Thread by @JoshuaTai0427

A COMPREHENSIVE thread on $JD

This comprehensive thread will be my last thread on $JD where I include everything you need to know about $JD, all of my findings on $JD and all $JD's subsidiaries; logistics, health, technology and property.

Let's get started 👇👇

1. $JD Founder – Richard Liu
Richard Liu, $JD’s founder and CEO, believes that $JD must provide superior customer experience, optimize costs, and increase operational efficiency in order to be successful in Chinese e-commerce.

1.1 Richard has made the two most important decisions for $JD; (1) $JD is never going to sell fake products and (2) $JD is going to have their own $JD logistics team. Both decisions are very controversial at the time but are later proven to be very correct.

1.2 Richard Liu has an amazing upbringing story with $JD. If you are interested to know more about Richard Liu $JD, I have done a thread on it previously where you can access it here 👇👇

https://twitter.com/JoshuaTai0427/status/1407515264585912320

2. The China E-commerce Market
The China E-commerce market is the largest e-commerce market in the world. It has grown rapidly with a CAGR of 20%+ over the past decade. The China e-commerce market is not done growing and is poised to continue growing 10-15% for the coming years.

3. China E-commerce as a % of total sales
E-commerce has occupied 24.9% of Chinese total retail sales in consumer goods in 2020. There is still great potential for E-commerce to grow in China, after more people have experienced the conveniency brought by E-commerce during Covid.

4. Competitive Edge – $JD Logistics
$JD’s biggest moat is $JD logistics. $JD logistics have the best warehouse network in China with a total storage area of 21+ million square meters, which covers more than 99%+ of cities and counties in China.

4.1 $JD logistics has the top two fastest delivery speed in China. A $JD customer can receive their order within 24 hours in 95% of the cities in China. $JD logistics is even explicitly recommended by the Chinese government for their speedy and reliable delivery during Covid.

4.2 $JD logistics also leverages their fulfilment centers and delivery speed to provide integrated supply chain solution to SMEs. Although $JD logistics has been spined off and IPO at the HKEX ($2618.HK), it remains a critical part to $JD’s success and $JD still owns 64% of it.

4.3 Richard Liu in $JD’s 2020 shareholder letter has stated that $JD will dedicate themselves on JD’s smart supply chain, over the next decade, helping SMEs to better serve their customers alongside with $JD.

4.4 This is just a brief summary of $JD Logistics, to learn more about it, I encourage you to please check out this thread where I have done an in depth break down of $JD logistics 👇👇

https://twitter.com/JoshuaTai0427/status/1408368533482868742

5. $DADA
$DADA is a company that provides last mile delivery services within an hour. $JD owns 51% of $DADA. $DADA fulfill $JD’s O2O delivery orders. $DADA is particularly important for peak shopping seasons, as $DADA takes care of $JD’s last mile delivery adequately.

5.1 To learn more about $DADA or if you are interested, I have done a detail thread on $DADA, where I break down $DADA’s O2O services. You can access the thread here 👇👇

https://twitter.com/JoshuaTai0427/status/1410541489021587456

6. Edge – Reputation & Customer Service
Since $JD’s origin, Richard has always emphasised the importance of selling ‘real’ and ‘quality’ products. Such efforts become the second largest moat for $JD, as $JD has a long-standing reputation where people can rely upon $JD’s quality.

6.1 $JD has one of (if not) the best customer service in all Chinese E-commerce players. This is because of (1) Richard’s focus on providing the ‘best customer experience’ and (2) $JD’s lower tier workers, customer service employees and couriers generally being better paid.

7. Tencent and JD partnership
$TCEHY has formed a strategic partnership with $JD, with a 16.9% stake in $JD. According to Zhang Lei, founder of Hillhouse capital, who is a firm backer behind $TCEHY and $JD, it makes much sense for the two to partner

7.1 because $TCEHY does not have the expertise to create its own logistics network and supply chain solutions, whereas the traffic brought by WeChat is much needed to give a booster to $JD.

8. $JD partnership with Douyin and Kuaishou
$JD has actively collaborated with Douyin and Kuaishou, which are leading traffic ecosystems and a new form of short video social media. Such partnership could ensure that $JD continues to grow alongside newer form of social media.

9. Competitors
The two biggest $JD competitors are $BABA and $PDD. $BABA is like a ‘bigger and more successful’ $EBAY, which runs the largest Chinese online E-commerce platform. The focus of $BABA is third party sales but $BABA also have Tmall, a $BABA version of $JD’s 1P store.

9.1 $PDD takes a different strategy than $BABA and $JD. $PDD emphasises on social e-commerce via incentivising social sharing and bulk purchases. By aggregating buyers, buyers can usually enjoy very cheap wholesale prices on $PDD. $PDD has been successful in the lower tier cities

10. B2C e-commerce retailer market share of sales
As of 2019, $BABA still have around half the market share of Chinese e-commerce, whereas $JD comes in second with around ¼ of the market and $PDD with 12%.

11. Comparison - Annual Active Customers (AAU)
$PDD has the most AAU with 824 million (31% YoY growth), whereas $BABA slightly behind with 811 million (11% YoY growth) and $JD coming in last with 500 million AAU (29% YoY growth).

12. A Summary - $JD, $BABA and $PDD comparison

Quality 👉 $JD > $BABA > $PDD

Price 👉 $PDD > $BABA > $JD

Delivery 👉 $JD > $PDD = $BABA

Customer experience 👉 $JD >= $BABA > $PDD

Shopping experience 👉 $BABA > $JD = $PDD

12.1 In short, $JD has the best quality, delivery, and customer experience, but $JD is subpar in shopping experience and last in price. If you are interested in the comparison of the three, I have done an in-depth comparison, where you can access 👇

https://twitter.com/JoshuaTai0427/status/1407678400966189064

13. $JD Jing Xi
In response to $PDD’s fierce expansion in the lower income market, $JD has launched $JD’s version of $PDD, Jing Xi, in September 2019. Jing Xi has gained more than 90 million new users in 2020. CONTINUE

13.1 Jing Xi like $PDD focuses on social e-commerce, where customer can purchase products with a cheaper price via bulk purchases. Jing Xi seeks to provide cheap products without sacrificing the products’ quality.

13.2 Jing Xi is likely going to affect $JD’s profitability in the ST as it focuses on market share. Although Jing Xi has a logistics advantage, it may not win the $PDD market, because $PDD has already established its network effect in this low margin yet competitive market.

14. $JD.ID - Indonesia
$JD has chosen Indonesia as $JD’s first international expansion stop because Indonesia is the largest e-commerce market in Southeast Asia with a total GMV of 21 billion in 2019. $JD.ID has started operating since October 2015.

14.1 There are currently over 1 million SKUs and 20 million active users on JD.ID. $JD.ID was valued at $1 billion USD as of February 2020, the 7th largest unicorn in Indonesia. $JD.ID is still a small player in Indonesia, but has grown by triple digits in 2021.

15. $JD Central
$JD has partnered with Central Group of Thailand to create $JD Central, a Thailand online e-commerce platform in 2018. $JD has built ‘the most advance’ logistics network of Southeast Asia in Thailand. 85% of the orders on JD Central can be delivery in the next day

15.1 $JD Central seeks to encourage cross boarder e-commerce between China and Thailand by providing an integrated cross border, O2O, B2B channels, for Chinese brands to sale their products to Thailand. $JD Central has enjoyed 300% YoY growth in the first 3 quarters of 2020.

15.2 $JD Central ranked second by popularity in E-commerce websites in Thailand by Similarweb and first by Statista.

15.3 As a $JD investor, you should keep an eye on both $JD.ID and $JD Central because these two ventures will tell as whether $JD can be successful in other countries outside of China, and this will determine the ceiling of $JD retail outside of China.

16. $JD Health
$JD Health is the largest online medical platform in China. $JD Health attempts to create a platform that provides all kinds of medicine and telehealth services. As telehealth is still in its infancy, $JD health is poise to grow with this emerging trend.

16.1 $JD Health is currently valued at 48.96 billion USD, the biggest telehealth stock in the world, with $JD owning 67% of it. If you are interested in $JD Health or $BABA Health, I have done a thread comparing the two, where you can access here 👇👇

https://twitter.com/JoshuaTai0427/status/1409472551605084160

17. $JD Technology
$JD technology was established in January 2021 when $JD combines JD cloud and JD AI into JD digital ($JD’s arm of fin-tech). $JD currently owns 42% of $JD Technology.

18. $JD Digital
$JD digital provides fin-tech solution to financial institutions, business, the government, and consumers. $JD digital seeks to become a ‘personal financial platform’, where users can buy financial products, make loans, buy insurance, and pay in instalment.

18.1 $JD digital has served over 600 banks, insurance, asset management, and security companies, and over 1 million small business, 200 thousand SMEs and covering 300 cities in China. $JD digital was named by Forbes to be the most innovative company in 2018.

18.2 $JD digital has filed its IPO at the Sci Tech innovation board of the Shanghai Stock Exchange. However, the filing process is at ‘inquiry’, with no updates, liking indicating a pause of the IPO. This should be caused by the stoppage of Ant Financials’ IPO.

18.3 $JD digital was valued at 130 billion RMB. However, as fintech regulations tightens, such valuation may take a significant hit, and the future of $JD digital remains unclear as $JD digital and its peers adopt to stricter regulations and face fiercer scrutiny.

19. $JD AI
$JD AI creates AI robotics which aims to increase operating efficiency and lower costs for users.

19.1 $JD AI has 8 products: inspection AI robot, indoor delivery AI robot, commercial services AI robot, universal delivery platform robot, track inspection AI robot, wearable AI bionic hand, wearable motion sensing armband and rail inspection AI robot.

20. $JD Cloud
$JD cloud provides safe and reliable public cloud, private cloud, mixed cloud services. $JD cloud has one of the biggest docker cluster, Kubernetes cluster and GPU calculation cluster in terms of scale in China. $JD Cloud delivers a high availability of 99.995%.

21. $JD iCity
$JD iCity aims to use AI and big data to build smart cities by providing intelligent e-solutions for environment, transportation, planning, energy consumption, commercial, safety, medical, credit and e-government.

21.1 Thereby enhancing the planning, operating, and forecasting of the city’s development. $JD iCity currently serves more than 30 cities in China.

21.2 $JD iCity mainly focuses on creating a ‘city operation system’ (think of it as windows or MacOS for cities), which act as the foundation of a digitalised smart e-city and allow governor to easily oversee and manage different resources in the city and.

22. $JD Property
$JD started their $JD property services where $JD seeks to become an online digital platform that provides property information while also providing services for buying and selling new house, second-hand house, and renting.

22.1 $JD Property seeks to make real estate transactions more transparent and lower the costs. Although $JD property is still relatively new and small, there lays great opportunity ahead.

22.2 $JD Property provides return without reasons within a specified time and 6 months of price guarantee with $JD Property’s 1P sales. $JD property seeks to use this initiative to solve the information asymmetric between real estate agents and consumers. CONTINUE

23. Revenue
$JD net revenues has grown by 33% CAGR from 2015 to 2020 and has experienced a 39% YoY increase for Q1 2021, indicating a strong growth dedicated to covid tailwinds, the growth of China’s e-commerce market and $JD’s advantage of logistics network paying off.

23.1 $JD still earns majority of its revenue (86%) from being a 1P store and how revenue is counted without netting the large cost of revenue. However, it is encouraging that services have grown from 7% to around 14% of revenue in 6 years, as services have a higher margin.

24. Revenue Breakdown
$JD started its business by selling electronics; thus, it still makes up over 50% of $JD’s revenue. However, $JD has been growing their general merchandise revenue over the years, indicating that $JD has broadened its products variety, a positive sign.

24.1 $JD logistics has grown at a CAGR of 76% for the past six years and 109% YoY for 2021 Q1. This is encouraging as $JD has invested heavily in logistics for more than a decade and is finally reaping some rewards.

24.2 The growth of marketplace and advertisement also indicate $JD more 3P stores consistently onboarding onto $JD’s online platform. This is a positive sign and necessary for $JD to compete with $BABA considering $BABA’s huge 3P stores variety advantage over $JD.

24.3 $JD retail and $JD Health still contributes predominating to 87% of $JD’s total revenue and all the positive operating income. Nevertheless, new businesses such as Jing Xi, property and $JD.ID continue growing rapidly.

24.4 However, these initiatives are still small, and long-term success remains to be seen.

24.5 The new businesses will likely determine the ceiling of $JD, as $JD retail will slowly achieve an equilibrium state.

24.6 $JD technology is not reported within the $JD consolidated financial statements, but $JD do own 42% of $JD technology, and that may be a major driver for growth in the future too.

25. Net margin
$JD's net margin is still low, standing at only 2% for 2021 Q1. Although net margin has improved over the past 6 years, improvements are relatively slow.

25.1 What net margin $JD can ultimately achieve will depend on whether $JD can leverage their economies of scale from 1P business over time, thereby controlling costs and operate efficiently.

25.2 Furthermore, $JD would need to earn more from services such as 3P sales, advertisement, telehealth, cloud computing, which have higher margins.

26. Free Cash Flow
Free cash flow is a measure of profitability excluding non-cash expenses, and arguably a more important measure than net profit/operating margin for $JD. $JD's FCF has taken a hit in 2018 due to a one-off higher than usual capital expenditures.

26.1 Other than that, $JD's FCF has been increasing constantly, which is very positive. $JD has a higher free cash flow than net profit because of $JD's negative working capital due to $JD only payback its suppliers 30-45 days after $JD receives payments from its customers.

27. Valuation
$JD currently has a P/E ratio of 14.41, P/S ratio of 0.95 and a market capitalization of 117B. Whereas $BABA has a P/E ratio of 24.61, a P/S of 5.18 and market cap of 575B, $PDD has a P/S of 12.17 and a market cap of 141.29B.

27.1 There is a ‘Chinese discount’ now to Chinese stocks due to $DIDI crackdown . However, whether the valuation is ‘expensive’ is one question that I am not capable of answering and a question that you must answer depending on your time frame, risks acceptance and views on $JD.

28. Risks
I have recently asked Fintwit about what some of the biggest risks are for $JD, thank you all who have responded. You all helped me to have a clearer view on $JD. The list below is some of those biggest risks for $JD, however, note that the list may not be conclusive.

29. @Matematikern3 and @BuyandHoldd have both pointed to competition as the biggest risks. Both have brought up that China is probably the most competitive e-commerce market that is constantly changing. $JD will need to continue to innovate and invest to remain competitive.

29.1 Both $BABA and $PDD are fierce competitor to $JD. $BABA has around 50% e-commerce market share in China, and there is no guarantee that $JD can take market share away from $BABA. If $BABA successfully develops their Cai Niao logistics network to even only 80% of what

29.2 $JD logistics is capable of, it would be hard for $JD to differentiate itself anymore. $BABA also has the edge in online ‘shopping experience’ and more variety of stores, which $JD needs to improve overtime, as $JD attracts more 3p sellers and improve their algorithm.

29.3 Although I am sceptical of $PDD’s long term success due to $PDD's acquiring tactics, poor reputations and low margins, there is no denial that $PDD is a strong competitor in the lower-tier market, with its AAU approaching 800 million.

29.4 Jing Xi is $JD's attempt to go head-to-head with $PDD, and although Jing Xi has enjoyed great user growth in 2020, it is still small compare to $PDD. Whether Jing Xi would be a respective competitor to $PDD remains to be seen.

30. Risks – Limited flexibility
@DennisHong17 has said that ‘JD’s capital intensity and operational complexity might limit its ability to be strategically flexible over the long term. In a sense, Sears’ fixed cost infrastructure eventually became a liability and undermined its

ability to compete against nimbler, capital-light upstarts.’

30.1 This is certainly an interesting point/risks, suggesting that $JD’s moat, its asset heavy logistics network, can be one of $JD’s weakness if capital light starts up challenge the market in a disruptive way. CONTINUE

30.2 I am not particularly concern with these risks in the short term, but overtime, if $JD stops innovating and just kept on doing the same thing, $JD would be prone for disruption and such risk would be magnified.

31. China Political Risks
@daniel_toloko, @paul_essen and many have pointed to the ‘China and political risks’. I agree that there are political risks with $JD, as with any foreign and particularly Chinese companies.

31.1 However, at the same time I am also of the opinion that sometimes the ‘China risk’ may be overblown.

31.2 At the end of the day, political risks are sometimes subjective and hard to quantify in quantifiable metrics. Therefore, please do position your foreign holdings and particular Chinese stocks in accordance with your risk’s acceptance level.

31.3 If you are interested on knowing a bit more on the ‘China political risks’, I have recently did a thread addressing some of my thoughts and asking some knowledgeably fintwitters about it. You can access the thread here 👇👇

https://twitter.com/JoshuaTai0427/status/1412677032312328195

32. $JD is more expensive
@y_eason has pointed that $JD are often more expensive than $BABA and $PDD for the same branded goods. This is a shared thought by many Chinese customers as $JD has the reputation of being more expensive but having great quality.

32.1 However, as the quality of $BABA and $PDD improves, $JD eventually will need to offer products at cheaper prices, as there will be no point of paying up for ‘quality assurance’ with $JD when that need no longer exists.

33. Margins
Although $JD’s net margins has shown continuous improvements, $JD's net margin is hovering around 2%. Ultimately, what margins $JD can achieve is unknown, but it would directly impact the multiple people gives $JD and $JD's valuation.

34. International Expansion
A risk and an opportunity at the same time is $JD’s international expansion. $JD has achieved success in Thailand with $JD Central but less in Indonesia with $JD.ID. Whether $JD can expand into more countries will likely determine the ceiling of $JD.

35. Many subsidiaries and complex structure
Finally, as pointed out by @SRGandi1996, @Leandro41645241 and others, the structure of $JD is getting more complex. I must admit that it is very confusing going through $JD’s financial statements.

35.1 Although this may not be considered as a ‘risk’, it means that there is more work as investors to do to fully understand $JD :) These subsidiaries will determine whether $JD would become a ‘generational type’ conglomerate or ultimately just a Chinese e-commerce retailer.

36. Conclusion
$JD, what a company! $JD has set a great foundation with its $JD retail chain and $JD logistics. $JD retail is poise to continue to grow along the growing China e-commerce market, although $JD may not overtake $BABA, $JD IMO is a strong contender.

36.1 $JD logistics has been doubted and seen as a bold move when $JD implemented it. However, after decades of investment, $JD logistics is reaping the rewards, and I believe it is only the start of a stream of constant revenue as a logistics network take years to build out.

36.2 $JD’s international expansion will likely continue to face an up-hill battle, as $JD may not have the inherent logistics advantage that it enjoys in China. Nevertheless, seeing $JD Central’s success is encouraging but on the other hand $JD.ID, can be more successful.

36.3 Only time will tell how will $JD can expand internationally and particularly in Southeast Asia, and this will likely determine the ceiling of $JD retail.

36.4 $JD Health has set itself a firm foundation to compete in the growing telehealth market, which I believe will be an inevitable trend over the next decades. This time, $JD and $BABA will compete pn the same starting line, and it will be interesting to see who can win this

36.5 $JD's newer initiative such as $JD property, $JD cloud, $JD AI, $JD digital are all exciting projects; however, much time and investments are still needed for these subsidiaries to flourish.

36.6 Nevertheless, even if only 1 or 2 of these efforts ultimately works out, $JD can be propelled into the next level.

36.7 However, nothing at the moment is guaranteed, and some of the risks are very real. However, personally, I do not see any of the risks crystallising in the short term (but please note that I may be suffering from confirmation bias as I am a happy $JD customer!)

36.8 With a P/E ratio of 14, and a top line revenue growth of over 30% and robust free cash flow and increasing net income, I believe $JD has set the foundations and is attractive at this level as $JD is poise to reap its reward that was planted decade ago in the coming years.

37. Thank you for reading my thread on $JD! I hope you have enjoyed the thread and learnt a thing or two on $JD. If you like this thread, please consider liking it and retweeting it, it really does help me out a lot! Really appreciate all the support!

37.1 Please consider following me @JoshuaTai0427 where i tweet regular threads like this on exciting companies. Also open to any suggestions for the companies that you want me to do ahead!

38. Also want to use this time to say a big thank you to @BuyandHoldd, @Matematikern3, @DennisHong17 , @daniel_toloko, @EugeneNg_VCap , @paul_essen @jablamsky for stimulating my thoughts and the kind discussion with $JD. Thank you all and any more inputs are all appreciated!

39. Tagging some people who may be interested in this comprehensive $JD thread!
@FinanceGhost
@adventuresinfi
@RihardJarc
@LiviamCapital
@mukund
@nsheth12
@Innovestor_
@SlingshotCap
@JuanRecaj
@dofornop
@scotwingo
@JordsNel
@Krevix
@TanArrowz

Would appreciate any feedback from you all! Thank you very much! 🙏🙏