Is JD.com a better buy than Alibaba?

Why this expert prefers JD.com to Alibaba
Why this expert prefers JD.com to Alibaba   

As Chinese internet behemoth Alibaba prepares to list on the New York stock exchange later this month in what is set to be the largest initial public offering in U.S. history, some analysts argue that its main rival JD.com could offer a better bet.

"We prefer the business model of JD.com," Jeff Dorr, equity analyst at J Capital Research, told CNBC Asia's "The Rundown." "We just feel that with an 80 percent market share [in China] for Alibaba at this stage they can really only grow in line with the market… and with JD.com having 20 percent share we feel that over time there's room for JD.com to take share and capture greater growth."

Alibaba's IPO has been the subject of much anticipation this year, with many analysts viewing the company as an ideal way to tap into China's fast-expanding e-commerce sector.

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On Friday Alibaba – which offers its customers a platform to shop online, sell unwanted goods and make online payments – said it expects to price its IPO between $60 and $66 per share to raise as much as $24.3 billion. At $66 per share Alibaba would be valued at $163 billion.

Bumper second-quarter earnings have also helped the company's investment case. Sales in the second quarter rose 46 percent to $2.54 billion, and net income nearly tripled to $1.99 billion from the year prior.

JD.com, the second largest e-commerce firm in China, carried out its IPO in May, raising $1.78 billion. Its share price has since risen around 70 percent. Its second-quarter earnings weren't quite as encouraging – its net loss widened to 582.5 million yuan ($93.9 million) in the quarter ended June 30.

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According to Shiv Putcha, associate director with IDC's Asia/Pacific Consumer Mobility and Social Consumer Research team, JD.com still represents a more attractive investment despite the second-quarter blip, predominantly because of its backing by Chinese internet giant Tencent who own an 18 percent stake in the firm.

TenCent owns WeChat – China's largest messaging app – and plans to link its 355 million users to JD.com through an exclusive shopping channel only available on the messaging application.

"JD is much stronger today on the mobile side through its integration with Tencent and WeChat. Obviously Alibaba is the biggest e-commerce company in China, but it has been lagging Tencent in mobile because of WeChat," Putcha told CNBC.

The JD.com website and Tencent Holdings Ltd. website on display.
Brent Lewin | Bloomberg | Getty Images
The JD.com website and Tencent Holdings Ltd. website on display.

"Alibaba's strength is on the traditional e-commerce side in terms of logistics etc. But if you're trying to get traction in mobile what you really need is skill but what they have if the online world isn't quite replicated in mobile... they have a lot of work to do," he added.

J Capital Research's Dorr said he also had concerns over Alibaba's ability to crack the U.S. market. "In the U.S. competition is a bit stiffer than it is in other emerging markets, with Amazon and eBay firmly entrenched. I do expect that Alibaba will have a more difficult time getting into the U.S. market," he said.

IDC's Putcha agreed: "It will be a massive IPO but I don't see it as an automatic success. They are going into markets with well-established players. The most challenging part will be the execution on the ground, and they are trying to develop their presence in these markets through acquisitions. But these things take time, they will not be a market leader within a year."

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Not all analysts CNBC spoke to saw JD.com as a more attractive investment, however.

"There are a couple of factors working in Alibaba's favor," said Ryan Huang, market strategist at IG. "Unlike Alibaba, JD.com has a different business model, where it holds inventory in warehouses – akin to Amazon... Alibaba functions more as a market place listing, so it holds less inventory risk. This is also one reason behind the gap in their profit margins."

"For the latest quarter ended June, Alibaba's profit margin was above 40 percent, compared to JD.com's which was 2 percent. Between the two, an investor looking to bet on China's e-commerce boom story is likely to find more comfort in Alibaba's fundamentals," he added.