As a dividend growth investor I have never really looked into pure growth stocks that return no set amount of cash to their investors. Lately though the IPO of the Dutch company (Amsterdam based) Adyen made me think, there are a lot of companies that will grow hard for years and start paying a dividend later. This post will be about Adyen, Alibaba ad JD.com.
So why Alibaba and JD.com aswell?
Well in my very first post on my website I talked a bit about trying to get more into ETF’s and also geographically diversifying my portfolio in 2018. A few weeks back I opened an ETF account with my broker which let’s me invest small amounts of money into ETF’s periodically without fees. After starting this account up it was time to look at one of the most interesting markets at this moment; China.
Alibaba is such a diversified company with a lot of different opportunities, and so is JD, they rule the e-commerce market in China and are using the economic and middle class growth in their home country to really boost their business. Only a small amount of revenue is from outside China and that is also a big opportunity right there.
While Adyen soared around a 100% at their IPO and haven’t really dipped since then, the fact that BABA and JD are dipping on trade war fears is more and more interesting. On the 24th of June I already got myself some shares of JD and now I’m looking for ways to free up some cash to either increase this position or to initiate a position in BABA.
While it’s generally known that a list of Dividend Aristocrats outperforms the general market in the long term, I think very few dividend growth investors would turn away from opportunities with companies like Facebook, Google, Amazon, Netflix and so on. It doesn’t necessarily fit inside our DGI focus but it could be a welcome section of our portfolio, you could even see it as a little extra diversification. At this moment I would view the popular FAANG stocks as fully valued, they are not a steal at this moment, however the Chinese ‘hot stocks’ are not at all that fully valued or even overvalued.
Alibaba is currently going for $185,02, with a P/E of 48,90 and forward P/E of 21,90. Their gross margin is a whopping 57,20%, their operating margin 27,70% and their profit margin is above 25%. These are some insane statistics. While the stock price is by far not at a 52 week low, it has dipped enough from it’s highs to become very, very interesting.
JD is very much so in the same market as BABA, yet a little less diversified, as BABA has a 33% stake in Alipay for example. It recently hit the news for raising as much as $14 billion ahead of their IPO. While BABA focuses more broadly, think Alipay app, Alibaba Cloud, New concept supermarkets, augmented reality, JD is more focused on the B2C side of e-commere. Alibaba’s Tmall and JD are quite similar to Amazon, where Alibaba’s Taobao is more like eBay. This shows the nice spread in business for Alibaba.
How does Adyen fit with these two e-commerce giants?
Well first of all the obvious fact of it being a Dutch company is great for my geographical diversification, extra shares in my home country are always welcome. Furthermore there is a lot to like in Adyen, actually everything is to like, except their valuation unfortunately.
Adyen is a young fintech company which processes payments for a number of big customers around the world. Among their customers are companies as Uber, Netflix, Booking.com, Spotify, LinkedIn and many many more. It’s not only a payment processor for the tech industry either, companies across the globe from a lot of different sectors are with Adyen, for a reason. Recently Adyen got into the news for stealing eBay as a client from PayPal, while eBay acquired shares in Adyen as their part of the deal, it was a great deal for Adyen as a lot of traffic goes through eBay.
They simplified the process a lot and they keep a small fee for themselves. Only recently they announced to pay clients bills in advance, for a little fee. This adds to their risks, but also a lot to their rewards, it gives them a second source of income. In 2017 Adyen had $1.14 billion in revenue, an increase of over $400 million from 2016. The volume of their payments came out to a solid $122 billion in 2017, a 61% YoY compared to 2016.
All in all this shows their revenue is growing strongly by acquiring more and more customers around the globe. As their technology is mostly finished now, the margins will go up as well in the coming years. Be sure to look at Adyen in the coming years, when new customers add more to the revenue and the revenue gets processed into profit at a better rate each year.
As I recently realised my portfolio had become a great foundation of safe and boring dividend stocks I realised I wanted to spread it all out a bit with growth stocks as well. Adyen may be overvalued right now, but look out for Adyen in the future. Alibaba and JD.com have been working on their business and reputation for many years and are a little more known, but they are not fully valued in my opinion right now.
It’s a great time to be a long term investor right now!