NEW YORK (TheStreet) -- Alibaba (BABA) and JD.com (JD) , China's two largest e-commerce players, continue to vie for deals with smaller technology companies. And each of those two companies represent a good option for U.S. investors looking to dip their toes in the Chinese tech stock waters, analysts said Monday. Alibaba and JD.com are "well positioned with the 'one-stop shop' concept" in the e-commerce space, and are also "branching out to new categories, via investments or acquisitions," said Oppenheimer analyst Ella Ji.
But investors should keep in mind that "obviously there are some risks in investing in a foreign domiciled company, especially one that operates" in a country like China, which has "different regulatory scrutiny" than the U.S., warned Wedbush Securities analyst Gil Luria. "Chinese regulators are probably somewhat more concerned about protecting state interests than consumer interest in comparison to U.S. regulators," he said.
JD.com and Chinese Internet services company Tencent (TCEHY) are investing a combined total of about $1.3 billion in cash and resources in Bitauto (BITA) , a provider of Internet content and marketing services for China's auto industry, the three companies said late last week. JD.com and Tencent are also investing a total of about $250 million in cash in YiXin Capital, a subsidiary of Bitauto that mainly engages in e-commerce-related automotive financing services.
After finalizing the deals, the three companies will "work together to provide enhanced online automotive transaction services to car buyers across China," the companies said in a news release Friday.
The transactions reflect the "unique nature" of Chinese e-commerce in comparison to the U.S., Luria said Monday. "While we don't think of categories such as real estate, travel or cars as e-commerce categories that we would expect to find" on Amazon (AMZN) , "in China those distinctions are not as relevant," he said. "That is why Alibaba is buying media properties and travel software companies, and that is why JD is interested in cars," he said.
Luria sees a lot of opportunities for Alibaba and JD.com to find such growth properties without competing for all the same deals, he said.
The agreement was especially a "great deal" for JD.com, which will have 25% and 17.7% stakes in Bitauto and YiXin, respectively, and also have a five-year noncompete clause and traffic support, said Oppenheimer analyst Ji.
After the five years, JD and Bitauto will "likely still cooperate," but Bitauto will have to pay for that, Ji said. She predicted JD.com and other big Internet companies will "remain open to such strategic cooperation."
Tencent's ownership in Bitauto will be small, with only a 3.3% stake, and it seems there is no confirmed cooperation between Bitauto and Tencent, said Ji. Tencent's stake in YiXin capital, on the other hand, will be "material," at 26.6%, she said.
Ji predicted Tencent will be more involved in YiXin by "leveraging its big data capacity, online payment, and the newly launched WeBank online bank to support" YiXin's operation.
The JD.com and Tencent deals with Bitauto are expected to close in the first half of 2015, the companies said.
The "ecosystem effect" will help JD.com and Alibaba "gain more market share and strengthen" user acquisition and retention, predicted Ji. It will also "eventually" help with their margins, she said.
But investors "should pay attention" to the prices these companies pay for mergers and acquisitions, Ji said. China's Internet and mobile space is popular now and there is "hot money pursuing every interesting target," she said. Therefore, it is "important" for JD and Alibaba to find "great companies" at a "reasonable price," she said.
Investing in Alibaba, in particular, is a way to invest in the "rapid growth of the Chinese consumer, especially in e-commerce," said Luria. Alibaba's results and prospects are "so impressive that the reward" of investing in it "outweighs the risk right now," he said.