JD - JD.COM

[Aqul]

JD story turned into a disaster this year because of the unexpected depth of Logistics losses and the much higher than expected R&D investments, which are masking the underlying margin improvement of the business. IMO, it was a execution flaw within JDL (management clearly didn't anticipate the struggle they would have in the first years of operation in convincing sellers to adopt their solution) and also there was a serious communication error, as they could have better communicated the rapid R&D ramp-up and most importantly the insane CAPEX ramp-up for this year. Core business thesis is intact (shift to 3P/Ad which are growing faster, is really driving higher margins), but JDL/R&D led to significant earnings revisions for the next 1-3 years.

 

Those who invested late 2017/early 2018 with the core margin improvement thesis were not wrong. Those unexpected losses, the consumption slowdown and moreover Liu's arrest (!!) have come at the same time. Really really unfortunate.

 

On the flipside, seems like JDL will turn profitable on a gross basis next year (from ~ -20% GM this year - bizarre margin take off) and R&D will stabilize and bear fruit in the coming quarters. Logistics moat seems mostly intact. JDL monetization fund will also begin to yield returns. From a macro level also, the only way for China is up. Consumption rebound will help 3C/electronics.

 

SOTP, P/Sales and P/FCF also point to significant misprice. If JD delivers 80% of FCF they did in 2017 (w/ some capex normalization and no one-offs in CFO like this year), you have a FCF Yield of 8% 2019E. Worth taking a look.

 

Really well said.

[koshigoe]

But at the end of the day it will always be priced at a discount to BABA and for good reason. Better off just paying for quality...

 

 

Oh the irony! Sounds like someone doesn't really understand either business. Perhaps you'd like to read this:

https://deep-throat-ipo.blogspot.com/search?q=baba

 

And what are those good reasons? Perhaps you'd like to see this:

 

just search back two years and you see JD taking search share from Taoabao/Tmall

 

http://index.sogou.com/index/searchHeat?kwdNamesStr=京东,天猫,淘宝网&timePeriodType=MONTH&dataType=SEARCH_ALL&queryType=INPUT

 

Why did Walmart and Google and Tencent invest in JD and not BABA? Oh because they didn't take your advice, right?

 

[Jerry Capital]

Salty AF

[Broeb22]

Is there any significant difference between the VIEs JD uses versus the ones BABA uses?

 

Are there any more thorough resources on the legal structures that members of the board have come across?

[koshigoe]

Salty AF

 

so edgy

[Spekulatius]

Is there any significant difference between the VIEs JD uses versus the ones BABA uses?

 

Are there any more thorough resources on the legal structures that members of the board have come across?

 

BABA has more of them. BABA has the most Byzantine structure that I have seen.

[Aqul]

But at the end of the day it will always be priced at a discount to BABA and for good reason. Better off just paying for quality...

 

 

Oh the irony! Sounds like someone doesn't really understand either business. Perhaps you'd like to read this:

https://deep-throat-ipo.blogspot.com/search?q=baba

 

And what are those good reasons? Perhaps you'd like to see this:

 

just search back two years and you see JD taking search share from Taoabao/Tmall

 

http://index.sogou.com/index/searchHeat?kwdNamesStr=京东,天猫,淘宝网&timePeriodType=MONTH&dataType=SEARCH_ALL&queryType=INPUT

 

Why did Walmart and Google and Tencent invest in JD and not BABA? Oh because they didn't take your advice, right?

 

Really well said.

[Liberty]

https://www.wsj.com/articles/prosecutors-to-decide-soon-whether-to-charge-chinese-billionaire-over-rape-allegations-1544437831

[Liberty]

https://twitter.com/CNBCnow/status/1076202167286022144

 

JD.com  shares jump sharply higher after Minnesota prosecutor says that the company's founder Liu Qiangdong will not be chared in sexual assault case brought against him in August.

[Liberty]

https://seekingalpha.com/article/4236331-market-value-jd-coms-non-consolidated-equity-stakes-reveals-extreme-mispricing

 

JD's non-consolidated equity stakes are worth about $13.0 billion at current market prices.

 

That suggests core JD including 81% of JD Logistics is being valued in the market at $14.9 billion. That is 0.2x this year's revenue.

 

Further backing out the $10.9 billion value of 81% of JD Logistics reveals that the core online retail business, with its ~300 million customers, is being valued at $4 billion.

 

[Aqul]

https://seekingalpha.com/article/4236331-market-value-jd-coms-non-consolidated-equity-stakes-reveals-extreme-mispricing

 

JD's non-consolidated equity stakes are worth about $13.0 billion at current market prices.

 

That suggests core JD including 81% of JD Logistics is being valued in the market at $14.9 billion. That is 0.2x this year's revenue.

 

Further backing out the $10.9 billion value of 81% of JD Logistics reveals that the core online retail business, with its ~300 million customers, is being valued at $4 billion.

 

 

Good points. I would say it's tough to separate the value of JD's Logistics and Finance assets from the core JD Mall asset. A better framework might be to look to buy JD Mall at a fair price (which the current price likely is), and receive the other assets for free.

[Liberty]

Good points. I would say it's tough to separate the value of JD's Logistics and Finance assets from the core JD Mall asset. A better framework might be to look to buy JD Mall at a fair price (which the current price likely is), and receive the other assets for free.

 

You can't separate it if you're doing a thought-experiment of a runoff/bankruptcy, but if you're thinking of it as an ongoing operating business, I think you can think of them that way.

[Broeb22]

Why can't you separate the logistics business from the JD Mall business? Amazon and Fedex/UPS are separate companies. Alibaba and Cainiao are separate companies. While they share a lot of volume with one another, JD Logistics is now sending non-JD orders across China. Over time, JD Logistics will likely have much lower customer concentration than it currently does, and will be able to function as a stand alone company.

[Aqul]

Good points. I would say it's tough to separate the value of JD's Logistics and Finance assets from the core JD Mall asset. A better framework might be to look to buy JD Mall at a fair price (which the current price likely is), and receive the other assets for free.

 

You can't separate it if you're doing a thought-experiment of a runoff/bankruptcy, but if you're thinking of it as an ongoing operating business, I think you can think of them that way.

 

Sorry if that was unclear. JD Finance and Logistics definitely have value independently of Mall. It's probably tougher to determine that value, and I'm not sure that relying on inflated private market valuations is necessarily the best method.

 

Either way, I think we both agree that this is pretty cheap even after the recent move.

[Liberty]

Q4:

 

http://ir.jd.com/node/8101/pdf

 

Stock up 13.25% pre-market.

[Liberty]

Q1:

 

https://ir.jd.com/static-files/e65cc95b-0650-41f8-aa1a-a44e6ccf58c0

 

https://ir.jd.com/static-files/7fc991e7-c54a-40e1-ad77-906953751239

[TheAiGuy]

https://www.bloomberg.com/news/articles/2020-05-20/senate-passes-bill-to-delist-chinese-companies-from-exchanges

 

 

This ~was~ a 20% position for me until this morning, when I fully exited the position. I've held this for ~3.5 years, with an IRR of ~20%, but I am quite concerned about this new escalation. I should say that I'm heavily restricted and this is my first trade in several years, and I'm I have to get (rarely granted) approval to buy or sell a security.

[winjitsu]

https://www.bloomberg.com/news/articles/2020-05-20/senate-passes-bill-to-delist-chinese-companies-from-exchanges

 

This ~was~ a 20% position for me until this morning, when I fully exited the position. I've held this for ~3.5 years, with an IRR of ~20%, but I am quite concerned about this new escalation. I should say that I'm heavily restricted and this is my first trade in several years, and I'm I have to get (rarely granted) approval to buy or sell a security.

 

Will be very interesting to watch how this plays out. There already have been grumbles from founders in China that the communist party is installing lackeys at each company and slowly taking over control under the guise of "Chinese Socialism"

 

Secondly, the VIE structure is BS anyways and I suspect we'll see this with LK, which in theory has plenty of value left, but post de-listing I doubt shareholders will have claims to anything meaningful.

[TheAiGuy]

https://www.bloomberg.com/news/articles/2020-05-20/senate-passes-bill-to-delist-chinese-companies-from-exchanges

 

This ~was~ a 20% position for me until this morning, when I fully exited the position. I've held this for ~3.5 years, with an IRR of ~20%, but I am quite concerned about this new escalation. I should say that I'm heavily restricted and this is my first trade in several years, and I'm I have to get (rarely granted) approval to buy or sell a security.

 

Will be very interesting to watch how this plays out. There already have been grumbles from founders in China that the communist party is installing lackeys at each company and slowly taking over control under the guise of "Chinese Socialism"

 

Secondly, the VIE structure is BS anyways and I suspect we'll see this with LK, which in theory has plenty of value left, but post de-listing I doubt shareholders will have claims to anything meaningful.

 

I actually doubt de-listing in and of itself is all that meaningful to the value of the shares (you still get to keep the shares, even if they have to move to the pink sheets or a different exchange; e.g. hong kong, london), but my concern is that if both the US and Chinese Govt's escalate, both will be willing to screw over US investors down the line.  My previous thesis was that the Chinese Govt wouldn't want to harm access to capital markets, but I think that argument is weak now.

[winjitsu]

 

I actually doubt de-listing in and of itself is all that meaningful to the value of the shares (you still get to keep the shares, even if they have to move to the pink sheets or a different exchange; e.g. hong kong, london), but my concern is that if both the US and Chinese Govt's escalate, both will be willing to screw over US investors down the line.  My previous thesis was that the Chinese Govt wouldn't want to harm access to capital markets, but I think that argument is weak now.

 

 

Thinking specifically of Sinoforest as a counter-point, but agree with you on the later. There's a big narrative change with Xi ... I think the HK case is dying as well if China continues to exert legislative influence there. End game is probably just directly opening up Shanghai / Shenzhen.

[TheAiGuy]

 

I actually doubt de-listing in and of itself is all that meaningful to the value of the shares (you still get to keep the shares, even if they have to move to the pink sheets or a different exchange; e.g. hong kong, london), but my concern is that if both the US and Chinese Govt's escalate, both will be willing to screw over US investors down the line.  My previous thesis was that the Chinese Govt wouldn't want to harm access to capital markets, but I think that argument is weak now.

 

 

Thinking specifically of Sinoforest as a counter-point, but agree with you on the later. There's a big narrative change with Xi ... I think the HK case is dying as well if China continues to exert legislative influence there. End game is probably just directly opening up Shanghai / Shenzhen.

 

I realize I misread what you originally wrote.  I can’t say that I have enough information to agree or disagree but that sounds plausible.

[Broeb22]

How do ADS shareholders get consideration for the spin-off of JD Logistics, announced today?

 

Passages like this scare me. If we don't receive shares in the spun-off entity, what do we receive? If JD.com received cash for the shares of JD Logistics that ADS holders have I guess that would be OK, but not ideal since owning the Logistics business is part of the reason for owning JD. I know that JD will retain ownership in JD Logistics, but I want to know what happens to the part they are spinning off.

 

"WAIVER FROM STRICT COMPLIANCE WITH PARAGRAPH 3(F) OF PN15

 

Paragraph 3(f) of PN15 requires a listed company contemplating a spin-off to have due regard to the interests of its existing shareholders by providing them with an assured entitlement to shares in the spun-off entity, either by way of a distribution in specie of existing shares in the spun-off entity or by way of preferred application in any offering of existing or new shares in the spun-off entity.

 

The Company applied for, and the Hong Kong Stock Exchange has granted, a waiver (the “Waiver”) from the requirement that the Shareholders be provided an assured entitlement to JD Logistics Shares (as set out in paragraph 3(f) of PN15) on the basis that: (i) the Company is primarily listed on Nasdaq and only has a secondary listing on the Hong Kong Stock Exchange, (ii) the Company is not subject to a similar requirement under applicable U.S. laws and Nasdaq rules and its articles of association, (iii) the low feasibility of the Company giving assured entitlement by way of distribution in specie or by way of preferred application in any offering of JD Logistics Shares, as U.S. securities laws would require JD Logistics to conduct a public offering in the United States and file a registration statement with the SEC under the U.S. Securities Act among other procedures that would be unduly burdensome, (iv) the vast majority of the Shareholders are based outside of Hong Kong, and (v) the Proposed Spin-off is not material to the Company with reference to the Company’s market capitalization.

 

In light of the above, the Board considers that the Proposed Spin-off and the Waiver are fair and reasonable and in the interests of the Company and its Shareholders as a whole."

 

[LearningMachine]

In 2006, I was trying to decide between EBAY & AMZN for investment.  At the time, I thought EBAY was the better business because it owned Paypal and also had a high-margin marketplace, where it could take a cut of transactions without any inventory or distribution expenses.   I thought EBAY would benefit from competition between merchants, and will be able to extract more from transactions than Amazon could.   I was clearly wrong. 

Last week, I asked a Chinese acquaintance who still has parents, relatives & friends in China, and herself visits China regularly, on what they use in China.  She mentioned

• her grandparents usually buy everything directly from stores,
• her mom also buys groceries directly from stores, and still buys some other things from stores but also uses Taobao for some things
• she herself and her friends (younger generation) use JingDong, Tmall, Taobao and sometimes stores directly.  They believe JingDong's quality is higher and customer satisfaction is higher.  They don't buy groceries from Taobao but do buy groceries from JingDong.

Here is a study I found on customer satisfaction between JingDong and Taobao: https://zenodo.org/record/1134099#.YKBImahKj-g.  It confirms 80% people Strongly Agreed JingDong's quality was high, while 40% said that for Taobao.  However, it is not a very credible source.  I also couldn't find data on customer satisfaction difference between JingDong and Tmall. 

If I had looked at customer satisfaction data back in 2006, I might have correctly picked AMZN over EBAY, as customer satisfaction/NPS can often be a leading indicator of adoption, and a measure of customer loyalty.  

Now, regarding market-share between JD and Taobao/Tmall, I'm a little confused. 

Here is what some sources say:

• Tmall 63.6%, JD 24.4% Source: https://jingdaily.com/jd-com-vs-tmall-chinas-luxury-e-commerce-battleground/
• Tmall 63.1%, JD 25.7% Source: https://asia.nikkei.com/Business/Retail/JD.com-s-profit-crashes-80-in-race-with-Alibaba-over-rural-China

The percentage shares above mean that Tmall does about 2.5-2.6 times the business that JD does. 

Split between Tmall and Taobao: Alibaba doesn't split its share between Taobao and Tmall.  Do folks have any idea what the split would be like?   Because higher-income folks spend money on Tmall, and Tmall items are higher priced, what do folks think the split might be?   In the Investor Day Deck, Alibaba meticulously tried to make the text size and tree size represent the size of the businesses, and they put Taobao and Tmall on the same tree with about the same size text, implying they are similar in size. 

 

Annual sales (GMV in Alibaba's case and Revenues in JD's case) reported by each company:

• JD: RMB 745.8B; Source: https://ir.jd.com/system/files-encrypted/nasdaq_kms/assets/2021/03/11/5-38-59/JD.com Inc 4Q2020 Financial and Operational Highlights.pdf
  • If Market Shares above are correct, Tmall's business would be about 2.5 times 745.8B, that is, RMB 1.865 Trillion
• BABA: RMB 7.5 Trillion; Source: https://www.alibabagroup.com/en/ir/presentations/pre210513.pdf
  • If BABA's Retail GMV was split evenly between Tmall and Taobao, this would mean Tmall GMV of about RMV 3.75 Trillion
  • 1.865 Trillion is only 25% of 7.5 Trillion.  Shouldn't Alibaba have made Tmall text size lot smaller than Taobao text size? 
• Reported numbers above then mean that Tmall does about 3750 Billion/745.8 Billion = 5 times the business that JD does, not 2.5 times.

I've more faith that JD is reporting numbers correctly compared to Alibaba because both Walmart and Tencent have a big stake in JD, and two partners would probably want numbers to be accurate.  On the other hand, Softbank is trying to unload BABA shares. 

What do folks think about customer satisfaction and future growth of Taobao/Tmall vs JD, and size of Taobao vs. Tmall, and as a result, discrepancy between numbers reported by JD and BABA compared with market share data out there? 

[abyli]

11 hours ago, LearningMachine said:

In 2006, I was trying to decide between EBAY & AMZN for investment.  At the time, I thought EBAY was the better business because it owned Paypal and also had a high-margin marketplace, where it could take a cut of transactions without any inventory or distribution expenses.   I thought EBAY would benefit from competition between merchants, and will be able to extract more from transactions than Amazon could.   I was clearly wrong. 

Last week, I asked a Chinese acquaintance who still has parents, relatives & friends in China, and herself visits China regularly, on what they use in China.  She mentioned

• her grandparents usually buy everything directly from stores,
• her mom also buys groceries directly from stores, and still buys some other things from stores but also uses Taobao for some things
• she herself and her friends (younger generation) use JingDong, Tmall, Taobao and sometimes stores directly.  They believe JingDong's quality is higher and customer satisfaction is higher.  They don't buy groceries from Taobao but do buy groceries from JingDong.

Here is a study I found on customer satisfaction between JingDong and Taobao: https://zenodo.org/record/1134099#.YKBImahKj-g.  It confirms 80% people Strongly Agreed JingDong's quality was high, while 40% said that for Taobao.  However, it is not a very credible source.  I also couldn't find data on customer satisfaction difference between JingDong and Tmall. 

If I had looked at customer satisfaction data back in 2006, I might have correctly picked AMZN over EBAY, as customer satisfaction/NPS can often be a leading indicator of adoption, and a measure of customer loyalty.  

Now, regarding market-share between JD and Taobao/Tmall, I'm a little confused. 

Here is what some sources say:

• Tmall 63.6%, JD 24.4% Source: https://jingdaily.com/jd-com-vs-tmall-chinas-luxury-e-commerce-battleground/
• Tmall 63.1%, JD 25.7% Source: https://asia.nikkei.com/Business/Retail/JD.com-s-profit-crashes-80-in-race-with-Alibaba-over-rural-China

The percentage shares above mean that Tmall does about 2.5-2.6 times the business that JD does. 

Split between Tmall and Taobao: Alibaba doesn't split its share between Taobao and Tmall.  Do folks have any idea what the split would be like?   Because higher-income folks spend money on Tmall, and Tmall items are higher priced, what do folks think the split might be?   In the Investor Day Deck, Alibaba meticulously tried to make the text size and tree size represent the size of the businesses, and they put Taobao and Tmall on the same tree with about the same size text, implying they are similar in size. 

 

Annual sales (GMV in Alibaba's case and Revenues in JD's case) reported by each company:

• JD: RMB 745.8B; Source: https://ir.jd.com/system/files-encrypted/nasdaq_kms/assets/2021/03/11/5-38-59/JD.com Inc 4Q2020 Financial and Operational Highlights.pdf
  • If Market Shares above are correct, Tmall's business would be about 2.5 times 745.8B, that is, RMB 1.865 Trillion
• BABA: RMB 7.5 Trillion; Source: https://www.alibabagroup.com/en/ir/presentations/pre210513.pdf
  • If BABA's Retail GMV was split evenly between Tmall and Taobao, this would mean Tmall GMV of about RMV 3.75 Trillion
  • 1.865 Trillion is only 25% of 7.5 Trillion.  Shouldn't Alibaba have made Tmall text size lot smaller than Taobao text size? 
• Reported numbers above then mean that Tmall does about 3750 Billion/745.8 Billion = 5 times the business that JD does, not 2.5 times.

I've more faith that JD is reporting numbers correctly compared to Alibaba because both Walmart and Tencent have a big stake in JD, and two partners would probably want numbers to be accurate.  On the other hand, Softbank is trying to unload BABA shares. 

What do folks think about customer satisfaction and future growth of Taobao/Tmall vs JD, and size of Taobao vs. Tmall, and as a result, discrepancy between numbers reported by JD and BABA compared with market share data out there? 

OMG, if you need to ask Chinese how to think about ecommerce in China, you should not invest in those companies. And you forgot to mention PDD... 

[LearningMachine]

2 hours ago, abyli said:

OMG, if you need to ask Chinese how to think about ecommerce in China, you should not invest in those companies. And you forgot to mention PDD... 

The reason I've been asking Chinese to get some on-the-ground-data, albeit not complete data, is because I'm confused by BABA's claims of RMB 7.5 Trillion GMV from Taobao and TMall out of total eCommerce products retail market size of RMB 9.759 Trillion reported by National Bureau of Statistics of China. 
 
This raises a few issues:
1.    Alibaba is now claiming 76.9% market share in ecommerce in China.
2.    This leaves 9.759-7.5 = RMB 2.259 Trillion = $350 Billion USD for all other e-commerce retailers in China.  
3.    $350 Billion USD is less than publicly reported numbers from JD, PDD, Suning and VIP, which all combined add up to $403 Billion USD.   This means someone's numbers are incorrect, either NBS, Alibaba, JD, PDD or one of the competitors. 
4.    This means Alibaba is claiming that sales are negligible from other e-commerce retailers selling directly to consumers in China, e.g. https://www.apple.com.cn/, https://www.huawei.com/cn/, https://www.vmall.com/, https://www.lenovo.com.cn/, https://www.hpstore.cn/, https://www.dell.com/zh-cn/shop, https://www.microsoft.com/zh-cn and https://www.samsung.com/cn/, which some Chinese consumers prefer to avoid counterfeit products
5.    Alibaba's claims of expenditure of RMB 9,427 per user by 811 million annual active consumers is 14.2% of China-GDP-per-capita, which is more than 1550% of what Amazon claims U.S. non-prime customers spend on it as a percent of GDP-per-capita, i.e. $600 per consumer, which is 0.92% of U.S.-GDP-per-capita. 

Any thoughts on this from JD folks?   How would you propose getting on-the-ground data to sanity-check if BABA's reported market share of 76.9% is accurate without too much effort?

 

You can see my BABA post here: https://thecobf.com/forum/topic/10520-baba-alibaba/page/20/?tab=comments#comment-444505

 

Edited May 16, 2021 by LearningMachine