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JD – Don’t be Fooled by Shiny GMV1
APS Asset Management
Contributing APS Analyst: Sid Choraria
May 20th, 2016
Executive summary:
Using GMV is inappropriate, especially for loss-making companies like JD consistently raising capital.
a 25% stake and since then, Bitauto stock lost ~70%. Bitauto stock down -13% and -9% in 2 days after Q1 2016 results.
electronics/household business (74% of revenues) is unlikely to make relevant money even if scale doubles due to
intense competition. Growing GMV of these businesses do not make sense as cash will have to be burnt.
and can afford to burn cash in new businesses. We believe JD does not have that same luxury.
a high yield credit profile, while Moody’s/S&P gave it the lowest investment grade rating at Baa3/BBB-. As soon as
banks and investors stop funding JD, its operations may be weaker which is a risk investors must be mindful of.
and does not square with the claim that it is the leading online company in China.
not obsess about metrics like GMV, unlike JD – a telling sign
over-owned as reported also by the media. Looks like a crowded trade like Valeant
Key Statistics (as of May 16th 2016) – in US$mm unless specified (December FY end)
Ticker NASDAQ: JD
Share price per ADS US$23
Peak/current market cap US$50bn/$31bn
Core GMV (2015) US$70 billion
Electronics/house appliances
revenue contribution %
74.1%
2015 Net Loss-US$1.5bn
Accumulated deficit -US$3.1bn
Operating cash flow (2015) - US$280mm
Founder Voting Rights 81%
52 week high / low 38/21.5
Source: CapitalIQ. Company filings, sell-side research, analyst estimates. Each ADS represents 2 class A ordinary shares. Note: $1 = RMB 6.5.
Source: Company filings, website, press releases, news articles, channel checks, sell-side, industry analysts. Read full legal disclaimer on Page 2. 1
GMV stands for gross merchandise volume. Please refer to definitions on Appendix A. 2
bloomberg/gadfly/articles/2016-05-11/jd-com-stands-for-just-don-t20
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Disclaimer
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Table of Contents
#Section Page
GMV is a misleading metric due to its very definition and we would discount GMV by
atleast 35-50%. JD’s business model cannot rely on shiny GMV growth 4
JD has taken $1bn in impairments/write-down in a short time due to incoherent equity
investments/acquisition binge 13
Management team has limited tenure for a 12-year old company which is rarely a
promising sign for a company yet to make money and sporting a $30bn valuation 21
JD is a hedge fund darling and has nearly unanimous buy ratings by sell-side
analysts. Is it a crowded trade like Valeant 24
Non-GAAP accounting metrics reliance 26
Net selling by insiders in the last 12 months. Share repurchase not yet been conducted3.
Instead, JD has raised $2bn in the last 5 months. 32
Capital market game: How long will JD have till GMV music stops playing Marketplace
GMV has slowed in Q1 2016, yet as GMV has slowed, profits remain elusive 34
JD is not comparable to Amazon – consensus view on China’s Amazon is rosy 37
Appendix: Additional Information 44http://ir.jd/phoenix.zhtmlc=253315&p=irol-newsArticle&ID=2085866357
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