JD.com is one of the largest online retailers in China.
JDOctober 25, 2020
Thesis - JD.com is a pure play on e-commerce in China. E-commerce penetration in China is the highest worldwide and still growing, as its middle class grows and consumes more products. Alongside Alibaba’s Tmall, JD.com is a leader in online consumer retail. Since 2007, it has invested heavily in building out its nationwide logistics and delivery network in order to enable faster deliveries around the country (mirroring Amazon’s strategy in the US). In 2014, Tencent invested in JD.com and remains a large shareholder whilst Google invested $550m in 2018. They also have a partnership with Walmart to deliver groceries from several of Walmarts China locations and sell directly through Tencent’s WeChat app. With a large market, a powerful tailwind (e-commerce in China) and a number of strong partnerships, JD.com could be set for long-term success.
Financials & Performance - From 2015-2019 JD grew revenues 34% a year. Gross margins are at a slender 8%, although the margin profile of the business is improving with scale (up from 5.4% in 2015). This reflects the heavy investments they have made in their delivery network. The company recently became marginally profitable.
Risks - Competition for the Chinese e-commerce consumer is fierce. As mentioned, Alibaba’s Tmall is a strong competitor with a large footprint and newer companies like Pinduoduo (mentioned in edition #4) are also claiming market share. A further consideration is ongoing trade tensions with the US, which certainly effects the perception of Chinese stocks which are US-listed.