In this post I would like to introduce you to the Chinese e-commerce joint-stock company JD.com.
The company is China’s largest online retailer and one of the top-selling Internet companies in the country with revenues of $ 67 billion. It operates the online platform of the same name, jd.com. The company operates on the joybuy.com website in the international market.
JD’s logistics network covers 99% of the Chinese population. Almost 90% of all deliveries are delivered on the same day or the next day – this is unique worldwide.
In 1998 Richard Liu founded the company JD Multimedia with his savings of the equivalent of $ 1,800. The electronics retailer was later to become JD.com.
The J stands for Jing, the first name of Richard Liu’s girlfriend at the time and the D for his own Chinese first name Dong.
The funds of the then 24-year-old Chinese man were just enough to rent a four-square-meter retail store in Beijing’s Zhongguancun technology center. Not a place for people with agoraphobia.
When a SARS epidemic broke out in China in 2003, Liu was forced to close his business. However, he was not discouraged and began to use the potential of the Internet by selling his products online. This was a complete success.
As the demand increased steadily, JD started in 2007 to build up the company’s own logistics network. Even then, JD had set itself the goal of controlling all steps of the supply chain down to the last mile of delivery to the customer.
The product range was continuously expanded from 2008. The business turned from an electronics retailer into a full-fledged e-commerce platform.
In 2010, JD entered into a strategic partnership with Tencent, which gave the company exclusive access to the Tencent platforms WeChat and QQ.
Just four years later, JD was listed on the New York NASDAQ under the symbol “JD” and Liu became a billionaire. He still owns about 16% of the shares.
In 2016, US retail group Walmart acquired a 5% stake in JD and agreed on a number of different areas of collaboration. Walmart can thus grow more strongly in China and JD gains access to the US market.
The Americans have now increased their stake in JD to 12% and Tencent has also built an impressive 20% stake. Alphabet holds about 1% of the shares.
Today, JD is the second largest e-commerce company in China with a market share of 16% after Alibaba (58%) and is becoming an increasingly strong competitor.
Incidentally, Amazon could not compete in the Chinese market and withdrew from China.
The attack by JD.com on the top dog Alibaba is also known in China as a fight between cat and dog.
The JD logo contains a white dog and the logo of the Tmall company, which belongs to Alibaba, contains a black cat.
On closer inspection, both of them could coexist. Alibaba sees itself “only” as a mediating platform, while JD is a “real” dealer who controls everything from purchasing to sales.
Therefore, the comparison with Amazon and JD is actually much more accurate than the often used comparison with Alibaba. JD operates its own warehouses, has a gigantic logistics network that is constantly being expanded and uses the latest technologies.
JD’s business model consists of three areas: e-commerce, logistics and technology.
Of course, the former forms the heart of the company. More than 330 million active customers use the rapidly growing e-commerce platform. Already 90% of all orders are processed via mobile devices – and the trend is rising.
Through the nationwide logistics network, most customers’ orders are delivered on the same or the following day, as mentioned at the beginning. This logistics competence is also offered to other companies from different industries. This is particularly clever, because it means that your own transports can be better utilized. If free transport capacity is sold, the margin increases.
The research and development activities focus on smart logistics and smart supply chain – in short, to develop the most intelligent and efficient logistics systems.
According to its own statements, JD is also the first company in the world to carry out commercial deliveries by drone. In addition, JD is a leader in robotics and in the automation of delivery vehicles, warehouses and logistics processes. The first small robot vehicles that can load up to 30 parcels are on the way to customers in Beijing.
JD currently operates several logistics parks that are among the largest and most automated in Asia. The world’s first fully automated warehouse was completed in Shanghai. This can process more than 200,000 parcels a day and is controlled by just four employees.
The company focuses on growth. Revenue has increased from $ 16.7 billion to $ 67 billion since going public in 2014. This is an annual growth rate of more than 32%. However, this growth comes at the expense of profit. This is namely negligible. The operating loss of $ 81 million increased to a mini-profit of $ 101 million over the same period (therefore it cannot be shown in the following figure). After all, the trend is right.
However, I don’t see the fact that JD’s business has made very little profit so far. Like Amazon, the company is pursuing the strategy of gaining more and more market share through strong growth. Only when a large market penetration is reached will the business be monetized more.
However, in comparison with Amazon, it has to be noted that the Americans are now making very high profits with AWS, the company’s cloud service, with which growth can be subsidized. JD has so far lacked such a pearl of earnings.
The technology division is currently devouring funds, and the growing logistics division is only making small profits. In general, logistics service providers are generally not known for particularly high margins and are subject to business cycles. Here JD has yet to prove that the use of new technologies can significantly increase margins compared to the competition and thus create added value for the shareholders.
Chinese online retail sales are expected to increase from $ 714 billion to $ 1,210 billion by 2024. The number of Chinese who order online is expected to increase from 803 million to 1,028 million.
I myself am convinced that JD will generally benefit from the opportunities of growing online trade in China as well as in Asia and therefore I am also invested in JD. I have a small position in my portfolio with an average purchase price of € 27.95.
But please form your own opinion about JD, this is not an investment recommendation (see disclaimer).
Sources & Links: