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Chinese e-commerce firm JD.com Inc was founded in 1988 by Richard Liu, who invested a portion of his life savings and started a four-square-meter retail unit in Beijing initially called JD Multimedia. Facing pressure from the SARS outbreak in 2003, he moved online to sell his products, and by 2004 Liu had moved his entire retail unit online. The website was then called jdlaser.com, which later became 360buy.com in 2007 and JD.com in 2013. JD.com, before 2013, was also popularly known as Jingdong.
The retail store that started with selling optical discs soon diversified into selling other products such as computer units and other electronics. JD.com’s e-commerce today includes all categories of retail, incorporating every step in the supply chain and has also invested in robotics and artificial intelligence (AI). JD.com was listed on NASDAQ in 2014, becoming the first Chinese e-commerce company to do so.
Tencent sold its e-commerce businesses Paipai and QQ Wanggou to JD.com in 2014 and Walmart followed suit by selling its e-commerce business Yihaodian in 2016. Both companies now own a stake in JD.com.
JD.com offers its services in eleven countries other than China, through JD Worldwide, and is the greatest competitor to Alibaba Group.
Business model of JD.com Inc
Often called the ‘Amazon of China’, JD.com Inc follows a business model very similar to that of the US ecommerce giant. A part of the Fortune 500 list, JD.com has a big focus on customer satisfaction thanks to its wide logistics network in China. The company operates both as an ecommerce firm as well as a marketplace for sellers and seems to be excelling due its delivery network for all participants.
The company runs a loyalty program called JD Plus and offers deal, discounts and other benefits in dining, hotel booking, movies and more. The bundled services have helped the company see a higher average revenue per user. Just like Amazon, JD.com has its own private label which competes with other sellers on its platform and has seen its base of Chinese users expand over time.
Although the firm started off as an electronics seller, it has widely expanded to other items. The company is divided in multiple divisions — JD Retail, JD Logistics, JD Property, JD Health, JD Retail Cloud and smart supply chains solutions providers JD-Y.
JD and Alibaba
Alibaba, like JD, was founded in the pre-SARS outbreak period. Today, Alibaba and JD control majority of China’s e-commerce market. JD today is the biggest competitor to Alibaba on its home turf and with its accelerating diversification JD has taken over in certain segments. Tencent, Baidu and Walmart hold shares in JD which has been key in the growth story of the company.
Tencent first acquired shares of JD in 2014. The 15% stake handover was done in return for cash and JD’s access to WeChat and QQ platform. Tencent also sold a share of Yixun to JD. This was the first strategic move by JD and Tencent to get a hold of the e-commerce market of China. Today, online payments in China are done through either WePay or AliPay.
In 2016 Walmart sold its online retail market in China, Yihaodian, to JD for a 5.9% share in the company which was valued at $1.5 billion. In the same year, Walmart had almost doubled its stake in JD to a 10.9%.
The following year, Baidu, one of the world’s largest AI and internet service provider companies, announced a partnership with JD. The alliance with Baidu meant the users could now integrate Baidu and JD. Baidu increased JD’s reach in the market.
JD’s revenue in 2021 notched up to $149.3 bn while Alibaba managed an annual revenue of $109.5 bn. “JD.com has consistently outperformed overall Chinese retail sales of goods growth, taking market share from not only the brick-and-mortar operators but also Alibaba’s market-leading online platforms, TMall and Taobao,” writes Wium Malan, Propitious Research, on Smartkarma.
Results and Stock Movements
JD is listed on two stock exchanges. Hong Kong Stock Exchange (HKEX) and NASDAQ. For the company 2022 was a year of disappointments on both exchanges. JD was trading at HK$242.2 on the HKEX in early January, almost 17% down from where the share prices were at the beginning of last year. But a steep fall throughout the year saw the share trade at HK$141.8 on 24th October 2022. At HKEX, JD has a market cap of HK$762.66 bn and a P/E ratio of 331.44 as of January 13, 2023.
Even on NASDAQ, the share traded as low as $36.6 on 24th October 2022. JD has a market cap of $99.98 bn and was trading at a P/E ratio of 338.28 at NASDAQ.
The fall and the consequent rise of the share price can be credited to straining supply chain issues, global monetary tightening causing a slump in trade and Xi Jinping’s zero-Covid measures. With the end of zero-Covid restrictions and in the wake of a potential reopening of the Chinese economy, several Chinese companies saw an increase in the price of their shares, and JD is no exception. Market analysts and asset managers are bullish on Chinese stocks in general and JD in particular expecting the e-commerce giant’s shares to grow following another ease of regulations in China. Investors are betting on China, and thus Chinese stocks have rallied and entered a bullish run in the last two months of 2022 and going into 2023.
JD posted revenue of CNY 243.5 bn as of September 2022 quarter data, an 11.35% year-on-year growth. JD’s business strategies which replicate that of Amazon are the major reason behind the success of the e-commerce platform. Even with the Chinese economy slowing down, JD grew at a consistent pace owing to its customer relations and last-mile delivery. JD’s annual revenue for 2021 stood at CNY 951.6 bn, a 27.59% increase over the previous year. JD has grown fast over the years in terms of revenue. According to 2017 data JD had posted an annual revenue of CNY 362.33 bn.
However, in 2021 the company saw a 105% decrease in net profit which had grown at a quick pace in 2019 (490.74%) and 2020 (213.74%), respectively. The overall slowdown of the economy and the halt on private spending contributed to the decline in net profit figures. The trend continued in the first quarter of 2022.
What’s next for JD.com Inc?
Tencent has announced a $16.4 bn divestment plan from JD bringing down the stake held in the company to 2.3%. Tencent will provide its investors with JD shares as dividends, in what might be the beginning of the end for the strategic partnership between the two Chinese giants. The reduction of stake from a whopping 17% will take away the title of largest stakeholder in JD from Tencent. Walmart is set to take up the spot.
However, JD is planning to set foot in the international business to challenge Amazon. As per Q32022 data, the customer base of JD increased to 588.3 million from 552.2 million a year ago. This shows robust growth and the potential to magnify operations when coupled with the year-on-year revenue growth of the company. The easing of regulations on internet-based companies in China will also help further the prospects of JD.
Analysts expect JD as a prospective investment target for the year 2023 with the reopening of the Chinese economy and considering JD.com Inc’s strong balance sheet and cash flow statements. There have been several forecasts of JD’s bullish run in the market. “We believe the stock will have an upside of 27% for year-end 2023. We set a price target at HK$276,” writes Ming Lu from Aequitas Research on Smartkarma.
