Is this the end of BAT?
BAT – Baidu Alibaba Tencent – has been the acronym for the 3 most successful Internet companies in China over the last decade.
But this acronym might well change to JAT, as JD.com is catching up with Baidu.
JD.com on the rise
JD.com market capitalization has been steadily rising over the last few months. At the time of writing (June 29th 2017) it reached 55.18 billion USD, just 10% below Baidu’s market capitalization.
Many analysts have been speculating over the fact that JD.com will soon overtake Baidu in terms of market capitalization.
Does it mean that BAT will soon become JAT? Not quite yet. Let’s put things into perspective.
What are the prospects for JD.com?
First of all, unlike Baidu, JD.com has failed to turn out a profit until very recently. The first quarter of 2017 was actually the first profitable quarter for JD in the last few years… no wonder that its stock price rose !
In the meantime, Baidu has been consistently profitable. And even on the first quarter of 2017, Baidu reported profit of 291 million USD, more than double of JD’s 122 million USD of profit.
Of course, a company being profitable is not necessarily a source for worry. Amazon has failed to turn a profit for most of its existence, yet its market capitalization if almost 500 billions, about 10 times as high as JD.com.
But Amazon operates in a very different space than JD.com:
- Amazon has less competition in its home market, while JD.com is suffering from an intense competition against Alibaba
- It runs a much more diversified business, including logistics via Amazon Fulfilment and Cloud Computing with AWS (which is a 100+ billion business on its own)
- Amazon is also making a lot of promising long-term bets, such as the investment in Artificial Intelligence with the Amazon Echo
Is it JD doing great or just Baidu going bad?
Let’s now take a step back and look at the broader picture. Is JD really overperforming? Or Baidu doing very poorly? We can draw some conclusions by looking at the two other letters of BAT: Alibaba and Tencent.
When put into perspective, it is clear that Baidu and JD.com have been rather stagnant, in terms of stock price. Over the same period, Tencent market capitalization more than doubled, going from 150 billion USD to 340 billion USD. A growth rate even faster than the one of Alibaba.
The truth is, Baidu and JD.COM are suffering from the same plague: Tencent and Alibaba are stealing the show, by concentrating most of the user engagement and payment data.
Conclusion
JD.com is still facing many challenges, but it has provided something that Baidu doesn’t have: a consistent story. While Baidu has been trying to distract investors attention from their poor results by talking about A.I, self driving cars and big data, JD.com has been a solid e-commerce and logistics player with a steady growth and improving profits.
On the long-run, it seems unavoidable that JD.com will soon overtake Baidu in terms of market capitalization. As for BAT, it will most likely remain the #1 acronym in China as JD.com will stay in the shadow of its main competitor Alibaba.