JD - JD.COM

[Nell-e]

JD, the Chinese e-commerce, company created a new separate platform for luxury apparel.  It's at www.toplife.com .  I'm not sure when the website went up but most likely in the past 2 months since I checked the site late last year and it was under construction.

 

Any Chinese consumers here have an opinion of the site and the brands/products that it carries?  Are the brands highly desirable or are they more 2nd tier brands?

 

Also, would be interested in getting overall thoughts about JD and Chinese e-commerce sector.

 

 

 

 

 

[Liberty]

JD was mentioned in a recent Saber Capital presentation at Google (John Huber):

 

sabercapitalmgt.com/wp-content/uploads/2018/02/Saber-Capital-Talk-at-Google.pdf

 

More John can be found here:

 

basehitinvesting.com

[randallchsu]

So I am sharing this as a layman user of JD and ecommerce in China. I am a JD plus member (JD plus is similar to Amazon prime) and 12K points in 京享值 (a system JD uses to rank its users based on spending/activity/credit worthiness) so that puts me in the top quartile for all JD users. I use JD pay for Apple pay and JD credit products, so I am immerse in their offerings, but this is first time I heard of toplife.com.

 

But I do know luxury is a segment that JD wants to grow, they have a division on their site called JD Luxury, and I bought a few eye frames via the JD luxury channel only because it was cheaper than getting them from optic stores.

 

For me, JD's strength is in its logistic. As a plus member, I get free same delivery for many of the products and JD warehouses are like 60-100km out from where I am. Most of the time, I only look at items that can be fulfilled by JD.

 

For none time-sensitive items, I still get from taobao because it usually have the lower price for the same product.

 

I buy from Netease and Xiaomi too, and Wechat is gaining traction as well after Tencent launched "little app". But I am just one sample size and perhaps only represent those that live in tier one cities. China is huge and consumers are way too diverse to draw general representation at this time due to huge variance in wealth/class/education/up-bring.

[Liberty]

Thanks for sharing your experience, randallchsu. Always nice to hear directly from a customer of the company.

[racemize]

Yes, very good to hear from you.  Could you provide any input on how much of a moat or stickiness of consumers there are for these various Chinese ecommerce companies?

 

E.g., Amazon has a lot of stickiness here, but it seems like China has a lot more competition in this space.  I understand it is anecdotal, but any general information would be helpful.

[Nell-e]

Thanks for replies.

 

randallchsu, did you view the toplife.com website?  It's in Chinese so I'm not able to navigate around since I don't read Chinese.  On front page, they are featuring brands like Hogan, Pomellato, Perrin, Shiatzy Chen, Atelier Swarovski, TOD's, etc.

 

I'm wondering if toplife caters to ultra rich or upper middle class.  One of the Hogan sneakers on the front page retails for 4300 RMB which is ~$685 USD.  That seems pretty expensive.

 

 

[randallchsu]

I don't spend in the luxury segment. So those brands on toplife.com probably tier one brands , but I really have no clue.

 

What I can share is even tho 4.3k rmb sounds a lot, you would be surprised at the number of 8-15K rmb monthly salary people buying these kind of brands.

 

Have a look at Sandro, a public company listed in Paris. Their average price tag is 2-3k+ rmb and most of their Chinese customers are middle class at best. Sandro is doing well in China with over 200+ locations, maybe partly because it was 50%+ owned by a Chinese company.

 

http://www.smcp.com/en/finance/publications/

 

And if you look at the new Starbucks reserve roastery in Shanghai, average spending is 110 rmb per person and that location gets a huge foot traffic.

 

Thanks for replies.

 

randallchsu, did you view the toplife.com website?  It's in Chinese so I'm not able to navigate around since I don't read Chinese.  On front page, they are featuring brands like Hogan, Pomellato, Perrin, Shiatzy Chen, Atelier Swarovski, TOD's, etc.

 

I'm wondering if toplife caters to ultra rich or upper middle class.  One of the Hogan sneakers on the front page retails for 4300 RMB which is ~$685 USD.  That seems pretty expensive.

[randallchsu]

I believe they are trying to build moat/stickiness around the Costco or SPG/Marriott/Visa/Mastercard kind of membership experiences.

 

Taobao gives prime-like membership based on spending/activity/credit worthiness called 淘气值 (SVIP). JD has the plus program. Xiaomi and Netease are luring customers with a brand experience similar to MUJI at a better price.

 

There seems to be a first mover advantage. Taobao is the first place to check for products/services. I will be able to find something on taobao at a great price, but I am just unsure of the quality. JD, Xiaomi and Netease solved this pain point and took market share.

 

And they are all using technology to give a better experience. Returning products have become so easy on any of the above platforms. For example, if you are a taobao SVIP member, you get one free return shipping each week. You just click return, and taobao, using their cainiao system, will arrange a carrier to come based on the date and time you requested. You don't need to shipping label, call anyone, or write anything. When the pickup guy comes, you give him a 4 digit pin code you get from taobao to complete the pickup. And if you have high sesame credit rating, taobao will give you a refund immediately before seller gets the package and complete product verification.

 

So my point is, if return is so easy and free, I am incline to buy on taobao for things that are less brand/quality/time sensitive.

 

Yes, very good to hear from you.  Could you provide any input on how much of a moat or stickiness of consumers there are for these various Chinese ecommerce companies?

 

E.g., Amazon has a lot of stickiness here, but it seems like China has a lot more competition in this space.  I understand it is anecdotal, but any general information would be helpful.

[Nell-e]

randallchsu

 

-That's very interesting feedback about Chinese consumer spending behavior.  Can you further explain?  What's the demographic/age group that spends like this?  Are these people living beyond their means?  Who do they get credit from?  I'm Chinese American and the stereotype is Chinese people are savers. 

 

-Aren't fake products a huge issue in China?  The narrative is that JD has a much better reputation than other suppliers when it comes to authenticity.  Can you comment on that?  How much more likely do you think people are to use JD because of trust issues?

 

-What's Richard Liu's image in China like?  IMHO- Alibaba's stock price has been greatly helped by Jack Ma's evangelism.  I don't even think his English speeches are that insightful.  There's a lack of English speaking Chinese CEO's therefore retail investors default to BABA for their China exposure.  Richard Liu's English interviews are way too stiff.  I'm wondering if he's more charismatic when speaking Chinese. He's young so plenty of time to improve his English.

 

-I'm going to start another thread on a company called, Jupai (JP).  It's a wealth mgmt company.  Their competitor is Noah.  The need for retirement planning in China is massive.  It would be great if you could comment on that thread too even if you don't know about Jupai.  Would be great to get perspective on retirement planning attitudes in China.

 

[randallchsu]

China is too big and diverse, so I think it would be better to discuss about spending behaviour within different regions or tier 1/2/3 cities in that context. Also, Chinese consumes are not really homogeneous, each region speaks their own dialogue and have different culture norms.

 

So I don't know to be honest, but one primary reason I suspect for tier 1 citizens are strong income growth coupled with rising asset prices. This has been going on for the last ten years and looks sustained at the moment. Once you extrapolate that to the future, even though you might be overspending now, you feel like your future income/asset growth will make up for it.

 

A lot of people are savers because of real estate. Someone argued why the previous generation were able to save so much was because the Chinese government owned all properties, and the government privatized these housing units to its citizens in the 1980's at below market value (there was no such thing as market value), so almost everyone had some equity built-up via housing and removed a major expense which is housing. There was no such thing as a real estate agent back in the 60s or 70s.

 

randallchsu

 

-That's very interesting feedback about Chinese consumer spending behavior.  Can you further explain?  What's the demographic/age group that spends like this?  Are these people living beyond their means?  Who do they get credit from?  I'm Chinese American and the stereotype is Chinese people are savers. 

 

[tol1]

Would be keen to hear about key metrics /drivers and how the current high NTM valuation can be justified accordingly.

[one-foot-hurdles]

Notes from HK Sohn conference:

Kok Hoi Wong (APS Asset Management):  Short: JD.com (JD).  This has been a consensus long among many managers but argues that it's already priced for perfection.  Thinks impairment losses coming.  Company made bad investments (PaiPai and QQ Wanggou, Bitauto, Tuniu, Yihaodian).  Thinks a big impairment is possible from Yihaodian.  Management is "investing recklessly."  Says to be weary as company can't make a profit in highly competitive Chinese e-commerce market.  Business model is misunderstood.

 

Also see attachment for more detailed analysis

 

From what I know these guys have been short since 2016(since $25)

170517_-_CIO_Note_-_JD.com_Tulips_Anyone.pdf

[Spekulatius]

Gross margins have been increasing from 8.4% in 2012 to >14% in 2018, if you include the higher margin service revenues. The man bull thesis is that JD creates a better customer experience because they own their logistics network. I have not seen nothing in the this short thesis to refute this.

 

The thesis makes some points that are fair, but th same could have been made about AMZN, which started out as a book retailer and does not resemble anything to what it is right now.

 

it is a question of management being able to adapt and invest smartly and creating a better customer experience. if JD can do they, they should be able to succeed and it should pay out handsomely, if no t this will fail.

 

I have a small position in JD, which I regard as an option play of sorts and as that, I think it is pr9bably undervalued right now.

[Liberty]

ShawSpring Partners presentation from august 2016 (attached).

JD.com_ShawSpring_August_2016.pdf

[lucasnascimento]

Attached a document I made compiling responses to APS' short thesis made by Richard from https://oraclefromomaha.wordpress.com and Lester from https://wondurrrrboy.wordpress.com/. Also attached APS' reports.

Addressing_JD_Bear_Arguments.pdf

170601_-_SMTF_-_JD.com_Report.pdf

38_JD_Research_Paper_-_APS_Asset_Management_May_2016.pdf

[atbed]

I'm currently spending some time in China, and have spent the last few weeks in Shanghai/Beijing. Naturally, I've been hearing a ton on JD and BABA. Here's an interesting POV: Both sites have fakes, because they are extremely difficult to get rid of. People expect this. JD talks a lot about getting rid of fakes, but some actually believe they talk the talk more than they can walk the walk. In comparison, Taobao is very open about the existence of fakes on their platform. The view is that Taobao will do what it can, but that consumers need to be careful. I'm also hearing that Taobao's customer service is better. In fact, I've heard horror stories about JD bullying their customers. Now none of this information was gathered through a formal survey, so take it with a large grain of salt.

[Liberty]

Attached a document I made compiling responses to APS' short thesis made by Richard from https://oraclefromomaha.wordpress.com and Lester from https://wondurrrrboy.wordpress.com/. Also attached APS' reports.

 

Thank you, lucasnascimento, I appreciate it.

[oddballstocks]

Interesting thread, the short rebuttal was a good read.  Both sides seem to have good points.

 

I haven't followed this name closely, I know it's a hedge fund hotel, but a short based on valuation seems a little shaky here.

 

China is an interesting market.  Before the 08 crash there was a LOT of China hype too, no one could go wrong buying Chinese equities.  It's a strangely fascinating thing, I get that it has 1b+ people and is undeveloped.  But so is India, and India gets zero investment attention.  I understand that non-Indians can't buy Indian equities, but China is the same.  You're buying into a VIE that has a contractual relationship with the underlying entity.  Why can't they do this in India?

 

 

Do longs look at this as a buy and hold forever deal? Or is it more of a growth isn't being valued, so you buy until it's valued?

 

[Jurgis]

China is an interesting market.  Before the 08 crash there was a LOT of China hype too, no one could go wrong buying Chinese equities.  It's a strangely fascinating thing, I get that it has 1b+ people and is undeveloped.  But so is India, and India gets zero investment attention.  I understand that non-Indians can't buy Indian equities, but China is the same.  You're buying into a VIE that has a contractual relationship with the underlying entity.  Why can't they do this in India?

 

Maybe it's a good business to start. Indian VIEs. Assuming Indian government would not put their foot on it. Though maybe it's been done or been tried.

 

There are clearly other reasons of India vs China attractiveness that may or may not make sense.

 

Do longs look at this as a buy and hold forever deal? Or is it more of a growth isn't being valued, so you buy until it's valued?

 

I don't own JD. I'd say something like Tencent is hold forever, though possibly way too late after 400x bagger return. I've owned Chinese gaming companies and they seemed to be more "buy cheap, sell when not", since long term returns and business trajectories have been not great. There are exceptions maybe.

[Foreign Tuffett]

Interesting thread, the short rebuttal was a good read.  Both sides seem to have good points.

 

I haven't followed this name closely, I know it's a hedge fund hotel, but a short based on valuation seems a little shaky here.

 

China is an interesting market.  Before the 08 crash there was a LOT of China hype too, no one could go wrong buying Chinese equities.  It's a strangely fascinating thing, I get that it has 1b+ people and is undeveloped.  But so is India, and India gets zero investment attention.  I understand that non-Indians can't buy Indian equities, but China is the same.  You're buying into a VIE that has a contractual relationship with the underlying entity.  Why can't they do this in India?

 

 

Do longs look at this as a buy and hold forever deal? Or is it more of a growth isn't being valued, so you buy until it's valued?

 

It amazes me how readily investors in Chinese companies via this structure disregard the risk of waking up one day to find that they now own nothing more than a tiny interest in a Cayman Islands PO box. Or, less flippantly, the principal-agent problem already looms large in investing, why invest in a situation in which the "agents" (management and the Chinese communist party) are completely beyond the reach of the "principals" (foreign investors)? 

 

 

[lucasnascimento]

Interesting thread, the short rebuttal was a good read.  Both sides seem to have good points.

 

I haven't followed this name closely, I know it's a hedge fund hotel, but a short based on valuation seems a little shaky here.

 

China is an interesting market.  Before the 08 crash there was a LOT of China hype too, no one could go wrong buying Chinese equities.  It's a strangely fascinating thing, I get that it has 1b+ people and is undeveloped.  But so is India, and India gets zero investment attention.  I understand that non-Indians can't buy Indian equities, but China is the same.  You're buying into a VIE that has a contractual relationship with the underlying entity.  Why can't they do this in India?

 

 

Do longs look at this as a buy and hold forever deal? Or is it more of a growth isn't being valued, so you buy until it's valued?

 

It amazes me how readily investors in Chinese companies via this structure disregard the risk of waking up one day to find that they now own nothing more than a tiny interest in a Cayman Islands PO box. Or, less flippantly, the principal-agent problem already looms large in investing, why invest in a situation in which the "agents" (management and the Chinese communist party) are completely beyond the reach of the "principals" (foreign investors)?

 

 

To address this issue, take a look at https://www.wsj.com/articles/a-spark-that-could-light-up-chinas-internet-giants-1520247521, http://www.scmp.com/business/companies/article/2139703/beijing-fast-tracks-foreign-listed-chinese-tech-firms-share and today's https://www.ft.com/content/7e243658-6a0c-11e8-8cf3-0c230fa67aec

 

Since Chinese CDR investors will be subject to the same VIE structure, many US investors would be more comfortable investing in these companies (the thinking being that the Chinese government wouldn’t do anything conniving to its own citizens). Also most people invest into what they know better. It is fair to say that one of the factors many of these Chinese US-listed tech companies are trading at lower multiples than they should be (Charlie Munger shares that thinking https://www.cnbc.com/2018/05/07/charlie-munger-chinas-best-companies-cheaper-than-us.html), is due to the fact their Chinese customer-base can’t invest in these foreign-listed shares due to capital controls, and US investors have never used these platforms.

 

All in, this is likely to be a great catalyst for the stock going forward.

[LightWhale]

https://www.reuters.com/article/us-jd-com-google/google-to-invest-550-million-in-chinese-e-commerce-giant-jd-com-idUSKBN1JE079

[atbed]

https://www.ft.com/content/71e9b868-752e-11e8-aa31-31da4279a601

 

"China is preparing to pass a wide-ranging law that would hold ecommerce platforms run by Alibaba, JD.com and Tencent liable for fraudulent goods sold by vendors on their sites."

 

Does this reduce one of JD's advantages at a time when their biggest competitor is already investing heavily into logistics/fulfillment?

[Broeb22]

I personally believe anything that removes friction in the customer experience is a positive for eCommerce as a whole. And anything that makes people more likely to buy online should help JD in the long-term. 

 

Does it level the playing field for Alibaba relative to JD? Possibly, but this is a YUGE market. There is probably room for at least two players of scale. I'm more concerned about some better mousetrap coming out of the woodwork to displace JD than I am about Alibaba eating JD's lunch and putting it out of business.

 

Another perspective is generally that incumbents tend to benefit from regulation. If you're an upstart competitor to JD, how in the world are you supposed to ensure sellers on your platform are selling authentic goods? How much will it cost to do that? In my opinion, this probably benefits JD long-term.

[lucasnascimento]

https://www.ft.com/content/71e9b868-752e-11e8-aa31-31da4279a601

 

"China is preparing to pass a wide-ranging law that would hold ecommerce platforms run by Alibaba, JD.com and Tencent liable for fraudulent goods sold by vendors on their sites."

 

Does this reduce one of JD's advantages at a time when their biggest competitor is already investing heavily into logistics/fulfillment?

 

This is way more negative for BABA compared to JD. Don't even think that would be an issue for JD.

BABA will have to spend much more in authenticity control since JD is way ahead in terms of quality control. BABA's 3P Gross GMV is more than 4 times higher than JD's, what means BABA would have to spend 4x more at least.

 

Authentic products is JD's mantra. Richard Liu has anticipated this trend since the beggining of JD. The shift towards customer experience will be very costly to BABA, and it will take time.

 

Don't really believe this regulation will change much given the difficulty to track billions of orders and millions of merchants. And if you cut all the counterfeit today from BABA, a large piece of its GMV will be gone with the 3P fees and advertising revenue. Not sure if the Chinese government really wants to crush its major tech company and let millions of merchants unemployed.