Founded in 1998 by Richard Liu and headquartered in Beijing, China, JD.com (NASDAQ:JD) has grown to become one of China’s largest online retailer.

E-COMMERCE MONSTER

JD capitalizes on China’s fast-growing e-commerce market and offers a vast range of products in over 10 categories: apparel, fresh food, home appliances, electronics and fast-moving consumer goods.

  • JD.com’s e-commerce platform has over 499 million users, up 29% year-on-year
  • Its success has been attributed to its commitment to authenticity
  • Its direct sales approach has also allowed it to control the supply chain and limit the number of sellers, thereby ensuring and maintaining high standards

LOGISTICS WINNER

JD Logistics is a subsidiary of JD.com. It relies on the company’s advanced tech and logistics expertise to offer smart supply chain and logistics services to businesses within China.

It currently operates over 1,000 warehouses and managed to deliver 90% of the orders it processed on the same day or the next day

“Unlike Alibaba, which relies on a network of third-party partners to fulfil orders, JD.com takes a heavy-asset approach like Amazon, building up warehouse centers and keeping its own army of courier staff. As of 2020, JD Logistics had over 246,800 employees working in delivery, warehouse operations among other customer services.” by Rita Liao for TechCrunch

Logistics is seen as a key battle ground for e-commerce players in Asia as e-commerce, online delivery and local retailers fight to cut down delivery times, broaden their assortment and cut prices.

“Logistic(s) is becoming more important and becoming one of (JD’s) killing weapons in the high competition environment” by Ringo Choi for CNBC

IN THE SHADOW OF ALIBABA?

Alibaba is one of JD.Com's main domestic competitor in the Asian/Chinese e-commerce space. What sets Alibaba apart is its business model:

  • Alibaba relies on third-party merchants and suppliers, while JD.com has complete and direct control over its supply chain
  • Alibaba targets three consumer groups mainly made up of businesses and consumers in different combinations: B2B (merchants), B2C (direct consumers) and C2C (consumer to consumer)
  • JD.com, on the other hand, relies on direct sales teams to recruit merchants to sell their products through its online marketplace, thereby focusing on a B2C model

Another important player in this space is Pinduoduo, a company that now counts more than 820m active consumers (versus Alibaba’s 810m and JD.Com’s 499m). It pitches itself as an online blend of Costco and Disney: offering light entertainment together with value-based shopping.

“Pinduoduo pulled in US$4.1 billion in the fourth quarter, blowing past estimates, and became China’s largest e-commerce platform by number of users in 2020.” by Yujie Xue for South China Morning Post

AMAZON’S LOST BET

Amazon first ventured into the Chinese market back in 2004 following its acquisition of Joyo, a local online shopping market. It would receive a warm welcome from Chinese consumers and its best-performing years were 2011 and 2012, when it posted a market share of over 15%.

  • Stiff competition from JD.com and Alibaba would see Amazon lose its market share in the subsequent years, ultimately opting to leave the Chinese market altogether in 2019
  • In an official statement, Amazon announced that it would no longer operate a marketplace on Amazon.cn but would, instead, focus on cross-border sales through its main international site

“We are notifying sellers we will no longer operate a marketplace on Amazon.cn and we will no longer be providing seller services on Amazon.cn effective July 18. Over the past few years, we have been evolving our China online retail business to increasingly emphasize cross-border sales, and in return, we’ve seen very strong response from Chinese customers. Their demand for high-quality, authentic goods from around the world continues to grow rapidly, and given our global presence, Amazon is well-positioned to serve them.” Amazon’s official statement on exiting the Chinese market.

Amazon would have seen a re-entry into the Chinese market if the merger with NetEase’s Kaola went through. But the company ended up being acquired by Alibaba for $2 billion.

CUSTOMERS’ DELIGHT

Consumers have praised JD for its unique and wide product offering and its fast deliveries. It’s control over the supply chain and vast warehousing network enable these.

  • Original products: Given JD.com’s control of the entire supply chain, customers have grown to associate it with authentic products, particularly when compared to Alibaba. JD.com’s direct sales enable it to limit the number of sellers, thereby allowing them to closely monitor the quality of products delivered and the services provided to the customers
  • Wide selection of products: JD.com has a broad selection of products, some of which cannot be found in other places at the same prices
  • Timely deliveries: With JD.com, customers are assured of timely deliveries. The company has streamlined its delivery process and even explored delivery tech from within-the-hour delivery in major cities within China to drone deliveries in rural parts

THE MARKET

e-Commerce in China is expected to reach $ 1.5T by 2025. Driven by the growing use of smartphones, coupled with the convenience of buying fashion items, luxury products and daily essentials online.

According to Statista, the Chinese internet retail sector is expected to grow to $ 1.5T by 2025

“China is one of the largest e-commerce markets and adopters of digital technologies in the world. In 2013, it overtook the US to emerge as the largest e-commerce market. In FY17, China had over 750 million Internet users and a penetration of nearly 55%. Its online retail market is expected to grow from 17% of total retail sales in 2017 to 25% by 2020” by Gaurav Arora for PwC

According to Euromonitor International, over the 2020-2025 period, over half of the absolute value growth for the global retail industry will be digital

  • Representing $ 1.4 trillion in absolute value growth, attributed to more goods sold online
  • This would be equivalent to the total value of products sold across all retail channels globally half a decade ago

According to Forbes, China and the United States will account for 55% of the value growth in the online retail industry

  • This growth will be primarily driven by apparel and footwear, followed by food and drink

FOUNDER-LED MANAGEMENT

Richard Qiangdong Liu is the founder, Chief Executive Officer and Chairman of the Board at JD.com. He holds an Executive Master’s Degree in Business Administration from the China Europe International Business School. Before starting JD.com, Liu worked as a computer programmer and served in various positions at Japan Life.

Richard Qiangdong Liu

  • Founder, CEO and Chairman of the Board of Directors at JD.com
  • Previously served in various positions at Japan Life, including Director of Computers and Service between 1996 and 1998
  • Holds an Executive Master’s Degree in Business Administration from the China Europe International Business School and a Bachelor’s Degree in Sociology from the Renmin University of China in Beijing

Lei Xu

  • Lei Xu is the CEO of JD Retail
  • Previously served in various senior management roles in marketing and operations at Belle E-Commerce, Allyes and Lenovo. He also held the position of Chief Marketing Officer at Yougou.com between 2011 and 2012
  • Holds an Executive Master’s Degree in Business Administration from China Europe International Business School

Rui Yu

  • Rui Yu is the CEO of JD Logistics
  • Previously served as head of Eastern China and Central China logistics unit, head of JD.com’s customer experience and service department, as well as the CEO of Yihaodian
  • Holds Executive Master’s Degree in Business Administration from China Europe International Business School and a Bachelor of Law from China University of Political Science and Law

Sandy Ran Xu

  • CFO at JD.com
  • Previously served as an audit partner at Pricewaterhouse Coopers Zhong Tian LLP for over 20 years and was a Certified Public Accountant in the United States and China. Also serves as a director at Dada Nexus Limited
  • Holds a Bachelor’s Degree in Information Science and Economics from Peking University

STAY CAUTIOUS

The past few years have seen the Chinese Communist Party’s growing involvement in tech giants’ operations within the country. On March 12th, 2021, 12 tech giants, including Tencent, SoftBank, Didi Chuxing and Baidu were fined by the State Market Regulatory Administration for violating anti-monopoly rules.

These are issues happening in China and they could threaten the entire tech space. All policies that are initiated could affect JD.com and other tech giants in China.

TAKE A BREATH

So… This is a lot of information. Let’s summarise:

  1. Founded in 1998 by Richard Liu and headquartered in Beijing, China, JD.com has grown to become one of China’s largest online retailer
  2. It capitalizes on China’s fast-growing e-commerce market, offering an unrivalled online experience along with a vast range of products
  3. Its direct sales approach has also allowed JD.com to control the supply chain and by limiting the number of sellers, thereby ensuring and maintaining the strict quality of its products and services
  4. Through JD Logistics, JD.com is the only e-commerce platform in the world that offers small-to-medium-sized warehousing, cross border, oversized warehousing, frozen and chilled warehousing facilities
  5. The past few years have seen the Chinese Communist Party’s growing involvement in tech giants’ operations within the country. On March 12th, 2021, 12 tech giants, including Tencent, SoftBank, Didi Chuxing and Baidu were fined by the State Market Regulatory Administration for violating anti-monopoly rules

FINANCIAL CHECK

  • Net revenue for the first quarter of the 2021 financial year totaled $ 31.8B, up from $ 22.9B from the same period in the 2020 fiscal year
  • Non-GAAP income from operations for the first quarter of the 2021 financial year totaled $ 547.98m, up from $ 509.42m during the same period in 2020
  • Net income from operations for the entire 2020 fiscal year totaled $ 1.9B, a growth from $ 1.41B in 2019
  • Net revenue for the entire year of 2020 stood at $ 114.3B, a 29.3% increase from the previous year, 2019
  • Total current assets for the 2020 financial year totaled $ 36B, up from $ 21.76B in 2019
  • Total current liabilities for the 2020 fiscal year totaled $ 26.67B, up from $ 21.9B in 2019

THE BOTTOM LINE

The Good

  • JD.Com is a leading e-commerce player in China with a strong foot in logistics
  • Through its partnership with Dada, it is creating a online delivery champion
  • Compared to U.S. and E.U.-listed peers, the company trades at a significant discount when factoring in its growth opportunities across Southeast Asia

The Bad

  • JD’s growth inside China might be limited by the Chinese government

THE STAKE

We have a position in JD (approx 1.5% of total). JD is a leading e-commerce player in China with a strong foot in logistics, online health and food delivery.

  • We will increase if it manages to sustain its growth by expanding further into neighbouring countries and if Chinese regulators loosen their grip on local mega-caps
  • We will cut if growth falters, if Southeast Asia’s champions enter China and if regulators increase their scrutiny

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Disclaimer

Please note that this article does not constitute investment advice in any form. This article is not a research report and is not intended to serve as the basis for any investment decision. All investments involve risk and the past performance of a security or financial product does not guarantee future returns. Investors have to conduct their own research before conducting any transaction. There is always the risk of losing parts or all of your money when you invest in securities or other financial products.

Credits

Photo by David Veksler on Unsplash.