Alibaba, JD.com vie for investor attention
Fast-growing internet firms like Alibaba and Tencent have stoked interest in the sector but recent buying spree has pushed up valuations
Alibaba Group’s decision to list in New York has also turned the offering spotlight on rival JD.com, China’s second-largest e-commerce firm.
Beijing-based JD.com, formally known as 360buy.com, has made a filing for an initial public offering in the United States, after gaming and social media giant Tencent paid US$215 million for a 15 per cent stake earlier this month. No details were released but the market expects JD.com to seek at least US$1.5 billion.
“From a valuation perspective, investors will be very selective in terms of picking the right stock since [Alibaba and JD.com] are direct competitors in e-commerce,” said Alma Yang, a Hong Kong-based portfolio manager at Shenyin Wanguo Asset Management. “JD.com is clearly under pressure as it has no popular electronic payment platform.”
Yang said fund managers largely prefer the ecosystem of Alibaba, which owns and operates a range of profit-making business sites including the mainland’s most popular shopping site, Taobao.com, to third-party online payment solution provider Alipay, but JD’s smaller valuation may provide more room for gains.
The market broadly values Alibaba at about US$150 billion while Tencent’s investment in JD.com suggests it values JD.com at about US$20 billion when it lists.
Shares in Alibaba.com, the business-to-business unit of Alibaba Group, initially soared after their 2007 initial public offering but fell much below the offer price because of sluggish growth. Alibaba.com eventually went private in 2012 at a price of HK$13.50 a share, the same price as its IPO.
Analysts argue that although Alibaba is by far China’s most dominant e-commerce firm, it has been losing ground to Tencent in mobile platforms as smartphone and tablet usage have surged in recent years.
“JD’s partnership with Tencent, which owns payment platforms Tenpay along with Weixin, an instant messaging app with more than 300 million active users, has swiftly changed the dynamic, levelling the playing field for JD,” said Ricky Lai, an internet analyst at Guotai Junan International.
Bankers believe JD’s early application for a US listing has given it a first-mover advantage, drawing positive feedback from investors. But there is still no clarity on the size of the listing.
Their extraordinary pace of growth may have created an interest in Chinese internet stocks but savvy fund managers warn that Tencent and Alibaba have significantly pushed up valuations, spending more than US$5 billion in a buying spree over the past year.
Victoria Mio, a portfolio manager with Robeco, said the growth prospects and the investment story in China’s internet sector remain sound but warns runaway valuations in the tech sector could be a turn-off.
Aggressive growth and merger and acquisition activities in recent times are signs of overheating in the hi-tech sector, analysts have warned in the past.