TLDR;
- Strong direct sales model ensuring product authenticity.
- Robust logistics network.
- Proven ability to expand margins.
- Strong performance in electronics and appliances categories.
- Recent weak revenue growth.
- Dependence on Chinese market conditions.
- Potential benefits from government consumption stimulus.
- Trade-in programs for consumer durable goods.
- Expansion into new product categories or services.
JD.com Q3 FY24 Results:
- Revenue: +5.1% Y/Y to RMB 260.4B (~$37.1B)
- Net Income: +47.8% Y/Y to RMB 11.7B (~$1.7B)
- Operating Margin: Increased to 4.6% (from 3.8%)
- Cash Flow: Negative free cash flow of RMB 13.8B, impacted by payment timings and inventory buildup.
- Share Buyback: Completed $390M in share repurchases during Q3 2024.
- New $5B share buyback program through 2027
- Growth in general merchandise (+8% Y/Y) and electronics/home appliances (+2.7% Y/Y)
- Success in government-backed trade-in programs
- Robust Singles Day promotion and luxury brand expansion
JD Retail
Government-Backed Trade-In Programs
- Launched trade-in programs in over 20 provinces, where customers can benefit from seamless services like delivery, installation, dismantling, and cleaning.
- To remain competitive, JD.com has adopted a low price strategy, to compete with Pinduoduo PDD.
Expansion into Apparel and Accessories
- JD.com is focusing on becoming a top destination for stylish fashion, enhancing product variety and shopping experience.
- French luxury brands BALENCIAGA and SAINT LAURENT opened their flagship stores on JD.com in Q3 2024.
JD Health
- JD Health enabled online payments via medical insurance accounts in 10 cities during Q3 2024.
- Services now available in 12 cities, including Guangzhou, Shenzhen, and Chengdu.
- Covers nearly 2,000 medical insurance-designated pharmacies.
- Benefits a population of over 100 million as of September 30, 2024.
JD Logistics
- JD Logistics partnered with Taobao and Tmall Group to integrate systems in Oct 2024.
- Many Taobao and Tmall merchants now use JD Logistics services.
- Users can track JD Logistics shipments directly in Taobao and Tmall apps.
- JD has also partnered with AutoCore.ai to develop end-to-end autonomous driving systems for logistics.
Risk Analysis
- Anti-monopoly guidelines introduced in 2021 increased scrutiny on firms like JD.com and Alibaba.
- Heavy fines have been imposed, e.g., Alibaba was fined $2.8B.
- JD.com may benefit short-term as stricter rules curb competitors’ pressure tactics.
- Balancing regulation to prevent monopolies while fostering growth is crucial in China’s context.
- Economic slowdown affecting consumer spending.
- Expanding globally adds complexity and may impact returns due to geopolitical tensions and supply chain risks.
- Focusing on Asia and Europe, with added emphasis on India, could drive stronger growth than pursuing the U.S. market.
2029 Valuation
Assumptions :
- LTM Revenue: $154.58B (assuming USD/CNY = 7.15)
- 5Y Revenue CAGR: 5%
- 2029 Profit Margin: 4.25%
- 2029 PE Ratio: 12
- Shares outstanding: 1.546B
- Shares reduction: 6%/year
Valuation :
- Q2 2029 JD SHARE PRICE = 154.58 * (1.05)^5 * 0.0425 * 12 / [1.546 * (0.94)^5] = $89
- Using discount rate for JD as 12%.
- CURRENT SHARE PRICE: $35
- DISCOUNT RATE: 12%
- FAIR VALUE: $89 / (1.12)^5 = $50
- POTENTIAL UPSIDE: (($50 – $35) / $35) × 100% = 43%
- EXPECTED RETURNS: ((($89 / $35)^(1/5)) – 1) × 100% ≈ 10%/year
- DIVIDEND YIELD: 1.77%
- MY RATING: STRONG BUY ✅ | Accumulate slowly on red days.
