JD.com: Now Is The Time To Buy


Структура статьи

  • It is pretty clear institutions are selling. All the bad press that has been generated around China would make it difficult for institutions to explain clients why they keep owning Chinese stocks.
  • A lot has been said about JD’s low margins. I believe those could improve with reductions in costs thanks to AI and automation.
  • At 0.676x forward sales and 36% revenue growth estimated for FY21, JD looks too cheap. JD has reported excellent Q2 earnings, with annual active customer accounts and revenue reaching new highs.
  • I will discuss any further movements at JD.com (offerings, earnings reports, M&A, etc.) on Twitter, as always.

A lot has happened to JD.com (JD) during 2021. First, the stock soared over 24% and reached $107. Since then, the stock price has declined over 40%. However, this has nothing to do with JD.com. The Chinese market is having a tough year because of the CCP regulations.

Data by YCharts

JD.com has been severely affected, though not as much as Baidu or Alibaba. The stock had a similar correction during 2018.

Data by YCharts

This too shall pass. During July last week, Chinese stocks saw far more inflows than US ones.


In another sign of continued investor interest in China, the stocks saw far more inflows than U.S. ones, relative to the overall amount of money invested in the two categories of stocks, EPFR data showed.

Flows into U.S. stock funds were about 0.1% of assets under management at the beginning of the week, versus a little over 1% for China ones, Brandt said.

Global Times reported on August 13th that more and more institutions are buying Chinese stocks while retail investors continue to be afraid. Please do not take this as an offense. I perfectly understand that we, retail investors, risk our hard-earned money buying stocks, hence, I believe every investor has the right to be concerned about what is happening in China or to sell its holdings if not comfortable.

However, I find Global Times report hard to believe. Institutions drive prices and plenty of US brokers said Chinese companies are among their most purchased stocks by retail investors during last months, according to Business Insider.

If retail investors are buying Chinese stocks, why do they keep declining? It is pretty clear institutions are selling, but not necessarily because they think Chinese stocks are no longer excellent opportunities. All the bad press that has been generated around China would make it difficult for institutions to explain clients why they keep owning Chinese stocks.

In JD.com’s case, I believe patience will pay off. The company has presented great numbers in their Q2 earnings report. JD.com looks undervalued and I believe it could deliver great returns for investors in the following years. The risks are still there, however, I believe JD.com is oversold because of the situation in China.

I would recommend buying the stock to everyone who wants to invest in the e-commerce industry or gain exposure to the Chinese market at cheap prices.


JD.com is China’s largest online retailer and its biggest overall retailer. It provides nearly 500 MA customers with high-quality products, mainly consumer electronics. China’s e-commerce market is forecasted to hit $3T by 2024.

Chinese e-commerce market is set to grow from sales revenue of 13.8 trillion yuan ($2.1 trillion) in 2021 to 19.6 trillion yuan ($3.0 trillion) in 2024, representing a compound annual growth rate (CAGR) of 12.4 percent, according to newly-released GlobalData forecasts.

JD.com offers a vast selection of products across every major category.

Source: JoyBuy US

Thanks to JD’s logistics network, customers enjoy same and next-day delivery standard, which is a level of service that even Amazon cannot match. For those doubting the quality of Chinese-made products, JD.com has JD Worldwide

a cross-border platform that allows brands from around the world to sell directly to Chinese consumers. JD.com customers can get high-quality products from around the globe delivered to their doorsteps at the push of a button.

JD.com has one of the largest infrastructures of any e-commerce company in the world and their effectivity is excellent.

We opened our logistics platform to partners, so that they can leverage JD.com’s unparalleled nationwide logistics network to provide an industry-leading level of delivery service. JD.com is able to achieve rates of approximately 90% of orders delivered the same or next day, a rate of fulfillment that no other e-commerce company of JD.com’s scale can match globally.

A lot has been said about JD’s low margins. I believe those could improve with reductions in costs thanks to AI and automation. JD has built the world’s first fully automated warehouse in Shanghai, and it’s developing their own drones delivery and autonomous delivery robots.

Source: Internet of Business

The company has same and next-day delivery available for almost any product to almost anywhere in China. JD is also the first company in the world to make commercial deliveries by drone.


Data by YCharts

I am well aware that Alibaba, Pinduoduo and JD.com are quite different businesses. I would qualify JD as capital intensive while Alibaba and Pinduoduo are asset-light businesses. Hence, it would not be correct to compare their forward P/S ratios. However, I just want to remark how cheap JD looks at 0.676x forward sales with 36% revenue growth estimated for FY21.

JD.com has released today its second quarter earnings report. Revenue has grown 38% to $39.3B, which is excellent, considering JD’s size.

Source: HyperCharts and Q2 earnings

Nonetheless, OpEx growth has risen above revenue growth this quarter, that’s something I do not like to see.

Source: HyperCharts and Q2 earnings

Free cash flow continues to increase and annual active customer accounts have grown by 27.4% to a record number.

Annual active customer accounts increased by 27.4% to 531.9 million in the twelve months ended June 30, 2021 from 417.4 million in the twelve months ended June 30, 2020.

Source: Q2 earnings

Margins have drastically decreased compared to other quarters.

Source: HyperCharts and Q2 earnings

12.5% gross margin and almost no profit margin leave no room for error when competing with Alibaba and Pinduoduo. These companies’ gross margins are extremely higher than JD’s.

Data by YCharts

The lack of margins has occurred because the company has also presented record numbers in operating expenses.

Source: HyperCharts and Q2 earnings

Marketing and G&A expenses have drastically increased YoY.


Marketing expenses increased by 56.0% to RMB10.6 billion (US$1.6 billion) for the second quarter of 2021 from RMB6.8 billion for the second quarter of 2020.

General and administrative expenses increased by 80.0% to RMB2.6 billion (US$0.4 billion) for the second quarter of 2021 from RMB1.4 billion for the second quarter of 2020. The increase was primarily due to the increase in share-based compensation expenses.

The company has presented a record quarter in terms of expenses but also in revenue. Hence, operating income is in line with last quarters and gross profit sets another record, $4.914B.

Source: HyperCharts and Q2 earnings

Truth is, I was expecting better margins in Q2, but the company has offset my disappointment with outstanding growth and the annual active customer accounts record number. JD could reduce expenses and improve their margins right away, but the company rather spend to keep growing. I totally support this strategy. JD has plenty of growth ahead, and as I have shown you above, it is likely that they will slowly reduce expenses thanks to new technology developments, their logistics platform, and better products.

Also, the company continues to have a considerable pile of cash.

As of June 30, 2021, the company’s cash and cash equivalents, restricted cash and short-term investments totaled RMB178.1 billion ($27.6 billion).

Overall, excellent second quarter for JD.


Valuation wise, JD.com is an undervalued company with plenty of growth ahead. I believe the company will give excellent returns to investors in the following years. However, if you want to take advantage of the downside trend in Chinese stocks and never have bought in China before, I suggest you look at Alibaba. In other words, I would only recommend investors to buy JD.com if you already have Alibaba in your portfolio. It’s just a better company, it has 29% of the global industry market share. Nonetheless, JD.com is still number 2 for me.

Source: Forbes

Author: Alvaro Romero, Seeking Alpha

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