent recent years bolstering sales at the expense of profits, got knocked around in April after it announced somewhat disappointing first quarter results.
On the other hand, the market was happy to overlook the fact that JD.com is profitless because of its stunning revenue growth. The company’s sales grew 68% last year after surging 98% in 2012. This is particularly true given the potential for the market that JD and also Alibaba are playing in.
Morningstar’s consumer equity strategist R.J. Hottovy notes that “you’ve seen tremendous amount of wage-rate growth among that lower- to middle-income consumer” in China that Alibaba and JD are wooing. “The expectation is that we’ll continue to see more disposable income devoted to online purchases within that market,” he said.