JD.com Is Playing an Amazon-Like Long Game, So Buy the Dip

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JD.com - JD.com Is Playing an Amazon-Like Long Game, So Buy the Dip

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Shares in JD.com Inc(ADR) (NASDAQ:JD) dropped over 8% in pre-market trading after it reported results that fell short of estimates.

Analysts were expecting a profit of 7 cents per share — while Wall Street insiders expected 10 cents — on revenues of $16.33 billion. Instead, they got a loss of 10 cents per share, although revenue came in at $16.9 billion.

That revenue number has analysts screaming “buy the dip”. The outlook for the company remains what it was when InvestorPlace’s Luke Lango wrote about China consumerism booming in February.

Those analysts are right.

The Real Chinese Amazon

To me, the JD.com “disappointment” read a lot like an early decade report on Amazon.com, Inc. (NASDAQ:AMZN). Basically, the company is ignoring its bottom line in order to grow its top line.

Of all China’s biggest e-commerce players, JD.com is most like Amazon. This is the key to understanding both its strategy and its fourth quarter loss.

There are over 7 million small kiosks scattered around China where people do their e-commerce pick-ups and returns. JD’s logistics arm supplies these kiosks, and the company is so anxious to grow it that it took $2.5 billion in capital to keep it growing. It has over 200 warehouses and 5,000 delivery and pick-up locations. This means it reaches many rural districts its rivals have trouble serving.

JD.com is also like Amazon in how it spends its money. It is becoming heavily invested in artificial intelligence and blockchain, tracking beef imports from Australia using blockchain, adding robots and drones to its delivery network.

If you really want to know what JD wants to be when it grows up, it’s neither Alibaba nor Tencent. It’s Amazon.

Three E-Commerce Kingdoms

Chinese history starts with the story of the “Three Kingdoms” which eventually combined under the Chin dynasty, from which China takes its name. The three kingdoms brought civilization into every small Chinese village, and between them, the Chin dynasty made the Roman Empire look puny.

You can think of the three kingdoms of Wei, Shu and Wu today as being Alibaba Group Holding Ltd (NYSE:BABA), JD.com and Tencent Holdings Ltd (OTCMKTS:TCEHY). Taken together they aim to control the Chinese e-commerce world. These are the companies that are taking a huge hunk of foreign direct investment in the Chinese market growth story.

JD, Alibaba and Tencent are all investing directly in offline retail, with Tencent taking a stake in Dalian Wanda, the country’s biggest mall operator, and Alibaba opening its own mall and building its Heba food store chain.

But what looks like a huge physical infrastructure for JD.com is more of a logistics network. The company is building a huge chain of delivery trucks and motorbikes, which JD is also trying to robotically automate.

Tencent seems to recognize this, and it is now doing deals in concert with JD.com, which has barely 10% of Tencent’s market cap. It’s very possible that at some point in the future Tencent might move to buy JD.com, as the market enters a consolidation phase.

Buy the Dip in JD.com stock? Yes

Disappointment with the bottom line was responsible for a nearly 10% drop in the stock before the market opened on March 2. But expectations had always been highest for the top line and JD.com beat those estimates handily.

Additionally, CEO Liu Qiangdong, known as Richard Liu, is still just 44, with most of his leadership team in their 40s or early 50s. Time is on their side.

If it sounds like I’m also pounding the table for JD.com, it’s because I am.

Dana Blankenhorn is a financial and technology journalist. He is the author of the historical mystery romance The Reluctant Detective Travels in Time, available now at the Amazon Kindle store. Write him at danablankenhorn@gmail.com or follow him on Twitter at @danablankenhorn. As of this writing he owned shares in BABA and AMZN.

Dana Blankenhorn has been a financial and technology journalist since 1978. He is the author of Technology’s Big Bang: Yesterday, Today and Tomorrow with Moore’s Law, available at the Amazon Kindle store. Tweet him at @danablankenhorn, connect with him on Mastodon or subscribe to his Substack.


Article printed from InvestorPlace Media, https://investorplace.com/2018/03/jd-playing-amazon-long-game-buy-dip/.

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