Taking a Pass on JD

 | May 22, 2014 | 10:33 AM EDT  | Comments
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JD.com (JD) priced above its range last night. The initial public offering is scheduled to open today at $19 per American depositary receipt (ADR) -- and all indications say the stock will start trading higher than that soon afterward.

It's possible some of the brokers handling the JD.com IPO have told their clients that those who buy into JD might -- and I stress might -- get good access later on this summer to Alibaba shares when they IPO. We saw this happen with the Weibo (WB) debut a few weeks back, as well, and there was a rush to support that IPO in the first two days of trading, even though it was a lousy environment. I suspect we will see the same today with JD.

But none of that will have an impact on where JD trades a month from now.

Look at Weibo this morning. Following Wednesday night's earnings report -- the company's first since its debut -- the stock is trading down 10%. It was recently trading around $18, far off from its all-time post-IPO high in the mid-$20s.

Every Chinese Internet company is a little different, so investors need to study them in great detail. Vipshop (VIPS) has been a staggeringly good stock since its IPO. It has been able to turn a profit and show strong growth numbers. But then look at Lightinthebox (LITB). It's another e-tailer in China that has basically exploded since its IPO.

In my view, there's a big difference between Alibaba and JD.com. Alibaba basically doesn't take inventory of the stuff it sells. JD does. As a result, one has far higher margins than the other. It's not just margins, either. It's tougher for JD to figure out all the inventory, logistics and complexities of delivering different items -- stock-keeping units, or SKUs -- in their business, as compared with Alibaba.

Oh, and JD is operating in China, where logistics aren't as simple as calling up FedEx (FDX) or UPS (UPS) to ship stuff.

I think JD will pop today. I think all the foreign backers will get their money out on what has been a profitable trade for them. But I'm bearish on JD's prospects for the longer term. I think this company will run into the same challenges that Dangdang (DANG) and Lightinthebox have encountered in the months after their IPOs.

So I won't be playing JD. I am, however, still waiting on the Alibaba IPO later this year.

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