JD.com, Inc. (NASDAQ:JD) has numbers that look good on the surface, but when you get to the numbers that really matter, JD stock is a ridiculous investment.
At first glance, we see JD.com revenues for the fourth quarter of 2017 were RMB110.2 billion (US$16.9 billion), up a fantastic 39% from last year. JD stock revenues for the full year of 2017 were RMB362.3 billion (US$55.7 billion), up 40% from 2016. So far, so good.
Gross profit for Q4 was RMB14.4 billion (US$2.2 billion), up 33% from RMB10.8 billion. For the year 2017, gross profit was RMB50.8 billion (US$7.8 billion), up 44% 2016. This is also obviously great news.
But this is where the good news vanishes, because all this big money went to waste and JD stock ended with a loss. Net loss from continuing operations for Q4 was RMB449.3 million (US$69.1 million), which is admittedly better than the loss of RMB779.7 million for last year’s quarter.
When we get to the full year net loss, it was RMB5.0 billion (US$800 million). When we push over to diluted EPS, the full year saw a loss of RMB3.41 (US$0.52), as compared to RMB1.45 for 2016. But at least JD stock is free cash flow positive to the tune of RMB15.7 billion (US$2.4 billion).
JD.com Stock Is a Loser
Still losing money even though annual active customer accounts increased 29% to 292.5 million.
If you can explain to me how a company with 293 million active user accounts – almost the entire U.S. population – can generate $55 billion in sales and still end up with a loss and have a market cap of $62 billion, well, I’m all ears.
Well, I mean, it’s obvious that competition and marketing costs are eating into revenues.
JD.com has the largest revenues of any online company in China but Alibaba Group Holdings, Ltd. (NASDAQ:BABA) handles way more e-commerce transactions.
However, JD.com has a leg up in terms of logistics and infrastructure while BABA relies a lot on third parties. In fact, JD.com sold off a stake in its logistics units for $2.5 billion to build out its supply chain network to compete with Alibaba’s.
Here’s another reason for worry. You can by JD.com stock on the Nasdaq, but they are American depository shares. They represent two shares of JD.com stock Class A shares.
However, only JD stock insiders and their underwriters have direct access to these shares, or the super-voting Class B shares. Nor do they trade on any other exchange.
The Bottom Line on JD.com Stock
Setting that aside, there are plenty of other concerns about the Chinese government. As we just saw the other day, the government swooped in and took over the massive insurance conglomerate Anbang.
While there may be good reason for this, investors should note that China literally just stepped in and said, “We control it. Bye.” At least in the U.S. we have due process.
I just think that if you are going to invest in JD stock, know that it has a long way to go and there’s no guarantee that it wins the competition race. Add in the risks in owning Chinese stocks, and I just think there are better places to invest.
Lawrence Meyers is the CEO of PDL Capital, a specialty lender focusing on consumer finance and is the Manager of The Liberty Portfolio at www.thelibertyportfolio.com. He does not own any stock mentioned. He has 23 years’ experience in the stock market, and has written more than 2,000 articles on investing. Lawrence Meyers can be reached at [email protected].