JD.Com (NASDAQ:JD) has maintained healthy top-line growth and JD stock has also trended higher by 30% in the last year, and it’s not just JD.com. China’s eCommerce industry has been on a sharp growth trajectory.
The positive trend is unlikely to change in the coming years. According to eMarketer, retail eCommerce sales in China will increase from $1.52 trillion in 2018 to $4.10 trillion by 2023. Therefore, it is entirely likely that JD.com will continue to witness 20% plus top-line growth in the next 3-5 years.
In addition, I believe that JD.com is positioned to improve margins in the coming years. This coverage will focus on the company’s innovation capabilities that will drive top-line growth and EBITDA margin expansion.
Drone Deliveries and JD Stock
JD tested drone delivery in Indonesia for the first time in early 2019. The company has already been using drone delivery in China.
While I want to go back to an article published in 2017, the key point is: Drone deliveries would reduce the costs of shipping freight by 70% compared to conventional truck delivery.
I believe that drone deliveries will translate into the following advantages –
First, as drone deliveries expand as a percentage of total deliveries, there will be a meaningful reduction in transportation cost; this will help in EBITDA and cash flow growth.
Second, drone deliveries will enable eCommerce to reach relatively remote areas. Approximately 577 million people still live in rural China and this presents a big opportunity for JD.
It is worth noting that disposable income growth (in real terms) was 6.6% for rural China in 2018. As standards of living improve, e-commerce companies have a big untapped market to pursue. My point is backed by a Morgan Stanley report that expects consumption in China’s smaller cities to triple by 2030.
Use of AI Will Drive Growth
There is hardly any sector where AI does not have an application. JD.com is betting big on AI to drive growth and cut costs in the retail and logistics sectors.
JD is working on unmanned warehouses, self-driving vehicles, unmanned delivery stations and convenience stores from a cost perspective. By reducing the need for manpower, the company is positioned to reduce cost. At the same time, unmanned warehouse or delivery stations will improve operational efficiency.
JD.com is also leveraging AI to provide deep consumer insights to boost sales growth. The company is using consumer insights to collaborate with brands and manufacturers to tailor products specifically for its consumers.
As an example, JD is using AI to enhance Philips’ flagship store performance. The company will officer various solutions, such as user portrait analysis and behavior analysis to Philips.
The Bottom Line on JD Stock
JD stock is well-positioned to register top-line growth of 20% to 25% in the next 5 years considering the projected growth in China’s eCommerce industry. The company’s investment in technology to support partners will boost sales. In addition, the focus on rural potential will open a completely new revenue stream.
It is also worth noting that JD.com is just behind Lazada in Indonesia, which is another big market. I expect the company to make deeper inroads in Southeast Asia, which is home to 640 million people.
Further, as bottom-line growth and cash flow accelerate due to technology adoption, JD stock is well-positioned to trend higher.
Overall, I expect JD.com to be a value creator for the long-term and the stock is worth considering even after a relatively sharp rally in the last one year.
As of this writing, Faisal Humayun did not hold a position in any of the aforementioned securities.