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3 Quotes That Show Why JD.com Is the Next Amazon

They say lightning never strikes twice, but investors don't seem to believe it.

Amazon (NASDAQ: AMZN), for instance, frequently draws comparisons from companies looking to grab a piece of the same rocket ship that's taken the e-commerce giant to a nearly $2 trillion valuation, but no other company deserves the title of the next Amazon more than JD.com (NASDAQ: JD), China's biggest direct online seller. Like Amazon, JD operates as both a first-party e-commerce company and a third-party marketplace. JD has also distinguished itself with its logistics investments and a far-reaching delivery network that carries packages for both JD and third-party shippers.

Finally, JD consistently puts up strong growth numbers, with revenue rising 29.2% in its most recent quarter, and, like Amazon, is focused on penetrating a huge market. The company's recent earnings call brings home how much JD resembles Amazon at an earlier stage. Keep reading to see three JD quotes that could have come directly from Amazon.

Image source: JD.com.

1. A long-term focus

Amazon founder and CEO Jeff Bezos is famous for his long-term focus, and it's been a cornerstone of the company's strategy since its beginning. Though many companies claim a similar long-term mantle, not all can back it up, but JD has consistently shown a willingness to sacrifice short-term profits for long-term market share gains in areas like logistics, healthcare, grocery delivery, and emerging technologies.

CFO Sandy Xu described the approach on the recent earnings call, saying:

We run our business with a long-term philosophy and pursue long-term sustainable growth. Our mission is to improve operating efficiency for the supply chain through technology innovations, and we share growth opportunities and economic benefit with our staff, business partners and society. Our unwavering effort in supporting society and our users continue[s] to gain positive recognition and win trust from more and more consumers. This has been reflected in our solid growth of active users and improvement in user engagement across different tiers of cities.

Here, Xu touches on two of Bezos's favorite strategic pillars -- having a long-term focus and being customer-centric. There's a symbiosis between the two concepts. as being customer-focused helps drive long-term growth. It's not surprising then that JD's customer base saw its fastest user growth in three years in the recent quarter, increasing 32.1% year over year to 441.6 million.

2. A Prime-like product

Of all of Amazon's innovations, Prime may be the most important. The services bundle, which includes free one-day shipping and free video streaming, has attracted more than 150 million subscribers and acts as a significant economic moat for the company, locking in customers with services that competitors can't really match.

JD has taken a similar approach with its own loyalty program, JD Plus, which it launched five years ago, and now has 20 million members. Xu explained the program:

JD Plus was the first paid e-commerce membership program in China designed to better serve our core users. Besides the benefits offered on [the] JD app, such as shopping rebates and free shipping coupons, JD Plus has partnered with over 600 industry-leading brands to provide our members with comprehensive privileges in sectors such as movie tickets, travel, hotel bookings, fitness, education, dining and entertainment.

Like Prime, JD Plus is successfully bundling services, which are leading members to spend more with JD than with non-members. Xu said that average revenue per Plus user is "multiple times higher than that of non-Plus members." The same is true for Amazon, as Consumer Intelligence Research Partners has estimated that the average Prime member spends $1,400 annually on Amazon, while the average non-Prime shopper spends $600.

3. Shifting to new categories

Amazon started off as a bookseller before expanding into new product categories like other media, including music and video, and then areas like electronics and home goods, eventually becoming the "Everything Store" it's known as today.

Similarly, JD's core business is in electronics and home appliances. That category still makes up half of its revenue, but other categories are growing much faster. In the recent quarter, JD's general merchandise sales, which include groceries, were up 35%, and services, made up of its marketplace and third-party logistics, rose 43%.

JD is leveraging its strength in electronics to push into new categories. Xu said:

What's notable is that our operating efficiency continues to improve even as our product mix shift[s] from the large ticket size, but low-frequency categories, such as 3C (electronics) and home appliances to the small ticket size but high-frequency consumer staple categories. Order volume for the supermarket categories grew by over 48% year over year in Q3.

Finally, the most important similarity to Amazon is that JD's profit margin continues to ramp up, a product of the company's efficiencies and growth in higher-margin businesses. On 29% year-over-year revenue growth in the third quarter, adjusted operating income jumped 77% to $776.8 million, and adjusted earnings per share rose from $0.29 to $0.50, easily beating analyst estimates.

Stock is surprisingly affordable right now

The Chinese tech stock continues to execute effectively, and the company, with its leadership in e-commerce and logistics, is growing into a massive addressable market. Amazon stock was never cheap, but JD looks surprisingly affordable these days, trading at a price-to-earnings ratio of 62, or just 38 based on next year's expected earnings.

Amazon has been one of the biggest winners on the market in the last generation. With many of the same assets as its larger American peer, JD could do the same.

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John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Jeremy Bowman owns shares of Amazon and JD.com. The Motley Fool owns shares of and recommends Amazon and JD.com and recommends the following options: short January 2022 $1940 calls on Amazon and long January 2022 $1920 calls on Amazon. The Motley Fool has a disclosure policy.


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