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A Detailed Look At JD.com's Strategy, Market Position, And Growth Potential

Jul. 10, 2017 7:39 AM ETJD.com, Inc. (JD)15 Comments
DX2 Capital profile picture
DX2 Capital


  • We begin the article with a look at the evolution of China's e-commerce market, its growth potential, government policies, and JD.com's participation in the market.
  • We then analyze JD's growth plan, including investments in offline channels, investments outside of mainland China, and investments in smart warehouse and drone delivery.
  • Finally, a valuation is done on JD from a comparable approach, and it appears that the company is undervalued compared to its peers.
  • We believe JD is a long-term winner.

Research was done by Isaiah He of DX2 Capital Management

China's E-Commerce Market Overview

The idea of e-commerce was first introduced to China as early as 1999, when the internet was a concept that many Chinese citizens had never heard of. The pioneers in this industry, such as Alibaba (BABA), Dangdang (DANG), and Ctrip (CTRP), went through the ups and downs during the early years, and it was not until 2003, when SARS broke out like a plague, that the e-commerce industry got a chance to grow. During the SARS outbreak in 2003, ordinary citizens were forced to stay home, and the "normal" ways of doing business or shopping no longer worked, so people began to execute their daily activities online. During the time, JD.com (NASDAQ:JD) was hit hard like all the other retail stores; Richard Liu, JD's founder, was forced to have a store online to avoid being out of business. To his surprise, his online shop proved to be an enormous success; JD's online business experienced a compound growth rate of more than 26% per month from 2003 to 2004 (Chinese language source).

The crossroad soon came as SARS went away, and JD had to make a difficult decision: should it transform into an online retailer or just stick to the old way of doing business, since the offline retail stores still contributed to more than 90% of JD's income after SARS. Richard Liu decided to take a chance; he closed all 12 stores in 2005 and began to transform into exclusively doing business online. In 2007, JD built up its logistic systems in Beijing, Shanghai, and Guangzhou, and offered POS machine for customers who wish to pay at delivery. Then, from 2007 and on, the company has expanded its product lines from 3C (computers, communication devices, and consumer electronics) to an all-in-one online store that we have today.

This article was written by

DX2 Capital profile picture
DX2 Capital is a New York-based global long/short equity fund that primarily invests in growth companies, based in Asia, North America, and Latin America, that are shaping the world or have the potential to become future market leaders. The fund invests across all market cap spectrums and focuses on the technology, financials, and retail sectors.We believe in a balanced portfolio with global diversification. We focus on risk-adjusted return measured by Sharpe and Sortino ratios.

Analyst’s Disclosure: I am/we are long JD. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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