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JD.com: Let's Take A Step Back

Mar. 07, 2018 4:57 PM ETJD.com, Inc. (JD)BABA, VIPS, TCEHY65 Comments
Nicholas Carr profile picture
Nicholas Carr


  • JD got hammered after recent earnings.
  • Quarter to quarter EPS does not impact the long term prospects for a business like JD.
  • Online retail in China is supported by huge demographic tailwinds.

Editor's note: Seeking Alpha is proud to welcome Nicholas Carr as a new contributor. It's easy to become a Seeking Alpha contributor and earn money for your best investment ideas. Active contributors also get free access to the SA PRO archive. Click here to find out more »

Editor's note: Seeking Alpha is proud to welcome Nicholas Carr as a new contributor. It's easy to become a Seeking Alpha contributor and earn money for your best investment ideas. Active contributors also get free access to the SA PRO archive. Click here to find out more »

Editor's note: Seeking Alpha is proud to welcome Nicholas Carr as a new contributor. It's easy to become a Seeking Alpha contributor and earn money for your best investment ideas. Active contributors also get free access to the SA PRO archive. Click here to find out more »

Earlier in the week, JD (NASDAQ:JD) announced its Q4 earnings. The stock was hit, substantially, and is currently trading around 11% down from its one month high of 48.96.

The drop appears to be due to the contraction in operating margin for the quarter leading to lower than expected EPS, along with a rather negligible revenue miss. I feel the sell-off is grossly overdone and intend to put my thoughts across in this article, while zooming out to look at the overall China e-commerce picture.

China's Online Shopping Addiction

The reason I first invested in JD, back in December 2015, was to buy a ticket to coast on the enormous tailwinds supporting Chinese online retailers. These are still there today. My first statistic is one of online shopping penetration rates across the world.

(Source: Statista.com)

As you can see, China leads the way with 83% of the online population buying a product online in the last month. Interesting: online shopping

This article was written by

Nicholas Carr profile picture
UK-based investor. Bitcoin and biotech nerd.

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.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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Comments (65)

Hi, liked your article a lot. Don't want to be a spoilsport, but wouldn't saying that there 660 mln potential customers be a bit of the mark. According to the CIA World Factbook some 11% of the population is 65 and older, that makes some 149.000.000 people. The chance is high that many of these will never have a smartphone or computer and therefore will never become online customers.
Qambi1 profile picture
Great article mate, cheers. indeed Long JD
kos47 profile picture
I hold JD, BABA and Tencent (OTCPK: TCEHY) directly and small holdings in KWEB.
KWEB Holdings
Filings Data as of: Mar 20, 2018
1. Tencent Holdings Ltd (700: HKG) 8.10%
2. Alibaba Group Holding Ltd (BABA) 7.15%
3. Baidu Inc (BIDU) 5.82%
4. Vipshop Holdings Ltd (VIPS) 4.89%
5. JD.com Inc (JD) 4.55%
Hal44 profile picture
Note: I sold my LX today at break even on the opening as after this morn. I read the just released 2017 Q4, I did not like what I read. IMO, seems to imply that LX growth because of Chinese regs etc.. may slow and growth rate appears to be slowing. Who knows what will happen but, I can always get back in but in short run glad I have some extra cash on sidelines for now for other possible opps. Will see?
Hal44 profile picture
arty123, great info, much appreciated. I've got my work cut out. Looks like BABA is really thinking ahead (along with JD)? Thanks : Interesting also about Amazon Walmart and Flipkart

Note: one reason I like LX is that it appears as if their margins will be much better for mobile credit lending in China/Asia? than what JD margins are currently (which JD seems invested in LX). Note: although the Chinese gov't could always be a thorn in LX's side if they decide to clamp down on Chinese consumers getting more access to credit card debt, but the demand certainly appears to be there, we shall see?
Hal44 profile picture
Silver Fox, thanks for your mentioning Indian stocks: Flipkart, Snapdeal, & PayTM. Of these which can be easily bought by US investors and which of the 2 or 3 do you think, in your opinion, has the most potential?:, I accept the risk and will do further due diligence. Looking forward to your reply or if another good potential Indian stock comes to mind. Thanks,

Note: I also intend to pick up more LX (which JD has invested in) on dips, such as just occurred as I like LX's concentration on the use of mobile(cell) platform for the masses re: their borrowing for credit needs.
The answer is none of the above are directly accessible to retail investors. These are all private companies. The only way to get exposure to them is via proxies like Alibaba who owns a stake in paytm and snapdeal, ebay which owns a stake in snapdeal, and potentially walmart which is pursuing a 40% stake in Flipkart for $7 billion. It's currently a free for all in India, but Flipkart and Amazon appear to be the leaders from what I can gather. My bet is on Amazon taking the lead in India personally.
I’ve bought and sold JD over the last year to great success. Currently a bit underwater with my few thousand shares, but will continue to buy. Buy big or go home.
JKB2004 profile picture
You will be handsomely rewarded. Let it wait for a few years.
I'm glad I bought both JD and BABA ! ! !
Got it covered at both ends...
Dilly Dilly ! ! !
Great article- I believe JD is like Amazon 3years ago- just compare and hold
Texasstockman1 profile picture
That is true according to this.

Feb. 7, 2017, 12:11 PM
Late last week, Walmart announced that it had increased its stake in Chinese e-commerce giant JD.com to 12.1%, worth roughly $4.87 billion.
This is up from the 10.8% stake it had in October, and its 5.9% stake in June of last year.

Long on JD with or without something like Walmart - but it does gave more reason to say - oh yeah - buy..buy...buy each dip.
Did not Walmart buy into JD? I recall buying more shares after that announcement .
what's the bad news today?. why is it down again.
cn_habs profile picture
JD has been a volatile stock for quite a while now but many Chinese stocks are down today.
Hal44 profile picture
JohnClarkMartin (and Nicholas Carr): I like being updated on comments/articles on JD, but like you, would like more informed articles on good growth potential stocks for Indian companies, from which I can do further research. Obviously prefer a source with direct Indian contacts (boots on the ground type info)

I have an ETF in Indian growth companies but enjoy the more potential risk/reward of having a couple of high quality smaller mid size Indian companies (which I believe is the worlds fastest growing large economy) and would help me to diversify my portfolio more in case of an 'event' in Eastern Asia etc.Thanks.
Texasstockman1 profile picture
Nice Hal44 - thanks for the tip on LX. Just looked at it. 2.5B cap - direct sales, loans to on-line retail, mobile app. Added it to the watch list. Thanks again.

Maybe soon a lot of stocks will be like the bitcoin thing - If it is related to JD up it goes :)
Hal44 profile picture
Bought some LexinFintech Holdings (LX) early this morning after I read an article in this morning in Investors Bus Daily that said apparently JD is a significant investor in this new IPO. Fortunately it shot up about 16% today on heavy volume. Sounds like an exciting new IPO type company that will help capitalize on internet buying/loaning on credit especially in China, we shall see?

Still looking for a good Indian company with some of JD's type qualities.
Nicholas Carr profile picture
Thanks for the tip, I'll have a look into them. Good luck!
I couldn't agree more in looking into a good Indian technology company. I really wish a contributor would write an article on Indian tech companies. Hint, Hint, Hint.
You can not compare the sales of JD with the sales of Alibaba. Alibaba is mostly a commission based model with much, much higher margins, as you mentioned. 1$ with Alibaba is much more worth than 1$ of JD‘s abd will always stay more worth, as JD will not be able to lift the margin to Alibaba‘s level. COGS of JD are much higher. IMHO a price / sales comparision does not make sense! I understand, that neither does pe. a lot of investors, evaluating Amazon use price / free cash flow. Good news: JD is much cheaper than Alibaba. Long JD
Nicholas Carr profile picture
Hi, thanks for the comment. You are correct and I should have made it clearer the p/s comparison wasn't really valid for BABA, or included a p/fcf comparison.
Hal44 profile picture
Excellent first article. Any comments on a good long term growth stock like JD in India that is more or less not yet discovered but has good financials, mgmt and growth (is unique with a somewhat protective moat from competition). Thanks. I am long JD
cn_habs profile picture
What is JD's markets share in India?
Silver Fox profile picture
cn_has, I don't think they are doing business in India. Indian ecommerce market leaders are, in order of size: Amazon, Flipkart, Snapdeal, PayTM and a few smaller players.
As far as market share, flipkart has a larger market share than Amazon
g.dimit profile picture
I do Remember AMZN In the early days, During the Tech Disaster. AMZN Stock fell well below $2.00 Bucks for a considerable time.
Most of the People during that time felt it was Just a Fad & could go Bankrupt. Certainly, we know the Rest of the Story.
JD Might be similar to AMZN in some ways, However JD Recorded a profit in the last Quarter
at such young age. China's Internet Penetration is only 52% & India 35% There is a tremendous opportunity for JD to continue their High growth potential for many-many years to come.
I do have a position on JD, Planning to add Shares Soon.
Fantasee_Investor profile picture
At a minimum, this company is a 100 banger. With their passion for futuristic type investments in AI, automation, robotics, drones, food safety blockchain, etc.. owning their own high-tech warehouses, partnering with the best companies around and expanding in the online and offline world while offering the best of quality merchandise, They are destined to serve the biggest markets in a most modern and efficient way with the least "human" manpower necessary. The eventual profits are going to be obscene.
Nicholas Carr profile picture
Hi, thanks for the comment. Yes, I missed out the tech / automation side of things with JD as the article was getting a little long but that's certainly another exciting part of the company (and many of the large caps in China to be fair like Baidu, Tencent, Alibaba). Potential big returns from this R&d
Fantasee_Investor profile picture
Appreciate your reply and thank you for a good article.

What excites me most about the tech r&d automation efforts JD is pursuing is that I feel the payback will eventually impact their bottom line in a massive way. Much more so then when compared to a more “cyberspace only” based business model.

I believe we are at an inflection point in the super trend of the tech revolution we have been witnessing and experiencing, a point where technology is now much better able to touch and shape the processes that occur outside of the cyberspace domain from which it was born, more so than ever.

Like, It’s one thing to be a search engine and use AI effectively to better target ads and distribute content, or to facilitate a potentially better connection of a particular buyer to a particular seller. Those are efficiencies gained before the point of a sale. The sale must (hopefully) still occur. That is not as direct when compared to the payback possible after sales are booked when money is in transfer. Automating a logistics network, the factory floor, and distribution of tangible/heavy real world goods through a smart distribution system from manufacturer to consumer works to save money being placed in your pocket. Targeting a sale better will still leave a big gap to bridge in money actually reaching your pocket.

In a relative sense, I believe companies with good networking connections between information technology and the counterpart of a physical product distribution system own both sides of the new business equation, and are therefore positioned as better investments going forward.

In their market, JD has the first mover advantage here by owning a physical distribution network that is now in the grips of a technological transformation. And with the IOT phenomenon approaching, there is much to be discovered in its application towards the distribution of goods process.

In the Q&A part of the earnings conference, JD mentioned that they went from 10 employees in their Silicon Valley office to 100 employees and that they were hiring top talent. Hopefully this will produce a pipeline of creativity into their business processes both at the cyberspace level and the connection to the logistics level. Those 100 geeks have a lot of “stuff” to play with!

With all this traction, JD therefore has a good push-off into international expansion. I bet you will see someday that JD will have their own airport in China. (And airplanes) A “smart” automated iot based airport. Planes will leave 24 hours a day for the USA to deliver goods to Walmart stores, and pick up goods to bring back to China.

So these are my reasons for being and remaining long JD.
And good luck to you sir.
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