Is JD.Com Inc (ADR) (NASDAQ:JD) The Amazon (NASDAQ:AMZN) Of China?

- July 17, 2017

JD.Com Inc (ADR) (NASDAQ:JD) is China’s number 2 online shopping company and resembles an early Amazon (NASDAQ:AMZN).  They are growing market share in a growing sector, leading them to becoming profitable in 2018 and rising rapidly thereafter.  JD.Com offers online sales of home appliances, digital communications, computers, home merchandise, apparel, baby books, food, and other merchandise.

The Online Shopping Industry In China Is Growing Fast-So Is JD.Com (NASDAQ:JD)

JD.Com (NASDAQ:JD) Stock has everything going for it.  In 2015 online shopping in China was at 12.7% of the total market.  Then in 2016 online shopping gained to 14.9% market share.  In 2017, online shopping in China is forecast to reach 18% market share.  The sector is forecast to grow at a CAGR of 22% through to 2020.

Source

JD.Com is growing market share

In 2015, JD.Com had 22.8% market share, and by 2016 this had grown to 25.4%.  This means JD.Com is growing market share in a growing industry – a perfect combination.

JD.Com (Jingdong) market share – 2015

Source

JD.Com business

JD.Com state on their website that they have 236.5 million annual active customers, 81% of orders are placed via mobile phone, 263 warehouses, and US $37.5 Billion of net revenue in 2016.

The company focuses on customer service and fast delivery stating, “JD.com sets the standard for online shopping through its commitment to quality, authenticity, and its vast product offering covering everything from fresh food and apparel to electronics and cosmetics. Its unrivalled nationwide fulfillment network provides standard same- and next-day delivery covering a population of more than 600 million – a level of service and speed that is unmatched globally.

JD.Com also has built up their offline retail businesses such as County Service Center & JD Help Service Shop, JD Select, JD’s Convenience Storeand has a partnership with Wal-Mart (NYSE:WMT).  Moreover, JD.Com has made strategic investments in several overseas retail businesses such as Tokopedia (Indonesian online giant), Farfetch (a London-based online high end fashion retailer), and Bitauto (NYSE:BITA) the largest car finance platform in China.  They plan to grow their overseas business further in coming years.

Revenue growth and drivers

The main revenue drivers are:

  • Increasing customers from a growing Chinese online shopping industry and gaining market share within that sector.
  • JD’s off-line shopping and overseas expansion.
  • Improving gross margins from a low base.
  • The rising Chinese middle class should be a strong tailwind.

JD.Com revenue growth compared to its main two rivals

Source

JD.Com financials graphs 

We can see from the graph below that JD’s revenue is forecast to double within four years (2016-2019), and net income to improve dramatically.  Net profit margins are also forecast to improve, but only to 1.74% by 2019.

JD.Com 5 Year Price Chart. Source: Bloomberg

 

Valuation

JD.Com has a market cap of US $58.3 Billion, zero debt, and a 1 year return of 84%.  2018 PE is 106, and 2019 PE is 43.7.  Consensus analyst estimate price target is US $44.34.  The 0.97x Enterprise Value/Revenue (2018) also reinforces that JD.Com is actually well valued, provided they can improve margins and profit, very similar to Amazon (NASDAQ:AMZN) just a few years back.

Comparison of JD.Com to Amazon (NASDAQ:AMZN) and Alibaba (NYSE:BABA) 

                                                                                                                                                               PE (2019)

Market cap (US$, b)

Revenue growth (2016)

Net profit margin (2017)

EV/Revenue (2018)

PE (2018)

JD.Com

58

36%

-0.15%

0.79

106

44

Amazon

475

27%

2.0%

2.19

87

55

Alibaba

373

29%

27.6%

10.4

45

32

 

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