JD.com operates as an e-commerce company in the People’s Republic of China. The company sells mobile handsets, consumer electronics products, auto parts and accessories; home appliances; and general merchandise products directly to customers. The company also provides an online marketplace for third-party sellers to sell products to customers through its Website jd.com and mobile applications. In addition, it offers value-added fulfillment services comprising warehousing and delivery, and transaction processing and billing services to third-party sellers; online marketing services for suppliers and sellers; various financial products and services, including supply chain financing and microcredit, consumer financing, online payment, and others to suppliers and third-party sellers; and online-to-offline solutions for customers and offline retailers. As of April 25, 2017, the company operated 7 fulfillment centers and 256 warehouses, and total 6,906 delivery stations and pickup stations in 2,655 counties and districts across the People’s Republic of China.
JD.com Is The Amazon of China
Everybody calls Alibaba the Amazon of China but I don’t that’s true. JD.com is more the Amazon of China than Alibaba because its business model is much closer to Amazon’s than Alibaba.
JD.com owns the majority of its inventory, much like how Amazon owns some of its own brands. Alibaba is more an e-commerce intermediary between buyers and sellers. JD.com does the e-commerce thing too but it’s actually much larger than Alibaba when you consider that JD has more than 7,000 delivery stations and 335 fulfillment centers.
Like Amazon, JD.com has invested heavily in AI automation in its fulfillment centers.
A giant new retail fulfillment center in China has only four employees to service the robots! This level of AI automation is actually superior to Amazon’s fulfillment center automation. Jeff Bezos is trying to copy China’s high level of automation but faces increasing pressure by the President and others to not automate too much because it kills warehouse jobs. Meanwhile in China, JD.com pushes even further ahead than Amazon in fulfillment center automation.
Amazon is increasingly expanding its logistics to deliver packages straight to the consumer and thus relying less on UPS, FedEx, or the USPS. President Trump is pushing to increase the cost of USPS delivers done for Amazon. This will only hasten Amazon expanding its own logistics service to completely cut out the USPS altogether as it increasingly delivers packages directly to consumers. Meanwhile in China, JD has been delivering its own packages to customers for some time, and the company is now working to build out a logistics service arm that would be able to make deliveries not only for JD.com, but for other businesses as well. In February 2018, JD received a $2.5 billion investment to further expand its logistics service.
The Chinese population is more spread out than in the U.S., so rural deliveries are much more common. It’s hard to find an efficient way to deliver to people who live in remote areas because the delivery cost JD incurs per order is higher. No logistics company has been able to solve this problem effectively, until now.
JD already relies on drones for deliveries to outlying rural areas. Further, the company is working to open unmanned stores operated by facial recognition software.
Big retailers like Walmart have signed up to JD Logistics service because it’s the best in China.
JD.com reported quarterly earnings results on May 8, 2018. The company reported EPS of $0.71 which beat the ($0.02) estimate. Revenue also beat coming in at $100.13 billion for the quarter versus the $98.92 billion estimate. JD.com’s revenue was up 33.1% year-over-year.
Looking at the last year, JD shows very strong growth in revenue. Revenue has grown by 50.81%! Measured over the last 5 years, revenue has been growing by 39.53% yearly.
China’s latest retail-sales numbers for May showed that total retail sales rose 8.5%. Online retail sales accelerated relative to the April period, growing 25.8%. Food and clothing were two key categories. Sales of communication equipment and household appliances increased 12.2% year-over-year and 7.6% year-over-year, respectively, driven by steady income growth. JD.com will continue to benefit from increasing online and mobile shopping penetration, offline and online retail integration, and China’s emerging middle class.
I give JD stock a buy rating and my price target is $80 per share. Analysts agree with my buy rating. Overall there are no sell ratings, 4 hold ratings, and 9 buy ratings on JD stock. The average analyst price target is $50.16 which represents 17.4% upside from the current price.
Disclosure: As Premium members know, I went long JD stock today.