JD - JD.COM

[Lakesider]

New trading strategy.

 

Take short position, Accuse CEO of serious crime. Police will arrest CEO despite lack of evidence, Stock falls = Profit

[Jurgis]

New trading strategy.

 

Take short position, Accuse CEO of serious crime. Police will arrest CEO despite lack of evidence, Stock falls = Profit

 

Right. Shorts planted an unscrupulous woman to seduce and then yell rape on a poor CEO with outstanding moral character.

 

The conspiracy theories of investment discussion boards.  ::)

[Spekulatius]

In my opinion, it’s better to buy the “collateral damage“ in stocks like BABA or Tencent etc rather than JD, if interested in a trade. Much less risk and they probably will recover faster.

 

I'm not sure BABA/Tencent are dropping because JD is dropping. I am not even sure JD is dropping because of the CEO/rape (although it could be part of the reason). A lot of US tech stocks are dropping for whatever reasons. And a lot (?) of China shares are dropping because of tariffs (?), EM crisis (?), game approval stoppage, etc.

 

You do your DD and you make your choices.

 

Did you sell your JD position or still holding?

 

I sold my Jd at a small profit, dipped my toes into YY,  it didn’t like the water and sold. I looked at BABA, but the hodgepodge balance sheet concerns me, so I am out of the Chinese growth stocks for now.

 

FWIW, I don’t think the rape allegations to JD’s CEO are the only reason for the Chinese Internet socks falling,  it I think they contribute to souring the sentiment.

[Liberty]

https://www.bloomberg.com/news/articles/2018-09-05/jd-com-ceo-s-release-from-u-s-jail-suggests-police-lacked-proof

 

https://www.wsj.com/articles/billionaire-founder-locked-up-jd-coms-board-cant-meet-without-its-mighty-boss-1536225892

 

[TheAiGuy]

Some thoughts:

 

I don't know what happened but there is a real possibility that the CEO raped someone. Discounting this as a false accusation without evidence, IMHO, makes you a bad person.

 

As for the business:

1) The economics of this business are very compelling.

2) This is a consumer facing business where the CEO is a celebrity. Public perception of the incident, true of false, may adversely affect the long term prosperity of business

2a) It probably won't, though.

3) There is, and always has been, a mountain of idiosyncratic risks to this particular company.  Key man risk, governance, VAE structure, political risk, etc.  Caveat emptor.

 

This once was my largest position, before market declines made it my 4th largest. I'm not happy about the accusations and am very unlikely to sell in the medium term.

 

 

 

[rkbabang]

Some thoughts:

 

I don't know what happened but there is a real possibility that the CEO raped someone. Discounting this as a false accusation without evidence, IMHO, makes you a bad person.

 

As for the business:

1) The economics of this business are very compelling.

2) This is a consumer facing business where the CEO is a celebrity. Public perception of the incident, true of false, may adversely affect the long term prosperity of business

2a) It probably won't, though.

3) There is, and always has been, a mountain of idiosyncratic risks to this particular company.  Key man risk, governance, VAE structure, political risk, etc.  Caveat emptor.

 

This once was my largest position, before market declines made it my 4th largest. I'm not happy about the accusations and am very unlikely to sell in the medium term.

 

There is, of course, the possibility that he raped someone.  In that case there is still the possibility that there isn't enough evidence to charge him.

There is the possibility that he is being falsely accused because he's rich.  There are a lot of possibilities.  The only one that really affects the company are the ones where he is charged with the crime and convicted.  Also even in the case that he is charged, being in China, he can choose to not travel to the US to stand trial.

 

I bought more yesterday, but it is still a small position for me.

 

 

[lucasnascimento]

After reading the attorneys opinions, common outcomes of rape allegations and Liu's/JD approach to the story, I feel confused. I think if it the allegation was a nonsense, Richard Liu should have already talked about it publicly or showed to the public that he is confident that nothing will happen.

 

The worst part for me is that even if police don't charge him, there will always be uncertainty regarding to what really happened that night and therefore the trust on him will never be the same (assuming he remains silent about the case, which is probable). Also, the reflexitivity regarding the stock price on the business can be relevant. For those who don`t know, all the management (12 people) receives USD1.8mn in cash bonuses altogether. This is just 150k per individual per year. The remaining is share-based. Liu receives no cash bonus. I mean, this is a serious incentive problem (when share prices fall abruptely in one year; the structure itself is very good).

[Liberty]

http://jdcorporateblog.com/minnesota-updates/

[TheAiGuy]

There is the possibility that he is being falsely accused because he's rich.

 

Look, accusation isn't proof but the base-rate that he was treated with kid gloves because he's a rich important businessman is a hell of a lot higher than the base-rate of some random conspiracy.

[Spekulatius]

Some thoughts:

 

I don't know what happened but there is a real possibility that the CEO raped someone. Discounting this as a false accusation without evidence, IMHO, makes you a bad person.

 

As for the business:

1) The economics of this business are very compelling.

2) This is a consumer facing business where the CEO is a celebrity. Public perception of the incident, true of false, may adversely affect the long term prosperity of business

2a) It probably won't, though.

3) There is, and always has been, a mountain of idiosyncratic risks to this particular company.  Key man risk, governance, VAE structure, political risk, etc.  Caveat emptor.

 

This once was my largest position, before market declines made it my 4th largest. I'm not happy about the accusations and am very unlikely to sell in the medium term.

 

What makes the economics of JD so compelling? To me BABA‘s economics look much more compelling and they have stronger growth and more scale.

[rkbabang]

There is the possibility that he is being falsely accused because he's rich.

 

Look, accusation isn't proof but the base-rate that he was treated with kid gloves because he's a rich important businessman is a hell of a lot higher than the base-rate of some random conspiracy.

 

I didn't put likely-true percentages next to my possibilities.  I said that "There are a lot of possibilities".  I'm not claiming to know what happened.

 

I do think, however, that whatever really happened that it is not very likely that he ends up in jail.  Maybe because there is no evidence, maybe because the accusations are false, maybe because he gets treated with kid gloves because he is a billionaire CEO.  It is also almost certain that you and I will never know the truth about what happened.

 

[TheAiGuy]

There is the possibility that he is being falsely accused because he's rich.

 

Look, accusation isn't proof but the base-rate that he was treated with kid gloves because he's a rich important businessman is a hell of a lot higher than the base-rate of some random conspiracy.

 

I didn't put likely-true percentages next to my possibilities.  I said that "There are a lot of possibilities".  I'm not claiming to know what happened.

 

I do think, however, that whatever really happened that it is not very likely that he ends up in jail.  Maybe because there is no evidence, maybe because the accusations are false, maybe because he gets treated with kid gloves because he is a billionaire CEO.  It is also almost certain that you and I will never know the truth about what happened.

 

These there are actually statistics on: according to RAINN, about 1/10 people arrested for sexual assault end up in jail, and he's a Chinese national in China, so that probably is more like close to zero.

 

That said, many of the public accusations of the rich and powerful have been followed up by further allegations (e.g. Dominque Strauss-Kahn, Weinstein, Cosby, ...). There maybe cultural/legal differences that prevent that, for example libel and slander laws can limit accusations (e.g. France), so who knows.

[TheAiGuy]

What makes the economics of JD so compelling? To me BABA‘s economics look much more compelling and they have stronger growth and more scale.

 

I don't have an opinion on BABA for a variety of reasons but one doesn't preclude the other. Duopolies can be very profitable.

 

I think of JD.com as an asset play -- the longer their revenue grows at a rapid pace, the larger, more ingrained and more valuable the infrastructure related to the distribution of merchandise.  That is to say, I view their revenue growth as fueling the growth of physical infrastructure and the margins will work them selves out overtime if that revenue basis is sufficiently large. It's hard to see economies of scale for things like fulfillment, as this is pretty labor intensive, but marketing, technology and general administration should require less as a percentage of revenue as revenue grows. There is also an argument to be made about gross margins as well.

 

[lucasnascimento]

What makes the economics of JD so compelling? To me BABA‘s economics look much more compelling and they have stronger growth and more scale.

 

I don't have an opinion on BABA for a variety of reasons but one doesn't preclude the other. Duopolies can be very profitable.

 

I think of JD.com as an asset play -- the longer their revenue grows at a rapid pace, the larger, more ingrained and more valuable the infrastructure related to the distribution of merchandise.  That is to say, I view their revenue growth as fueling the growth of physical infrastructure and the margins will work them selves out overtime if that revenue basis is sufficiently large. It's hard to see economies of scale for things like fulfillment, as this is pretty labor intensive, but marketing, technology and general administration should require less as a percentage of revenue as revenue grows. There is also an argument to be made about gross margins as well.

 

There is a big argument on gross margins: 3P and Advertising mix improving (70/80% GM growing at ~30/40%)

[Liberty]

This guy spoke with JD IR:

 

[zhengmit]

Latest report from China: under the involvement of the Ministry of Foreign Affairs, the girl returned to China.  You can interpret this news in many angles.

[Zorrofan]

After reading the attorneys opinions, common outcomes of rape allegations and Liu's/JD approach to the story, I feel confused. I think if it the allegation was a nonsense, Richard Liu should have already talked about it publicly or showed to the public that he is confident that nothing will happen.

 

The worst part for me is that even if police don't charge him, there will always be uncertainty regarding to what really happened that night and therefore the trust on him will never be the same (assuming he remains silent about the case, which is probable). Also, the reflexitivity regarding the stock price on the business can be relevant. For those who don`t know, all the management (12 people) receives USD1.8mn in cash bonuses altogether. This is just 150k per individual per year. The remaining is share-based. Liu receives no cash bonus. I mean, this is a serious incentive problem (when share prices fall abruptely in one year; the structure itself is very good).

 

Might his silence about the matter be cultural? While it may be typical to proclaim one's innocence in North America perhaps in Chinese culture one doesn't speak out publicly?

[Liberty]

"Prosecutors are weighing whether to bring charges against Chinese businessman Richard Liu after the Minneapolis Police Department turned over the findings of its initial investigation"

 

https://www.reuters.com/article/us-jd-com-ceo/minneapolis-prosecutors-weighing-evidence-in-jd-com-ceo-case-idUSKCN1M02EF

[siddharth18]

"Prosecutors are weighing whether to bring charges against Chinese businessman Richard Liu after the Minneapolis Police Department turned over the findings of its initial investigation"

 

https://www.reuters.com/article/us-jd-com-ceo/minneapolis-prosecutors-weighing-evidence-in-jd-com-ceo-case-idUSKCN1M02EF

 

Any idea what's the worst case scenario as far as the case is concerned? Let's say he's charged with rape and doesn't show up to his trial and is found guilty and there's warrant out for his arrest. Then what? There's no extradition treaty between US and China, so he stays in China and lives the good life and denies the accusation. Some believe he's a rapist, some don't, but life goes on for the average JD shopper.

 

I don't see how the average JD consumer, 3 years from now, ordering a camera due to JD's low price, guaranteed authenticity and fast delivery would refuse to shop at JD, because JD's founder was accused of rape in a foreign land few years ago.

[Foreign Tuffett]

"Prosecutors are weighing whether to bring charges against Chinese businessman Richard Liu after the Minneapolis Police Department turned over the findings of its initial investigation"

 

https://www.reuters.com/article/us-jd-com-ceo/minneapolis-prosecutors-weighing-evidence-in-jd-com-ceo-case-idUSKCN1M02EF

 

Any idea what's the worst case scenario as far as the case is concerned? Let's say he's charged with rape and doesn't show up to his trial and is found guilty and there's warrant out for his arrest. Then what? There's no extradition treaty between US and China, so he stays in China and lives the good life and denies the accusation. Some believe he's a rapist, some don't, but life goes on for the average JD shopper.

 

I don't see how the average JD consumer, 3 years from now, ordering a camera due to low prices and fast delivery will refuse to do so because JD's founder was accused of rape in a foreign land.

 

I don't think you're framing this correctly. JD.com is solely traded on the NASDAQ, a US-based exchange. It doesn't take much imagination to see that the stock would be complete anathema if the CEO became a fugitive from justice. It would be an almost unprecedented situation, especially given the already tenuous ownership structure.

 

I don't think Liu will be charged with rape. It's more likely he will be charged with a lesser crime, maybe some kind of aggravated sexual conduct. Overall though, I think the most likely outcome is that he won't be charged with anything.

 

Why do I think this? I would direct your attention to the 2011 case of Dominique Strauss-Kahn, the last very high profile foreign national arrested in the US for rape. Arrested on May 14th (step #1), he was denied bail and charged on May 16th (step #2), and indicted by a grand jury on May 19th (step #3).

 

Compare that timeline to the Liu situation, which is still, 20 days after the alleged crime, on step #1.

 

 

[Cevian]

Foreign Tuffett I agree with your logic.

 

(step #4) After completing a lengthy investigation, prosecutors filed a motion to drop all charges against Strauss-Kahn

[siddharth18]

 

 

I don't think you're framing this correctly. JD.com is solely traded on the NASDAQ, a US-based exchange. It doesn't take much imagination to see that the stock would be complete anathema if the CEO became a fugitive from justice. It would be an almost unprecedented situation, especially given the already tenuous ownership structure.

 

I don't think Liu will be charged with rape. It's more likely he will be charged with a lesser crime, maybe some kind of aggravated sexual conduct. Overall though, I think the most likely outcome is that he won't be charged with anything.

 

Why do I think this? I would direct your attention to the 2011 case of Dominique Strauss-Kahn, the last very high profile foreign national arrested in the US for rape. Arrested on May 14th (step #1), he was denied bail and charged on May 16th (step #2), and indicted by a grand jury on May 19th (step #3).

 

Compare that timeline to the Liu situation, which is still, 20 days after the alleged crime, on step #1.

 

 

 

As far as stock being an anathema because a fugitive is a CEO...can't he'd just nominate a puppet/proxy, or even his wife to be the chairperson/CEO and still maintain defacto control of the company and execute his vision?

 

I'm not saying him becoming a fugitive would be a good thing for the stock (in the short term)...but long term I don't understand how it would break JD's business or affect their future cash flows. The tailwinds propelling JD's business forward (GDP growth, rise of middle class, increasing demand for authentic products) are so obvious and inevitable.

 

The average consumer is China that's about to order his camera is not going to change his/her behavior because the founder and former CEO is deemed a fugitive in foreign land. If Jeff Bezos was similarly accused in China or Russia would American consumers refuse to shop at Amazon? No, why would they? They just care about cheap prices, fast delivery and great customer service.

 

So I'd like to focus just on the question that ultimately matters: How does this case at all affect JD's competitive positioning, or cash flows or its future success 3 years from now even if he IS deemed a fugitive?

[Foreign Tuffett]

 

I don't think you're framing this correctly. JD.com is solely traded on the NASDAQ, a US-based exchange. It doesn't take much imagination to see that the stock would be complete anathema if the CEO became a fugitive from justice. It would be an almost unprecedented situation, especially given the already tenuous ownership structure.

 

I don't think Liu will be charged with rape. It's more likely he will be charged with a lesser crime, maybe some kind of aggravated sexual conduct. Overall though, I think the most likely outcome is that he won't be charged with anything.

 

Why do I think this? I would direct your attention to the 2011 case of Dominique Strauss-Kahn, the last very high profile foreign national arrested in the US for rape. Arrested on May 14th (step #1), he was denied bail and charged on May 16th (step #2), and indicted by a grand jury on May 19th (step #3).

 

Compare that timeline to the Liu situation, which is still, 20 days after the alleged crime, on step #1.

 

 

 

As far as stock being an anathema because a fugitive is a CEO...can't he'd just nominate a puppet/proxy, or even his wife to be the chairperson/CEO and still maintain defacto control of the company and execute his vision?

 

I'm not saying him becoming a fugitive would be a good thing for the stock (in the short term)...but long term I don't understand how it would break JD's business or affect their future cash flows. The tailwinds propelling JD's business forward (GDP growth, rise of middle class, increasing demand for authentic products) are so obvious and inevitable.

 

The average consumer is China that's about to order his camera is not going to change his/her behavior because the founder and former CEO is deemed a fugitive in foreign land. If Jeff Bezos was similarly accused in China or Russia would American consumers refuse to shop at Amazon? No, why would they? They just care about cheap prices, fast delivery and great customer service.

 

So I'd like to focus just on the question that ultimately matters: How does this case at all affect JD's competitive positioning, or cash flows or its future success 3 years from now even if he IS deemed a fugitive?

 

I disagree with your premise. There are serious corporate governance issues here that pose risks to shareholders regardless of the operational performance of the company.

 

Picture it this way: You're happily riding along in your wagon full of stock certificates until your horse (JD.com) and jockey (Richard Liu) break free of the faulty harness (a Cayman Islands holding company) and run off. Now you have to go to the sheriff (the Chinese Communist Party) to try and get recompense. Better bring your Colt .45 because it might get ugly.

 

An actual example of something like this happening was Yukos in 2003. Putin basically took the company away from shareholders in response to a political dispute.

 

 

[Spekulatius]

 

 

I don't think you're framing this correctly. JD.com is solely traded on the NASDAQ, a US-based exchange. It doesn't take much imagination to see that the stock would be complete anathema if the CEO became a fugitive from justice. It would be an almost unprecedented situation, especially given the already tenuous ownership structure.

 

I don't think Liu will be charged with rape. It's more likely he will be charged with a lesser crime, maybe some kind of aggravated sexual conduct. Overall though, I think the most likely outcome is that he won't be charged with anything.

 

Why do I think this? I would direct your attention to the 2011 case of Dominique Strauss-Kahn, the last very high profile foreign national arrested in the US for rape. Arrested on May 14th (step #1), he was denied bail and charged on May 16th (step #2), and indicted by a grand jury on May 19th (step #3).

 

Compare that timeline to the Liu situation, which is still, 20 days after the alleged crime, on step #1.

 

 

 

As far as stock being an anathema because a fugitive is a CEO...can't he'd just nominate a puppet/proxy, or even his wife to be the chairperson/CEO and still maintain defacto control of the company and execute his vision?

 

I'm not saying him becoming a fugitive would be a good thing for the stock (in the short term)...but long term I don't understand how it would break JD's business or affect their future cash flows. The tailwinds propelling JD's business forward (GDP growth, rise of middle class, increasing demand for authentic products) are so obvious and inevitable.

 

The average consumer is China that's about to order his camera is not going to change his/her behavior because the founder and former CEO is deemed a fugitive in foreign land. If Jeff Bezos was similarly accused in China or Russia would American consumers refuse to shop at Amazon? No, why would they? They just care about cheap prices, fast delivery and great customer service.

 

So I'd like to focus just on the question that ultimately matters: How does this case at all affect JD's competitive positioning, or cash flows or its future success 3 years from now even if he IS deemed a fugitive?

I don’t think that the average shopper in China cares about what the CEO of JD did or didn’t do. i a: pretty sure that Liu would need to give up control or delist from Nasdaq. I don’t know of any case, where a fugitive is the CEO of a publicity trades company in the US. Then there is also the heavy headed hand of the Chinese government. They have a way to get people back in the line, although it is unclear, if this would apply to Liu in this situation. it is something to consider however.

[Jurgis]

Then there is also the heavy headed hand of the Chinese government. They have a way to get people back in the line, although it is unclear, if this would apply to Liu in this situation. it is something to consider however.

 

Chinese government response would depend a lot on where Liu stands in respect to them at given time. But this really is a risk with any Chinese company not just JD. Alleged crime in US may or may not influence local response. (Hey, look at what's happening with video game approvals in China - huge businesses can be just nuked by govt decisions.)

 

I agree though that most likely outcome is: nothing happens.

 

I was just reading an unrelated article about incident of rape and how things went. And it talked about how some grand jury refused to indict even clear cut cases. So likely we won't get to #2 or #3 even if there was a crime committed.