Earlier this week, JD.Com Inc (ADR) (NASDAQ:JD) announced that it had raised $2.5 billion for JD Logistics, its standalone, independent logistics subsidiary. This should provide a bright future for the company and JD.com stock.
Here’s why.
Independence Day
On April 2017, JD.com created JD Logistics, an independent, standalone subsidiary that would provide supply chain solutions for its own business as well as others.
It was the first of many steps to make the company’s supply chain the world’s best. Despite being a money-losing operation, investors led by Hillhouse Capital have slapped a $13.4-billion valuation on the company, a sure sign an IPO in Hong Kong isn’t too far off.
“We can confirm our logistics unit is currently raising money for a future independent listing,” CEO and founder Richard Liu said in January. “We hope it can list in Hong Kong or in China. But it is still too early to say when or where.”
The move to make the logistics unit a standalone business is part of a process to hive off all four of its operating segments — core e-commerce, finance, logistics and technology — into independent entities.
It started with JD Finance in 2013 as a way for the company to drive further growth in the payments area of financial services. In September 2017, JD.com completed the spinoff by selling its remaining 69% stake in the finance unit. However, Liu personally retained a 4.3% equity stake including a majority of the votes.
For those who dislike Alibaba Group Holding Ltd (NYSE:BABA) and Ant Financial for their lack of corporate governance, you’re not likely to appreciate what JD.com is doing.
I, however, don’t see a problem with all four units going public if they all list in Hong Kong. Mainland China is another story altogether.
What About Logistics
As I said in the beginning, if you can’t move the goods, you can’t sell them. Logistics and supply chain are the lynchpins of any successful retailer, online or offline.
Whether we’re talking about China, where JD.com expects to become the biggest B2C platform surpassing Alibaba in the process, Southeast Asia or Europe, logistics is the difference between success or failure.
The JD stock price moving higher depends on JD Logistics getting the job done wherever the company chooses to operate. The knowledge it’s gained developing its own logistics infrastructure can and will be used to help other companies do the same.
I liken it to owning a bottling plant. You have 70% capacity but need 100%, so you rent out your line to other companies who need to bottle their products and get paid for the unused capacity. It’s a classic win/win solution.
Bottom Line on JD.com Stock
I recently suggested that JD.com stock is a better buy than Amazon.com, Inc. (NASDAQ:AMZN) because JD.com is growing at a faster rate than Amazon did at the same time in each company’s corporate history.
The latest financing announcement suggests that JD Logistics is going to push hard to deliver the world’s best supply chain. By doing so, it will enable JD.com to succeed in Europe where it’s launching in several countries in 2019. Beyond that, the U.S. is the ultimate target.
None of it happens without proper logistics.
As of this writing, Will Ashworth did not hold a position in any of the aforementioned securities.
