JD.com: Its Business Model Is Deserving Of Its Current Valuation

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JD.com: Its Business Model Is Deserving Of Its Current Valuation

seekingalpha2021-06-03

Summary JD is often branded as the most “undervalued” stock of all its e-commerce peers by growth and value investors alike. Even though the company’s revenue growth rates have impressed, its ...

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Agnes1408
·2021-06-08
This is a good shares to invest for long time
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Mm101
·2021-06-04
Wow
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RonnieSG
·2021-06-04
Great time to be bullish
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Barbarazhao
·2021-06-04
I agree. I have position on JD
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- jimmylaw:
  yeah
  2021-06-04
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RuniMan
·2021-06-04
K noted Like n comments
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1
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- RuniMan:
  Great reply and comment
  2021-06-07
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- jimmylaw:
  like reply too
  2021-06-04
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edgetrader
·2021-06-04
Loaded!
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2
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shawnhuat
·2021-06-04
Cmt
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- Hewy:
  Ok
  2021-06-04
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- shawnhuat:
  [开心]
  2021-06-05
  Reply
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ChinSiang
·2021-06-04
Jd jd jd jd
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- ChinSiang:
  jd jd jd
  2021-06-04
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- shawnhuat:
  uh
  2021-06-04
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haoren
·2021-06-04
Jd all the way
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- 爱喝水的小猫猫:
  Ok
  2021-06-04
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SKHan
·2021-06-04
Buy?!
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4
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- PSChoong:
  Can consider...is quite reasonable price [开心]
  2021-06-04
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- Benstonk:
  No
  2021-06-04
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Stoinkz
·2021-06-04
Please like and comment
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5
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- DennisMe:
  Like my comment back thanks
  2021-06-04
  Reply
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FuNman168
·2021-06-04
Pls like n comment
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5
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- Mystique:
  done
  2021-06-04
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- Benstonk:
  Reply me thanks [What]
  2021-06-04
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Tslverde
·2021-06-04
Logistic stock. Like comment
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3
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HH浩
·2021-06-04
Moving the right direction. Pls like and comment
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- 爱喝水的小猫猫:
  Sounds good
  2021-06-04
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JeffreyNeo
·2021-06-04
1
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- Benstonk:
  No way
  2021-06-04
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- Tslverde:
  Good reply comment
  2021-06-04
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Stevenoh
·2021-06-04
Please comment and like. Thank you
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- 要剁手了:
  Like and comment too, Thanks
  2021-06-04
  Reply
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- JeffreyNeo:
  1
  2021-06-04
  Reply
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Silverliner
·2021-06-04
Buy more?
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1
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- SKHan:
  ?
  2021-06-04
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- jim83:
  yes
  2021-06-04
  Reply
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Sheryl04
·2021-06-04
Pls like
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3
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- 1521yes:
  like
  2021-06-04
  Reply
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AJAJ
·2021-06-04
Ok pls like and comment
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- WangZhai:
  Thanks for sharing
  2021-06-04
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- cghtkh:
  yeah
  2021-06-04
  Reply
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Jo16
·2021-06-04
Buy
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1
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The relatively high revenue growth rates that the investors have grown accustomed to in the rapidly expanding Chinese e-commerce market has not cascaded down to its market cap as compared to its peers. I attempt to present my opinion on why JD may have exhibited a high revenue growth profile, but not necessarily the operating performances to match its peers.\nJD's Incredibly Low Revenue Multiples\nThe company has often been compared to Amazon (AMZN) in its early days or even compared to Shopify (SHOP) for having a revenue multiple that's way lower, and therefore implying a better buy.\nHowever when I looked under the hood into JD's business model and its operating performances, I found enough underlying weaknesses in JD's business model that perhaps indicate why the market continues to value JD at such low multiples despite having posted impressive growth rates.\nLTM Revenue Growth & Price / LTM Sales. Data Source: S&P Global Market Intelligence\nAs we can see from the chart above, JD has posted remarkable YoY revenue growth rates for the last 5 years, the \"slowest\" one being 22.7%. In fact, JD's LTM revenue growth rate has been accelerating recently, reaching 33.3% at the recent quarter. Despite that, its EV / LTM Rev multiple has consistently been under 1.1x, marking its strong appeal as a \"cheap\" growth stock.\nPrice/LTM Sales Percentile. Source: Tiger Brokers\nIn fact, JD's Price/LTM sales is currently at the 32nd percentile when we compare its multiples over the last 5 years, potentially even creating opportunities for value investors who may be on the lookout for a \"next Amazon\" type of stock that is selling for a real bargain now.\nJD and AMZN Market Cap, LTM Revenue, Revenue 3Y CAGR, EV / LTM Rev. Data Source: S&P Global Market Intelligence\nA quick glance over to Alibaba's (BABA) metrics unveil some interesting observations. Even though BABA's market cap is close to 5x that of JD's, BABA actually reported a lower LTM revenue (89% of JD's LTM revenue) than JD. In fact, BABA has reported lower revenue figures than JD over the last 5 years (see chart below). Both BABA and JD are revenue growth machines, with BABA's 3Y CAGR of 42% and JD's 3Y CAGR of 27.2%. Despite JD's impressive revenue growth, BABA is valued at 5.5x more than JD here based on their respective revenue multiples, which therefore raises the question of whether the market has unreasonably valued JD too low than what it actually deserves?\nBABA & JD LTM Revenue Trend. Data Source: S&P Global Market Intelligence\nJD Annual Active Customer Count. Data Source: Company Filings\nJD Annual Active Customer YoY Growth. Data Source: Company Filings\nIn fact, JD has been improving its active customer growth since Q3'19 as prior to that, JD had in fact suffered dramatic declines over multiple consecutive quarters of slowing customer growth. This coincided with the company's foray into Jingxi in 2019, which is the company's answer to Pinduoduo (PDD). The management also emphasized that: \"In the past 12 months, we gained 112 million new active users, with over 80% coming from lower-tier markets.\" Therefore quite clearly, Jingxi's customer growth has been the impetus behind the strong quarters of ARPC growth for JD.\nJD Average Revenue Per Active Customer. Data Source: Company Filings\nJD Average Revenue Per Active Customer YoY Growth. Data Source: Company Filings\nWhen we zoomed into the company's average revenue per active customer metrics, we could see that the underlying growth (up 11.7% YoY at the recent quarter) has been relatively healthy as well while the company continues to scale up its customer growth through the lower-tier markets.\nOkay, then how does JD's Operating Performances look like?\nEBIT Margin, CFO Margin, FCF Margin. Data Source: S&P Global Market Intelligence\nI had mentioned before in my article here for Coupang (CPNG), that for businesses that are potentially highly scalable such as JD's, we do not have to necessarily worry about the company's low operating margin business model as long as they are able to scale up quickly towards high FCF profitability. JD has always been operating with low operating margin (LTM EBIT margin of 1.2%), as that's the nature of its business model. Despite that, the company has still been able to generate relatively healthy FCF margins (LTM FCF margin 2.7%). Investors also shouldn't expect SaaS like FCF margins here as the business model is entirely different and JD is obviously going after those huge GMV growth. What we want to see though is whether the company is able to continue generating fast-growing and highly sustainable FCF moving forward.\nPeers Projected Unlevered FCF Margin. Data Source: S&P Global Market Intelligence\nPeers Projected Unlevered FCF 5Y CAGR. Data Source: S&P Global Market Intelligence\nThe problem arose when I tried to model JD's FCF growth moving forward. Quite clearly, JD does not seem to be able to improve its FCF margin strongly over time, with the projected FCF margins largely still in line with the historical ones.\nThat isn't something that we would like to see in a growth stock. Moreover the company's projected FCF margins are simply too low to be even classified as a cash flow machine. When we compare JD with its peers, we can clearly see that all of them, including AMZN are projected to generate very strong FCF growth moving forward, with JD's 5Y CAGR of 19.4% coming in last here. JD doesn't seem to be able to leverage on its relatively fast revenue growth to expand its FCF generating prowess as compared to its peers.\nNon-Peers Projected Unlevered FCF 5Y CAGR & Projected Unlevered FCF Margin. Data Source: S&P Global Market Intelligence\nIn order to help investors better understand what I mean, we can refer to the chart above to give an idea of what I meant as companies who are already in relatively stable growth stages with highly sustainable FCF margins as we model their FCF growth profile. It may be argued that Facebook (FB) is still a growth stock (but no longer as high growth as it once was) as it's still expected to generate relatively high FCF growth moving forward while commanding a remarkably high FCF margin as well. In addition, we could also see clearly that stable players often preferred by value investors such as Microsoft (MSFT), Qualcomm (QCOM) and Cisco (CSCO) are also expected to carry forward their high FCF margins moving forward. In contrast, JD's low 2.7% 5-year average FCF margin doesn't qualify it as a high quality stable stock for value investors to consider.\nWhat about JD's Growth Drivers?\nNow the interesting thing here is that JD has maintained that its business is still running at the \"high-growth\" stage as it emphasized:\n\n First of all, we prioritize growth above the importance of profitabilitybecause across all of our business lines, we are still in the high-growth stage. But each segment or each business line is actually in a different development stage. So we have kind of a differentiated investment strategy. So for JD Retail, we still -- you can see that for the first quarter and in the past few quarters, they continue to maintain a high-growth rate.\n\nThe management also added that they would likely continue to benefit from improved economies of scale and operating leverage as they bank on the rapid expansion of JD's retail business, allowing the company to continue improving its long term profit margin over time.\nJD LTM EBIT Margin & Projected EBIT Margin, LTM Unlevered FCF Margin & Projected Unlevered FCF Margin. Data Source: S&P Global Market Intelligence\nIn order to be clear of that, when I modelled JD's EBIT margin and FCF margin growth, I find it hard pressed to have agreement with the management's point of expecting sustained improvement in their operating performance over time as they scale up rapidly. First, the company is already coming off a very low base of EBIT (LTM EBIT margin: 1.2%) and FCF profitability (LTM Unlevered FCF margin: 0.8%), therefore I think it's not unreasonable to expect the company to post a significant improvement to its FCF profitability over time. However, as we can see above, those EBIT margin improvements don't really seem to cascade down to its FCF bottomline.\nJD Q1'21 Segment Revenue. Source:JD 6-K\nIt's important to note that JD retail is the company's main revenue and profit driver, accounting for 91% of Q1'21 revenue, while also subsidizing the losses from its other segments (one of which was JD Logistics which has already been spun off recently). It's difficult to see how its forays into its new businesses can be reasonably sustained over time when they don't have a highly profitable cash flow driver in JD Retail.\nAMZN EBIT Margin & Projected EBIT Margin, Unlevered FCF Margin & Projected Unlevered FCF Margin. Data Source: S&P Global Market Intelligence\nSea Limited EBIT Margin & Projected EBIT Margin, Unlevered FCF Margin & Projected Unlevered FCF Margin. Data Source: S&P Global Market Intelligence\nWe could refer to the above charts to see how important it's to have highly profitable cash flow segments to drive its operating performances even as the companies continue to scale up: AMZN with its AWS segment, as well as Sea's (SE) Garena segment, which I had covered in a recent article here. This cash flow segments allow them to reinvest into its highly scalable e-commerce segments and over time significantly improve their overall cash flow and EBIT profile. JD's business model certainly doesn't have the luxury of relying on such a segment to drive its growth, and therefore it's reflected clearly in its operating performances moving forward.\nValuations\nPeers Consensus Analysts Upside & EV / FY+1 Rev. Data Source: S&P Global Market Intelligence\nIf we simply base off JD's expected revenue growth, there's little doubt that JD seems to be valued at fire sale prices now. However, as mentioned earlier in the article, JD has always been valued at very low EV / Rev multiples historically as compared to its peers. In addition, the Street also remains highly confident of JD's upside potential (35.6%) as compared to its peers.\nJD & SE Ev / Fwd (EBITDA - CapEx) Trend. Data Source: S&P Global Market Intelligence\nAs I have emphasized earlier, using revenue figures to look at JD's growth potential may not accurately reflect the company's scalability potential. Here, we can see how SE's high potential to scale is clearly reflected in its FCF profile, where I use (EBITDA - CapEx) as a proxy here to remove the effects of lumpy working capital changes. SE's valuations are expected to come down significantly as it scales across South East Asia, generating lots of cash flow in the process. However, JD on the other hand doesn't seem to be quite as attractively valued as compared to SE when we project their growth rates forward.\nPrice Action & Technical Analysis\nSource: TradingView\nA silver lining here is that JD's long term uptrend remains intact despite the sell-off in Chinese stocks in Feb 21 that saw JD's stock price fall about 30% from its high. There are a few support levels that investors can focus on, most notably, the $70 support level that saw strong buying interest, as well as the $59 support level. The bulls are trying to retake the $79 support level which coincides with the dynamic resistance level marked by the 50-period MA at the moment. Therefore, investors who wish to add or initiate their positions may consider adding somewhere near the $70 level, and the $59 level if it retraces further, while avoiding adding near $79 in the near term.\nFor Chinese stocks, the Chinese and U.S. regulators will likely remain as the most important near term risk that may cause further compressions in its stock prices. However, as a long term investor who is still bullish on JD, I don't see that as a risk per se, but instead as an opportunity to add further into stocks like JD who in my opinion is fairly valued, and not expensive. The more the stock falls in the future due to policy changes or stiff rules from Beijing or Washington, the more attractive it will get for long term investors who have yet to initiate a position.\nWrapping it all up\nI'm a JD shareholder, and likely to remain so moving forward. What I had wanted to present in this article is to demonstrate why JD continues to trade at such low revenue multiples even as it continues to power ahead in its revenue growth. Investors should understand that although from the price action point of view JD I don't consider JD as a value trap, but I also don't consider JD as very attractive right now. It certainly deserves its current valuation and growth investors should taper their expectations in seeing the stock race ahead in the coming years.","kind":null,"is_publish_news":true,"is_publish_highlight":true,"is_publish_live":false,"is_publish_wemedia":null,"editions":null,"column":"","sentiment":"0","news_tag":"","news_rank":0,"symbols":[],"gpt_button":1},"commentList":[{"id":117620230,"gmtCreate":1623139213020,"gmtModify":1704196854800,"author":{"id":"3576464844874729","authorId":"3576464844874729","name":"Agnes1408","avatar":"https://static.tigerbbs.com/f54253f2bbc6bc93fa18478928bf4d0e","vip":1,"crmLevel":2,"crmLevelSwitch":0,"idStr":"3576464844874729","authorIdStr":"3576464844874729"},"htmlText":"This is a good shares to invest for long time","listText":"This is a good shares to invest for long time","text":"This is a good shares to invest for long time","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":0,"commentSize":0,"repostSize":0,"link":"https://ttm.financial/post/117620230","repostId":1171251318,"repostType":2,"repost":{"id":"1171251318","pubTimestamp":1622733765,"share":"https://ttm.financial/m/news/1171251318?lang=&edition=fundamental","pubTime":"2021-06-03 23:22","market":"hk","language":"en","title":"JD.com: Its Business Model Is Deserving Of Its Current Valuation","url":"https://stock-news.laohu8.com/highlight/detail?id=1171251318","media":"seekingalpha","summary":"Summary\n\nJD is often branded as the most “undervalued” stock of all its e-commerce peers by growth a","content":"Summary\n<ul>\n <li>JD is often branded as the most “undervalued” stock of all its e-commerce peers by growth and value investors alike.</li>\n <li>Even though the company’s revenue growth rates have impressed, its operating performances have not really been on par.</li>\n <li>I discuss why JD’s current valuations reflect the reality of its business model, and what growth and value investors should focus on to value the company.</li>\n</ul>\n<img src=\"https://static.tigerbbs.com/3bc39a30a57f05b994781d4a3a51c0de\" tg-width=\"1536\" tg-height=\"1092\">Photo by Kevin Frayer/Getty Images News via Getty Images\nInvestment Thesis\nJD.com's (JD) low EV/Revenue multiples have often baffled growth and value investors. The relatively high revenue growth rates that the investors have grown accustomed to in the rapidly expanding Chinese e-commerce market has not cascaded down to its market cap as compared to its peers. I attempt to present my opinion on why JD may have exhibited a high revenue growth profile, but not necessarily the operating performances to match its peers.\nJD's Incredibly Low Revenue Multiples\nThe company has often been compared to Amazon (AMZN) in its early days or even compared to Shopify (SHOP) for having a revenue multiple that's way lower, and therefore implying a better buy.\nHowever when I looked under the hood into JD's business model and its operating performances, I found enough underlying weaknesses in JD's business model that perhaps indicate why the market continues to value JD at such low multiples despite having posted impressive growth rates.\n<img src=\"https://static.tigerbbs.com/dd8c028415efa231c377fb5f68a00858\" tg-width=\"1280\" tg-height=\"844\">LTM Revenue Growth &amp; Price / LTM Sales. Data Source: S&amp;P Global Market Intelligence\nAs we can see from the chart above, JD has posted remarkable YoY revenue growth rates for the last 5 years, the \"slowest\" one being 22.7%. In fact, JD's LTM revenue growth rate has been accelerating recently, reaching 33.3% at the recent quarter. Despite that, its EV / LTM Rev multiple has consistently been under 1.1x, marking its strong appeal as a \"cheap\" growth stock.\n<img src=\"https://static.tigerbbs.com/b5429847bb5cdb8de25028528ae70f6a\" tg-width=\"1280\" tg-height=\"811\">Price/LTM Sales Percentile. Source: Tiger Brokers\nIn fact, JD's Price/LTM sales is currently at the 32nd percentile when we compare its multiples over the last 5 years, potentially even creating opportunities for value investors who may be on the lookout for a \"next Amazon\" type of stock that is selling for a real bargain now.\n<img src=\"https://static.tigerbbs.com/4a33a3a8b9c3f7cfd6393fb14a77852c\" tg-width=\"1280\" tg-height=\"776\">JD and AMZN Market Cap, LTM Revenue, Revenue 3Y CAGR, EV / LTM Rev. Data Source: S&amp;P Global Market Intelligence\nA quick glance over to Alibaba's (BABA) metrics unveil some interesting observations. Even though BABA's market cap is close to 5x that of JD's, BABA actually reported a lower LTM revenue (89% of JD's LTM revenue) than JD. In fact, BABA has reported lower revenue figures than JD over the last 5 years (see chart below). Both BABA and JD are revenue growth machines, with BABA's 3Y CAGR of 42% and JD's 3Y CAGR of 27.2%. Despite JD's impressive revenue growth, BABA is valued at 5.5x more than JD here based on their respective revenue multiples, which therefore raises the question of whether the market has unreasonably valued JD too low than what it actually deserves?\n<img src=\"https://static.tigerbbs.com/09064245a10bfce0ca518de2ba958e28\" tg-width=\"1280\" tg-height=\"774\">BABA &amp; JD LTM Revenue Trend. Data Source: S&amp;P Global Market Intelligence\n<img src=\"https://static.tigerbbs.com/a7ad67e5be6dba93461b1cb1813d0aa8\" tg-width=\"1257\" tg-height=\"474\">JD Annual Active Customer Count. Data Source: Company Filings\n<img src=\"https://static.tigerbbs.com/b156a6b3eb509a01ef58375a4d035718\" tg-width=\"600\" tg-height=\"371\">JD Annual Active Customer YoY Growth. Data Source: Company Filings\nIn fact, JD has been improving its active customer growth since Q3'19 as prior to that, JD had in fact suffered dramatic declines over multiple consecutive quarters of slowing customer growth. This coincided with the company's foray into&nbsp;Jingxi in 2019, which is the company's answer to Pinduoduo (PDD). The management also emphasized that: \"In the past 12 months, we gained 112 million new active users, with over&nbsp;80% coming from lower-tier markets.\" Therefore quite clearly, Jingxi's customer growth has been the impetus behind the strong quarters of ARPC growth for JD.\n<img src=\"https://static.tigerbbs.com/16b3ae3a7907e114e3e3874b5f7d2851\" tg-width=\"962\" tg-height=\"595\">JD Average Revenue Per Active Customer. Data Source: Company Filings\n<img src=\"https://static.tigerbbs.com/4a17b7b3775c0d8c1ab4b05856429210\" tg-width=\"600\" tg-height=\"371\">JD Average Revenue Per Active Customer YoY Growth. Data Source: Company Filings\nWhen we zoomed into the company's average revenue per active customer metrics, we could see that the underlying growth (up 11.7% YoY at the recent quarter) has been relatively healthy as well while the company continues to scale up its customer growth through the lower-tier markets.\nOkay, then how does JD's Operating Performances look like?\n<img src=\"https://static.tigerbbs.com/365fbee247a722170a072c2dc2b83e38\" tg-width=\"1280\" tg-height=\"703\">EBIT Margin, CFO Margin, FCF Margin. Data Source: S&amp;P Global Market Intelligence\nI had mentioned before in&nbsp;my article here&nbsp;for Coupang (CPNG), that for businesses that are potentially highly scalable such as JD's, we do not have to necessarily worry about the company's low operating margin business model as long as they are able to scale up quickly towards high FCF profitability. JD has always been operating with low operating margin (LTM EBIT margin of 1.2%), as that's the nature of its business model. Despite that, the company has still been able to generate relatively healthy FCF margins (LTM FCF margin 2.7%). Investors also shouldn't expect SaaS like FCF margins here as the business model is entirely different and JD is obviously going after those huge GMV growth. What we want to see though is whether the company is able to continue generating fast-growing and highly sustainable FCF moving forward.\n<img src=\"https://static.tigerbbs.com/b36f757fa706b6f349f44add10229761\" tg-width=\"1280\" tg-height=\"708\">Peers Projected Unlevered FCF Margin. Data Source: S&amp;P Global Market Intelligence\n<img src=\"https://static.tigerbbs.com/328507a06929411b3b72e85c8c8169b2\" tg-width=\"1280\" tg-height=\"693\">Peers Projected Unlevered FCF 5Y CAGR. Data Source: S&amp;P Global Market Intelligence\nThe problem arose when I tried to model JD's FCF growth moving forward. Quite clearly, JD does not seem to be able to improve its FCF margin strongly over time, with the projected FCF margins largely still in line with the historical ones.\nThat isn't something that we would like to see in a growth stock. Moreover the company's projected FCF margins are simply too low to be even classified as a cash flow machine. When we compare JD with its peers, we can clearly see that all of them, including AMZN are projected to generate very strong FCF growth moving forward, with JD's 5Y CAGR of 19.4% coming in last here. JD doesn't seem to be able to leverage on its relatively fast revenue growth to expand its FCF generating prowess as compared to its peers.\n<img src=\"https://static.tigerbbs.com/34da8b0865452a029c93f57dc8104697\" tg-width=\"1280\" tg-height=\"684\">Non-Peers Projected Unlevered FCF 5Y CAGR &amp; Projected Unlevered FCF Margin. Data Source: S&amp;P Global Market Intelligence\nIn order to help investors better understand what I mean, we can refer to the chart above to give an idea of what I meant as companies who are already in relatively stable growth stages with highly sustainable FCF margins as we model their FCF growth profile. It may be argued that Facebook (FB) is still a growth stock (but no longer as high growth as it once was) as it's still expected to generate relatively high FCF growth moving forward while commanding a remarkably high FCF margin as well. In addition, we could also see clearly that stable players often preferred by value investors such as Microsoft (MSFT), Qualcomm (QCOM) and Cisco (CSCO) are also expected to carry forward their high FCF margins moving forward. In contrast, JD's low 2.7% 5-year average FCF margin doesn't qualify it as a high quality stable stock for value investors to consider.\nWhat about JD's Growth Drivers?\nNow the interesting thing here is that JD has maintained that its business is still running at the \"high-growth\" stage as it emphasized:\n<blockquote>\n First of all, we&nbsp;prioritize growth above the importance of profitabilitybecause across all of our business lines, we are still in the high-growth stage. But each segment or each business line is actually in a different development stage. So we have kind of a differentiated investment strategy. So for JD Retail, we still -- you can see that for the first quarter and in the past few quarters, they continue to maintain a high-growth rate.\n</blockquote>\nThe management also added that they would likely continue to benefit from improved economies of scale and operating leverage as they bank on the rapid expansion of JD's retail business, allowing the company to continue improving its long term profit margin over time.\n<img src=\"https://static.tigerbbs.com/8477039f4b9693704cbbaf64530da052\" tg-width=\"1280\" tg-height=\"706\">JD LTM EBIT Margin &amp; Projected EBIT Margin, LTM Unlevered FCF Margin &amp; Projected Unlevered FCF Margin. Data Source: S&amp;P Global Market Intelligence\nIn order to be clear of that, when I modelled JD's EBIT margin and FCF margin growth, I find it hard pressed to have agreement with the management's point of expecting sustained improvement in their operating performance over time as they scale up rapidly. First, the company is already coming off a very low base of EBIT (LTM EBIT margin: 1.2%) and FCF profitability (LTM Unlevered FCF margin: 0.8%), therefore I think it's not unreasonable to expect the company to post a significant improvement to its FCF profitability over time. However, as we can see above, those EBIT margin improvements don't really seem to cascade down to its FCF bottomline.\n<img src=\"https://static.tigerbbs.com/34fa89d4e61ac3e70091cc064b4dc51a\" tg-width=\"1280\" tg-height=\"626\">JD Q1'21 Segment Revenue. Source:JD 6-K\nIt's important to note that JD retail is the company's main revenue and profit driver, accounting for 91% of Q1'21 revenue, while also subsidizing the losses from its other segments (one of which was JD Logistics which has already been spun off recently). It's difficult to see how its forays into its new businesses can be reasonably sustained over time when they don't have a highly profitable cash flow driver in JD Retail.\n<img src=\"https://static.tigerbbs.com/85c510c5f8c49a1fde429fcbe1892c30\" tg-width=\"1280\" tg-height=\"704\">AMZN EBIT Margin &amp; Projected EBIT Margin, Unlevered FCF Margin &amp; Projected Unlevered FCF Margin. Data Source: S&amp;P Global Market Intelligence\n<img src=\"https://static.tigerbbs.com/6dcf33c4272b764cbad4a64cca5bdbfd\" tg-width=\"1280\" tg-height=\"711\">Sea Limited EBIT Margin &amp; Projected EBIT Margin, Unlevered FCF Margin &amp; Projected Unlevered FCF Margin. Data Source: S&amp;P Global Market Intelligence\nWe could refer to the above charts to see how important it's to have highly profitable cash flow segments to drive its operating performances even as the companies continue to scale up: AMZN with its AWS segment, as well as Sea's (SE) Garena segment, which I had covered in a&nbsp;recent article here. This cash flow segments allow them to reinvest into its highly scalable e-commerce segments and over time significantly improve their overall cash flow and EBIT profile. JD's business model certainly doesn't have the luxury of relying on such a segment to drive its growth, and therefore it's reflected clearly in its operating performances moving forward.\nValuations\n<img src=\"https://static.tigerbbs.com/2ec37dd8957f5cadcf9615fa414bb78d\" tg-width=\"1280\" tg-height=\"726\">Peers Consensus Analysts Upside &amp; EV / FY+1 Rev. Data Source: S&amp;P Global Market Intelligence\nIf we simply base off JD's expected revenue growth, there's little doubt that JD seems to be valued at fire sale prices now. However, as mentioned earlier in the article, JD has always been valued at very low EV / Rev multiples historically as compared to its peers. In addition, the Street also remains highly confident of JD's upside potential (35.6%) as compared to its peers.\n<img src=\"https://static.tigerbbs.com/56bd8f33da9baab688b59439b44a827b\" tg-width=\"1280\" tg-height=\"709\">JD &amp; SE Ev / Fwd (EBITDA - CapEx) Trend. Data Source: S&amp;P Global Market Intelligence\nAs I have emphasized earlier, using revenue figures to look at JD's growth potential may not accurately reflect the company's scalability potential. Here, we can see how SE's high potential to scale is clearly reflected in its FCF profile, where I use (EBITDA - CapEx) as a proxy here to remove the effects of lumpy working capital changes. SE's valuations are expected to come down significantly as it scales across South East Asia, generating lots of cash flow in the process. However, JD on the other hand doesn't seem to be quite as attractively valued as compared to SE when we project their growth rates forward.\nPrice Action &amp; Technical Analysis\n<img src=\"https://static.tigerbbs.com/98b516b4268fe8418e750d8717769eaf\" tg-width=\"1280\" tg-height=\"798\">Source: TradingView\nA silver lining here is that JD's long term uptrend remains intact despite the sell-off in Chinese stocks in Feb 21 that saw JD's stock price fall about 30% from its high. There are a few support levels that investors can focus on, most notably, the $70 support level that saw strong buying interest, as well as the $59 support level. The bulls are trying to retake the $79 support level which coincides with the dynamic resistance level marked by the 50-period MA at the moment. Therefore, investors who wish to add or initiate their positions may consider adding somewhere near the $70 level, and the $59 level if it retraces further, while avoiding adding near $79 in the near term.\nFor Chinese stocks, the Chinese and U.S. regulators will likely remain as the most important near term risk that may cause further compressions in its stock prices. However, as a long term investor who is still bullish on JD, I don't see that as a risk per se, but instead as an opportunity to add further into stocks like JD who in my opinion is fairly valued, and not expensive. The more the stock falls in the future due to policy changes or stiff rules from Beijing or Washington, the more attractive it will get for long term investors who have yet to initiate a position.\nWrapping it all up\nI'm a JD shareholder, and likely to remain so moving forward. What I had wanted to present in this article is to demonstrate why JD continues to trade at such low revenue multiples even as it continues to power ahead in its revenue growth. Investors should understand that although from the price action point of view JD I don't consider JD as a value trap, but I also don't consider JD as very attractive right now. It certainly deserves its current valuation and growth investors should taper their expectations in seeing the stock race ahead in the coming years.","collect":0,"html":"<!DOCTYPE html>\n<html>\n<head>\n<meta http-equiv=\"Content-Type\" content=\"text/html; charset=utf-8\" />\n<meta name=\"viewport\" content=\"width=device-width,initial-scale=1.0,minimum-scale=1.0,maximum-scale=1.0,user-scalable=no\"/>\n<meta name=\"format-detection\" content=\"telephone=no,email=no,address=no\" />\n<title>JD.com: Its Business Model Is Deserving Of Its Current Valuation</title>\n<style type=\"text/css\">\na,abbr,acronym,address,applet,article,aside,audio,b,big,blockquote,body,canvas,caption,center,cite,code,dd,del,details,dfn,div,dl,dt,\nem,embed,fieldset,figcaption,figure,footer,form,h1,h2,h3,h4,h5,h6,header,hgroup,html,i,iframe,img,ins,kbd,label,legend,li,mark,menu,nav,\nobject,ol,output,p,pre,q,ruby,s,samp,section,small,span,strike,strong,sub,summary,sup,table,tbody,td,tfoot,th,thead,time,tr,tt,u,ul,var,video{ font:inherit;margin:0;padding:0;vertical-align:baseline;border:0 }\nbody{ font-size:16px; line-height:1.5; color:#999; background:transparent; }\n.wrapper{ overflow:hidden;word-break:break-all;padding:10px; }\nh1,h2{ font-weight:normal; line-height:1.35; margin-bottom:.6em; }\nh3,h4,h5,h6{ line-height:1.35; margin-bottom:1em; }\nh1{ font-size:24px; }\nh2{ font-size:20px; }\nh3{ font-size:18px; }\nh4{ font-size:16px; }\nh5{ font-size:14px; }\nh6{ font-size:12px; }\np,ul,ol,blockquote,dl,table{ margin:1.2em 0; }\nul,ol{ margin-left:2em; }\nul{ list-style:disc; }\nol{ list-style:decimal; }\nli,li p{ margin:10px 0;}\nimg{ max-width:100%;display:block;margin:0 auto 1em; }\nblockquote{ color:#B5B2B1; border-left:3px solid #aaa; padding:1em; }\nstrong,b{font-weight:bold;}\nem,i{font-style:italic;}\ntable{ width:100%;border-collapse:collapse;border-spacing:1px;margin:1em 0;font-size:.9em; }\nth,td{ padding:5px;text-align:left;border:1px solid #aaa; }\nth{ font-weight:bold;background:#5d5d5d; }\n.symbol-link{font-weight:bold;}\n/* header{ border-bottom:1px solid #494756; } */\n.title{ margin:0 0 8px;line-height:1.3;color:#ddd; }\n.meta {color:#5e5c6d;font-size:13px;margin:0 0 .5em; }\na{text-decoration:none; color:#2a4b87;}\n.meta .head { display: inline-block; overflow: hidden}\n.head .h-thumb { width: 30px; height: 30px; margin: 0; padding: 0; border-radius: 50%; float: left;}\n.head .h-content { margin: 0; padding: 0 0 0 9px; float: left;}\n.head .h-name {font-size: 13px; color: #eee; margin: 0;}\n.head .h-time {font-size: 11px; color: #7E829C; margin: 0;line-height: 11px;}\n.small {font-size: 12.5px; display: inline-block; transform: scale(0.9); -webkit-transform: scale(0.9); transform-origin: left; -webkit-transform-origin: left;}\n.smaller {font-size: 12.5px; display: inline-block; transform: scale(0.8); -webkit-transform: scale(0.8); transform-origin: left; -webkit-transform-origin: left;}\n.bt-text {font-size: 12px;margin: 1.5em 0 0 0}\n.bt-text p {margin: 0}\n</style>\n</head>\n<body>\n<div class=\"wrapper\">\n<header>\n<h2 class=\"title\">\nJD.com: Its Business Model Is Deserving Of Its Current Valuation\n</h2>\n\n<h4 class=\"meta\">\n\n\n2021-06-03 23:22 GMT+8&nbsp;&nbsp;&nbsp;<a href=https://seekingalpha.com/article/4432860-jd-com-business-model-deserving-current-valuation>seekingalpha</a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\nSummary\n\nJD is often branded as the most “undervalued” stock of all its e-commerce peers by growth and value investors alike.\nEven though the company’s revenue growth rates have impressed, its ...\n\n<a href=\"https://seekingalpha.com/article/4432860-jd-com-business-model-deserving-current-valuation\">Web Link</a>\n\n</div>\n\n\n</article>\n</div>\n</body>\n</html>\n","type":0,"thumbnail":"","relate_stocks":{"09618":"京东集团-SW","JD":"京东"},"source_url":"https://seekingalpha.com/article/4432860-jd-com-business-model-deserving-current-valuation","is_english":true,"share_image_url":"https://static.laohu8.com/e9f99090a1c2ed51c021029395664489","article_id":"1171251318","content_text":"Summary\n\nJD is often branded as the most “undervalued” stock of all its e-commerce peers by growth and value investors alike.\nEven though the company’s revenue growth rates have impressed, its operating performances have not really been on par.\nI discuss why JD’s current valuations reflect the reality of its business model, and what growth and value investors should focus on to value the company.\n\nPhoto by Kevin Frayer/Getty Images News via Getty Images\nInvestment Thesis\nJD.com's (JD) low EV/Revenue multiples have often baffled growth and value investors. The relatively high revenue growth rates that the investors have grown accustomed to in the rapidly expanding Chinese e-commerce market has not cascaded down to its market cap as compared to its peers. I attempt to present my opinion on why JD may have exhibited a high revenue growth profile, but not necessarily the operating performances to match its peers.\nJD's Incredibly Low Revenue Multiples\nThe company has often been compared to Amazon (AMZN) in its early days or even compared to Shopify (SHOP) for having a revenue multiple that's way lower, and therefore implying a better buy.\nHowever when I looked under the hood into JD's business model and its operating performances, I found enough underlying weaknesses in JD's business model that perhaps indicate why the market continues to value JD at such low multiples despite having posted impressive growth rates.\nLTM Revenue Growth & Price / LTM Sales. Data Source: S&P Global Market Intelligence\nAs we can see from the chart above, JD has posted remarkable YoY revenue growth rates for the last 5 years, the \"slowest\" one being 22.7%. In fact, JD's LTM revenue growth rate has been accelerating recently, reaching 33.3% at the recent quarter. Despite that, its EV / LTM Rev multiple has consistently been under 1.1x, marking its strong appeal as a \"cheap\" growth stock.\nPrice/LTM Sales Percentile. Source: Tiger Brokers\nIn fact, JD's Price/LTM sales is currently at the 32nd percentile when we compare its multiples over the last 5 years, potentially even creating opportunities for value investors who may be on the lookout for a \"next Amazon\" type of stock that is selling for a real bargain now.\nJD and AMZN Market Cap, LTM Revenue, Revenue 3Y CAGR, EV / LTM Rev. Data Source: S&P Global Market Intelligence\nA quick glance over to Alibaba's (BABA) metrics unveil some interesting observations. Even though BABA's market cap is close to 5x that of JD's, BABA actually reported a lower LTM revenue (89% of JD's LTM revenue) than JD. In fact, BABA has reported lower revenue figures than JD over the last 5 years (see chart below). Both BABA and JD are revenue growth machines, with BABA's 3Y CAGR of 42% and JD's 3Y CAGR of 27.2%. Despite JD's impressive revenue growth, BABA is valued at 5.5x more than JD here based on their respective revenue multiples, which therefore raises the question of whether the market has unreasonably valued JD too low than what it actually deserves?\nBABA & JD LTM Revenue Trend. Data Source: S&P Global Market Intelligence\nJD Annual Active Customer Count. Data Source: Company Filings\nJD Annual Active Customer YoY Growth. Data Source: Company Filings\nIn fact, JD has been improving its active customer growth since Q3'19 as prior to that, JD had in fact suffered dramatic declines over multiple consecutive quarters of slowing customer growth. This coincided with the company's foray into Jingxi in 2019, which is the company's answer to Pinduoduo (PDD). The management also emphasized that: \"In the past 12 months, we gained 112 million new active users, with over 80% coming from lower-tier markets.\" Therefore quite clearly, Jingxi's customer growth has been the impetus behind the strong quarters of ARPC growth for JD.\nJD Average Revenue Per Active Customer. Data Source: Company Filings\nJD Average Revenue Per Active Customer YoY Growth. Data Source: Company Filings\nWhen we zoomed into the company's average revenue per active customer metrics, we could see that the underlying growth (up 11.7% YoY at the recent quarter) has been relatively healthy as well while the company continues to scale up its customer growth through the lower-tier markets.\nOkay, then how does JD's Operating Performances look like?\nEBIT Margin, CFO Margin, FCF Margin. Data Source: S&P Global Market Intelligence\nI had mentioned before in my article here for Coupang (CPNG), that for businesses that are potentially highly scalable such as JD's, we do not have to necessarily worry about the company's low operating margin business model as long as they are able to scale up quickly towards high FCF profitability. JD has always been operating with low operating margin (LTM EBIT margin of 1.2%), as that's the nature of its business model. Despite that, the company has still been able to generate relatively healthy FCF margins (LTM FCF margin 2.7%). Investors also shouldn't expect SaaS like FCF margins here as the business model is entirely different and JD is obviously going after those huge GMV growth. What we want to see though is whether the company is able to continue generating fast-growing and highly sustainable FCF moving forward.\nPeers Projected Unlevered FCF Margin. Data Source: S&P Global Market Intelligence\nPeers Projected Unlevered FCF 5Y CAGR. Data Source: S&P Global Market Intelligence\nThe problem arose when I tried to model JD's FCF growth moving forward. Quite clearly, JD does not seem to be able to improve its FCF margin strongly over time, with the projected FCF margins largely still in line with the historical ones.\nThat isn't something that we would like to see in a growth stock. Moreover the company's projected FCF margins are simply too low to be even classified as a cash flow machine. When we compare JD with its peers, we can clearly see that all of them, including AMZN are projected to generate very strong FCF growth moving forward, with JD's 5Y CAGR of 19.4% coming in last here. JD doesn't seem to be able to leverage on its relatively fast revenue growth to expand its FCF generating prowess as compared to its peers.\nNon-Peers Projected Unlevered FCF 5Y CAGR & Projected Unlevered FCF Margin. Data Source: S&P Global Market Intelligence\nIn order to help investors better understand what I mean, we can refer to the chart above to give an idea of what I meant as companies who are already in relatively stable growth stages with highly sustainable FCF margins as we model their FCF growth profile. It may be argued that Facebook (FB) is still a growth stock (but no longer as high growth as it once was) as it's still expected to generate relatively high FCF growth moving forward while commanding a remarkably high FCF margin as well. In addition, we could also see clearly that stable players often preferred by value investors such as Microsoft (MSFT), Qualcomm (QCOM) and Cisco (CSCO) are also expected to carry forward their high FCF margins moving forward. In contrast, JD's low 2.7% 5-year average FCF margin doesn't qualify it as a high quality stable stock for value investors to consider.\nWhat about JD's Growth Drivers?\nNow the interesting thing here is that JD has maintained that its business is still running at the \"high-growth\" stage as it emphasized:\n\n First of all, we prioritize growth above the importance of profitabilitybecause across all of our business lines, we are still in the high-growth stage. But each segment or each business line is actually in a different development stage. So we have kind of a differentiated investment strategy. So for JD Retail, we still -- you can see that for the first quarter and in the past few quarters, they continue to maintain a high-growth rate.\n\nThe management also added that they would likely continue to benefit from improved economies of scale and operating leverage as they bank on the rapid expansion of JD's retail business, allowing the company to continue improving its long term profit margin over time.\nJD LTM EBIT Margin & Projected EBIT Margin, LTM Unlevered FCF Margin & Projected Unlevered FCF Margin. Data Source: S&P Global Market Intelligence\nIn order to be clear of that, when I modelled JD's EBIT margin and FCF margin growth, I find it hard pressed to have agreement with the management's point of expecting sustained improvement in their operating performance over time as they scale up rapidly. First, the company is already coming off a very low base of EBIT (LTM EBIT margin: 1.2%) and FCF profitability (LTM Unlevered FCF margin: 0.8%), therefore I think it's not unreasonable to expect the company to post a significant improvement to its FCF profitability over time. However, as we can see above, those EBIT margin improvements don't really seem to cascade down to its FCF bottomline.\nJD Q1'21 Segment Revenue. Source:JD 6-K\nIt's important to note that JD retail is the company's main revenue and profit driver, accounting for 91% of Q1'21 revenue, while also subsidizing the losses from its other segments (one of which was JD Logistics which has already been spun off recently). It's difficult to see how its forays into its new businesses can be reasonably sustained over time when they don't have a highly profitable cash flow driver in JD Retail.\nAMZN EBIT Margin & Projected EBIT Margin, Unlevered FCF Margin & Projected Unlevered FCF Margin. Data Source: S&P Global Market Intelligence\nSea Limited EBIT Margin & Projected EBIT Margin, Unlevered FCF Margin & Projected Unlevered FCF Margin. Data Source: S&P Global Market Intelligence\nWe could refer to the above charts to see how important it's to have highly profitable cash flow segments to drive its operating performances even as the companies continue to scale up: AMZN with its AWS segment, as well as Sea's (SE) Garena segment, which I had covered in a recent article here. This cash flow segments allow them to reinvest into its highly scalable e-commerce segments and over time significantly improve their overall cash flow and EBIT profile. JD's business model certainly doesn't have the luxury of relying on such a segment to drive its growth, and therefore it's reflected clearly in its operating performances moving forward.\nValuations\nPeers Consensus Analysts Upside & EV / FY+1 Rev. Data Source: S&P Global Market Intelligence\nIf we simply base off JD's expected revenue growth, there's little doubt that JD seems to be valued at fire sale prices now. However, as mentioned earlier in the article, JD has always been valued at very low EV / Rev multiples historically as compared to its peers. In addition, the Street also remains highly confident of JD's upside potential (35.6%) as compared to its peers.\nJD & SE Ev / Fwd (EBITDA - CapEx) Trend. Data Source: S&P Global Market Intelligence\nAs I have emphasized earlier, using revenue figures to look at JD's growth potential may not accurately reflect the company's scalability potential. Here, we can see how SE's high potential to scale is clearly reflected in its FCF profile, where I use (EBITDA - CapEx) as a proxy here to remove the effects of lumpy working capital changes. SE's valuations are expected to come down significantly as it scales across South East Asia, generating lots of cash flow in the process. However, JD on the other hand doesn't seem to be quite as attractively valued as compared to SE when we project their growth rates forward.\nPrice Action & Technical Analysis\nSource: TradingView\nA silver lining here is that JD's long term uptrend remains intact despite the sell-off in Chinese stocks in Feb 21 that saw JD's stock price fall about 30% from its high. There are a few support levels that investors can focus on, most notably, the $70 support level that saw strong buying interest, as well as the $59 support level. The bulls are trying to retake the $79 support level which coincides with the dynamic resistance level marked by the 50-period MA at the moment. Therefore, investors who wish to add or initiate their positions may consider adding somewhere near the $70 level, and the $59 level if it retraces further, while avoiding adding near $79 in the near term.\nFor Chinese stocks, the Chinese and U.S. regulators will likely remain as the most important near term risk that may cause further compressions in its stock prices. However, as a long term investor who is still bullish on JD, I don't see that as a risk per se, but instead as an opportunity to add further into stocks like JD who in my opinion is fairly valued, and not expensive. The more the stock falls in the future due to policy changes or stiff rules from Beijing or Washington, the more attractive it will get for long term investors who have yet to initiate a position.\nWrapping it all up\nI'm a JD shareholder, and likely to remain so moving forward. What I had wanted to present in this article is to demonstrate why JD continues to trade at such low revenue multiples even as it continues to power ahead in its revenue growth. Investors should understand that although from the price action point of view JD I don't consider JD as a value trap, but I also don't consider JD as very attractive right now. It certainly deserves its current valuation and growth investors should taper their expectations in seeing the stock race ahead in the coming years.","news_type":1},"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"langContent":"EN"},{"id":116315033,"gmtCreate":1622774085922,"gmtModify":1704190925329,"author":{"id":"3565081661382277","authorId":"3565081661382277","name":"Mm101","avatar":"https://static.tigerbbs.com/01758aa877d9e5a9767d24de3a4e2ff1","vip":1,"crmLevel":4,"crmLevelSwitch":0,"idStr":"3565081661382277","authorIdStr":"3565081661382277"},"htmlText":"Wow","listText":"Wow","text":"Wow","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":0,"commentSize":0,"repostSize":0,"link":"https://ttm.financial/post/116315033","repostId":1171251318,"repostType":4,"repost":{"id":"1171251318","pubTimestamp":1622733765,"share":"https://ttm.financial/m/news/1171251318?lang=&edition=fundamental","pubTime":"2021-06-03 23:22","market":"hk","language":"en","title":"JD.com: Its Business Model Is Deserving Of Its Current Valuation","url":"https://stock-news.laohu8.com/highlight/detail?id=1171251318","media":"seekingalpha","summary":"Summary\n\nJD is often branded as the most “undervalued” stock of all its e-commerce peers by growth a","content":"Summary\n<ul>\n <li>JD is often branded as the most “undervalued” stock of all its e-commerce peers by growth and value investors alike.</li>\n <li>Even though the company’s revenue growth rates have impressed, its operating performances have not really been on par.</li>\n <li>I discuss why JD’s current valuations reflect the reality of its business model, and what growth and value investors should focus on to value the company.</li>\n</ul>\n<img src=\"https://static.tigerbbs.com/3bc39a30a57f05b994781d4a3a51c0de\" tg-width=\"1536\" tg-height=\"1092\">Photo by Kevin Frayer/Getty Images News via Getty Images\nInvestment Thesis\nJD.com's (JD) low EV/Revenue multiples have often baffled growth and value investors. The relatively high revenue growth rates that the investors have grown accustomed to in the rapidly expanding Chinese e-commerce market has not cascaded down to its market cap as compared to its peers. I attempt to present my opinion on why JD may have exhibited a high revenue growth profile, but not necessarily the operating performances to match its peers.\nJD's Incredibly Low Revenue Multiples\nThe company has often been compared to Amazon (AMZN) in its early days or even compared to Shopify (SHOP) for having a revenue multiple that's way lower, and therefore implying a better buy.\nHowever when I looked under the hood into JD's business model and its operating performances, I found enough underlying weaknesses in JD's business model that perhaps indicate why the market continues to value JD at such low multiples despite having posted impressive growth rates.\n<img src=\"https://static.tigerbbs.com/dd8c028415efa231c377fb5f68a00858\" tg-width=\"1280\" tg-height=\"844\">LTM Revenue Growth &amp; Price / LTM Sales. Data Source: S&amp;P Global Market Intelligence\nAs we can see from the chart above, JD has posted remarkable YoY revenue growth rates for the last 5 years, the \"slowest\" one being 22.7%. In fact, JD's LTM revenue growth rate has been accelerating recently, reaching 33.3% at the recent quarter. Despite that, its EV / LTM Rev multiple has consistently been under 1.1x, marking its strong appeal as a \"cheap\" growth stock.\n<img src=\"https://static.tigerbbs.com/b5429847bb5cdb8de25028528ae70f6a\" tg-width=\"1280\" tg-height=\"811\">Price/LTM Sales Percentile. Source: Tiger Brokers\nIn fact, JD's Price/LTM sales is currently at the 32nd percentile when we compare its multiples over the last 5 years, potentially even creating opportunities for value investors who may be on the lookout for a \"next Amazon\" type of stock that is selling for a real bargain now.\n<img src=\"https://static.tigerbbs.com/4a33a3a8b9c3f7cfd6393fb14a77852c\" tg-width=\"1280\" tg-height=\"776\">JD and AMZN Market Cap, LTM Revenue, Revenue 3Y CAGR, EV / LTM Rev. Data Source: S&amp;P Global Market Intelligence\nA quick glance over to Alibaba's (BABA) metrics unveil some interesting observations. Even though BABA's market cap is close to 5x that of JD's, BABA actually reported a lower LTM revenue (89% of JD's LTM revenue) than JD. In fact, BABA has reported lower revenue figures than JD over the last 5 years (see chart below). Both BABA and JD are revenue growth machines, with BABA's 3Y CAGR of 42% and JD's 3Y CAGR of 27.2%. Despite JD's impressive revenue growth, BABA is valued at 5.5x more than JD here based on their respective revenue multiples, which therefore raises the question of whether the market has unreasonably valued JD too low than what it actually deserves?\n<img src=\"https://static.tigerbbs.com/09064245a10bfce0ca518de2ba958e28\" tg-width=\"1280\" tg-height=\"774\">BABA &amp; JD LTM Revenue Trend. Data Source: S&amp;P Global Market Intelligence\n<img src=\"https://static.tigerbbs.com/a7ad67e5be6dba93461b1cb1813d0aa8\" tg-width=\"1257\" tg-height=\"474\">JD Annual Active Customer Count. Data Source: Company Filings\n<img src=\"https://static.tigerbbs.com/b156a6b3eb509a01ef58375a4d035718\" tg-width=\"600\" tg-height=\"371\">JD Annual Active Customer YoY Growth. Data Source: Company Filings\nIn fact, JD has been improving its active customer growth since Q3'19 as prior to that, JD had in fact suffered dramatic declines over multiple consecutive quarters of slowing customer growth. This coincided with the company's foray into&nbsp;Jingxi in 2019, which is the company's answer to Pinduoduo (PDD). The management also emphasized that: \"In the past 12 months, we gained 112 million new active users, with over&nbsp;80% coming from lower-tier markets.\" Therefore quite clearly, Jingxi's customer growth has been the impetus behind the strong quarters of ARPC growth for JD.\n<img src=\"https://static.tigerbbs.com/16b3ae3a7907e114e3e3874b5f7d2851\" tg-width=\"962\" tg-height=\"595\">JD Average Revenue Per Active Customer. Data Source: Company Filings\n<img src=\"https://static.tigerbbs.com/4a17b7b3775c0d8c1ab4b05856429210\" tg-width=\"600\" tg-height=\"371\">JD Average Revenue Per Active Customer YoY Growth. Data Source: Company Filings\nWhen we zoomed into the company's average revenue per active customer metrics, we could see that the underlying growth (up 11.7% YoY at the recent quarter) has been relatively healthy as well while the company continues to scale up its customer growth through the lower-tier markets.\nOkay, then how does JD's Operating Performances look like?\n<img src=\"https://static.tigerbbs.com/365fbee247a722170a072c2dc2b83e38\" tg-width=\"1280\" tg-height=\"703\">EBIT Margin, CFO Margin, FCF Margin. Data Source: S&amp;P Global Market Intelligence\nI had mentioned before in&nbsp;my article here&nbsp;for Coupang (CPNG), that for businesses that are potentially highly scalable such as JD's, we do not have to necessarily worry about the company's low operating margin business model as long as they are able to scale up quickly towards high FCF profitability. JD has always been operating with low operating margin (LTM EBIT margin of 1.2%), as that's the nature of its business model. Despite that, the company has still been able to generate relatively healthy FCF margins (LTM FCF margin 2.7%). Investors also shouldn't expect SaaS like FCF margins here as the business model is entirely different and JD is obviously going after those huge GMV growth. What we want to see though is whether the company is able to continue generating fast-growing and highly sustainable FCF moving forward.\n<img src=\"https://static.tigerbbs.com/b36f757fa706b6f349f44add10229761\" tg-width=\"1280\" tg-height=\"708\">Peers Projected Unlevered FCF Margin. Data Source: S&amp;P Global Market Intelligence\n<img src=\"https://static.tigerbbs.com/328507a06929411b3b72e85c8c8169b2\" tg-width=\"1280\" tg-height=\"693\">Peers Projected Unlevered FCF 5Y CAGR. Data Source: S&amp;P Global Market Intelligence\nThe problem arose when I tried to model JD's FCF growth moving forward. Quite clearly, JD does not seem to be able to improve its FCF margin strongly over time, with the projected FCF margins largely still in line with the historical ones.\nThat isn't something that we would like to see in a growth stock. Moreover the company's projected FCF margins are simply too low to be even classified as a cash flow machine. When we compare JD with its peers, we can clearly see that all of them, including AMZN are projected to generate very strong FCF growth moving forward, with JD's 5Y CAGR of 19.4% coming in last here. JD doesn't seem to be able to leverage on its relatively fast revenue growth to expand its FCF generating prowess as compared to its peers.\n<img src=\"https://static.tigerbbs.com/34da8b0865452a029c93f57dc8104697\" tg-width=\"1280\" tg-height=\"684\">Non-Peers Projected Unlevered FCF 5Y CAGR &amp; Projected Unlevered FCF Margin. Data Source: S&amp;P Global Market Intelligence\nIn order to help investors better understand what I mean, we can refer to the chart above to give an idea of what I meant as companies who are already in relatively stable growth stages with highly sustainable FCF margins as we model their FCF growth profile. It may be argued that Facebook (FB) is still a growth stock (but no longer as high growth as it once was) as it's still expected to generate relatively high FCF growth moving forward while commanding a remarkably high FCF margin as well. In addition, we could also see clearly that stable players often preferred by value investors such as Microsoft (MSFT), Qualcomm (QCOM) and Cisco (CSCO) are also expected to carry forward their high FCF margins moving forward. In contrast, JD's low 2.7% 5-year average FCF margin doesn't qualify it as a high quality stable stock for value investors to consider.\nWhat about JD's Growth Drivers?\nNow the interesting thing here is that JD has maintained that its business is still running at the \"high-growth\" stage as it emphasized:\n<blockquote>\n First of all, we&nbsp;prioritize growth above the importance of profitabilitybecause across all of our business lines, we are still in the high-growth stage. But each segment or each business line is actually in a different development stage. So we have kind of a differentiated investment strategy. So for JD Retail, we still -- you can see that for the first quarter and in the past few quarters, they continue to maintain a high-growth rate.\n</blockquote>\nThe management also added that they would likely continue to benefit from improved economies of scale and operating leverage as they bank on the rapid expansion of JD's retail business, allowing the company to continue improving its long term profit margin over time.\n<img src=\"https://static.tigerbbs.com/8477039f4b9693704cbbaf64530da052\" tg-width=\"1280\" tg-height=\"706\">JD LTM EBIT Margin &amp; Projected EBIT Margin, LTM Unlevered FCF Margin &amp; Projected Unlevered FCF Margin. Data Source: S&amp;P Global Market Intelligence\nIn order to be clear of that, when I modelled JD's EBIT margin and FCF margin growth, I find it hard pressed to have agreement with the management's point of expecting sustained improvement in their operating performance over time as they scale up rapidly. First, the company is already coming off a very low base of EBIT (LTM EBIT margin: 1.2%) and FCF profitability (LTM Unlevered FCF margin: 0.8%), therefore I think it's not unreasonable to expect the company to post a significant improvement to its FCF profitability over time. However, as we can see above, those EBIT margin improvements don't really seem to cascade down to its FCF bottomline.\n<img src=\"https://static.tigerbbs.com/34fa89d4e61ac3e70091cc064b4dc51a\" tg-width=\"1280\" tg-height=\"626\">JD Q1'21 Segment Revenue. Source:JD 6-K\nIt's important to note that JD retail is the company's main revenue and profit driver, accounting for 91% of Q1'21 revenue, while also subsidizing the losses from its other segments (one of which was JD Logistics which has already been spun off recently). It's difficult to see how its forays into its new businesses can be reasonably sustained over time when they don't have a highly profitable cash flow driver in JD Retail.\n<img src=\"https://static.tigerbbs.com/85c510c5f8c49a1fde429fcbe1892c30\" tg-width=\"1280\" tg-height=\"704\">AMZN EBIT Margin &amp; Projected EBIT Margin, Unlevered FCF Margin &amp; Projected Unlevered FCF Margin. Data Source: S&amp;P Global Market Intelligence\n<img src=\"https://static.tigerbbs.com/6dcf33c4272b764cbad4a64cca5bdbfd\" tg-width=\"1280\" tg-height=\"711\">Sea Limited EBIT Margin &amp; Projected EBIT Margin, Unlevered FCF Margin &amp; Projected Unlevered FCF Margin. Data Source: S&amp;P Global Market Intelligence\nWe could refer to the above charts to see how important it's to have highly profitable cash flow segments to drive its operating performances even as the companies continue to scale up: AMZN with its AWS segment, as well as Sea's (SE) Garena segment, which I had covered in a&nbsp;recent article here. This cash flow segments allow them to reinvest into its highly scalable e-commerce segments and over time significantly improve their overall cash flow and EBIT profile. JD's business model certainly doesn't have the luxury of relying on such a segment to drive its growth, and therefore it's reflected clearly in its operating performances moving forward.\nValuations\n<img src=\"https://static.tigerbbs.com/2ec37dd8957f5cadcf9615fa414bb78d\" tg-width=\"1280\" tg-height=\"726\">Peers Consensus Analysts Upside &amp; EV / FY+1 Rev. Data Source: S&amp;P Global Market Intelligence\nIf we simply base off JD's expected revenue growth, there's little doubt that JD seems to be valued at fire sale prices now. However, as mentioned earlier in the article, JD has always been valued at very low EV / Rev multiples historically as compared to its peers. In addition, the Street also remains highly confident of JD's upside potential (35.6%) as compared to its peers.\n<img src=\"https://static.tigerbbs.com/56bd8f33da9baab688b59439b44a827b\" tg-width=\"1280\" tg-height=\"709\">JD &amp; SE Ev / Fwd (EBITDA - CapEx) Trend. Data Source: S&amp;P Global Market Intelligence\nAs I have emphasized earlier, using revenue figures to look at JD's growth potential may not accurately reflect the company's scalability potential. Here, we can see how SE's high potential to scale is clearly reflected in its FCF profile, where I use (EBITDA - CapEx) as a proxy here to remove the effects of lumpy working capital changes. SE's valuations are expected to come down significantly as it scales across South East Asia, generating lots of cash flow in the process. However, JD on the other hand doesn't seem to be quite as attractively valued as compared to SE when we project their growth rates forward.\nPrice Action &amp; Technical Analysis\n<img src=\"https://static.tigerbbs.com/98b516b4268fe8418e750d8717769eaf\" tg-width=\"1280\" tg-height=\"798\">Source: TradingView\nA silver lining here is that JD's long term uptrend remains intact despite the sell-off in Chinese stocks in Feb 21 that saw JD's stock price fall about 30% from its high. There are a few support levels that investors can focus on, most notably, the $70 support level that saw strong buying interest, as well as the $59 support level. The bulls are trying to retake the $79 support level which coincides with the dynamic resistance level marked by the 50-period MA at the moment. Therefore, investors who wish to add or initiate their positions may consider adding somewhere near the $70 level, and the $59 level if it retraces further, while avoiding adding near $79 in the near term.\nFor Chinese stocks, the Chinese and U.S. regulators will likely remain as the most important near term risk that may cause further compressions in its stock prices. However, as a long term investor who is still bullish on JD, I don't see that as a risk per se, but instead as an opportunity to add further into stocks like JD who in my opinion is fairly valued, and not expensive. The more the stock falls in the future due to policy changes or stiff rules from Beijing or Washington, the more attractive it will get for long term investors who have yet to initiate a position.\nWrapping it all up\nI'm a JD shareholder, and likely to remain so moving forward. What I had wanted to present in this article is to demonstrate why JD continues to trade at such low revenue multiples even as it continues to power ahead in its revenue growth. Investors should understand that although from the price action point of view JD I don't consider JD as a value trap, but I also don't consider JD as very attractive right now. It certainly deserves its current valuation and growth investors should taper their expectations in seeing the stock race ahead in the coming years.","collect":0,"html":"<!DOCTYPE html>\n<html>\n<head>\n<meta http-equiv=\"Content-Type\" content=\"text/html; charset=utf-8\" />\n<meta name=\"viewport\" content=\"width=device-width,initial-scale=1.0,minimum-scale=1.0,maximum-scale=1.0,user-scalable=no\"/>\n<meta name=\"format-detection\" content=\"telephone=no,email=no,address=no\" />\n<title>JD.com: Its Business Model Is Deserving Of Its Current Valuation</title>\n<style type=\"text/css\">\na,abbr,acronym,address,applet,article,aside,audio,b,big,blockquote,body,canvas,caption,center,cite,code,dd,del,details,dfn,div,dl,dt,\nem,embed,fieldset,figcaption,figure,footer,form,h1,h2,h3,h4,h5,h6,header,hgroup,html,i,iframe,img,ins,kbd,label,legend,li,mark,menu,nav,\nobject,ol,output,p,pre,q,ruby,s,samp,section,small,span,strike,strong,sub,summary,sup,table,tbody,td,tfoot,th,thead,time,tr,tt,u,ul,var,video{ font:inherit;margin:0;padding:0;vertical-align:baseline;border:0 }\nbody{ font-size:16px; line-height:1.5; color:#999; background:transparent; }\n.wrapper{ overflow:hidden;word-break:break-all;padding:10px; }\nh1,h2{ font-weight:normal; line-height:1.35; margin-bottom:.6em; }\nh3,h4,h5,h6{ line-height:1.35; margin-bottom:1em; }\nh1{ font-size:24px; }\nh2{ font-size:20px; }\nh3{ font-size:18px; }\nh4{ font-size:16px; }\nh5{ font-size:14px; }\nh6{ font-size:12px; }\np,ul,ol,blockquote,dl,table{ margin:1.2em 0; }\nul,ol{ margin-left:2em; }\nul{ list-style:disc; }\nol{ list-style:decimal; }\nli,li p{ margin:10px 0;}\nimg{ max-width:100%;display:block;margin:0 auto 1em; }\nblockquote{ color:#B5B2B1; border-left:3px solid #aaa; padding:1em; }\nstrong,b{font-weight:bold;}\nem,i{font-style:italic;}\ntable{ width:100%;border-collapse:collapse;border-spacing:1px;margin:1em 0;font-size:.9em; }\nth,td{ padding:5px;text-align:left;border:1px solid #aaa; }\nth{ font-weight:bold;background:#5d5d5d; }\n.symbol-link{font-weight:bold;}\n/* header{ border-bottom:1px solid #494756; } */\n.title{ margin:0 0 8px;line-height:1.3;color:#ddd; }\n.meta {color:#5e5c6d;font-size:13px;margin:0 0 .5em; }\na{text-decoration:none; color:#2a4b87;}\n.meta .head { display: inline-block; overflow: hidden}\n.head .h-thumb { width: 30px; height: 30px; margin: 0; padding: 0; border-radius: 50%; float: left;}\n.head .h-content { margin: 0; padding: 0 0 0 9px; float: left;}\n.head .h-name {font-size: 13px; color: #eee; margin: 0;}\n.head .h-time {font-size: 11px; color: #7E829C; margin: 0;line-height: 11px;}\n.small {font-size: 12.5px; display: inline-block; transform: scale(0.9); -webkit-transform: scale(0.9); transform-origin: left; -webkit-transform-origin: left;}\n.smaller {font-size: 12.5px; display: inline-block; transform: scale(0.8); -webkit-transform: scale(0.8); transform-origin: left; -webkit-transform-origin: left;}\n.bt-text {font-size: 12px;margin: 1.5em 0 0 0}\n.bt-text p {margin: 0}\n</style>\n</head>\n<body>\n<div class=\"wrapper\">\n<header>\n<h2 class=\"title\">\nJD.com: Its Business Model Is Deserving Of Its Current Valuation\n</h2>\n\n<h4 class=\"meta\">\n\n\n2021-06-03 23:22 GMT+8&nbsp;&nbsp;&nbsp;<a href=https://seekingalpha.com/article/4432860-jd-com-business-model-deserving-current-valuation>seekingalpha</a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\nSummary\n\nJD is often branded as the most “undervalued” stock of all its e-commerce peers by growth and value investors alike.\nEven though the company’s revenue growth rates have impressed, its ...\n\n<a href=\"https://seekingalpha.com/article/4432860-jd-com-business-model-deserving-current-valuation\">Web Link</a>\n\n</div>\n\n\n</article>\n</div>\n</body>\n</html>\n","type":0,"thumbnail":"","relate_stocks":{"09618":"京东集团-SW","JD":"京东"},"source_url":"https://seekingalpha.com/article/4432860-jd-com-business-model-deserving-current-valuation","is_english":true,"share_image_url":"https://static.laohu8.com/e9f99090a1c2ed51c021029395664489","article_id":"1171251318","content_text":"Summary\n\nJD is often branded as the most “undervalued” stock of all its e-commerce peers by growth and value investors alike.\nEven though the company’s revenue growth rates have impressed, its operating performances have not really been on par.\nI discuss why JD’s current valuations reflect the reality of its business model, and what growth and value investors should focus on to value the company.\n\nPhoto by Kevin Frayer/Getty Images News via Getty Images\nInvestment Thesis\nJD.com's (JD) low EV/Revenue multiples have often baffled growth and value investors. The relatively high revenue growth rates that the investors have grown accustomed to in the rapidly expanding Chinese e-commerce market has not cascaded down to its market cap as compared to its peers. I attempt to present my opinion on why JD may have exhibited a high revenue growth profile, but not necessarily the operating performances to match its peers.\nJD's Incredibly Low Revenue Multiples\nThe company has often been compared to Amazon (AMZN) in its early days or even compared to Shopify (SHOP) for having a revenue multiple that's way lower, and therefore implying a better buy.\nHowever when I looked under the hood into JD's business model and its operating performances, I found enough underlying weaknesses in JD's business model that perhaps indicate why the market continues to value JD at such low multiples despite having posted impressive growth rates.\nLTM Revenue Growth & Price / LTM Sales. Data Source: S&P Global Market Intelligence\nAs we can see from the chart above, JD has posted remarkable YoY revenue growth rates for the last 5 years, the \"slowest\" one being 22.7%. In fact, JD's LTM revenue growth rate has been accelerating recently, reaching 33.3% at the recent quarter. Despite that, its EV / LTM Rev multiple has consistently been under 1.1x, marking its strong appeal as a \"cheap\" growth stock.\nPrice/LTM Sales Percentile. Source: Tiger Brokers\nIn fact, JD's Price/LTM sales is currently at the 32nd percentile when we compare its multiples over the last 5 years, potentially even creating opportunities for value investors who may be on the lookout for a \"next Amazon\" type of stock that is selling for a real bargain now.\nJD and AMZN Market Cap, LTM Revenue, Revenue 3Y CAGR, EV / LTM Rev. Data Source: S&P Global Market Intelligence\nA quick glance over to Alibaba's (BABA) metrics unveil some interesting observations. Even though BABA's market cap is close to 5x that of JD's, BABA actually reported a lower LTM revenue (89% of JD's LTM revenue) than JD. In fact, BABA has reported lower revenue figures than JD over the last 5 years (see chart below). Both BABA and JD are revenue growth machines, with BABA's 3Y CAGR of 42% and JD's 3Y CAGR of 27.2%. Despite JD's impressive revenue growth, BABA is valued at 5.5x more than JD here based on their respective revenue multiples, which therefore raises the question of whether the market has unreasonably valued JD too low than what it actually deserves?\nBABA & JD LTM Revenue Trend. Data Source: S&P Global Market Intelligence\nJD Annual Active Customer Count. Data Source: Company Filings\nJD Annual Active Customer YoY Growth. Data Source: Company Filings\nIn fact, JD has been improving its active customer growth since Q3'19 as prior to that, JD had in fact suffered dramatic declines over multiple consecutive quarters of slowing customer growth. This coincided with the company's foray into Jingxi in 2019, which is the company's answer to Pinduoduo (PDD). The management also emphasized that: \"In the past 12 months, we gained 112 million new active users, with over 80% coming from lower-tier markets.\" Therefore quite clearly, Jingxi's customer growth has been the impetus behind the strong quarters of ARPC growth for JD.\nJD Average Revenue Per Active Customer. Data Source: Company Filings\nJD Average Revenue Per Active Customer YoY Growth. Data Source: Company Filings\nWhen we zoomed into the company's average revenue per active customer metrics, we could see that the underlying growth (up 11.7% YoY at the recent quarter) has been relatively healthy as well while the company continues to scale up its customer growth through the lower-tier markets.\nOkay, then how does JD's Operating Performances look like?\nEBIT Margin, CFO Margin, FCF Margin. Data Source: S&P Global Market Intelligence\nI had mentioned before in my article here for Coupang (CPNG), that for businesses that are potentially highly scalable such as JD's, we do not have to necessarily worry about the company's low operating margin business model as long as they are able to scale up quickly towards high FCF profitability. JD has always been operating with low operating margin (LTM EBIT margin of 1.2%), as that's the nature of its business model. Despite that, the company has still been able to generate relatively healthy FCF margins (LTM FCF margin 2.7%). Investors also shouldn't expect SaaS like FCF margins here as the business model is entirely different and JD is obviously going after those huge GMV growth. What we want to see though is whether the company is able to continue generating fast-growing and highly sustainable FCF moving forward.\nPeers Projected Unlevered FCF Margin. Data Source: S&P Global Market Intelligence\nPeers Projected Unlevered FCF 5Y CAGR. Data Source: S&P Global Market Intelligence\nThe problem arose when I tried to model JD's FCF growth moving forward. Quite clearly, JD does not seem to be able to improve its FCF margin strongly over time, with the projected FCF margins largely still in line with the historical ones.\nThat isn't something that we would like to see in a growth stock. Moreover the company's projected FCF margins are simply too low to be even classified as a cash flow machine. When we compare JD with its peers, we can clearly see that all of them, including AMZN are projected to generate very strong FCF growth moving forward, with JD's 5Y CAGR of 19.4% coming in last here. JD doesn't seem to be able to leverage on its relatively fast revenue growth to expand its FCF generating prowess as compared to its peers.\nNon-Peers Projected Unlevered FCF 5Y CAGR & Projected Unlevered FCF Margin. Data Source: S&P Global Market Intelligence\nIn order to help investors better understand what I mean, we can refer to the chart above to give an idea of what I meant as companies who are already in relatively stable growth stages with highly sustainable FCF margins as we model their FCF growth profile. It may be argued that Facebook (FB) is still a growth stock (but no longer as high growth as it once was) as it's still expected to generate relatively high FCF growth moving forward while commanding a remarkably high FCF margin as well. In addition, we could also see clearly that stable players often preferred by value investors such as Microsoft (MSFT), Qualcomm (QCOM) and Cisco (CSCO) are also expected to carry forward their high FCF margins moving forward. In contrast, JD's low 2.7% 5-year average FCF margin doesn't qualify it as a high quality stable stock for value investors to consider.\nWhat about JD's Growth Drivers?\nNow the interesting thing here is that JD has maintained that its business is still running at the \"high-growth\" stage as it emphasized:\n\n First of all, we prioritize growth above the importance of profitabilitybecause across all of our business lines, we are still in the high-growth stage. But each segment or each business line is actually in a different development stage. So we have kind of a differentiated investment strategy. So for JD Retail, we still -- you can see that for the first quarter and in the past few quarters, they continue to maintain a high-growth rate.\n\nThe management also added that they would likely continue to benefit from improved economies of scale and operating leverage as they bank on the rapid expansion of JD's retail business, allowing the company to continue improving its long term profit margin over time.\nJD LTM EBIT Margin & Projected EBIT Margin, LTM Unlevered FCF Margin & Projected Unlevered FCF Margin. Data Source: S&P Global Market Intelligence\nIn order to be clear of that, when I modelled JD's EBIT margin and FCF margin growth, I find it hard pressed to have agreement with the management's point of expecting sustained improvement in their operating performance over time as they scale up rapidly. First, the company is already coming off a very low base of EBIT (LTM EBIT margin: 1.2%) and FCF profitability (LTM Unlevered FCF margin: 0.8%), therefore I think it's not unreasonable to expect the company to post a significant improvement to its FCF profitability over time. However, as we can see above, those EBIT margin improvements don't really seem to cascade down to its FCF bottomline.\nJD Q1'21 Segment Revenue. Source:JD 6-K\nIt's important to note that JD retail is the company's main revenue and profit driver, accounting for 91% of Q1'21 revenue, while also subsidizing the losses from its other segments (one of which was JD Logistics which has already been spun off recently). It's difficult to see how its forays into its new businesses can be reasonably sustained over time when they don't have a highly profitable cash flow driver in JD Retail.\nAMZN EBIT Margin & Projected EBIT Margin, Unlevered FCF Margin & Projected Unlevered FCF Margin. Data Source: S&P Global Market Intelligence\nSea Limited EBIT Margin & Projected EBIT Margin, Unlevered FCF Margin & Projected Unlevered FCF Margin. Data Source: S&P Global Market Intelligence\nWe could refer to the above charts to see how important it's to have highly profitable cash flow segments to drive its operating performances even as the companies continue to scale up: AMZN with its AWS segment, as well as Sea's (SE) Garena segment, which I had covered in a recent article here. This cash flow segments allow them to reinvest into its highly scalable e-commerce segments and over time significantly improve their overall cash flow and EBIT profile. JD's business model certainly doesn't have the luxury of relying on such a segment to drive its growth, and therefore it's reflected clearly in its operating performances moving forward.\nValuations\nPeers Consensus Analysts Upside & EV / FY+1 Rev. Data Source: S&P Global Market Intelligence\nIf we simply base off JD's expected revenue growth, there's little doubt that JD seems to be valued at fire sale prices now. However, as mentioned earlier in the article, JD has always been valued at very low EV / Rev multiples historically as compared to its peers. In addition, the Street also remains highly confident of JD's upside potential (35.6%) as compared to its peers.\nJD & SE Ev / Fwd (EBITDA - CapEx) Trend. Data Source: S&P Global Market Intelligence\nAs I have emphasized earlier, using revenue figures to look at JD's growth potential may not accurately reflect the company's scalability potential. Here, we can see how SE's high potential to scale is clearly reflected in its FCF profile, where I use (EBITDA - CapEx) as a proxy here to remove the effects of lumpy working capital changes. SE's valuations are expected to come down significantly as it scales across South East Asia, generating lots of cash flow in the process. However, JD on the other hand doesn't seem to be quite as attractively valued as compared to SE when we project their growth rates forward.\nPrice Action & Technical Analysis\nSource: TradingView\nA silver lining here is that JD's long term uptrend remains intact despite the sell-off in Chinese stocks in Feb 21 that saw JD's stock price fall about 30% from its high. There are a few support levels that investors can focus on, most notably, the $70 support level that saw strong buying interest, as well as the $59 support level. The bulls are trying to retake the $79 support level which coincides with the dynamic resistance level marked by the 50-period MA at the moment. Therefore, investors who wish to add or initiate their positions may consider adding somewhere near the $70 level, and the $59 level if it retraces further, while avoiding adding near $79 in the near term.\nFor Chinese stocks, the Chinese and U.S. regulators will likely remain as the most important near term risk that may cause further compressions in its stock prices. However, as a long term investor who is still bullish on JD, I don't see that as a risk per se, but instead as an opportunity to add further into stocks like JD who in my opinion is fairly valued, and not expensive. The more the stock falls in the future due to policy changes or stiff rules from Beijing or Washington, the more attractive it will get for long term investors who have yet to initiate a position.\nWrapping it all up\nI'm a JD shareholder, and likely to remain so moving forward. What I had wanted to present in this article is to demonstrate why JD continues to trade at such low revenue multiples even as it continues to power ahead in its revenue growth. Investors should understand that although from the price action point of view JD I don't consider JD as a value trap, but I also don't consider JD as very attractive right now. It certainly deserves its current valuation and growth investors should taper their expectations in seeing the stock race ahead in the coming years.","news_type":1},"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"langContent":"EN"},{"id":116307382,"gmtCreate":1622772615146,"gmtModify":1704190886752,"author":{"id":"3567295126071659","authorId":"3567295126071659","name":"RonnieSG","avatar":"https://static.tigerbbs.com/20c3815bb0969cd4ea7a26f56e53df31","vip":1,"crmLevel":7,"crmLevelSwitch":1,"idStr":"3567295126071659","authorIdStr":"3567295126071659"},"htmlText":"Great time to be bullish","listText":"Great time to be bullish","text":"Great time to be bullish","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":0,"commentSize":0,"repostSize":0,"link":"https://ttm.financial/post/116307382","repostId":1171251318,"repostType":4,"repost":{"id":"1171251318","pubTimestamp":1622733765,"share":"https://ttm.financial/m/news/1171251318?lang=&edition=fundamental","pubTime":"2021-06-03 23:22","market":"hk","language":"en","title":"JD.com: Its Business Model Is Deserving Of Its Current Valuation","url":"https://stock-news.laohu8.com/highlight/detail?id=1171251318","media":"seekingalpha","summary":"Summary\n\nJD is often branded as the most “undervalued” stock of all its e-commerce peers by growth a","content":"Summary\n<ul>\n <li>JD is often branded as the most “undervalued” stock of all its e-commerce peers by growth and value investors alike.</li>\n <li>Even though the company’s revenue growth rates have impressed, its operating performances have not really been on par.</li>\n <li>I discuss why JD’s current valuations reflect the reality of its business model, and what growth and value investors should focus on to value the company.</li>\n</ul>\n<img src=\"https://static.tigerbbs.com/3bc39a30a57f05b994781d4a3a51c0de\" tg-width=\"1536\" tg-height=\"1092\">Photo by Kevin Frayer/Getty Images News via Getty Images\nInvestment Thesis\nJD.com's (JD) low EV/Revenue multiples have often baffled growth and value investors. The relatively high revenue growth rates that the investors have grown accustomed to in the rapidly expanding Chinese e-commerce market has not cascaded down to its market cap as compared to its peers. I attempt to present my opinion on why JD may have exhibited a high revenue growth profile, but not necessarily the operating performances to match its peers.\nJD's Incredibly Low Revenue Multiples\nThe company has often been compared to Amazon (AMZN) in its early days or even compared to Shopify (SHOP) for having a revenue multiple that's way lower, and therefore implying a better buy.\nHowever when I looked under the hood into JD's business model and its operating performances, I found enough underlying weaknesses in JD's business model that perhaps indicate why the market continues to value JD at such low multiples despite having posted impressive growth rates.\n<img src=\"https://static.tigerbbs.com/dd8c028415efa231c377fb5f68a00858\" tg-width=\"1280\" tg-height=\"844\">LTM Revenue Growth &amp; Price / LTM Sales. Data Source: S&amp;P Global Market Intelligence\nAs we can see from the chart above, JD has posted remarkable YoY revenue growth rates for the last 5 years, the \"slowest\" one being 22.7%. In fact, JD's LTM revenue growth rate has been accelerating recently, reaching 33.3% at the recent quarter. Despite that, its EV / LTM Rev multiple has consistently been under 1.1x, marking its strong appeal as a \"cheap\" growth stock.\n<img src=\"https://static.tigerbbs.com/b5429847bb5cdb8de25028528ae70f6a\" tg-width=\"1280\" tg-height=\"811\">Price/LTM Sales Percentile. Source: Tiger Brokers\nIn fact, JD's Price/LTM sales is currently at the 32nd percentile when we compare its multiples over the last 5 years, potentially even creating opportunities for value investors who may be on the lookout for a \"next Amazon\" type of stock that is selling for a real bargain now.\n<img src=\"https://static.tigerbbs.com/4a33a3a8b9c3f7cfd6393fb14a77852c\" tg-width=\"1280\" tg-height=\"776\">JD and AMZN Market Cap, LTM Revenue, Revenue 3Y CAGR, EV / LTM Rev. Data Source: S&amp;P Global Market Intelligence\nA quick glance over to Alibaba's (BABA) metrics unveil some interesting observations. Even though BABA's market cap is close to 5x that of JD's, BABA actually reported a lower LTM revenue (89% of JD's LTM revenue) than JD. In fact, BABA has reported lower revenue figures than JD over the last 5 years (see chart below). Both BABA and JD are revenue growth machines, with BABA's 3Y CAGR of 42% and JD's 3Y CAGR of 27.2%. Despite JD's impressive revenue growth, BABA is valued at 5.5x more than JD here based on their respective revenue multiples, which therefore raises the question of whether the market has unreasonably valued JD too low than what it actually deserves?\n<img src=\"https://static.tigerbbs.com/09064245a10bfce0ca518de2ba958e28\" tg-width=\"1280\" tg-height=\"774\">BABA &amp; JD LTM Revenue Trend. Data Source: S&amp;P Global Market Intelligence\n<img src=\"https://static.tigerbbs.com/a7ad67e5be6dba93461b1cb1813d0aa8\" tg-width=\"1257\" tg-height=\"474\">JD Annual Active Customer Count. Data Source: Company Filings\n<img src=\"https://static.tigerbbs.com/b156a6b3eb509a01ef58375a4d035718\" tg-width=\"600\" tg-height=\"371\">JD Annual Active Customer YoY Growth. Data Source: Company Filings\nIn fact, JD has been improving its active customer growth since Q3'19 as prior to that, JD had in fact suffered dramatic declines over multiple consecutive quarters of slowing customer growth. This coincided with the company's foray into&nbsp;Jingxi in 2019, which is the company's answer to Pinduoduo (PDD). The management also emphasized that: \"In the past 12 months, we gained 112 million new active users, with over&nbsp;80% coming from lower-tier markets.\" Therefore quite clearly, Jingxi's customer growth has been the impetus behind the strong quarters of ARPC growth for JD.\n<img src=\"https://static.tigerbbs.com/16b3ae3a7907e114e3e3874b5f7d2851\" tg-width=\"962\" tg-height=\"595\">JD Average Revenue Per Active Customer. Data Source: Company Filings\n<img src=\"https://static.tigerbbs.com/4a17b7b3775c0d8c1ab4b05856429210\" tg-width=\"600\" tg-height=\"371\">JD Average Revenue Per Active Customer YoY Growth. Data Source: Company Filings\nWhen we zoomed into the company's average revenue per active customer metrics, we could see that the underlying growth (up 11.7% YoY at the recent quarter) has been relatively healthy as well while the company continues to scale up its customer growth through the lower-tier markets.\nOkay, then how does JD's Operating Performances look like?\n<img src=\"https://static.tigerbbs.com/365fbee247a722170a072c2dc2b83e38\" tg-width=\"1280\" tg-height=\"703\">EBIT Margin, CFO Margin, FCF Margin. Data Source: S&amp;P Global Market Intelligence\nI had mentioned before in&nbsp;my article here&nbsp;for Coupang (CPNG), that for businesses that are potentially highly scalable such as JD's, we do not have to necessarily worry about the company's low operating margin business model as long as they are able to scale up quickly towards high FCF profitability. JD has always been operating with low operating margin (LTM EBIT margin of 1.2%), as that's the nature of its business model. Despite that, the company has still been able to generate relatively healthy FCF margins (LTM FCF margin 2.7%). Investors also shouldn't expect SaaS like FCF margins here as the business model is entirely different and JD is obviously going after those huge GMV growth. What we want to see though is whether the company is able to continue generating fast-growing and highly sustainable FCF moving forward.\n<img src=\"https://static.tigerbbs.com/b36f757fa706b6f349f44add10229761\" tg-width=\"1280\" tg-height=\"708\">Peers Projected Unlevered FCF Margin. Data Source: S&amp;P Global Market Intelligence\n<img src=\"https://static.tigerbbs.com/328507a06929411b3b72e85c8c8169b2\" tg-width=\"1280\" tg-height=\"693\">Peers Projected Unlevered FCF 5Y CAGR. Data Source: S&amp;P Global Market Intelligence\nThe problem arose when I tried to model JD's FCF growth moving forward. Quite clearly, JD does not seem to be able to improve its FCF margin strongly over time, with the projected FCF margins largely still in line with the historical ones.\nThat isn't something that we would like to see in a growth stock. Moreover the company's projected FCF margins are simply too low to be even classified as a cash flow machine. When we compare JD with its peers, we can clearly see that all of them, including AMZN are projected to generate very strong FCF growth moving forward, with JD's 5Y CAGR of 19.4% coming in last here. JD doesn't seem to be able to leverage on its relatively fast revenue growth to expand its FCF generating prowess as compared to its peers.\n<img src=\"https://static.tigerbbs.com/34da8b0865452a029c93f57dc8104697\" tg-width=\"1280\" tg-height=\"684\">Non-Peers Projected Unlevered FCF 5Y CAGR &amp; Projected Unlevered FCF Margin. Data Source: S&amp;P Global Market Intelligence\nIn order to help investors better understand what I mean, we can refer to the chart above to give an idea of what I meant as companies who are already in relatively stable growth stages with highly sustainable FCF margins as we model their FCF growth profile. It may be argued that Facebook (FB) is still a growth stock (but no longer as high growth as it once was) as it's still expected to generate relatively high FCF growth moving forward while commanding a remarkably high FCF margin as well. In addition, we could also see clearly that stable players often preferred by value investors such as Microsoft (MSFT), Qualcomm (QCOM) and Cisco (CSCO) are also expected to carry forward their high FCF margins moving forward. In contrast, JD's low 2.7% 5-year average FCF margin doesn't qualify it as a high quality stable stock for value investors to consider.\nWhat about JD's Growth Drivers?\nNow the interesting thing here is that JD has maintained that its business is still running at the \"high-growth\" stage as it emphasized:\n<blockquote>\n First of all, we&nbsp;prioritize growth above the importance of profitabilitybecause across all of our business lines, we are still in the high-growth stage. But each segment or each business line is actually in a different development stage. So we have kind of a differentiated investment strategy. So for JD Retail, we still -- you can see that for the first quarter and in the past few quarters, they continue to maintain a high-growth rate.\n</blockquote>\nThe management also added that they would likely continue to benefit from improved economies of scale and operating leverage as they bank on the rapid expansion of JD's retail business, allowing the company to continue improving its long term profit margin over time.\n<img src=\"https://static.tigerbbs.com/8477039f4b9693704cbbaf64530da052\" tg-width=\"1280\" tg-height=\"706\">JD LTM EBIT Margin &amp; Projected EBIT Margin, LTM Unlevered FCF Margin &amp; Projected Unlevered FCF Margin. Data Source: S&amp;P Global Market Intelligence\nIn order to be clear of that, when I modelled JD's EBIT margin and FCF margin growth, I find it hard pressed to have agreement with the management's point of expecting sustained improvement in their operating performance over time as they scale up rapidly. First, the company is already coming off a very low base of EBIT (LTM EBIT margin: 1.2%) and FCF profitability (LTM Unlevered FCF margin: 0.8%), therefore I think it's not unreasonable to expect the company to post a significant improvement to its FCF profitability over time. However, as we can see above, those EBIT margin improvements don't really seem to cascade down to its FCF bottomline.\n<img src=\"https://static.tigerbbs.com/34fa89d4e61ac3e70091cc064b4dc51a\" tg-width=\"1280\" tg-height=\"626\">JD Q1'21 Segment Revenue. Source:JD 6-K\nIt's important to note that JD retail is the company's main revenue and profit driver, accounting for 91% of Q1'21 revenue, while also subsidizing the losses from its other segments (one of which was JD Logistics which has already been spun off recently). It's difficult to see how its forays into its new businesses can be reasonably sustained over time when they don't have a highly profitable cash flow driver in JD Retail.\n<img src=\"https://static.tigerbbs.com/85c510c5f8c49a1fde429fcbe1892c30\" tg-width=\"1280\" tg-height=\"704\">AMZN EBIT Margin &amp; Projected EBIT Margin, Unlevered FCF Margin &amp; Projected Unlevered FCF Margin. Data Source: S&amp;P Global Market Intelligence\n<img src=\"https://static.tigerbbs.com/6dcf33c4272b764cbad4a64cca5bdbfd\" tg-width=\"1280\" tg-height=\"711\">Sea Limited EBIT Margin &amp; Projected EBIT Margin, Unlevered FCF Margin &amp; Projected Unlevered FCF Margin. Data Source: S&amp;P Global Market Intelligence\nWe could refer to the above charts to see how important it's to have highly profitable cash flow segments to drive its operating performances even as the companies continue to scale up: AMZN with its AWS segment, as well as Sea's (SE) Garena segment, which I had covered in a&nbsp;recent article here. This cash flow segments allow them to reinvest into its highly scalable e-commerce segments and over time significantly improve their overall cash flow and EBIT profile. JD's business model certainly doesn't have the luxury of relying on such a segment to drive its growth, and therefore it's reflected clearly in its operating performances moving forward.\nValuations\n<img src=\"https://static.tigerbbs.com/2ec37dd8957f5cadcf9615fa414bb78d\" tg-width=\"1280\" tg-height=\"726\">Peers Consensus Analysts Upside &amp; EV / FY+1 Rev. Data Source: S&amp;P Global Market Intelligence\nIf we simply base off JD's expected revenue growth, there's little doubt that JD seems to be valued at fire sale prices now. However, as mentioned earlier in the article, JD has always been valued at very low EV / Rev multiples historically as compared to its peers. In addition, the Street also remains highly confident of JD's upside potential (35.6%) as compared to its peers.\n<img src=\"https://static.tigerbbs.com/56bd8f33da9baab688b59439b44a827b\" tg-width=\"1280\" tg-height=\"709\">JD &amp; SE Ev / Fwd (EBITDA - CapEx) Trend. Data Source: S&amp;P Global Market Intelligence\nAs I have emphasized earlier, using revenue figures to look at JD's growth potential may not accurately reflect the company's scalability potential. Here, we can see how SE's high potential to scale is clearly reflected in its FCF profile, where I use (EBITDA - CapEx) as a proxy here to remove the effects of lumpy working capital changes. SE's valuations are expected to come down significantly as it scales across South East Asia, generating lots of cash flow in the process. However, JD on the other hand doesn't seem to be quite as attractively valued as compared to SE when we project their growth rates forward.\nPrice Action &amp; Technical Analysis\n<img src=\"https://static.tigerbbs.com/98b516b4268fe8418e750d8717769eaf\" tg-width=\"1280\" tg-height=\"798\">Source: TradingView\nA silver lining here is that JD's long term uptrend remains intact despite the sell-off in Chinese stocks in Feb 21 that saw JD's stock price fall about 30% from its high. There are a few support levels that investors can focus on, most notably, the $70 support level that saw strong buying interest, as well as the $59 support level. The bulls are trying to retake the $79 support level which coincides with the dynamic resistance level marked by the 50-period MA at the moment. Therefore, investors who wish to add or initiate their positions may consider adding somewhere near the $70 level, and the $59 level if it retraces further, while avoiding adding near $79 in the near term.\nFor Chinese stocks, the Chinese and U.S. regulators will likely remain as the most important near term risk that may cause further compressions in its stock prices. However, as a long term investor who is still bullish on JD, I don't see that as a risk per se, but instead as an opportunity to add further into stocks like JD who in my opinion is fairly valued, and not expensive. The more the stock falls in the future due to policy changes or stiff rules from Beijing or Washington, the more attractive it will get for long term investors who have yet to initiate a position.\nWrapping it all up\nI'm a JD shareholder, and likely to remain so moving forward. What I had wanted to present in this article is to demonstrate why JD continues to trade at such low revenue multiples even as it continues to power ahead in its revenue growth. Investors should understand that although from the price action point of view JD I don't consider JD as a value trap, but I also don't consider JD as very attractive right now. It certainly deserves its current valuation and growth investors should taper their expectations in seeing the stock race ahead in the coming years.","collect":0,"html":"<!DOCTYPE html>\n<html>\n<head>\n<meta http-equiv=\"Content-Type\" content=\"text/html; charset=utf-8\" />\n<meta name=\"viewport\" content=\"width=device-width,initial-scale=1.0,minimum-scale=1.0,maximum-scale=1.0,user-scalable=no\"/>\n<meta name=\"format-detection\" content=\"telephone=no,email=no,address=no\" />\n<title>JD.com: Its Business Model Is Deserving Of Its Current Valuation</title>\n<style type=\"text/css\">\na,abbr,acronym,address,applet,article,aside,audio,b,big,blockquote,body,canvas,caption,center,cite,code,dd,del,details,dfn,div,dl,dt,\nem,embed,fieldset,figcaption,figure,footer,form,h1,h2,h3,h4,h5,h6,header,hgroup,html,i,iframe,img,ins,kbd,label,legend,li,mark,menu,nav,\nobject,ol,output,p,pre,q,ruby,s,samp,section,small,span,strike,strong,sub,summary,sup,table,tbody,td,tfoot,th,thead,time,tr,tt,u,ul,var,video{ font:inherit;margin:0;padding:0;vertical-align:baseline;border:0 }\nbody{ font-size:16px; line-height:1.5; color:#999; background:transparent; }\n.wrapper{ overflow:hidden;word-break:break-all;padding:10px; }\nh1,h2{ font-weight:normal; line-height:1.35; margin-bottom:.6em; }\nh3,h4,h5,h6{ line-height:1.35; margin-bottom:1em; }\nh1{ font-size:24px; }\nh2{ font-size:20px; }\nh3{ font-size:18px; }\nh4{ font-size:16px; }\nh5{ font-size:14px; }\nh6{ font-size:12px; }\np,ul,ol,blockquote,dl,table{ margin:1.2em 0; }\nul,ol{ margin-left:2em; }\nul{ list-style:disc; }\nol{ list-style:decimal; }\nli,li p{ margin:10px 0;}\nimg{ max-width:100%;display:block;margin:0 auto 1em; }\nblockquote{ color:#B5B2B1; border-left:3px solid #aaa; padding:1em; }\nstrong,b{font-weight:bold;}\nem,i{font-style:italic;}\ntable{ width:100%;border-collapse:collapse;border-spacing:1px;margin:1em 0;font-size:.9em; }\nth,td{ padding:5px;text-align:left;border:1px solid #aaa; }\nth{ font-weight:bold;background:#5d5d5d; }\n.symbol-link{font-weight:bold;}\n/* header{ border-bottom:1px solid #494756; } */\n.title{ margin:0 0 8px;line-height:1.3;color:#ddd; }\n.meta {color:#5e5c6d;font-size:13px;margin:0 0 .5em; }\na{text-decoration:none; color:#2a4b87;}\n.meta .head { display: inline-block; overflow: hidden}\n.head .h-thumb { width: 30px; height: 30px; margin: 0; padding: 0; border-radius: 50%; float: left;}\n.head .h-content { margin: 0; padding: 0 0 0 9px; float: left;}\n.head .h-name {font-size: 13px; color: #eee; margin: 0;}\n.head .h-time {font-size: 11px; color: #7E829C; margin: 0;line-height: 11px;}\n.small {font-size: 12.5px; display: inline-block; transform: scale(0.9); -webkit-transform: scale(0.9); transform-origin: left; -webkit-transform-origin: left;}\n.smaller {font-size: 12.5px; display: inline-block; transform: scale(0.8); -webkit-transform: scale(0.8); transform-origin: left; -webkit-transform-origin: left;}\n.bt-text {font-size: 12px;margin: 1.5em 0 0 0}\n.bt-text p {margin: 0}\n</style>\n</head>\n<body>\n<div class=\"wrapper\">\n<header>\n<h2 class=\"title\">\nJD.com: Its Business Model Is Deserving Of Its Current Valuation\n</h2>\n\n<h4 class=\"meta\">\n\n\n2021-06-03 23:22 GMT+8&nbsp;&nbsp;&nbsp;<a href=https://seekingalpha.com/article/4432860-jd-com-business-model-deserving-current-valuation>seekingalpha</a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\nSummary\n\nJD is often branded as the most “undervalued” stock of all its e-commerce peers by growth and value investors alike.\nEven though the company’s revenue growth rates have impressed, its ...\n\n<a href=\"https://seekingalpha.com/article/4432860-jd-com-business-model-deserving-current-valuation\">Web Link</a>\n\n</div>\n\n\n</article>\n</div>\n</body>\n</html>\n","type":0,"thumbnail":"","relate_stocks":{"09618":"京东集团-SW","JD":"京东"},"source_url":"https://seekingalpha.com/article/4432860-jd-com-business-model-deserving-current-valuation","is_english":true,"share_image_url":"https://static.laohu8.com/e9f99090a1c2ed51c021029395664489","article_id":"1171251318","content_text":"Summary\n\nJD is often branded as the most “undervalued” stock of all its e-commerce peers by growth and value investors alike.\nEven though the company’s revenue growth rates have impressed, its operating performances have not really been on par.\nI discuss why JD’s current valuations reflect the reality of its business model, and what growth and value investors should focus on to value the company.\n\nPhoto by Kevin Frayer/Getty Images News via Getty Images\nInvestment Thesis\nJD.com's (JD) low EV/Revenue multiples have often baffled growth and value investors. The relatively high revenue growth rates that the investors have grown accustomed to in the rapidly expanding Chinese e-commerce market has not cascaded down to its market cap as compared to its peers. I attempt to present my opinion on why JD may have exhibited a high revenue growth profile, but not necessarily the operating performances to match its peers.\nJD's Incredibly Low Revenue Multiples\nThe company has often been compared to Amazon (AMZN) in its early days or even compared to Shopify (SHOP) for having a revenue multiple that's way lower, and therefore implying a better buy.\nHowever when I looked under the hood into JD's business model and its operating performances, I found enough underlying weaknesses in JD's business model that perhaps indicate why the market continues to value JD at such low multiples despite having posted impressive growth rates.\nLTM Revenue Growth & Price / LTM Sales. Data Source: S&P Global Market Intelligence\nAs we can see from the chart above, JD has posted remarkable YoY revenue growth rates for the last 5 years, the \"slowest\" one being 22.7%. In fact, JD's LTM revenue growth rate has been accelerating recently, reaching 33.3% at the recent quarter. Despite that, its EV / LTM Rev multiple has consistently been under 1.1x, marking its strong appeal as a \"cheap\" growth stock.\nPrice/LTM Sales Percentile. Source: Tiger Brokers\nIn fact, JD's Price/LTM sales is currently at the 32nd percentile when we compare its multiples over the last 5 years, potentially even creating opportunities for value investors who may be on the lookout for a \"next Amazon\" type of stock that is selling for a real bargain now.\nJD and AMZN Market Cap, LTM Revenue, Revenue 3Y CAGR, EV / LTM Rev. Data Source: S&P Global Market Intelligence\nA quick glance over to Alibaba's (BABA) metrics unveil some interesting observations. Even though BABA's market cap is close to 5x that of JD's, BABA actually reported a lower LTM revenue (89% of JD's LTM revenue) than JD. In fact, BABA has reported lower revenue figures than JD over the last 5 years (see chart below). Both BABA and JD are revenue growth machines, with BABA's 3Y CAGR of 42% and JD's 3Y CAGR of 27.2%. Despite JD's impressive revenue growth, BABA is valued at 5.5x more than JD here based on their respective revenue multiples, which therefore raises the question of whether the market has unreasonably valued JD too low than what it actually deserves?\nBABA & JD LTM Revenue Trend. Data Source: S&P Global Market Intelligence\nJD Annual Active Customer Count. Data Source: Company Filings\nJD Annual Active Customer YoY Growth. Data Source: Company Filings\nIn fact, JD has been improving its active customer growth since Q3'19 as prior to that, JD had in fact suffered dramatic declines over multiple consecutive quarters of slowing customer growth. This coincided with the company's foray into Jingxi in 2019, which is the company's answer to Pinduoduo (PDD). The management also emphasized that: \"In the past 12 months, we gained 112 million new active users, with over 80% coming from lower-tier markets.\" Therefore quite clearly, Jingxi's customer growth has been the impetus behind the strong quarters of ARPC growth for JD.\nJD Average Revenue Per Active Customer. Data Source: Company Filings\nJD Average Revenue Per Active Customer YoY Growth. Data Source: Company Filings\nWhen we zoomed into the company's average revenue per active customer metrics, we could see that the underlying growth (up 11.7% YoY at the recent quarter) has been relatively healthy as well while the company continues to scale up its customer growth through the lower-tier markets.\nOkay, then how does JD's Operating Performances look like?\nEBIT Margin, CFO Margin, FCF Margin. Data Source: S&P Global Market Intelligence\nI had mentioned before in my article here for Coupang (CPNG), that for businesses that are potentially highly scalable such as JD's, we do not have to necessarily worry about the company's low operating margin business model as long as they are able to scale up quickly towards high FCF profitability. JD has always been operating with low operating margin (LTM EBIT margin of 1.2%), as that's the nature of its business model. Despite that, the company has still been able to generate relatively healthy FCF margins (LTM FCF margin 2.7%). Investors also shouldn't expect SaaS like FCF margins here as the business model is entirely different and JD is obviously going after those huge GMV growth. What we want to see though is whether the company is able to continue generating fast-growing and highly sustainable FCF moving forward.\nPeers Projected Unlevered FCF Margin. Data Source: S&P Global Market Intelligence\nPeers Projected Unlevered FCF 5Y CAGR. Data Source: S&P Global Market Intelligence\nThe problem arose when I tried to model JD's FCF growth moving forward. Quite clearly, JD does not seem to be able to improve its FCF margin strongly over time, with the projected FCF margins largely still in line with the historical ones.\nThat isn't something that we would like to see in a growth stock. Moreover the company's projected FCF margins are simply too low to be even classified as a cash flow machine. When we compare JD with its peers, we can clearly see that all of them, including AMZN are projected to generate very strong FCF growth moving forward, with JD's 5Y CAGR of 19.4% coming in last here. JD doesn't seem to be able to leverage on its relatively fast revenue growth to expand its FCF generating prowess as compared to its peers.\nNon-Peers Projected Unlevered FCF 5Y CAGR & Projected Unlevered FCF Margin. Data Source: S&P Global Market Intelligence\nIn order to help investors better understand what I mean, we can refer to the chart above to give an idea of what I meant as companies who are already in relatively stable growth stages with highly sustainable FCF margins as we model their FCF growth profile. It may be argued that Facebook (FB) is still a growth stock (but no longer as high growth as it once was) as it's still expected to generate relatively high FCF growth moving forward while commanding a remarkably high FCF margin as well. In addition, we could also see clearly that stable players often preferred by value investors such as Microsoft (MSFT), Qualcomm (QCOM) and Cisco (CSCO) are also expected to carry forward their high FCF margins moving forward. In contrast, JD's low 2.7% 5-year average FCF margin doesn't qualify it as a high quality stable stock for value investors to consider.\nWhat about JD's Growth Drivers?\nNow the interesting thing here is that JD has maintained that its business is still running at the \"high-growth\" stage as it emphasized:\n\n First of all, we prioritize growth above the importance of profitabilitybecause across all of our business lines, we are still in the high-growth stage. But each segment or each business line is actually in a different development stage. So we have kind of a differentiated investment strategy. So for JD Retail, we still -- you can see that for the first quarter and in the past few quarters, they continue to maintain a high-growth rate.\n\nThe management also added that they would likely continue to benefit from improved economies of scale and operating leverage as they bank on the rapid expansion of JD's retail business, allowing the company to continue improving its long term profit margin over time.\nJD LTM EBIT Margin & Projected EBIT Margin, LTM Unlevered FCF Margin & Projected Unlevered FCF Margin. Data Source: S&P Global Market Intelligence\nIn order to be clear of that, when I modelled JD's EBIT margin and FCF margin growth, I find it hard pressed to have agreement with the management's point of expecting sustained improvement in their operating performance over time as they scale up rapidly. First, the company is already coming off a very low base of EBIT (LTM EBIT margin: 1.2%) and FCF profitability (LTM Unlevered FCF margin: 0.8%), therefore I think it's not unreasonable to expect the company to post a significant improvement to its FCF profitability over time. However, as we can see above, those EBIT margin improvements don't really seem to cascade down to its FCF bottomline.\nJD Q1'21 Segment Revenue. Source:JD 6-K\nIt's important to note that JD retail is the company's main revenue and profit driver, accounting for 91% of Q1'21 revenue, while also subsidizing the losses from its other segments (one of which was JD Logistics which has already been spun off recently). It's difficult to see how its forays into its new businesses can be reasonably sustained over time when they don't have a highly profitable cash flow driver in JD Retail.\nAMZN EBIT Margin & Projected EBIT Margin, Unlevered FCF Margin & Projected Unlevered FCF Margin. Data Source: S&P Global Market Intelligence\nSea Limited EBIT Margin & Projected EBIT Margin, Unlevered FCF Margin & Projected Unlevered FCF Margin. Data Source: S&P Global Market Intelligence\nWe could refer to the above charts to see how important it's to have highly profitable cash flow segments to drive its operating performances even as the companies continue to scale up: AMZN with its AWS segment, as well as Sea's (SE) Garena segment, which I had covered in a recent article here. This cash flow segments allow them to reinvest into its highly scalable e-commerce segments and over time significantly improve their overall cash flow and EBIT profile. JD's business model certainly doesn't have the luxury of relying on such a segment to drive its growth, and therefore it's reflected clearly in its operating performances moving forward.\nValuations\nPeers Consensus Analysts Upside & EV / FY+1 Rev. Data Source: S&P Global Market Intelligence\nIf we simply base off JD's expected revenue growth, there's little doubt that JD seems to be valued at fire sale prices now. However, as mentioned earlier in the article, JD has always been valued at very low EV / Rev multiples historically as compared to its peers. In addition, the Street also remains highly confident of JD's upside potential (35.6%) as compared to its peers.\nJD & SE Ev / Fwd (EBITDA - CapEx) Trend. Data Source: S&P Global Market Intelligence\nAs I have emphasized earlier, using revenue figures to look at JD's growth potential may not accurately reflect the company's scalability potential. Here, we can see how SE's high potential to scale is clearly reflected in its FCF profile, where I use (EBITDA - CapEx) as a proxy here to remove the effects of lumpy working capital changes. SE's valuations are expected to come down significantly as it scales across South East Asia, generating lots of cash flow in the process. However, JD on the other hand doesn't seem to be quite as attractively valued as compared to SE when we project their growth rates forward.\nPrice Action & Technical Analysis\nSource: TradingView\nA silver lining here is that JD's long term uptrend remains intact despite the sell-off in Chinese stocks in Feb 21 that saw JD's stock price fall about 30% from its high. There are a few support levels that investors can focus on, most notably, the $70 support level that saw strong buying interest, as well as the $59 support level. The bulls are trying to retake the $79 support level which coincides with the dynamic resistance level marked by the 50-period MA at the moment. Therefore, investors who wish to add or initiate their positions may consider adding somewhere near the $70 level, and the $59 level if it retraces further, while avoiding adding near $79 in the near term.\nFor Chinese stocks, the Chinese and U.S. regulators will likely remain as the most important near term risk that may cause further compressions in its stock prices. However, as a long term investor who is still bullish on JD, I don't see that as a risk per se, but instead as an opportunity to add further into stocks like JD who in my opinion is fairly valued, and not expensive. The more the stock falls in the future due to policy changes or stiff rules from Beijing or Washington, the more attractive it will get for long term investors who have yet to initiate a position.\nWrapping it all up\nI'm a JD shareholder, and likely to remain so moving forward. What I had wanted to present in this article is to demonstrate why JD continues to trade at such low revenue multiples even as it continues to power ahead in its revenue growth. Investors should understand that although from the price action point of view JD I don't consider JD as a value trap, but I also don't consider JD as very attractive right now. It certainly deserves its current valuation and growth investors should taper their expectations in seeing the stock race ahead in the coming years.","news_type":1},"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"langContent":"EN"},{"id":116953965,"gmtCreate":1622770970157,"gmtModify":1704190837313,"author":{"id":"3576888762442253","authorId":"3576888762442253","name":"Barbarazhao","avatar":"https://static.tigerbbs.com/40f6fdeabe0e8cac300f1fd2a17eb3ac","vip":1,"crmLevel":8,"crmLevelSwitch":1,"idStr":"3576888762442253","authorIdStr":"3576888762442253"},"htmlText":"I agree. I have position on JD","listText":"I agree. I have position on JD","text":"I agree. I have position on JD","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":0,"commentSize":1,"repostSize":0,"link":"https://ttm.financial/post/116953965","repostId":1171251318,"repostType":4,"repost":{"id":"1171251318","pubTimestamp":1622733765,"share":"https://ttm.financial/m/news/1171251318?lang=&edition=fundamental","pubTime":"2021-06-03 23:22","market":"hk","language":"en","title":"JD.com: Its Business Model Is Deserving Of Its Current Valuation","url":"https://stock-news.laohu8.com/highlight/detail?id=1171251318","media":"seekingalpha","summary":"Summary\n\nJD is often branded as the most “undervalued” stock of all its e-commerce peers by growth a","content":"Summary\n<ul>\n <li>JD is often branded as the most “undervalued” stock of all its e-commerce peers by growth and value investors alike.</li>\n <li>Even though the company’s revenue growth rates have impressed, its operating performances have not really been on par.</li>\n <li>I discuss why JD’s current valuations reflect the reality of its business model, and what growth and value investors should focus on to value the company.</li>\n</ul>\n<img src=\"https://static.tigerbbs.com/3bc39a30a57f05b994781d4a3a51c0de\" tg-width=\"1536\" tg-height=\"1092\">Photo by Kevin Frayer/Getty Images News via Getty Images\nInvestment Thesis\nJD.com's (JD) low EV/Revenue multiples have often baffled growth and value investors. The relatively high revenue growth rates that the investors have grown accustomed to in the rapidly expanding Chinese e-commerce market has not cascaded down to its market cap as compared to its peers. I attempt to present my opinion on why JD may have exhibited a high revenue growth profile, but not necessarily the operating performances to match its peers.\nJD's Incredibly Low Revenue Multiples\nThe company has often been compared to Amazon (AMZN) in its early days or even compared to Shopify (SHOP) for having a revenue multiple that's way lower, and therefore implying a better buy.\nHowever when I looked under the hood into JD's business model and its operating performances, I found enough underlying weaknesses in JD's business model that perhaps indicate why the market continues to value JD at such low multiples despite having posted impressive growth rates.\n<img src=\"https://static.tigerbbs.com/dd8c028415efa231c377fb5f68a00858\" tg-width=\"1280\" tg-height=\"844\">LTM Revenue Growth &amp; Price / LTM Sales. Data Source: S&amp;P Global Market Intelligence\nAs we can see from the chart above, JD has posted remarkable YoY revenue growth rates for the last 5 years, the \"slowest\" one being 22.7%. In fact, JD's LTM revenue growth rate has been accelerating recently, reaching 33.3% at the recent quarter. Despite that, its EV / LTM Rev multiple has consistently been under 1.1x, marking its strong appeal as a \"cheap\" growth stock.\n<img src=\"https://static.tigerbbs.com/b5429847bb5cdb8de25028528ae70f6a\" tg-width=\"1280\" tg-height=\"811\">Price/LTM Sales Percentile. Source: Tiger Brokers\nIn fact, JD's Price/LTM sales is currently at the 32nd percentile when we compare its multiples over the last 5 years, potentially even creating opportunities for value investors who may be on the lookout for a \"next Amazon\" type of stock that is selling for a real bargain now.\n<img src=\"https://static.tigerbbs.com/4a33a3a8b9c3f7cfd6393fb14a77852c\" tg-width=\"1280\" tg-height=\"776\">JD and AMZN Market Cap, LTM Revenue, Revenue 3Y CAGR, EV / LTM Rev. Data Source: S&amp;P Global Market Intelligence\nA quick glance over to Alibaba's (BABA) metrics unveil some interesting observations. Even though BABA's market cap is close to 5x that of JD's, BABA actually reported a lower LTM revenue (89% of JD's LTM revenue) than JD. In fact, BABA has reported lower revenue figures than JD over the last 5 years (see chart below). Both BABA and JD are revenue growth machines, with BABA's 3Y CAGR of 42% and JD's 3Y CAGR of 27.2%. Despite JD's impressive revenue growth, BABA is valued at 5.5x more than JD here based on their respective revenue multiples, which therefore raises the question of whether the market has unreasonably valued JD too low than what it actually deserves?\n<img src=\"https://static.tigerbbs.com/09064245a10bfce0ca518de2ba958e28\" tg-width=\"1280\" tg-height=\"774\">BABA &amp; JD LTM Revenue Trend. Data Source: S&amp;P Global Market Intelligence\n<img src=\"https://static.tigerbbs.com/a7ad67e5be6dba93461b1cb1813d0aa8\" tg-width=\"1257\" tg-height=\"474\">JD Annual Active Customer Count. Data Source: Company Filings\n<img src=\"https://static.tigerbbs.com/b156a6b3eb509a01ef58375a4d035718\" tg-width=\"600\" tg-height=\"371\">JD Annual Active Customer YoY Growth. Data Source: Company Filings\nIn fact, JD has been improving its active customer growth since Q3'19 as prior to that, JD had in fact suffered dramatic declines over multiple consecutive quarters of slowing customer growth. This coincided with the company's foray into&nbsp;Jingxi in 2019, which is the company's answer to Pinduoduo (PDD). The management also emphasized that: \"In the past 12 months, we gained 112 million new active users, with over&nbsp;80% coming from lower-tier markets.\" Therefore quite clearly, Jingxi's customer growth has been the impetus behind the strong quarters of ARPC growth for JD.\n<img src=\"https://static.tigerbbs.com/16b3ae3a7907e114e3e3874b5f7d2851\" tg-width=\"962\" tg-height=\"595\">JD Average Revenue Per Active Customer. Data Source: Company Filings\n<img src=\"https://static.tigerbbs.com/4a17b7b3775c0d8c1ab4b05856429210\" tg-width=\"600\" tg-height=\"371\">JD Average Revenue Per Active Customer YoY Growth. Data Source: Company Filings\nWhen we zoomed into the company's average revenue per active customer metrics, we could see that the underlying growth (up 11.7% YoY at the recent quarter) has been relatively healthy as well while the company continues to scale up its customer growth through the lower-tier markets.\nOkay, then how does JD's Operating Performances look like?\n<img src=\"https://static.tigerbbs.com/365fbee247a722170a072c2dc2b83e38\" tg-width=\"1280\" tg-height=\"703\">EBIT Margin, CFO Margin, FCF Margin. Data Source: S&amp;P Global Market Intelligence\nI had mentioned before in&nbsp;my article here&nbsp;for Coupang (CPNG), that for businesses that are potentially highly scalable such as JD's, we do not have to necessarily worry about the company's low operating margin business model as long as they are able to scale up quickly towards high FCF profitability. JD has always been operating with low operating margin (LTM EBIT margin of 1.2%), as that's the nature of its business model. Despite that, the company has still been able to generate relatively healthy FCF margins (LTM FCF margin 2.7%). Investors also shouldn't expect SaaS like FCF margins here as the business model is entirely different and JD is obviously going after those huge GMV growth. What we want to see though is whether the company is able to continue generating fast-growing and highly sustainable FCF moving forward.\n<img src=\"https://static.tigerbbs.com/b36f757fa706b6f349f44add10229761\" tg-width=\"1280\" tg-height=\"708\">Peers Projected Unlevered FCF Margin. Data Source: S&amp;P Global Market Intelligence\n<img src=\"https://static.tigerbbs.com/328507a06929411b3b72e85c8c8169b2\" tg-width=\"1280\" tg-height=\"693\">Peers Projected Unlevered FCF 5Y CAGR. Data Source: S&amp;P Global Market Intelligence\nThe problem arose when I tried to model JD's FCF growth moving forward. Quite clearly, JD does not seem to be able to improve its FCF margin strongly over time, with the projected FCF margins largely still in line with the historical ones.\nThat isn't something that we would like to see in a growth stock. Moreover the company's projected FCF margins are simply too low to be even classified as a cash flow machine. When we compare JD with its peers, we can clearly see that all of them, including AMZN are projected to generate very strong FCF growth moving forward, with JD's 5Y CAGR of 19.4% coming in last here. JD doesn't seem to be able to leverage on its relatively fast revenue growth to expand its FCF generating prowess as compared to its peers.\n<img src=\"https://static.tigerbbs.com/34da8b0865452a029c93f57dc8104697\" tg-width=\"1280\" tg-height=\"684\">Non-Peers Projected Unlevered FCF 5Y CAGR &amp; Projected Unlevered FCF Margin. Data Source: S&amp;P Global Market Intelligence\nIn order to help investors better understand what I mean, we can refer to the chart above to give an idea of what I meant as companies who are already in relatively stable growth stages with highly sustainable FCF margins as we model their FCF growth profile. It may be argued that Facebook (FB) is still a growth stock (but no longer as high growth as it once was) as it's still expected to generate relatively high FCF growth moving forward while commanding a remarkably high FCF margin as well. In addition, we could also see clearly that stable players often preferred by value investors such as Microsoft (MSFT), Qualcomm (QCOM) and Cisco (CSCO) are also expected to carry forward their high FCF margins moving forward. In contrast, JD's low 2.7% 5-year average FCF margin doesn't qualify it as a high quality stable stock for value investors to consider.\nWhat about JD's Growth Drivers?\nNow the interesting thing here is that JD has maintained that its business is still running at the \"high-growth\" stage as it emphasized:\n<blockquote>\n First of all, we&nbsp;prioritize growth above the importance of profitabilitybecause across all of our business lines, we are still in the high-growth stage. But each segment or each business line is actually in a different development stage. So we have kind of a differentiated investment strategy. So for JD Retail, we still -- you can see that for the first quarter and in the past few quarters, they continue to maintain a high-growth rate.\n</blockquote>\nThe management also added that they would likely continue to benefit from improved economies of scale and operating leverage as they bank on the rapid expansion of JD's retail business, allowing the company to continue improving its long term profit margin over time.\n<img src=\"https://static.tigerbbs.com/8477039f4b9693704cbbaf64530da052\" tg-width=\"1280\" tg-height=\"706\">JD LTM EBIT Margin &amp; Projected EBIT Margin, LTM Unlevered FCF Margin &amp; Projected Unlevered FCF Margin. Data Source: S&amp;P Global Market Intelligence\nIn order to be clear of that, when I modelled JD's EBIT margin and FCF margin growth, I find it hard pressed to have agreement with the management's point of expecting sustained improvement in their operating performance over time as they scale up rapidly. First, the company is already coming off a very low base of EBIT (LTM EBIT margin: 1.2%) and FCF profitability (LTM Unlevered FCF margin: 0.8%), therefore I think it's not unreasonable to expect the company to post a significant improvement to its FCF profitability over time. However, as we can see above, those EBIT margin improvements don't really seem to cascade down to its FCF bottomline.\n<img src=\"https://static.tigerbbs.com/34fa89d4e61ac3e70091cc064b4dc51a\" tg-width=\"1280\" tg-height=\"626\">JD Q1'21 Segment Revenue. Source:JD 6-K\nIt's important to note that JD retail is the company's main revenue and profit driver, accounting for 91% of Q1'21 revenue, while also subsidizing the losses from its other segments (one of which was JD Logistics which has already been spun off recently). It's difficult to see how its forays into its new businesses can be reasonably sustained over time when they don't have a highly profitable cash flow driver in JD Retail.\n<img src=\"https://static.tigerbbs.com/85c510c5f8c49a1fde429fcbe1892c30\" tg-width=\"1280\" tg-height=\"704\">AMZN EBIT Margin &amp; Projected EBIT Margin, Unlevered FCF Margin &amp; Projected Unlevered FCF Margin. Data Source: S&amp;P Global Market Intelligence\n<img src=\"https://static.tigerbbs.com/6dcf33c4272b764cbad4a64cca5bdbfd\" tg-width=\"1280\" tg-height=\"711\">Sea Limited EBIT Margin &amp; Projected EBIT Margin, Unlevered FCF Margin &amp; Projected Unlevered FCF Margin. Data Source: S&amp;P Global Market Intelligence\nWe could refer to the above charts to see how important it's to have highly profitable cash flow segments to drive its operating performances even as the companies continue to scale up: AMZN with its AWS segment, as well as Sea's (SE) Garena segment, which I had covered in a&nbsp;recent article here. This cash flow segments allow them to reinvest into its highly scalable e-commerce segments and over time significantly improve their overall cash flow and EBIT profile. JD's business model certainly doesn't have the luxury of relying on such a segment to drive its growth, and therefore it's reflected clearly in its operating performances moving forward.\nValuations\n<img src=\"https://static.tigerbbs.com/2ec37dd8957f5cadcf9615fa414bb78d\" tg-width=\"1280\" tg-height=\"726\">Peers Consensus Analysts Upside &amp; EV / FY+1 Rev. Data Source: S&amp;P Global Market Intelligence\nIf we simply base off JD's expected revenue growth, there's little doubt that JD seems to be valued at fire sale prices now. However, as mentioned earlier in the article, JD has always been valued at very low EV / Rev multiples historically as compared to its peers. In addition, the Street also remains highly confident of JD's upside potential (35.6%) as compared to its peers.\n<img src=\"https://static.tigerbbs.com/56bd8f33da9baab688b59439b44a827b\" tg-width=\"1280\" tg-height=\"709\">JD &amp; SE Ev / Fwd (EBITDA - CapEx) Trend. Data Source: S&amp;P Global Market Intelligence\nAs I have emphasized earlier, using revenue figures to look at JD's growth potential may not accurately reflect the company's scalability potential. Here, we can see how SE's high potential to scale is clearly reflected in its FCF profile, where I use (EBITDA - CapEx) as a proxy here to remove the effects of lumpy working capital changes. SE's valuations are expected to come down significantly as it scales across South East Asia, generating lots of cash flow in the process. However, JD on the other hand doesn't seem to be quite as attractively valued as compared to SE when we project their growth rates forward.\nPrice Action &amp; Technical Analysis\n<img src=\"https://static.tigerbbs.com/98b516b4268fe8418e750d8717769eaf\" tg-width=\"1280\" tg-height=\"798\">Source: TradingView\nA silver lining here is that JD's long term uptrend remains intact despite the sell-off in Chinese stocks in Feb 21 that saw JD's stock price fall about 30% from its high. There are a few support levels that investors can focus on, most notably, the $70 support level that saw strong buying interest, as well as the $59 support level. The bulls are trying to retake the $79 support level which coincides with the dynamic resistance level marked by the 50-period MA at the moment. Therefore, investors who wish to add or initiate their positions may consider adding somewhere near the $70 level, and the $59 level if it retraces further, while avoiding adding near $79 in the near term.\nFor Chinese stocks, the Chinese and U.S. regulators will likely remain as the most important near term risk that may cause further compressions in its stock prices. However, as a long term investor who is still bullish on JD, I don't see that as a risk per se, but instead as an opportunity to add further into stocks like JD who in my opinion is fairly valued, and not expensive. The more the stock falls in the future due to policy changes or stiff rules from Beijing or Washington, the more attractive it will get for long term investors who have yet to initiate a position.\nWrapping it all up\nI'm a JD shareholder, and likely to remain so moving forward. What I had wanted to present in this article is to demonstrate why JD continues to trade at such low revenue multiples even as it continues to power ahead in its revenue growth. Investors should understand that although from the price action point of view JD I don't consider JD as a value trap, but I also don't consider JD as very attractive right now. It certainly deserves its current valuation and growth investors should taper their expectations in seeing the stock race ahead in the coming years.","collect":0,"html":"<!DOCTYPE html>\n<html>\n<head>\n<meta http-equiv=\"Content-Type\" content=\"text/html; charset=utf-8\" />\n<meta name=\"viewport\" content=\"width=device-width,initial-scale=1.0,minimum-scale=1.0,maximum-scale=1.0,user-scalable=no\"/>\n<meta name=\"format-detection\" content=\"telephone=no,email=no,address=no\" />\n<title>JD.com: Its Business Model Is Deserving Of Its Current Valuation</title>\n<style type=\"text/css\">\na,abbr,acronym,address,applet,article,aside,audio,b,big,blockquote,body,canvas,caption,center,cite,code,dd,del,details,dfn,div,dl,dt,\nem,embed,fieldset,figcaption,figure,footer,form,h1,h2,h3,h4,h5,h6,header,hgroup,html,i,iframe,img,ins,kbd,label,legend,li,mark,menu,nav,\nobject,ol,output,p,pre,q,ruby,s,samp,section,small,span,strike,strong,sub,summary,sup,table,tbody,td,tfoot,th,thead,time,tr,tt,u,ul,var,video{ font:inherit;margin:0;padding:0;vertical-align:baseline;border:0 }\nbody{ font-size:16px; line-height:1.5; color:#999; background:transparent; }\n.wrapper{ overflow:hidden;word-break:break-all;padding:10px; }\nh1,h2{ font-weight:normal; line-height:1.35; margin-bottom:.6em; }\nh3,h4,h5,h6{ line-height:1.35; margin-bottom:1em; }\nh1{ font-size:24px; }\nh2{ font-size:20px; }\nh3{ font-size:18px; }\nh4{ font-size:16px; }\nh5{ font-size:14px; }\nh6{ font-size:12px; }\np,ul,ol,blockquote,dl,table{ margin:1.2em 0; }\nul,ol{ margin-left:2em; }\nul{ list-style:disc; }\nol{ list-style:decimal; }\nli,li p{ margin:10px 0;}\nimg{ max-width:100%;display:block;margin:0 auto 1em; }\nblockquote{ color:#B5B2B1; border-left:3px solid #aaa; padding:1em; }\nstrong,b{font-weight:bold;}\nem,i{font-style:italic;}\ntable{ width:100%;border-collapse:collapse;border-spacing:1px;margin:1em 0;font-size:.9em; }\nth,td{ padding:5px;text-align:left;border:1px solid #aaa; }\nth{ font-weight:bold;background:#5d5d5d; }\n.symbol-link{font-weight:bold;}\n/* header{ border-bottom:1px solid #494756; } */\n.title{ margin:0 0 8px;line-height:1.3;color:#ddd; }\n.meta {color:#5e5c6d;font-size:13px;margin:0 0 .5em; }\na{text-decoration:none; color:#2a4b87;}\n.meta .head { display: inline-block; overflow: hidden}\n.head .h-thumb { width: 30px; height: 30px; margin: 0; padding: 0; border-radius: 50%; float: left;}\n.head .h-content { margin: 0; padding: 0 0 0 9px; float: left;}\n.head .h-name {font-size: 13px; color: #eee; margin: 0;}\n.head .h-time {font-size: 11px; color: #7E829C; margin: 0;line-height: 11px;}\n.small {font-size: 12.5px; display: inline-block; transform: scale(0.9); -webkit-transform: scale(0.9); transform-origin: left; -webkit-transform-origin: left;}\n.smaller {font-size: 12.5px; display: inline-block; transform: scale(0.8); -webkit-transform: scale(0.8); transform-origin: left; -webkit-transform-origin: left;}\n.bt-text {font-size: 12px;margin: 1.5em 0 0 0}\n.bt-text p {margin: 0}\n</style>\n</head>\n<body>\n<div class=\"wrapper\">\n<header>\n<h2 class=\"title\">\nJD.com: Its Business Model Is Deserving Of Its Current Valuation\n</h2>\n\n<h4 class=\"meta\">\n\n\n2021-06-03 23:22 GMT+8&nbsp;&nbsp;&nbsp;<a href=https://seekingalpha.com/article/4432860-jd-com-business-model-deserving-current-valuation>seekingalpha</a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\nSummary\n\nJD is often branded as the most “undervalued” stock of all its e-commerce peers by growth and value investors alike.\nEven though the company’s revenue growth rates have impressed, its ...\n\n<a href=\"https://seekingalpha.com/article/4432860-jd-com-business-model-deserving-current-valuation\">Web Link</a>\n\n</div>\n\n\n</article>\n</div>\n</body>\n</html>\n","type":0,"thumbnail":"","relate_stocks":{"09618":"京东集团-SW","JD":"京东"},"source_url":"https://seekingalpha.com/article/4432860-jd-com-business-model-deserving-current-valuation","is_english":true,"share_image_url":"https://static.laohu8.com/e9f99090a1c2ed51c021029395664489","article_id":"1171251318","content_text":"Summary\n\nJD is often branded as the most “undervalued” stock of all its e-commerce peers by growth and value investors alike.\nEven though the company’s revenue growth rates have impressed, its operating performances have not really been on par.\nI discuss why JD’s current valuations reflect the reality of its business model, and what growth and value investors should focus on to value the company.\n\nPhoto by Kevin Frayer/Getty Images News via Getty Images\nInvestment Thesis\nJD.com's (JD) low EV/Revenue multiples have often baffled growth and value investors. The relatively high revenue growth rates that the investors have grown accustomed to in the rapidly expanding Chinese e-commerce market has not cascaded down to its market cap as compared to its peers. I attempt to present my opinion on why JD may have exhibited a high revenue growth profile, but not necessarily the operating performances to match its peers.\nJD's Incredibly Low Revenue Multiples\nThe company has often been compared to Amazon (AMZN) in its early days or even compared to Shopify (SHOP) for having a revenue multiple that's way lower, and therefore implying a better buy.\nHowever when I looked under the hood into JD's business model and its operating performances, I found enough underlying weaknesses in JD's business model that perhaps indicate why the market continues to value JD at such low multiples despite having posted impressive growth rates.\nLTM Revenue Growth & Price / LTM Sales. Data Source: S&P Global Market Intelligence\nAs we can see from the chart above, JD has posted remarkable YoY revenue growth rates for the last 5 years, the \"slowest\" one being 22.7%. In fact, JD's LTM revenue growth rate has been accelerating recently, reaching 33.3% at the recent quarter. Despite that, its EV / LTM Rev multiple has consistently been under 1.1x, marking its strong appeal as a \"cheap\" growth stock.\nPrice/LTM Sales Percentile. Source: Tiger Brokers\nIn fact, JD's Price/LTM sales is currently at the 32nd percentile when we compare its multiples over the last 5 years, potentially even creating opportunities for value investors who may be on the lookout for a \"next Amazon\" type of stock that is selling for a real bargain now.\nJD and AMZN Market Cap, LTM Revenue, Revenue 3Y CAGR, EV / LTM Rev. Data Source: S&P Global Market Intelligence\nA quick glance over to Alibaba's (BABA) metrics unveil some interesting observations. Even though BABA's market cap is close to 5x that of JD's, BABA actually reported a lower LTM revenue (89% of JD's LTM revenue) than JD. In fact, BABA has reported lower revenue figures than JD over the last 5 years (see chart below). Both BABA and JD are revenue growth machines, with BABA's 3Y CAGR of 42% and JD's 3Y CAGR of 27.2%. Despite JD's impressive revenue growth, BABA is valued at 5.5x more than JD here based on their respective revenue multiples, which therefore raises the question of whether the market has unreasonably valued JD too low than what it actually deserves?\nBABA & JD LTM Revenue Trend. Data Source: S&P Global Market Intelligence\nJD Annual Active Customer Count. Data Source: Company Filings\nJD Annual Active Customer YoY Growth. Data Source: Company Filings\nIn fact, JD has been improving its active customer growth since Q3'19 as prior to that, JD had in fact suffered dramatic declines over multiple consecutive quarters of slowing customer growth. This coincided with the company's foray into Jingxi in 2019, which is the company's answer to Pinduoduo (PDD). The management also emphasized that: \"In the past 12 months, we gained 112 million new active users, with over 80% coming from lower-tier markets.\" Therefore quite clearly, Jingxi's customer growth has been the impetus behind the strong quarters of ARPC growth for JD.\nJD Average Revenue Per Active Customer. Data Source: Company Filings\nJD Average Revenue Per Active Customer YoY Growth. Data Source: Company Filings\nWhen we zoomed into the company's average revenue per active customer metrics, we could see that the underlying growth (up 11.7% YoY at the recent quarter) has been relatively healthy as well while the company continues to scale up its customer growth through the lower-tier markets.\nOkay, then how does JD's Operating Performances look like?\nEBIT Margin, CFO Margin, FCF Margin. Data Source: S&P Global Market Intelligence\nI had mentioned before in my article here for Coupang (CPNG), that for businesses that are potentially highly scalable such as JD's, we do not have to necessarily worry about the company's low operating margin business model as long as they are able to scale up quickly towards high FCF profitability. JD has always been operating with low operating margin (LTM EBIT margin of 1.2%), as that's the nature of its business model. Despite that, the company has still been able to generate relatively healthy FCF margins (LTM FCF margin 2.7%). Investors also shouldn't expect SaaS like FCF margins here as the business model is entirely different and JD is obviously going after those huge GMV growth. What we want to see though is whether the company is able to continue generating fast-growing and highly sustainable FCF moving forward.\nPeers Projected Unlevered FCF Margin. Data Source: S&P Global Market Intelligence\nPeers Projected Unlevered FCF 5Y CAGR. Data Source: S&P Global Market Intelligence\nThe problem arose when I tried to model JD's FCF growth moving forward. Quite clearly, JD does not seem to be able to improve its FCF margin strongly over time, with the projected FCF margins largely still in line with the historical ones.\nThat isn't something that we would like to see in a growth stock. Moreover the company's projected FCF margins are simply too low to be even classified as a cash flow machine. When we compare JD with its peers, we can clearly see that all of them, including AMZN are projected to generate very strong FCF growth moving forward, with JD's 5Y CAGR of 19.4% coming in last here. JD doesn't seem to be able to leverage on its relatively fast revenue growth to expand its FCF generating prowess as compared to its peers.\nNon-Peers Projected Unlevered FCF 5Y CAGR & Projected Unlevered FCF Margin. Data Source: S&P Global Market Intelligence\nIn order to help investors better understand what I mean, we can refer to the chart above to give an idea of what I meant as companies who are already in relatively stable growth stages with highly sustainable FCF margins as we model their FCF growth profile. It may be argued that Facebook (FB) is still a growth stock (but no longer as high growth as it once was) as it's still expected to generate relatively high FCF growth moving forward while commanding a remarkably high FCF margin as well. In addition, we could also see clearly that stable players often preferred by value investors such as Microsoft (MSFT), Qualcomm (QCOM) and Cisco (CSCO) are also expected to carry forward their high FCF margins moving forward. In contrast, JD's low 2.7% 5-year average FCF margin doesn't qualify it as a high quality stable stock for value investors to consider.\nWhat about JD's Growth Drivers?\nNow the interesting thing here is that JD has maintained that its business is still running at the \"high-growth\" stage as it emphasized:\n\n First of all, we prioritize growth above the importance of profitabilitybecause across all of our business lines, we are still in the high-growth stage. But each segment or each business line is actually in a different development stage. So we have kind of a differentiated investment strategy. So for JD Retail, we still -- you can see that for the first quarter and in the past few quarters, they continue to maintain a high-growth rate.\n\nThe management also added that they would likely continue to benefit from improved economies of scale and operating leverage as they bank on the rapid expansion of JD's retail business, allowing the company to continue improving its long term profit margin over time.\nJD LTM EBIT Margin & Projected EBIT Margin, LTM Unlevered FCF Margin & Projected Unlevered FCF Margin. Data Source: S&P Global Market Intelligence\nIn order to be clear of that, when I modelled JD's EBIT margin and FCF margin growth, I find it hard pressed to have agreement with the management's point of expecting sustained improvement in their operating performance over time as they scale up rapidly. First, the company is already coming off a very low base of EBIT (LTM EBIT margin: 1.2%) and FCF profitability (LTM Unlevered FCF margin: 0.8%), therefore I think it's not unreasonable to expect the company to post a significant improvement to its FCF profitability over time. However, as we can see above, those EBIT margin improvements don't really seem to cascade down to its FCF bottomline.\nJD Q1'21 Segment Revenue. Source:JD 6-K\nIt's important to note that JD retail is the company's main revenue and profit driver, accounting for 91% of Q1'21 revenue, while also subsidizing the losses from its other segments (one of which was JD Logistics which has already been spun off recently). It's difficult to see how its forays into its new businesses can be reasonably sustained over time when they don't have a highly profitable cash flow driver in JD Retail.\nAMZN EBIT Margin & Projected EBIT Margin, Unlevered FCF Margin & Projected Unlevered FCF Margin. Data Source: S&P Global Market Intelligence\nSea Limited EBIT Margin & Projected EBIT Margin, Unlevered FCF Margin & Projected Unlevered FCF Margin. Data Source: S&P Global Market Intelligence\nWe could refer to the above charts to see how important it's to have highly profitable cash flow segments to drive its operating performances even as the companies continue to scale up: AMZN with its AWS segment, as well as Sea's (SE) Garena segment, which I had covered in a recent article here. This cash flow segments allow them to reinvest into its highly scalable e-commerce segments and over time significantly improve their overall cash flow and EBIT profile. JD's business model certainly doesn't have the luxury of relying on such a segment to drive its growth, and therefore it's reflected clearly in its operating performances moving forward.\nValuations\nPeers Consensus Analysts Upside & EV / FY+1 Rev. Data Source: S&P Global Market Intelligence\nIf we simply base off JD's expected revenue growth, there's little doubt that JD seems to be valued at fire sale prices now. However, as mentioned earlier in the article, JD has always been valued at very low EV / Rev multiples historically as compared to its peers. In addition, the Street also remains highly confident of JD's upside potential (35.6%) as compared to its peers.\nJD & SE Ev / Fwd (EBITDA - CapEx) Trend. Data Source: S&P Global Market Intelligence\nAs I have emphasized earlier, using revenue figures to look at JD's growth potential may not accurately reflect the company's scalability potential. Here, we can see how SE's high potential to scale is clearly reflected in its FCF profile, where I use (EBITDA - CapEx) as a proxy here to remove the effects of lumpy working capital changes. SE's valuations are expected to come down significantly as it scales across South East Asia, generating lots of cash flow in the process. However, JD on the other hand doesn't seem to be quite as attractively valued as compared to SE when we project their growth rates forward.\nPrice Action & Technical Analysis\nSource: TradingView\nA silver lining here is that JD's long term uptrend remains intact despite the sell-off in Chinese stocks in Feb 21 that saw JD's stock price fall about 30% from its high. There are a few support levels that investors can focus on, most notably, the $70 support level that saw strong buying interest, as well as the $59 support level. The bulls are trying to retake the $79 support level which coincides with the dynamic resistance level marked by the 50-period MA at the moment. Therefore, investors who wish to add or initiate their positions may consider adding somewhere near the $70 level, and the $59 level if it retraces further, while avoiding adding near $79 in the near term.\nFor Chinese stocks, the Chinese and U.S. regulators will likely remain as the most important near term risk that may cause further compressions in its stock prices. However, as a long term investor who is still bullish on JD, I don't see that as a risk per se, but instead as an opportunity to add further into stocks like JD who in my opinion is fairly valued, and not expensive. The more the stock falls in the future due to policy changes or stiff rules from Beijing or Washington, the more attractive it will get for long term investors who have yet to initiate a position.\nWrapping it all up\nI'm a JD shareholder, and likely to remain so moving forward. What I had wanted to present in this article is to demonstrate why JD continues to trade at such low revenue multiples even as it continues to power ahead in its revenue growth. Investors should understand that although from the price action point of view JD I don't consider JD as a value trap, but I also don't consider JD as very attractive right now. It certainly deserves its current valuation and growth investors should taper their expectations in seeing the stock race ahead in the coming years.","news_type":1},"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"comments":[{"id":4572883,"gmtCreate":1622771901591,"gmtModify":1663227921627,"authorId":3570772304712620,"author":{"id":3570772304712620,"idStr":"3570772304712620","authorId":3570772304712620,"name":"jimmylaw","avatar":"https://static.tigerbbs.com/f6c847ae11f03f4682632e6fa4016040","vip":1,"currentWearingBadge":{"badgeId":"7a9f168ff73447fe856ed6c938b61789-1","templateUuid":"7a9f168ff73447fe856ed6c938b61789","name":"Knowledgeable Investor","description":"Traded more than 10 stocks","bigImgUrl":"https://static.tigerbbs.com/e74cc24115c4fbae6154ec1b1041bf47","smallImgUrl":"https://static.tigerbbs.com/d48265cbfd97c57f9048db29f22227b0","grayImgUrl":"https://static.tigerbbs.com/76c6d6898b073c77e1c537ebe9ac1c57","redirectLinkEnabled":0,"hasAllocated":1,"isWearing":1,"stampPosition":0,"hasStamp":0,"allocationCount":1,"allocatedDate":"2021.12.21","individualDisplayEnabled":0,"individualDisplaySort":0,"categoryType":1102},"crmLevel":6,"crmLevelSwitch":1,"individualDisplayBadges":[]},"repliedAuthorId":0,"objectId":116953965,"type":1,"supId":0,"prevId":0,"content":"yeah","text":"yeah","html":"yeah"}],"langContent":"EN"},{"id":116071183,"gmtCreate":1622767905342,"gmtModify":1704190734467,"author":{"id":"3575429532311028","authorId":"3575429532311028","name":"RuniMan","avatar":"https://static.tigerbbs.com/0aae00c36538a5840219b213e3d6c57d","vip":1,"crmLevel":3,"crmLevelSwitch":0,"idStr":"3575429532311028","authorIdStr":"3575429532311028"},"htmlText":"K noted Like n comments","listText":"K noted Like n comments","text":"K noted Like n comments","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":1,"commentSize":2,"repostSize":0,"link":"https://ttm.financial/post/116071183","repostId":1171251318,"repostType":4,"repost":{"id":"1171251318","pubTimestamp":1622733765,"share":"https://ttm.financial/m/news/1171251318?lang=&edition=fundamental","pubTime":"2021-06-03 23:22","market":"hk","language":"en","title":"JD.com: Its Business Model Is Deserving Of Its Current Valuation","url":"https://stock-news.laohu8.com/highlight/detail?id=1171251318","media":"seekingalpha","summary":"Summary\n\nJD is often branded as the most “undervalued” stock of all its e-commerce peers by growth a","content":"Summary\n<ul>\n <li>JD is often branded as the most “undervalued” stock of all its e-commerce peers by growth and value investors alike.</li>\n <li>Even though the company’s revenue growth rates have impressed, its operating performances have not really been on par.</li>\n <li>I discuss why JD’s current valuations reflect the reality of its business model, and what growth and value investors should focus on to value the company.</li>\n</ul>\n<img src=\"https://static.tigerbbs.com/3bc39a30a57f05b994781d4a3a51c0de\" tg-width=\"1536\" tg-height=\"1092\">Photo by Kevin Frayer/Getty Images News via Getty Images\nInvestment Thesis\nJD.com's (JD) low EV/Revenue multiples have often baffled growth and value investors. The relatively high revenue growth rates that the investors have grown accustomed to in the rapidly expanding Chinese e-commerce market has not cascaded down to its market cap as compared to its peers. I attempt to present my opinion on why JD may have exhibited a high revenue growth profile, but not necessarily the operating performances to match its peers.\nJD's Incredibly Low Revenue Multiples\nThe company has often been compared to Amazon (AMZN) in its early days or even compared to Shopify (SHOP) for having a revenue multiple that's way lower, and therefore implying a better buy.\nHowever when I looked under the hood into JD's business model and its operating performances, I found enough underlying weaknesses in JD's business model that perhaps indicate why the market continues to value JD at such low multiples despite having posted impressive growth rates.\n<img src=\"https://static.tigerbbs.com/dd8c028415efa231c377fb5f68a00858\" tg-width=\"1280\" tg-height=\"844\">LTM Revenue Growth &amp; Price / LTM Sales. Data Source: S&amp;P Global Market Intelligence\nAs we can see from the chart above, JD has posted remarkable YoY revenue growth rates for the last 5 years, the \"slowest\" one being 22.7%. In fact, JD's LTM revenue growth rate has been accelerating recently, reaching 33.3% at the recent quarter. Despite that, its EV / LTM Rev multiple has consistently been under 1.1x, marking its strong appeal as a \"cheap\" growth stock.\n<img src=\"https://static.tigerbbs.com/b5429847bb5cdb8de25028528ae70f6a\" tg-width=\"1280\" tg-height=\"811\">Price/LTM Sales Percentile. Source: Tiger Brokers\nIn fact, JD's Price/LTM sales is currently at the 32nd percentile when we compare its multiples over the last 5 years, potentially even creating opportunities for value investors who may be on the lookout for a \"next Amazon\" type of stock that is selling for a real bargain now.\n<img src=\"https://static.tigerbbs.com/4a33a3a8b9c3f7cfd6393fb14a77852c\" tg-width=\"1280\" tg-height=\"776\">JD and AMZN Market Cap, LTM Revenue, Revenue 3Y CAGR, EV / LTM Rev. Data Source: S&amp;P Global Market Intelligence\nA quick glance over to Alibaba's (BABA) metrics unveil some interesting observations. Even though BABA's market cap is close to 5x that of JD's, BABA actually reported a lower LTM revenue (89% of JD's LTM revenue) than JD. In fact, BABA has reported lower revenue figures than JD over the last 5 years (see chart below). Both BABA and JD are revenue growth machines, with BABA's 3Y CAGR of 42% and JD's 3Y CAGR of 27.2%. Despite JD's impressive revenue growth, BABA is valued at 5.5x more than JD here based on their respective revenue multiples, which therefore raises the question of whether the market has unreasonably valued JD too low than what it actually deserves?\n<img src=\"https://static.tigerbbs.com/09064245a10bfce0ca518de2ba958e28\" tg-width=\"1280\" tg-height=\"774\">BABA &amp; JD LTM Revenue Trend. Data Source: S&amp;P Global Market Intelligence\n<img src=\"https://static.tigerbbs.com/a7ad67e5be6dba93461b1cb1813d0aa8\" tg-width=\"1257\" tg-height=\"474\">JD Annual Active Customer Count. Data Source: Company Filings\n<img src=\"https://static.tigerbbs.com/b156a6b3eb509a01ef58375a4d035718\" tg-width=\"600\" tg-height=\"371\">JD Annual Active Customer YoY Growth. Data Source: Company Filings\nIn fact, JD has been improving its active customer growth since Q3'19 as prior to that, JD had in fact suffered dramatic declines over multiple consecutive quarters of slowing customer growth. This coincided with the company's foray into&nbsp;Jingxi in 2019, which is the company's answer to Pinduoduo (PDD). The management also emphasized that: \"In the past 12 months, we gained 112 million new active users, with over&nbsp;80% coming from lower-tier markets.\" Therefore quite clearly, Jingxi's customer growth has been the impetus behind the strong quarters of ARPC growth for JD.\n<img src=\"https://static.tigerbbs.com/16b3ae3a7907e114e3e3874b5f7d2851\" tg-width=\"962\" tg-height=\"595\">JD Average Revenue Per Active Customer. Data Source: Company Filings\n<img src=\"https://static.tigerbbs.com/4a17b7b3775c0d8c1ab4b05856429210\" tg-width=\"600\" tg-height=\"371\">JD Average Revenue Per Active Customer YoY Growth. Data Source: Company Filings\nWhen we zoomed into the company's average revenue per active customer metrics, we could see that the underlying growth (up 11.7% YoY at the recent quarter) has been relatively healthy as well while the company continues to scale up its customer growth through the lower-tier markets.\nOkay, then how does JD's Operating Performances look like?\n<img src=\"https://static.tigerbbs.com/365fbee247a722170a072c2dc2b83e38\" tg-width=\"1280\" tg-height=\"703\">EBIT Margin, CFO Margin, FCF Margin. Data Source: S&amp;P Global Market Intelligence\nI had mentioned before in&nbsp;my article here&nbsp;for Coupang (CPNG), that for businesses that are potentially highly scalable such as JD's, we do not have to necessarily worry about the company's low operating margin business model as long as they are able to scale up quickly towards high FCF profitability. JD has always been operating with low operating margin (LTM EBIT margin of 1.2%), as that's the nature of its business model. Despite that, the company has still been able to generate relatively healthy FCF margins (LTM FCF margin 2.7%). Investors also shouldn't expect SaaS like FCF margins here as the business model is entirely different and JD is obviously going after those huge GMV growth. What we want to see though is whether the company is able to continue generating fast-growing and highly sustainable FCF moving forward.\n<img src=\"https://static.tigerbbs.com/b36f757fa706b6f349f44add10229761\" tg-width=\"1280\" tg-height=\"708\">Peers Projected Unlevered FCF Margin. Data Source: S&amp;P Global Market Intelligence\n<img src=\"https://static.tigerbbs.com/328507a06929411b3b72e85c8c8169b2\" tg-width=\"1280\" tg-height=\"693\">Peers Projected Unlevered FCF 5Y CAGR. Data Source: S&amp;P Global Market Intelligence\nThe problem arose when I tried to model JD's FCF growth moving forward. Quite clearly, JD does not seem to be able to improve its FCF margin strongly over time, with the projected FCF margins largely still in line with the historical ones.\nThat isn't something that we would like to see in a growth stock. Moreover the company's projected FCF margins are simply too low to be even classified as a cash flow machine. When we compare JD with its peers, we can clearly see that all of them, including AMZN are projected to generate very strong FCF growth moving forward, with JD's 5Y CAGR of 19.4% coming in last here. JD doesn't seem to be able to leverage on its relatively fast revenue growth to expand its FCF generating prowess as compared to its peers.\n<img src=\"https://static.tigerbbs.com/34da8b0865452a029c93f57dc8104697\" tg-width=\"1280\" tg-height=\"684\">Non-Peers Projected Unlevered FCF 5Y CAGR &amp; Projected Unlevered FCF Margin. Data Source: S&amp;P Global Market Intelligence\nIn order to help investors better understand what I mean, we can refer to the chart above to give an idea of what I meant as companies who are already in relatively stable growth stages with highly sustainable FCF margins as we model their FCF growth profile. It may be argued that Facebook (FB) is still a growth stock (but no longer as high growth as it once was) as it's still expected to generate relatively high FCF growth moving forward while commanding a remarkably high FCF margin as well. In addition, we could also see clearly that stable players often preferred by value investors such as Microsoft (MSFT), Qualcomm (QCOM) and Cisco (CSCO) are also expected to carry forward their high FCF margins moving forward. In contrast, JD's low 2.7% 5-year average FCF margin doesn't qualify it as a high quality stable stock for value investors to consider.\nWhat about JD's Growth Drivers?\nNow the interesting thing here is that JD has maintained that its business is still running at the \"high-growth\" stage as it emphasized:\n<blockquote>\n First of all, we&nbsp;prioritize growth above the importance of profitabilitybecause across all of our business lines, we are still in the high-growth stage. But each segment or each business line is actually in a different development stage. So we have kind of a differentiated investment strategy. So for JD Retail, we still -- you can see that for the first quarter and in the past few quarters, they continue to maintain a high-growth rate.\n</blockquote>\nThe management also added that they would likely continue to benefit from improved economies of scale and operating leverage as they bank on the rapid expansion of JD's retail business, allowing the company to continue improving its long term profit margin over time.\n<img src=\"https://static.tigerbbs.com/8477039f4b9693704cbbaf64530da052\" tg-width=\"1280\" tg-height=\"706\">JD LTM EBIT Margin &amp; Projected EBIT Margin, LTM Unlevered FCF Margin &amp; Projected Unlevered FCF Margin. Data Source: S&amp;P Global Market Intelligence\nIn order to be clear of that, when I modelled JD's EBIT margin and FCF margin growth, I find it hard pressed to have agreement with the management's point of expecting sustained improvement in their operating performance over time as they scale up rapidly. First, the company is already coming off a very low base of EBIT (LTM EBIT margin: 1.2%) and FCF profitability (LTM Unlevered FCF margin: 0.8%), therefore I think it's not unreasonable to expect the company to post a significant improvement to its FCF profitability over time. However, as we can see above, those EBIT margin improvements don't really seem to cascade down to its FCF bottomline.\n<img src=\"https://static.tigerbbs.com/34fa89d4e61ac3e70091cc064b4dc51a\" tg-width=\"1280\" tg-height=\"626\">JD Q1'21 Segment Revenue. Source:JD 6-K\nIt's important to note that JD retail is the company's main revenue and profit driver, accounting for 91% of Q1'21 revenue, while also subsidizing the losses from its other segments (one of which was JD Logistics which has already been spun off recently). It's difficult to see how its forays into its new businesses can be reasonably sustained over time when they don't have a highly profitable cash flow driver in JD Retail.\n<img src=\"https://static.tigerbbs.com/85c510c5f8c49a1fde429fcbe1892c30\" tg-width=\"1280\" tg-height=\"704\">AMZN EBIT Margin &amp; Projected EBIT Margin, Unlevered FCF Margin &amp; Projected Unlevered FCF Margin. Data Source: S&amp;P Global Market Intelligence\n<img src=\"https://static.tigerbbs.com/6dcf33c4272b764cbad4a64cca5bdbfd\" tg-width=\"1280\" tg-height=\"711\">Sea Limited EBIT Margin &amp; Projected EBIT Margin, Unlevered FCF Margin &amp; Projected Unlevered FCF Margin. Data Source: S&amp;P Global Market Intelligence\nWe could refer to the above charts to see how important it's to have highly profitable cash flow segments to drive its operating performances even as the companies continue to scale up: AMZN with its AWS segment, as well as Sea's (SE) Garena segment, which I had covered in a&nbsp;recent article here. This cash flow segments allow them to reinvest into its highly scalable e-commerce segments and over time significantly improve their overall cash flow and EBIT profile. JD's business model certainly doesn't have the luxury of relying on such a segment to drive its growth, and therefore it's reflected clearly in its operating performances moving forward.\nValuations\n<img src=\"https://static.tigerbbs.com/2ec37dd8957f5cadcf9615fa414bb78d\" tg-width=\"1280\" tg-height=\"726\">Peers Consensus Analysts Upside &amp; EV / FY+1 Rev. Data Source: S&amp;P Global Market Intelligence\nIf we simply base off JD's expected revenue growth, there's little doubt that JD seems to be valued at fire sale prices now. However, as mentioned earlier in the article, JD has always been valued at very low EV / Rev multiples historically as compared to its peers. In addition, the Street also remains highly confident of JD's upside potential (35.6%) as compared to its peers.\n<img src=\"https://static.tigerbbs.com/56bd8f33da9baab688b59439b44a827b\" tg-width=\"1280\" tg-height=\"709\">JD &amp; SE Ev / Fwd (EBITDA - CapEx) Trend. Data Source: S&amp;P Global Market Intelligence\nAs I have emphasized earlier, using revenue figures to look at JD's growth potential may not accurately reflect the company's scalability potential. Here, we can see how SE's high potential to scale is clearly reflected in its FCF profile, where I use (EBITDA - CapEx) as a proxy here to remove the effects of lumpy working capital changes. SE's valuations are expected to come down significantly as it scales across South East Asia, generating lots of cash flow in the process. However, JD on the other hand doesn't seem to be quite as attractively valued as compared to SE when we project their growth rates forward.\nPrice Action &amp; Technical Analysis\n<img src=\"https://static.tigerbbs.com/98b516b4268fe8418e750d8717769eaf\" tg-width=\"1280\" tg-height=\"798\">Source: TradingView\nA silver lining here is that JD's long term uptrend remains intact despite the sell-off in Chinese stocks in Feb 21 that saw JD's stock price fall about 30% from its high. There are a few support levels that investors can focus on, most notably, the $70 support level that saw strong buying interest, as well as the $59 support level. The bulls are trying to retake the $79 support level which coincides with the dynamic resistance level marked by the 50-period MA at the moment. Therefore, investors who wish to add or initiate their positions may consider adding somewhere near the $70 level, and the $59 level if it retraces further, while avoiding adding near $79 in the near term.\nFor Chinese stocks, the Chinese and U.S. regulators will likely remain as the most important near term risk that may cause further compressions in its stock prices. However, as a long term investor who is still bullish on JD, I don't see that as a risk per se, but instead as an opportunity to add further into stocks like JD who in my opinion is fairly valued, and not expensive. The more the stock falls in the future due to policy changes or stiff rules from Beijing or Washington, the more attractive it will get for long term investors who have yet to initiate a position.\nWrapping it all up\nI'm a JD shareholder, and likely to remain so moving forward. What I had wanted to present in this article is to demonstrate why JD continues to trade at such low revenue multiples even as it continues to power ahead in its revenue growth. Investors should understand that although from the price action point of view JD I don't consider JD as a value trap, but I also don't consider JD as very attractive right now. It certainly deserves its current valuation and growth investors should taper their expectations in seeing the stock race ahead in the coming years.","collect":0,"html":"<!DOCTYPE html>\n<html>\n<head>\n<meta http-equiv=\"Content-Type\" content=\"text/html; charset=utf-8\" />\n<meta name=\"viewport\" content=\"width=device-width,initial-scale=1.0,minimum-scale=1.0,maximum-scale=1.0,user-scalable=no\"/>\n<meta name=\"format-detection\" content=\"telephone=no,email=no,address=no\" />\n<title>JD.com: Its Business Model Is Deserving Of Its Current Valuation</title>\n<style type=\"text/css\">\na,abbr,acronym,address,applet,article,aside,audio,b,big,blockquote,body,canvas,caption,center,cite,code,dd,del,details,dfn,div,dl,dt,\nem,embed,fieldset,figcaption,figure,footer,form,h1,h2,h3,h4,h5,h6,header,hgroup,html,i,iframe,img,ins,kbd,label,legend,li,mark,menu,nav,\nobject,ol,output,p,pre,q,ruby,s,samp,section,small,span,strike,strong,sub,summary,sup,table,tbody,td,tfoot,th,thead,time,tr,tt,u,ul,var,video{ font:inherit;margin:0;padding:0;vertical-align:baseline;border:0 }\nbody{ font-size:16px; line-height:1.5; color:#999; background:transparent; }\n.wrapper{ overflow:hidden;word-break:break-all;padding:10px; }\nh1,h2{ font-weight:normal; line-height:1.35; margin-bottom:.6em; }\nh3,h4,h5,h6{ line-height:1.35; margin-bottom:1em; }\nh1{ font-size:24px; }\nh2{ font-size:20px; }\nh3{ font-size:18px; }\nh4{ font-size:16px; }\nh5{ font-size:14px; }\nh6{ font-size:12px; }\np,ul,ol,blockquote,dl,table{ margin:1.2em 0; }\nul,ol{ margin-left:2em; }\nul{ list-style:disc; }\nol{ list-style:decimal; }\nli,li p{ margin:10px 0;}\nimg{ max-width:100%;display:block;margin:0 auto 1em; }\nblockquote{ color:#B5B2B1; border-left:3px solid #aaa; padding:1em; }\nstrong,b{font-weight:bold;}\nem,i{font-style:italic;}\ntable{ width:100%;border-collapse:collapse;border-spacing:1px;margin:1em 0;font-size:.9em; }\nth,td{ padding:5px;text-align:left;border:1px solid #aaa; }\nth{ font-weight:bold;background:#5d5d5d; }\n.symbol-link{font-weight:bold;}\n/* header{ border-bottom:1px solid #494756; } */\n.title{ margin:0 0 8px;line-height:1.3;color:#ddd; }\n.meta {color:#5e5c6d;font-size:13px;margin:0 0 .5em; }\na{text-decoration:none; color:#2a4b87;}\n.meta .head { display: inline-block; overflow: hidden}\n.head .h-thumb { width: 30px; height: 30px; margin: 0; padding: 0; border-radius: 50%; float: left;}\n.head .h-content { margin: 0; padding: 0 0 0 9px; float: left;}\n.head .h-name {font-size: 13px; color: #eee; margin: 0;}\n.head .h-time {font-size: 11px; color: #7E829C; margin: 0;line-height: 11px;}\n.small {font-size: 12.5px; display: inline-block; transform: scale(0.9); -webkit-transform: scale(0.9); transform-origin: left; -webkit-transform-origin: left;}\n.smaller {font-size: 12.5px; display: inline-block; transform: scale(0.8); -webkit-transform: scale(0.8); transform-origin: left; -webkit-transform-origin: left;}\n.bt-text {font-size: 12px;margin: 1.5em 0 0 0}\n.bt-text p {margin: 0}\n</style>\n</head>\n<body>\n<div class=\"wrapper\">\n<header>\n<h2 class=\"title\">\nJD.com: Its Business Model Is Deserving Of Its Current Valuation\n</h2>\n\n<h4 class=\"meta\">\n\n\n2021-06-03 23:22 GMT+8&nbsp;&nbsp;&nbsp;<a href=https://seekingalpha.com/article/4432860-jd-com-business-model-deserving-current-valuation>seekingalpha</a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\nSummary\n\nJD is often branded as the most “undervalued” stock of all its e-commerce peers by growth and value investors alike.\nEven though the company’s revenue growth rates have impressed, its ...\n\n<a href=\"https://seekingalpha.com/article/4432860-jd-com-business-model-deserving-current-valuation\">Web Link</a>\n\n</div>\n\n\n</article>\n</div>\n</body>\n</html>\n","type":0,"thumbnail":"","relate_stocks":{"09618":"京东集团-SW","JD":"京东"},"source_url":"https://seekingalpha.com/article/4432860-jd-com-business-model-deserving-current-valuation","is_english":true,"share_image_url":"https://static.laohu8.com/e9f99090a1c2ed51c021029395664489","article_id":"1171251318","content_text":"Summary\n\nJD is often branded as the most “undervalued” stock of all its e-commerce peers by growth and value investors alike.\nEven though the company’s revenue growth rates have impressed, its operating performances have not really been on par.\nI discuss why JD’s current valuations reflect the reality of its business model, and what growth and value investors should focus on to value the company.\n\nPhoto by Kevin Frayer/Getty Images News via Getty Images\nInvestment Thesis\nJD.com's (JD) low EV/Revenue multiples have often baffled growth and value investors. The relatively high revenue growth rates that the investors have grown accustomed to in the rapidly expanding Chinese e-commerce market has not cascaded down to its market cap as compared to its peers. I attempt to present my opinion on why JD may have exhibited a high revenue growth profile, but not necessarily the operating performances to match its peers.\nJD's Incredibly Low Revenue Multiples\nThe company has often been compared to Amazon (AMZN) in its early days or even compared to Shopify (SHOP) for having a revenue multiple that's way lower, and therefore implying a better buy.\nHowever when I looked under the hood into JD's business model and its operating performances, I found enough underlying weaknesses in JD's business model that perhaps indicate why the market continues to value JD at such low multiples despite having posted impressive growth rates.\nLTM Revenue Growth & Price / LTM Sales. Data Source: S&P Global Market Intelligence\nAs we can see from the chart above, JD has posted remarkable YoY revenue growth rates for the last 5 years, the \"slowest\" one being 22.7%. In fact, JD's LTM revenue growth rate has been accelerating recently, reaching 33.3% at the recent quarter. Despite that, its EV / LTM Rev multiple has consistently been under 1.1x, marking its strong appeal as a \"cheap\" growth stock.\nPrice/LTM Sales Percentile. Source: Tiger Brokers\nIn fact, JD's Price/LTM sales is currently at the 32nd percentile when we compare its multiples over the last 5 years, potentially even creating opportunities for value investors who may be on the lookout for a \"next Amazon\" type of stock that is selling for a real bargain now.\nJD and AMZN Market Cap, LTM Revenue, Revenue 3Y CAGR, EV / LTM Rev. Data Source: S&P Global Market Intelligence\nA quick glance over to Alibaba's (BABA) metrics unveil some interesting observations. Even though BABA's market cap is close to 5x that of JD's, BABA actually reported a lower LTM revenue (89% of JD's LTM revenue) than JD. In fact, BABA has reported lower revenue figures than JD over the last 5 years (see chart below). Both BABA and JD are revenue growth machines, with BABA's 3Y CAGR of 42% and JD's 3Y CAGR of 27.2%. Despite JD's impressive revenue growth, BABA is valued at 5.5x more than JD here based on their respective revenue multiples, which therefore raises the question of whether the market has unreasonably valued JD too low than what it actually deserves?\nBABA & JD LTM Revenue Trend. Data Source: S&P Global Market Intelligence\nJD Annual Active Customer Count. Data Source: Company Filings\nJD Annual Active Customer YoY Growth. Data Source: Company Filings\nIn fact, JD has been improving its active customer growth since Q3'19 as prior to that, JD had in fact suffered dramatic declines over multiple consecutive quarters of slowing customer growth. This coincided with the company's foray into Jingxi in 2019, which is the company's answer to Pinduoduo (PDD). The management also emphasized that: \"In the past 12 months, we gained 112 million new active users, with over 80% coming from lower-tier markets.\" Therefore quite clearly, Jingxi's customer growth has been the impetus behind the strong quarters of ARPC growth for JD.\nJD Average Revenue Per Active Customer. Data Source: Company Filings\nJD Average Revenue Per Active Customer YoY Growth. Data Source: Company Filings\nWhen we zoomed into the company's average revenue per active customer metrics, we could see that the underlying growth (up 11.7% YoY at the recent quarter) has been relatively healthy as well while the company continues to scale up its customer growth through the lower-tier markets.\nOkay, then how does JD's Operating Performances look like?\nEBIT Margin, CFO Margin, FCF Margin. Data Source: S&P Global Market Intelligence\nI had mentioned before in my article here for Coupang (CPNG), that for businesses that are potentially highly scalable such as JD's, we do not have to necessarily worry about the company's low operating margin business model as long as they are able to scale up quickly towards high FCF profitability. JD has always been operating with low operating margin (LTM EBIT margin of 1.2%), as that's the nature of its business model. Despite that, the company has still been able to generate relatively healthy FCF margins (LTM FCF margin 2.7%). Investors also shouldn't expect SaaS like FCF margins here as the business model is entirely different and JD is obviously going after those huge GMV growth. What we want to see though is whether the company is able to continue generating fast-growing and highly sustainable FCF moving forward.\nPeers Projected Unlevered FCF Margin. Data Source: S&P Global Market Intelligence\nPeers Projected Unlevered FCF 5Y CAGR. Data Source: S&P Global Market Intelligence\nThe problem arose when I tried to model JD's FCF growth moving forward. Quite clearly, JD does not seem to be able to improve its FCF margin strongly over time, with the projected FCF margins largely still in line with the historical ones.\nThat isn't something that we would like to see in a growth stock. Moreover the company's projected FCF margins are simply too low to be even classified as a cash flow machine. When we compare JD with its peers, we can clearly see that all of them, including AMZN are projected to generate very strong FCF growth moving forward, with JD's 5Y CAGR of 19.4% coming in last here. JD doesn't seem to be able to leverage on its relatively fast revenue growth to expand its FCF generating prowess as compared to its peers.\nNon-Peers Projected Unlevered FCF 5Y CAGR & Projected Unlevered FCF Margin. Data Source: S&P Global Market Intelligence\nIn order to help investors better understand what I mean, we can refer to the chart above to give an idea of what I meant as companies who are already in relatively stable growth stages with highly sustainable FCF margins as we model their FCF growth profile. It may be argued that Facebook (FB) is still a growth stock (but no longer as high growth as it once was) as it's still expected to generate relatively high FCF growth moving forward while commanding a remarkably high FCF margin as well. In addition, we could also see clearly that stable players often preferred by value investors such as Microsoft (MSFT), Qualcomm (QCOM) and Cisco (CSCO) are also expected to carry forward their high FCF margins moving forward. In contrast, JD's low 2.7% 5-year average FCF margin doesn't qualify it as a high quality stable stock for value investors to consider.\nWhat about JD's Growth Drivers?\nNow the interesting thing here is that JD has maintained that its business is still running at the \"high-growth\" stage as it emphasized:\n\n First of all, we prioritize growth above the importance of profitabilitybecause across all of our business lines, we are still in the high-growth stage. But each segment or each business line is actually in a different development stage. So we have kind of a differentiated investment strategy. So for JD Retail, we still -- you can see that for the first quarter and in the past few quarters, they continue to maintain a high-growth rate.\n\nThe management also added that they would likely continue to benefit from improved economies of scale and operating leverage as they bank on the rapid expansion of JD's retail business, allowing the company to continue improving its long term profit margin over time.\nJD LTM EBIT Margin & Projected EBIT Margin, LTM Unlevered FCF Margin & Projected Unlevered FCF Margin. Data Source: S&P Global Market Intelligence\nIn order to be clear of that, when I modelled JD's EBIT margin and FCF margin growth, I find it hard pressed to have agreement with the management's point of expecting sustained improvement in their operating performance over time as they scale up rapidly. First, the company is already coming off a very low base of EBIT (LTM EBIT margin: 1.2%) and FCF profitability (LTM Unlevered FCF margin: 0.8%), therefore I think it's not unreasonable to expect the company to post a significant improvement to its FCF profitability over time. However, as we can see above, those EBIT margin improvements don't really seem to cascade down to its FCF bottomline.\nJD Q1'21 Segment Revenue. Source:JD 6-K\nIt's important to note that JD retail is the company's main revenue and profit driver, accounting for 91% of Q1'21 revenue, while also subsidizing the losses from its other segments (one of which was JD Logistics which has already been spun off recently). It's difficult to see how its forays into its new businesses can be reasonably sustained over time when they don't have a highly profitable cash flow driver in JD Retail.\nAMZN EBIT Margin & Projected EBIT Margin, Unlevered FCF Margin & Projected Unlevered FCF Margin. Data Source: S&P Global Market Intelligence\nSea Limited EBIT Margin & Projected EBIT Margin, Unlevered FCF Margin & Projected Unlevered FCF Margin. Data Source: S&P Global Market Intelligence\nWe could refer to the above charts to see how important it's to have highly profitable cash flow segments to drive its operating performances even as the companies continue to scale up: AMZN with its AWS segment, as well as Sea's (SE) Garena segment, which I had covered in a recent article here. This cash flow segments allow them to reinvest into its highly scalable e-commerce segments and over time significantly improve their overall cash flow and EBIT profile. JD's business model certainly doesn't have the luxury of relying on such a segment to drive its growth, and therefore it's reflected clearly in its operating performances moving forward.\nValuations\nPeers Consensus Analysts Upside & EV / FY+1 Rev. Data Source: S&P Global Market Intelligence\nIf we simply base off JD's expected revenue growth, there's little doubt that JD seems to be valued at fire sale prices now. However, as mentioned earlier in the article, JD has always been valued at very low EV / Rev multiples historically as compared to its peers. In addition, the Street also remains highly confident of JD's upside potential (35.6%) as compared to its peers.\nJD & SE Ev / Fwd (EBITDA - CapEx) Trend. Data Source: S&P Global Market Intelligence\nAs I have emphasized earlier, using revenue figures to look at JD's growth potential may not accurately reflect the company's scalability potential. Here, we can see how SE's high potential to scale is clearly reflected in its FCF profile, where I use (EBITDA - CapEx) as a proxy here to remove the effects of lumpy working capital changes. SE's valuations are expected to come down significantly as it scales across South East Asia, generating lots of cash flow in the process. However, JD on the other hand doesn't seem to be quite as attractively valued as compared to SE when we project their growth rates forward.\nPrice Action & Technical Analysis\nSource: TradingView\nA silver lining here is that JD's long term uptrend remains intact despite the sell-off in Chinese stocks in Feb 21 that saw JD's stock price fall about 30% from its high. There are a few support levels that investors can focus on, most notably, the $70 support level that saw strong buying interest, as well as the $59 support level. The bulls are trying to retake the $79 support level which coincides with the dynamic resistance level marked by the 50-period MA at the moment. Therefore, investors who wish to add or initiate their positions may consider adding somewhere near the $70 level, and the $59 level if it retraces further, while avoiding adding near $79 in the near term.\nFor Chinese stocks, the Chinese and U.S. regulators will likely remain as the most important near term risk that may cause further compressions in its stock prices. However, as a long term investor who is still bullish on JD, I don't see that as a risk per se, but instead as an opportunity to add further into stocks like JD who in my opinion is fairly valued, and not expensive. The more the stock falls in the future due to policy changes or stiff rules from Beijing or Washington, the more attractive it will get for long term investors who have yet to initiate a position.\nWrapping it all up\nI'm a JD shareholder, and likely to remain so moving forward. What I had wanted to present in this article is to demonstrate why JD continues to trade at such low revenue multiples even as it continues to power ahead in its revenue growth. Investors should understand that although from the price action point of view JD I don't consider JD as a value trap, but I also don't consider JD as very attractive right now. It certainly deserves its current valuation and growth investors should taper their expectations in seeing the stock race ahead in the coming years.","news_type":1},"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"comments":[{"id":4613300,"gmtCreate":1623046719500,"gmtModify":1663228106337,"authorId":3575429532311028,"author":{"id":3575429532311028,"idStr":"3575429532311028","authorId":3575429532311028,"name":"RuniMan","avatar":"https://static.tigerbbs.com/0aae00c36538a5840219b213e3d6c57d","vip":1,"crmLevel":3,"crmLevelSwitch":0,"individualDisplayBadges":[]},"repliedAuthorId":0,"objectId":116071183,"type":1,"supId":4572888,"prevId":0,"content":"Great reply and comment","text":"Great reply and comment","html":"Great reply and comment"},{"id":4572888,"gmtCreate":1622771910048,"gmtModify":1663227923525,"authorId":3570772304712620,"author":{"id":3570772304712620,"idStr":"3570772304712620","authorId":3570772304712620,"name":"jimmylaw","avatar":"https://static.tigerbbs.com/f6c847ae11f03f4682632e6fa4016040","vip":1,"currentWearingBadge":{"badgeId":"7a9f168ff73447fe856ed6c938b61789-1","templateUuid":"7a9f168ff73447fe856ed6c938b61789","name":"Knowledgeable Investor","description":"Traded more than 10 stocks","bigImgUrl":"https://static.tigerbbs.com/e74cc24115c4fbae6154ec1b1041bf47","smallImgUrl":"https://static.tigerbbs.com/d48265cbfd97c57f9048db29f22227b0","grayImgUrl":"https://static.tigerbbs.com/76c6d6898b073c77e1c537ebe9ac1c57","redirectLinkEnabled":0,"hasAllocated":1,"isWearing":1,"stampPosition":0,"hasStamp":0,"allocationCount":1,"allocatedDate":"2021.12.21","individualDisplayEnabled":0,"individualDisplaySort":0,"categoryType":1102},"crmLevel":6,"crmLevelSwitch":1,"individualDisplayBadges":[]},"repliedAuthorId":0,"objectId":116071183,"type":1,"supId":0,"prevId":0,"content":"like reply too","text":"like reply too","html":"like reply too"}],"langContent":"EN"},{"id":116071070,"gmtCreate":1622767892690,"gmtModify":1704190733822,"author":{"id":"3570751249933438","authorId":"3570751249933438","name":"edgetrader","avatar":"https://static.tigerbbs.com/7d0e920d94a7891f4c6393f3e5510ccc","vip":1,"crmLevel":6,"crmLevelSwitch":0,"idStr":"3570751249933438","authorIdStr":"3570751249933438"},"htmlText":"Loaded!","listText":"Loaded!","text":"Loaded!","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":2,"commentSize":0,"repostSize":0,"link":"https://ttm.financial/post/116071070","repostId":1171251318,"repostType":4,"repost":{"id":"1171251318","pubTimestamp":1622733765,"share":"https://ttm.financial/m/news/1171251318?lang=&edition=fundamental","pubTime":"2021-06-03 23:22","market":"hk","language":"en","title":"JD.com: Its Business Model Is Deserving Of Its Current Valuation","url":"https://stock-news.laohu8.com/highlight/detail?id=1171251318","media":"seekingalpha","summary":"Summary\n\nJD is often branded as the most “undervalued” stock of all its e-commerce peers by growth a","content":"Summary\n<ul>\n <li>JD is often branded as the most “undervalued” stock of all its e-commerce peers by growth and value investors alike.</li>\n <li>Even though the company’s revenue growth rates have impressed, its operating performances have not really been on par.</li>\n <li>I discuss why JD’s current valuations reflect the reality of its business model, and what growth and value investors should focus on to value the company.</li>\n</ul>\n<img src=\"https://static.tigerbbs.com/3bc39a30a57f05b994781d4a3a51c0de\" tg-width=\"1536\" tg-height=\"1092\">Photo by Kevin Frayer/Getty Images News via Getty Images\nInvestment Thesis\nJD.com's (JD) low EV/Revenue multiples have often baffled growth and value investors. The relatively high revenue growth rates that the investors have grown accustomed to in the rapidly expanding Chinese e-commerce market has not cascaded down to its market cap as compared to its peers. I attempt to present my opinion on why JD may have exhibited a high revenue growth profile, but not necessarily the operating performances to match its peers.\nJD's Incredibly Low Revenue Multiples\nThe company has often been compared to Amazon (AMZN) in its early days or even compared to Shopify (SHOP) for having a revenue multiple that's way lower, and therefore implying a better buy.\nHowever when I looked under the hood into JD's business model and its operating performances, I found enough underlying weaknesses in JD's business model that perhaps indicate why the market continues to value JD at such low multiples despite having posted impressive growth rates.\n<img src=\"https://static.tigerbbs.com/dd8c028415efa231c377fb5f68a00858\" tg-width=\"1280\" tg-height=\"844\">LTM Revenue Growth &amp; Price / LTM Sales. Data Source: S&amp;P Global Market Intelligence\nAs we can see from the chart above, JD has posted remarkable YoY revenue growth rates for the last 5 years, the \"slowest\" one being 22.7%. In fact, JD's LTM revenue growth rate has been accelerating recently, reaching 33.3% at the recent quarter. Despite that, its EV / LTM Rev multiple has consistently been under 1.1x, marking its strong appeal as a \"cheap\" growth stock.\n<img src=\"https://static.tigerbbs.com/b5429847bb5cdb8de25028528ae70f6a\" tg-width=\"1280\" tg-height=\"811\">Price/LTM Sales Percentile. Source: Tiger Brokers\nIn fact, JD's Price/LTM sales is currently at the 32nd percentile when we compare its multiples over the last 5 years, potentially even creating opportunities for value investors who may be on the lookout for a \"next Amazon\" type of stock that is selling for a real bargain now.\n<img src=\"https://static.tigerbbs.com/4a33a3a8b9c3f7cfd6393fb14a77852c\" tg-width=\"1280\" tg-height=\"776\">JD and AMZN Market Cap, LTM Revenue, Revenue 3Y CAGR, EV / LTM Rev. Data Source: S&amp;P Global Market Intelligence\nA quick glance over to Alibaba's (BABA) metrics unveil some interesting observations. Even though BABA's market cap is close to 5x that of JD's, BABA actually reported a lower LTM revenue (89% of JD's LTM revenue) than JD. In fact, BABA has reported lower revenue figures than JD over the last 5 years (see chart below). Both BABA and JD are revenue growth machines, with BABA's 3Y CAGR of 42% and JD's 3Y CAGR of 27.2%. Despite JD's impressive revenue growth, BABA is valued at 5.5x more than JD here based on their respective revenue multiples, which therefore raises the question of whether the market has unreasonably valued JD too low than what it actually deserves?\n<img src=\"https://static.tigerbbs.com/09064245a10bfce0ca518de2ba958e28\" tg-width=\"1280\" tg-height=\"774\">BABA &amp; JD LTM Revenue Trend. Data Source: S&amp;P Global Market Intelligence\n<img src=\"https://static.tigerbbs.com/a7ad67e5be6dba93461b1cb1813d0aa8\" tg-width=\"1257\" tg-height=\"474\">JD Annual Active Customer Count. Data Source: Company Filings\n<img src=\"https://static.tigerbbs.com/b156a6b3eb509a01ef58375a4d035718\" tg-width=\"600\" tg-height=\"371\">JD Annual Active Customer YoY Growth. Data Source: Company Filings\nIn fact, JD has been improving its active customer growth since Q3'19 as prior to that, JD had in fact suffered dramatic declines over multiple consecutive quarters of slowing customer growth. This coincided with the company's foray into&nbsp;Jingxi in 2019, which is the company's answer to Pinduoduo (PDD). The management also emphasized that: \"In the past 12 months, we gained 112 million new active users, with over&nbsp;80% coming from lower-tier markets.\" Therefore quite clearly, Jingxi's customer growth has been the impetus behind the strong quarters of ARPC growth for JD.\n<img src=\"https://static.tigerbbs.com/16b3ae3a7907e114e3e3874b5f7d2851\" tg-width=\"962\" tg-height=\"595\">JD Average Revenue Per Active Customer. Data Source: Company Filings\n<img src=\"https://static.tigerbbs.com/4a17b7b3775c0d8c1ab4b05856429210\" tg-width=\"600\" tg-height=\"371\">JD Average Revenue Per Active Customer YoY Growth. Data Source: Company Filings\nWhen we zoomed into the company's average revenue per active customer metrics, we could see that the underlying growth (up 11.7% YoY at the recent quarter) has been relatively healthy as well while the company continues to scale up its customer growth through the lower-tier markets.\nOkay, then how does JD's Operating Performances look like?\n<img src=\"https://static.tigerbbs.com/365fbee247a722170a072c2dc2b83e38\" tg-width=\"1280\" tg-height=\"703\">EBIT Margin, CFO Margin, FCF Margin. Data Source: S&amp;P Global Market Intelligence\nI had mentioned before in&nbsp;my article here&nbsp;for Coupang (CPNG), that for businesses that are potentially highly scalable such as JD's, we do not have to necessarily worry about the company's low operating margin business model as long as they are able to scale up quickly towards high FCF profitability. JD has always been operating with low operating margin (LTM EBIT margin of 1.2%), as that's the nature of its business model. Despite that, the company has still been able to generate relatively healthy FCF margins (LTM FCF margin 2.7%). Investors also shouldn't expect SaaS like FCF margins here as the business model is entirely different and JD is obviously going after those huge GMV growth. What we want to see though is whether the company is able to continue generating fast-growing and highly sustainable FCF moving forward.\n<img src=\"https://static.tigerbbs.com/b36f757fa706b6f349f44add10229761\" tg-width=\"1280\" tg-height=\"708\">Peers Projected Unlevered FCF Margin. Data Source: S&amp;P Global Market Intelligence\n<img src=\"https://static.tigerbbs.com/328507a06929411b3b72e85c8c8169b2\" tg-width=\"1280\" tg-height=\"693\">Peers Projected Unlevered FCF 5Y CAGR. Data Source: S&amp;P Global Market Intelligence\nThe problem arose when I tried to model JD's FCF growth moving forward. Quite clearly, JD does not seem to be able to improve its FCF margin strongly over time, with the projected FCF margins largely still in line with the historical ones.\nThat isn't something that we would like to see in a growth stock. Moreover the company's projected FCF margins are simply too low to be even classified as a cash flow machine. When we compare JD with its peers, we can clearly see that all of them, including AMZN are projected to generate very strong FCF growth moving forward, with JD's 5Y CAGR of 19.4% coming in last here. JD doesn't seem to be able to leverage on its relatively fast revenue growth to expand its FCF generating prowess as compared to its peers.\n<img src=\"https://static.tigerbbs.com/34da8b0865452a029c93f57dc8104697\" tg-width=\"1280\" tg-height=\"684\">Non-Peers Projected Unlevered FCF 5Y CAGR &amp; Projected Unlevered FCF Margin. Data Source: S&amp;P Global Market Intelligence\nIn order to help investors better understand what I mean, we can refer to the chart above to give an idea of what I meant as companies who are already in relatively stable growth stages with highly sustainable FCF margins as we model their FCF growth profile. It may be argued that Facebook (FB) is still a growth stock (but no longer as high growth as it once was) as it's still expected to generate relatively high FCF growth moving forward while commanding a remarkably high FCF margin as well. In addition, we could also see clearly that stable players often preferred by value investors such as Microsoft (MSFT), Qualcomm (QCOM) and Cisco (CSCO) are also expected to carry forward their high FCF margins moving forward. In contrast, JD's low 2.7% 5-year average FCF margin doesn't qualify it as a high quality stable stock for value investors to consider.\nWhat about JD's Growth Drivers?\nNow the interesting thing here is that JD has maintained that its business is still running at the \"high-growth\" stage as it emphasized:\n<blockquote>\n First of all, we&nbsp;prioritize growth above the importance of profitabilitybecause across all of our business lines, we are still in the high-growth stage. But each segment or each business line is actually in a different development stage. So we have kind of a differentiated investment strategy. So for JD Retail, we still -- you can see that for the first quarter and in the past few quarters, they continue to maintain a high-growth rate.\n</blockquote>\nThe management also added that they would likely continue to benefit from improved economies of scale and operating leverage as they bank on the rapid expansion of JD's retail business, allowing the company to continue improving its long term profit margin over time.\n<img src=\"https://static.tigerbbs.com/8477039f4b9693704cbbaf64530da052\" tg-width=\"1280\" tg-height=\"706\">JD LTM EBIT Margin &amp; Projected EBIT Margin, LTM Unlevered FCF Margin &amp; Projected Unlevered FCF Margin. Data Source: S&amp;P Global Market Intelligence\nIn order to be clear of that, when I modelled JD's EBIT margin and FCF margin growth, I find it hard pressed to have agreement with the management's point of expecting sustained improvement in their operating performance over time as they scale up rapidly. First, the company is already coming off a very low base of EBIT (LTM EBIT margin: 1.2%) and FCF profitability (LTM Unlevered FCF margin: 0.8%), therefore I think it's not unreasonable to expect the company to post a significant improvement to its FCF profitability over time. However, as we can see above, those EBIT margin improvements don't really seem to cascade down to its FCF bottomline.\n<img src=\"https://static.tigerbbs.com/34fa89d4e61ac3e70091cc064b4dc51a\" tg-width=\"1280\" tg-height=\"626\">JD Q1'21 Segment Revenue. Source:JD 6-K\nIt's important to note that JD retail is the company's main revenue and profit driver, accounting for 91% of Q1'21 revenue, while also subsidizing the losses from its other segments (one of which was JD Logistics which has already been spun off recently). It's difficult to see how its forays into its new businesses can be reasonably sustained over time when they don't have a highly profitable cash flow driver in JD Retail.\n<img src=\"https://static.tigerbbs.com/85c510c5f8c49a1fde429fcbe1892c30\" tg-width=\"1280\" tg-height=\"704\">AMZN EBIT Margin &amp; Projected EBIT Margin, Unlevered FCF Margin &amp; Projected Unlevered FCF Margin. Data Source: S&amp;P Global Market Intelligence\n<img src=\"https://static.tigerbbs.com/6dcf33c4272b764cbad4a64cca5bdbfd\" tg-width=\"1280\" tg-height=\"711\">Sea Limited EBIT Margin &amp; Projected EBIT Margin, Unlevered FCF Margin &amp; Projected Unlevered FCF Margin. Data Source: S&amp;P Global Market Intelligence\nWe could refer to the above charts to see how important it's to have highly profitable cash flow segments to drive its operating performances even as the companies continue to scale up: AMZN with its AWS segment, as well as Sea's (SE) Garena segment, which I had covered in a&nbsp;recent article here. This cash flow segments allow them to reinvest into its highly scalable e-commerce segments and over time significantly improve their overall cash flow and EBIT profile. JD's business model certainly doesn't have the luxury of relying on such a segment to drive its growth, and therefore it's reflected clearly in its operating performances moving forward.\nValuations\n<img src=\"https://static.tigerbbs.com/2ec37dd8957f5cadcf9615fa414bb78d\" tg-width=\"1280\" tg-height=\"726\">Peers Consensus Analysts Upside &amp; EV / FY+1 Rev. Data Source: S&amp;P Global Market Intelligence\nIf we simply base off JD's expected revenue growth, there's little doubt that JD seems to be valued at fire sale prices now. However, as mentioned earlier in the article, JD has always been valued at very low EV / Rev multiples historically as compared to its peers. In addition, the Street also remains highly confident of JD's upside potential (35.6%) as compared to its peers.\n<img src=\"https://static.tigerbbs.com/56bd8f33da9baab688b59439b44a827b\" tg-width=\"1280\" tg-height=\"709\">JD &amp; SE Ev / Fwd (EBITDA - CapEx) Trend. Data Source: S&amp;P Global Market Intelligence\nAs I have emphasized earlier, using revenue figures to look at JD's growth potential may not accurately reflect the company's scalability potential. Here, we can see how SE's high potential to scale is clearly reflected in its FCF profile, where I use (EBITDA - CapEx) as a proxy here to remove the effects of lumpy working capital changes. SE's valuations are expected to come down significantly as it scales across South East Asia, generating lots of cash flow in the process. However, JD on the other hand doesn't seem to be quite as attractively valued as compared to SE when we project their growth rates forward.\nPrice Action &amp; Technical Analysis\n<img src=\"https://static.tigerbbs.com/98b516b4268fe8418e750d8717769eaf\" tg-width=\"1280\" tg-height=\"798\">Source: TradingView\nA silver lining here is that JD's long term uptrend remains intact despite the sell-off in Chinese stocks in Feb 21 that saw JD's stock price fall about 30% from its high. There are a few support levels that investors can focus on, most notably, the $70 support level that saw strong buying interest, as well as the $59 support level. The bulls are trying to retake the $79 support level which coincides with the dynamic resistance level marked by the 50-period MA at the moment. Therefore, investors who wish to add or initiate their positions may consider adding somewhere near the $70 level, and the $59 level if it retraces further, while avoiding adding near $79 in the near term.\nFor Chinese stocks, the Chinese and U.S. regulators will likely remain as the most important near term risk that may cause further compressions in its stock prices. However, as a long term investor who is still bullish on JD, I don't see that as a risk per se, but instead as an opportunity to add further into stocks like JD who in my opinion is fairly valued, and not expensive. The more the stock falls in the future due to policy changes or stiff rules from Beijing or Washington, the more attractive it will get for long term investors who have yet to initiate a position.\nWrapping it all up\nI'm a JD shareholder, and likely to remain so moving forward. What I had wanted to present in this article is to demonstrate why JD continues to trade at such low revenue multiples even as it continues to power ahead in its revenue growth. Investors should understand that although from the price action point of view JD I don't consider JD as a value trap, but I also don't consider JD as very attractive right now. It certainly deserves its current valuation and growth investors should taper their expectations in seeing the stock race ahead in the coming years.","collect":0,"html":"<!DOCTYPE html>\n<html>\n<head>\n<meta http-equiv=\"Content-Type\" content=\"text/html; charset=utf-8\" />\n<meta name=\"viewport\" content=\"width=device-width,initial-scale=1.0,minimum-scale=1.0,maximum-scale=1.0,user-scalable=no\"/>\n<meta name=\"format-detection\" content=\"telephone=no,email=no,address=no\" />\n<title>JD.com: Its Business Model Is Deserving Of Its Current Valuation</title>\n<style type=\"text/css\">\na,abbr,acronym,address,applet,article,aside,audio,b,big,blockquote,body,canvas,caption,center,cite,code,dd,del,details,dfn,div,dl,dt,\nem,embed,fieldset,figcaption,figure,footer,form,h1,h2,h3,h4,h5,h6,header,hgroup,html,i,iframe,img,ins,kbd,label,legend,li,mark,menu,nav,\nobject,ol,output,p,pre,q,ruby,s,samp,section,small,span,strike,strong,sub,summary,sup,table,tbody,td,tfoot,th,thead,time,tr,tt,u,ul,var,video{ font:inherit;margin:0;padding:0;vertical-align:baseline;border:0 }\nbody{ font-size:16px; line-height:1.5; color:#999; background:transparent; }\n.wrapper{ overflow:hidden;word-break:break-all;padding:10px; }\nh1,h2{ font-weight:normal; line-height:1.35; margin-bottom:.6em; }\nh3,h4,h5,h6{ line-height:1.35; margin-bottom:1em; }\nh1{ font-size:24px; }\nh2{ font-size:20px; }\nh3{ font-size:18px; }\nh4{ font-size:16px; }\nh5{ font-size:14px; }\nh6{ font-size:12px; }\np,ul,ol,blockquote,dl,table{ margin:1.2em 0; }\nul,ol{ margin-left:2em; }\nul{ list-style:disc; }\nol{ list-style:decimal; }\nli,li p{ margin:10px 0;}\nimg{ max-width:100%;display:block;margin:0 auto 1em; }\nblockquote{ color:#B5B2B1; border-left:3px solid #aaa; padding:1em; }\nstrong,b{font-weight:bold;}\nem,i{font-style:italic;}\ntable{ width:100%;border-collapse:collapse;border-spacing:1px;margin:1em 0;font-size:.9em; }\nth,td{ padding:5px;text-align:left;border:1px solid #aaa; }\nth{ font-weight:bold;background:#5d5d5d; }\n.symbol-link{font-weight:bold;}\n/* header{ border-bottom:1px solid #494756; } */\n.title{ margin:0 0 8px;line-height:1.3;color:#ddd; }\n.meta {color:#5e5c6d;font-size:13px;margin:0 0 .5em; }\na{text-decoration:none; color:#2a4b87;}\n.meta .head { display: inline-block; overflow: hidden}\n.head .h-thumb { width: 30px; height: 30px; margin: 0; padding: 0; border-radius: 50%; float: left;}\n.head .h-content { margin: 0; padding: 0 0 0 9px; float: left;}\n.head .h-name {font-size: 13px; color: #eee; margin: 0;}\n.head .h-time {font-size: 11px; color: #7E829C; margin: 0;line-height: 11px;}\n.small {font-size: 12.5px; display: inline-block; transform: scale(0.9); -webkit-transform: scale(0.9); transform-origin: left; -webkit-transform-origin: left;}\n.smaller {font-size: 12.5px; display: inline-block; transform: scale(0.8); -webkit-transform: scale(0.8); transform-origin: left; -webkit-transform-origin: left;}\n.bt-text {font-size: 12px;margin: 1.5em 0 0 0}\n.bt-text p {margin: 0}\n</style>\n</head>\n<body>\n<div class=\"wrapper\">\n<header>\n<h2 class=\"title\">\nJD.com: Its Business Model Is Deserving Of Its Current Valuation\n</h2>\n\n<h4 class=\"meta\">\n\n\n2021-06-03 23:22 GMT+8&nbsp;&nbsp;&nbsp;<a href=https://seekingalpha.com/article/4432860-jd-com-business-model-deserving-current-valuation>seekingalpha</a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\nSummary\n\nJD is often branded as the most “undervalued” stock of all its e-commerce peers by growth and value investors alike.\nEven though the company’s revenue growth rates have impressed, its ...\n\n<a href=\"https://seekingalpha.com/article/4432860-jd-com-business-model-deserving-current-valuation\">Web Link</a>\n\n</div>\n\n\n</article>\n</div>\n</body>\n</html>\n","type":0,"thumbnail":"","relate_stocks":{"09618":"京东集团-SW","JD":"京东"},"source_url":"https://seekingalpha.com/article/4432860-jd-com-business-model-deserving-current-valuation","is_english":true,"share_image_url":"https://static.laohu8.com/e9f99090a1c2ed51c021029395664489","article_id":"1171251318","content_text":"Summary\n\nJD is often branded as the most “undervalued” stock of all its e-commerce peers by growth and value investors alike.\nEven though the company’s revenue growth rates have impressed, its operating performances have not really been on par.\nI discuss why JD’s current valuations reflect the reality of its business model, and what growth and value investors should focus on to value the company.\n\nPhoto by Kevin Frayer/Getty Images News via Getty Images\nInvestment Thesis\nJD.com's (JD) low EV/Revenue multiples have often baffled growth and value investors. The relatively high revenue growth rates that the investors have grown accustomed to in the rapidly expanding Chinese e-commerce market has not cascaded down to its market cap as compared to its peers. I attempt to present my opinion on why JD may have exhibited a high revenue growth profile, but not necessarily the operating performances to match its peers.\nJD's Incredibly Low Revenue Multiples\nThe company has often been compared to Amazon (AMZN) in its early days or even compared to Shopify (SHOP) for having a revenue multiple that's way lower, and therefore implying a better buy.\nHowever when I looked under the hood into JD's business model and its operating performances, I found enough underlying weaknesses in JD's business model that perhaps indicate why the market continues to value JD at such low multiples despite having posted impressive growth rates.\nLTM Revenue Growth & Price / LTM Sales. Data Source: S&P Global Market Intelligence\nAs we can see from the chart above, JD has posted remarkable YoY revenue growth rates for the last 5 years, the \"slowest\" one being 22.7%. In fact, JD's LTM revenue growth rate has been accelerating recently, reaching 33.3% at the recent quarter. Despite that, its EV / LTM Rev multiple has consistently been under 1.1x, marking its strong appeal as a \"cheap\" growth stock.\nPrice/LTM Sales Percentile. Source: Tiger Brokers\nIn fact, JD's Price/LTM sales is currently at the 32nd percentile when we compare its multiples over the last 5 years, potentially even creating opportunities for value investors who may be on the lookout for a \"next Amazon\" type of stock that is selling for a real bargain now.\nJD and AMZN Market Cap, LTM Revenue, Revenue 3Y CAGR, EV / LTM Rev. Data Source: S&P Global Market Intelligence\nA quick glance over to Alibaba's (BABA) metrics unveil some interesting observations. Even though BABA's market cap is close to 5x that of JD's, BABA actually reported a lower LTM revenue (89% of JD's LTM revenue) than JD. In fact, BABA has reported lower revenue figures than JD over the last 5 years (see chart below). Both BABA and JD are revenue growth machines, with BABA's 3Y CAGR of 42% and JD's 3Y CAGR of 27.2%. Despite JD's impressive revenue growth, BABA is valued at 5.5x more than JD here based on their respective revenue multiples, which therefore raises the question of whether the market has unreasonably valued JD too low than what it actually deserves?\nBABA & JD LTM Revenue Trend. Data Source: S&P Global Market Intelligence\nJD Annual Active Customer Count. Data Source: Company Filings\nJD Annual Active Customer YoY Growth. Data Source: Company Filings\nIn fact, JD has been improving its active customer growth since Q3'19 as prior to that, JD had in fact suffered dramatic declines over multiple consecutive quarters of slowing customer growth. This coincided with the company's foray into Jingxi in 2019, which is the company's answer to Pinduoduo (PDD). The management also emphasized that: \"In the past 12 months, we gained 112 million new active users, with over 80% coming from lower-tier markets.\" Therefore quite clearly, Jingxi's customer growth has been the impetus behind the strong quarters of ARPC growth for JD.\nJD Average Revenue Per Active Customer. Data Source: Company Filings\nJD Average Revenue Per Active Customer YoY Growth. Data Source: Company Filings\nWhen we zoomed into the company's average revenue per active customer metrics, we could see that the underlying growth (up 11.7% YoY at the recent quarter) has been relatively healthy as well while the company continues to scale up its customer growth through the lower-tier markets.\nOkay, then how does JD's Operating Performances look like?\nEBIT Margin, CFO Margin, FCF Margin. Data Source: S&P Global Market Intelligence\nI had mentioned before in my article here for Coupang (CPNG), that for businesses that are potentially highly scalable such as JD's, we do not have to necessarily worry about the company's low operating margin business model as long as they are able to scale up quickly towards high FCF profitability. JD has always been operating with low operating margin (LTM EBIT margin of 1.2%), as that's the nature of its business model. Despite that, the company has still been able to generate relatively healthy FCF margins (LTM FCF margin 2.7%). Investors also shouldn't expect SaaS like FCF margins here as the business model is entirely different and JD is obviously going after those huge GMV growth. What we want to see though is whether the company is able to continue generating fast-growing and highly sustainable FCF moving forward.\nPeers Projected Unlevered FCF Margin. Data Source: S&P Global Market Intelligence\nPeers Projected Unlevered FCF 5Y CAGR. Data Source: S&P Global Market Intelligence\nThe problem arose when I tried to model JD's FCF growth moving forward. Quite clearly, JD does not seem to be able to improve its FCF margin strongly over time, with the projected FCF margins largely still in line with the historical ones.\nThat isn't something that we would like to see in a growth stock. Moreover the company's projected FCF margins are simply too low to be even classified as a cash flow machine. When we compare JD with its peers, we can clearly see that all of them, including AMZN are projected to generate very strong FCF growth moving forward, with JD's 5Y CAGR of 19.4% coming in last here. JD doesn't seem to be able to leverage on its relatively fast revenue growth to expand its FCF generating prowess as compared to its peers.\nNon-Peers Projected Unlevered FCF 5Y CAGR & Projected Unlevered FCF Margin. Data Source: S&P Global Market Intelligence\nIn order to help investors better understand what I mean, we can refer to the chart above to give an idea of what I meant as companies who are already in relatively stable growth stages with highly sustainable FCF margins as we model their FCF growth profile. It may be argued that Facebook (FB) is still a growth stock (but no longer as high growth as it once was) as it's still expected to generate relatively high FCF growth moving forward while commanding a remarkably high FCF margin as well. In addition, we could also see clearly that stable players often preferred by value investors such as Microsoft (MSFT), Qualcomm (QCOM) and Cisco (CSCO) are also expected to carry forward their high FCF margins moving forward. In contrast, JD's low 2.7% 5-year average FCF margin doesn't qualify it as a high quality stable stock for value investors to consider.\nWhat about JD's Growth Drivers?\nNow the interesting thing here is that JD has maintained that its business is still running at the \"high-growth\" stage as it emphasized:\n\n First of all, we prioritize growth above the importance of profitabilitybecause across all of our business lines, we are still in the high-growth stage. But each segment or each business line is actually in a different development stage. So we have kind of a differentiated investment strategy. So for JD Retail, we still -- you can see that for the first quarter and in the past few quarters, they continue to maintain a high-growth rate.\n\nThe management also added that they would likely continue to benefit from improved economies of scale and operating leverage as they bank on the rapid expansion of JD's retail business, allowing the company to continue improving its long term profit margin over time.\nJD LTM EBIT Margin & Projected EBIT Margin, LTM Unlevered FCF Margin & Projected Unlevered FCF Margin. Data Source: S&P Global Market Intelligence\nIn order to be clear of that, when I modelled JD's EBIT margin and FCF margin growth, I find it hard pressed to have agreement with the management's point of expecting sustained improvement in their operating performance over time as they scale up rapidly. First, the company is already coming off a very low base of EBIT (LTM EBIT margin: 1.2%) and FCF profitability (LTM Unlevered FCF margin: 0.8%), therefore I think it's not unreasonable to expect the company to post a significant improvement to its FCF profitability over time. However, as we can see above, those EBIT margin improvements don't really seem to cascade down to its FCF bottomline.\nJD Q1'21 Segment Revenue. Source:JD 6-K\nIt's important to note that JD retail is the company's main revenue and profit driver, accounting for 91% of Q1'21 revenue, while also subsidizing the losses from its other segments (one of which was JD Logistics which has already been spun off recently). It's difficult to see how its forays into its new businesses can be reasonably sustained over time when they don't have a highly profitable cash flow driver in JD Retail.\nAMZN EBIT Margin & Projected EBIT Margin, Unlevered FCF Margin & Projected Unlevered FCF Margin. Data Source: S&P Global Market Intelligence\nSea Limited EBIT Margin & Projected EBIT Margin, Unlevered FCF Margin & Projected Unlevered FCF Margin. Data Source: S&P Global Market Intelligence\nWe could refer to the above charts to see how important it's to have highly profitable cash flow segments to drive its operating performances even as the companies continue to scale up: AMZN with its AWS segment, as well as Sea's (SE) Garena segment, which I had covered in a recent article here. This cash flow segments allow them to reinvest into its highly scalable e-commerce segments and over time significantly improve their overall cash flow and EBIT profile. JD's business model certainly doesn't have the luxury of relying on such a segment to drive its growth, and therefore it's reflected clearly in its operating performances moving forward.\nValuations\nPeers Consensus Analysts Upside & EV / FY+1 Rev. Data Source: S&P Global Market Intelligence\nIf we simply base off JD's expected revenue growth, there's little doubt that JD seems to be valued at fire sale prices now. However, as mentioned earlier in the article, JD has always been valued at very low EV / Rev multiples historically as compared to its peers. In addition, the Street also remains highly confident of JD's upside potential (35.6%) as compared to its peers.\nJD & SE Ev / Fwd (EBITDA - CapEx) Trend. Data Source: S&P Global Market Intelligence\nAs I have emphasized earlier, using revenue figures to look at JD's growth potential may not accurately reflect the company's scalability potential. Here, we can see how SE's high potential to scale is clearly reflected in its FCF profile, where I use (EBITDA - CapEx) as a proxy here to remove the effects of lumpy working capital changes. SE's valuations are expected to come down significantly as it scales across South East Asia, generating lots of cash flow in the process. However, JD on the other hand doesn't seem to be quite as attractively valued as compared to SE when we project their growth rates forward.\nPrice Action & Technical Analysis\nSource: TradingView\nA silver lining here is that JD's long term uptrend remains intact despite the sell-off in Chinese stocks in Feb 21 that saw JD's stock price fall about 30% from its high. There are a few support levels that investors can focus on, most notably, the $70 support level that saw strong buying interest, as well as the $59 support level. The bulls are trying to retake the $79 support level which coincides with the dynamic resistance level marked by the 50-period MA at the moment. Therefore, investors who wish to add or initiate their positions may consider adding somewhere near the $70 level, and the $59 level if it retraces further, while avoiding adding near $79 in the near term.\nFor Chinese stocks, the Chinese and U.S. regulators will likely remain as the most important near term risk that may cause further compressions in its stock prices. However, as a long term investor who is still bullish on JD, I don't see that as a risk per se, but instead as an opportunity to add further into stocks like JD who in my opinion is fairly valued, and not expensive. The more the stock falls in the future due to policy changes or stiff rules from Beijing or Washington, the more attractive it will get for long term investors who have yet to initiate a position.\nWrapping it all up\nI'm a JD shareholder, and likely to remain so moving forward. What I had wanted to present in this article is to demonstrate why JD continues to trade at such low revenue multiples even as it continues to power ahead in its revenue growth. Investors should understand that although from the price action point of view JD I don't consider JD as a value trap, but I also don't consider JD as very attractive right now. It certainly deserves its current valuation and growth investors should taper their expectations in seeing the stock race ahead in the coming years.","news_type":1},"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"langContent":"EN"},{"id":116073366,"gmtCreate":1622767872155,"gmtModify":1704190732855,"author":{"id":"3575420754880245","authorId":"3575420754880245","name":"shawnhuat","avatar":"https://static.tigerbbs.com/ce96f5461b1fd7c34fc7f8592a7eb525","vip":1,"crmLevel":1,"crmLevelSwitch":0,"idStr":"3575420754880245","authorIdStr":"3575420754880245"},"htmlText":"Cmt","listText":"Cmt","text":"Cmt","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":2,"commentSize":2,"repostSize":0,"link":"https://ttm.financial/post/116073366","repostId":1171251318,"repostType":4,"repost":{"id":"1171251318","pubTimestamp":1622733765,"share":"https://ttm.financial/m/news/1171251318?lang=&edition=fundamental","pubTime":"2021-06-03 23:22","market":"hk","language":"en","title":"JD.com: Its Business Model Is Deserving Of Its Current Valuation","url":"https://stock-news.laohu8.com/highlight/detail?id=1171251318","media":"seekingalpha","summary":"Summary\n\nJD is often branded as the most “undervalued” stock of all its e-commerce peers by growth a","content":"Summary\n<ul>\n <li>JD is often branded as the most “undervalued” stock of all its e-commerce peers by growth and value investors alike.</li>\n <li>Even though the company’s revenue growth rates have impressed, its operating performances have not really been on par.</li>\n <li>I discuss why JD’s current valuations reflect the reality of its business model, and what growth and value investors should focus on to value the company.</li>\n</ul>\n<img src=\"https://static.tigerbbs.com/3bc39a30a57f05b994781d4a3a51c0de\" tg-width=\"1536\" tg-height=\"1092\">Photo by Kevin Frayer/Getty Images News via Getty Images\nInvestment Thesis\nJD.com's (JD) low EV/Revenue multiples have often baffled growth and value investors. The relatively high revenue growth rates that the investors have grown accustomed to in the rapidly expanding Chinese e-commerce market has not cascaded down to its market cap as compared to its peers. I attempt to present my opinion on why JD may have exhibited a high revenue growth profile, but not necessarily the operating performances to match its peers.\nJD's Incredibly Low Revenue Multiples\nThe company has often been compared to Amazon (AMZN) in its early days or even compared to Shopify (SHOP) for having a revenue multiple that's way lower, and therefore implying a better buy.\nHowever when I looked under the hood into JD's business model and its operating performances, I found enough underlying weaknesses in JD's business model that perhaps indicate why the market continues to value JD at such low multiples despite having posted impressive growth rates.\n<img src=\"https://static.tigerbbs.com/dd8c028415efa231c377fb5f68a00858\" tg-width=\"1280\" tg-height=\"844\">LTM Revenue Growth &amp; Price / LTM Sales. Data Source: S&amp;P Global Market Intelligence\nAs we can see from the chart above, JD has posted remarkable YoY revenue growth rates for the last 5 years, the \"slowest\" one being 22.7%. In fact, JD's LTM revenue growth rate has been accelerating recently, reaching 33.3% at the recent quarter. Despite that, its EV / LTM Rev multiple has consistently been under 1.1x, marking its strong appeal as a \"cheap\" growth stock.\n<img src=\"https://static.tigerbbs.com/b5429847bb5cdb8de25028528ae70f6a\" tg-width=\"1280\" tg-height=\"811\">Price/LTM Sales Percentile. Source: Tiger Brokers\nIn fact, JD's Price/LTM sales is currently at the 32nd percentile when we compare its multiples over the last 5 years, potentially even creating opportunities for value investors who may be on the lookout for a \"next Amazon\" type of stock that is selling for a real bargain now.\n<img src=\"https://static.tigerbbs.com/4a33a3a8b9c3f7cfd6393fb14a77852c\" tg-width=\"1280\" tg-height=\"776\">JD and AMZN Market Cap, LTM Revenue, Revenue 3Y CAGR, EV / LTM Rev. Data Source: S&amp;P Global Market Intelligence\nA quick glance over to Alibaba's (BABA) metrics unveil some interesting observations. Even though BABA's market cap is close to 5x that of JD's, BABA actually reported a lower LTM revenue (89% of JD's LTM revenue) than JD. In fact, BABA has reported lower revenue figures than JD over the last 5 years (see chart below). Both BABA and JD are revenue growth machines, with BABA's 3Y CAGR of 42% and JD's 3Y CAGR of 27.2%. Despite JD's impressive revenue growth, BABA is valued at 5.5x more than JD here based on their respective revenue multiples, which therefore raises the question of whether the market has unreasonably valued JD too low than what it actually deserves?\n<img src=\"https://static.tigerbbs.com/09064245a10bfce0ca518de2ba958e28\" tg-width=\"1280\" tg-height=\"774\">BABA &amp; JD LTM Revenue Trend. Data Source: S&amp;P Global Market Intelligence\n<img src=\"https://static.tigerbbs.com/a7ad67e5be6dba93461b1cb1813d0aa8\" tg-width=\"1257\" tg-height=\"474\">JD Annual Active Customer Count. Data Source: Company Filings\n<img src=\"https://static.tigerbbs.com/b156a6b3eb509a01ef58375a4d035718\" tg-width=\"600\" tg-height=\"371\">JD Annual Active Customer YoY Growth. Data Source: Company Filings\nIn fact, JD has been improving its active customer growth since Q3'19 as prior to that, JD had in fact suffered dramatic declines over multiple consecutive quarters of slowing customer growth. This coincided with the company's foray into&nbsp;Jingxi in 2019, which is the company's answer to Pinduoduo (PDD). The management also emphasized that: \"In the past 12 months, we gained 112 million new active users, with over&nbsp;80% coming from lower-tier markets.\" Therefore quite clearly, Jingxi's customer growth has been the impetus behind the strong quarters of ARPC growth for JD.\n<img src=\"https://static.tigerbbs.com/16b3ae3a7907e114e3e3874b5f7d2851\" tg-width=\"962\" tg-height=\"595\">JD Average Revenue Per Active Customer. Data Source: Company Filings\n<img src=\"https://static.tigerbbs.com/4a17b7b3775c0d8c1ab4b05856429210\" tg-width=\"600\" tg-height=\"371\">JD Average Revenue Per Active Customer YoY Growth. Data Source: Company Filings\nWhen we zoomed into the company's average revenue per active customer metrics, we could see that the underlying growth (up 11.7% YoY at the recent quarter) has been relatively healthy as well while the company continues to scale up its customer growth through the lower-tier markets.\nOkay, then how does JD's Operating Performances look like?\n<img src=\"https://static.tigerbbs.com/365fbee247a722170a072c2dc2b83e38\" tg-width=\"1280\" tg-height=\"703\">EBIT Margin, CFO Margin, FCF Margin. Data Source: S&amp;P Global Market Intelligence\nI had mentioned before in&nbsp;my article here&nbsp;for Coupang (CPNG), that for businesses that are potentially highly scalable such as JD's, we do not have to necessarily worry about the company's low operating margin business model as long as they are able to scale up quickly towards high FCF profitability. JD has always been operating with low operating margin (LTM EBIT margin of 1.2%), as that's the nature of its business model. Despite that, the company has still been able to generate relatively healthy FCF margins (LTM FCF margin 2.7%). Investors also shouldn't expect SaaS like FCF margins here as the business model is entirely different and JD is obviously going after those huge GMV growth. What we want to see though is whether the company is able to continue generating fast-growing and highly sustainable FCF moving forward.\n<img src=\"https://static.tigerbbs.com/b36f757fa706b6f349f44add10229761\" tg-width=\"1280\" tg-height=\"708\">Peers Projected Unlevered FCF Margin. Data Source: S&amp;P Global Market Intelligence\n<img src=\"https://static.tigerbbs.com/328507a06929411b3b72e85c8c8169b2\" tg-width=\"1280\" tg-height=\"693\">Peers Projected Unlevered FCF 5Y CAGR. Data Source: S&amp;P Global Market Intelligence\nThe problem arose when I tried to model JD's FCF growth moving forward. Quite clearly, JD does not seem to be able to improve its FCF margin strongly over time, with the projected FCF margins largely still in line with the historical ones.\nThat isn't something that we would like to see in a growth stock. Moreover the company's projected FCF margins are simply too low to be even classified as a cash flow machine. When we compare JD with its peers, we can clearly see that all of them, including AMZN are projected to generate very strong FCF growth moving forward, with JD's 5Y CAGR of 19.4% coming in last here. JD doesn't seem to be able to leverage on its relatively fast revenue growth to expand its FCF generating prowess as compared to its peers.\n<img src=\"https://static.tigerbbs.com/34da8b0865452a029c93f57dc8104697\" tg-width=\"1280\" tg-height=\"684\">Non-Peers Projected Unlevered FCF 5Y CAGR &amp; Projected Unlevered FCF Margin. Data Source: S&amp;P Global Market Intelligence\nIn order to help investors better understand what I mean, we can refer to the chart above to give an idea of what I meant as companies who are already in relatively stable growth stages with highly sustainable FCF margins as we model their FCF growth profile. It may be argued that Facebook (FB) is still a growth stock (but no longer as high growth as it once was) as it's still expected to generate relatively high FCF growth moving forward while commanding a remarkably high FCF margin as well. In addition, we could also see clearly that stable players often preferred by value investors such as Microsoft (MSFT), Qualcomm (QCOM) and Cisco (CSCO) are also expected to carry forward their high FCF margins moving forward. In contrast, JD's low 2.7% 5-year average FCF margin doesn't qualify it as a high quality stable stock for value investors to consider.\nWhat about JD's Growth Drivers?\nNow the interesting thing here is that JD has maintained that its business is still running at the \"high-growth\" stage as it emphasized:\n<blockquote>\n First of all, we&nbsp;prioritize growth above the importance of profitabilitybecause across all of our business lines, we are still in the high-growth stage. But each segment or each business line is actually in a different development stage. So we have kind of a differentiated investment strategy. So for JD Retail, we still -- you can see that for the first quarter and in the past few quarters, they continue to maintain a high-growth rate.\n</blockquote>\nThe management also added that they would likely continue to benefit from improved economies of scale and operating leverage as they bank on the rapid expansion of JD's retail business, allowing the company to continue improving its long term profit margin over time.\n<img src=\"https://static.tigerbbs.com/8477039f4b9693704cbbaf64530da052\" tg-width=\"1280\" tg-height=\"706\">JD LTM EBIT Margin &amp; Projected EBIT Margin, LTM Unlevered FCF Margin &amp; Projected Unlevered FCF Margin. Data Source: S&amp;P Global Market Intelligence\nIn order to be clear of that, when I modelled JD's EBIT margin and FCF margin growth, I find it hard pressed to have agreement with the management's point of expecting sustained improvement in their operating performance over time as they scale up rapidly. First, the company is already coming off a very low base of EBIT (LTM EBIT margin: 1.2%) and FCF profitability (LTM Unlevered FCF margin: 0.8%), therefore I think it's not unreasonable to expect the company to post a significant improvement to its FCF profitability over time. However, as we can see above, those EBIT margin improvements don't really seem to cascade down to its FCF bottomline.\n<img src=\"https://static.tigerbbs.com/34fa89d4e61ac3e70091cc064b4dc51a\" tg-width=\"1280\" tg-height=\"626\">JD Q1'21 Segment Revenue. Source:JD 6-K\nIt's important to note that JD retail is the company's main revenue and profit driver, accounting for 91% of Q1'21 revenue, while also subsidizing the losses from its other segments (one of which was JD Logistics which has already been spun off recently). It's difficult to see how its forays into its new businesses can be reasonably sustained over time when they don't have a highly profitable cash flow driver in JD Retail.\n<img src=\"https://static.tigerbbs.com/85c510c5f8c49a1fde429fcbe1892c30\" tg-width=\"1280\" tg-height=\"704\">AMZN EBIT Margin &amp; Projected EBIT Margin, Unlevered FCF Margin &amp; Projected Unlevered FCF Margin. Data Source: S&amp;P Global Market Intelligence\n<img src=\"https://static.tigerbbs.com/6dcf33c4272b764cbad4a64cca5bdbfd\" tg-width=\"1280\" tg-height=\"711\">Sea Limited EBIT Margin &amp; Projected EBIT Margin, Unlevered FCF Margin &amp; Projected Unlevered FCF Margin. Data Source: S&amp;P Global Market Intelligence\nWe could refer to the above charts to see how important it's to have highly profitable cash flow segments to drive its operating performances even as the companies continue to scale up: AMZN with its AWS segment, as well as Sea's (SE) Garena segment, which I had covered in a&nbsp;recent article here. This cash flow segments allow them to reinvest into its highly scalable e-commerce segments and over time significantly improve their overall cash flow and EBIT profile. JD's business model certainly doesn't have the luxury of relying on such a segment to drive its growth, and therefore it's reflected clearly in its operating performances moving forward.\nValuations\n<img src=\"https://static.tigerbbs.com/2ec37dd8957f5cadcf9615fa414bb78d\" tg-width=\"1280\" tg-height=\"726\">Peers Consensus Analysts Upside &amp; EV / FY+1 Rev. Data Source: S&amp;P Global Market Intelligence\nIf we simply base off JD's expected revenue growth, there's little doubt that JD seems to be valued at fire sale prices now. However, as mentioned earlier in the article, JD has always been valued at very low EV / Rev multiples historically as compared to its peers. In addition, the Street also remains highly confident of JD's upside potential (35.6%) as compared to its peers.\n<img src=\"https://static.tigerbbs.com/56bd8f33da9baab688b59439b44a827b\" tg-width=\"1280\" tg-height=\"709\">JD &amp; SE Ev / Fwd (EBITDA - CapEx) Trend. Data Source: S&amp;P Global Market Intelligence\nAs I have emphasized earlier, using revenue figures to look at JD's growth potential may not accurately reflect the company's scalability potential. Here, we can see how SE's high potential to scale is clearly reflected in its FCF profile, where I use (EBITDA - CapEx) as a proxy here to remove the effects of lumpy working capital changes. SE's valuations are expected to come down significantly as it scales across South East Asia, generating lots of cash flow in the process. However, JD on the other hand doesn't seem to be quite as attractively valued as compared to SE when we project their growth rates forward.\nPrice Action &amp; Technical Analysis\n<img src=\"https://static.tigerbbs.com/98b516b4268fe8418e750d8717769eaf\" tg-width=\"1280\" tg-height=\"798\">Source: TradingView\nA silver lining here is that JD's long term uptrend remains intact despite the sell-off in Chinese stocks in Feb 21 that saw JD's stock price fall about 30% from its high. There are a few support levels that investors can focus on, most notably, the $70 support level that saw strong buying interest, as well as the $59 support level. The bulls are trying to retake the $79 support level which coincides with the dynamic resistance level marked by the 50-period MA at the moment. Therefore, investors who wish to add or initiate their positions may consider adding somewhere near the $70 level, and the $59 level if it retraces further, while avoiding adding near $79 in the near term.\nFor Chinese stocks, the Chinese and U.S. regulators will likely remain as the most important near term risk that may cause further compressions in its stock prices. However, as a long term investor who is still bullish on JD, I don't see that as a risk per se, but instead as an opportunity to add further into stocks like JD who in my opinion is fairly valued, and not expensive. The more the stock falls in the future due to policy changes or stiff rules from Beijing or Washington, the more attractive it will get for long term investors who have yet to initiate a position.\nWrapping it all up\nI'm a JD shareholder, and likely to remain so moving forward. What I had wanted to present in this article is to demonstrate why JD continues to trade at such low revenue multiples even as it continues to power ahead in its revenue growth. Investors should understand that although from the price action point of view JD I don't consider JD as a value trap, but I also don't consider JD as very attractive right now. It certainly deserves its current valuation and growth investors should taper their expectations in seeing the stock race ahead in the coming years.","collect":0,"html":"<!DOCTYPE html>\n<html>\n<head>\n<meta http-equiv=\"Content-Type\" content=\"text/html; charset=utf-8\" />\n<meta name=\"viewport\" content=\"width=device-width,initial-scale=1.0,minimum-scale=1.0,maximum-scale=1.0,user-scalable=no\"/>\n<meta name=\"format-detection\" content=\"telephone=no,email=no,address=no\" />\n<title>JD.com: Its Business Model Is Deserving Of Its Current Valuation</title>\n<style type=\"text/css\">\na,abbr,acronym,address,applet,article,aside,audio,b,big,blockquote,body,canvas,caption,center,cite,code,dd,del,details,dfn,div,dl,dt,\nem,embed,fieldset,figcaption,figure,footer,form,h1,h2,h3,h4,h5,h6,header,hgroup,html,i,iframe,img,ins,kbd,label,legend,li,mark,menu,nav,\nobject,ol,output,p,pre,q,ruby,s,samp,section,small,span,strike,strong,sub,summary,sup,table,tbody,td,tfoot,th,thead,time,tr,tt,u,ul,var,video{ font:inherit;margin:0;padding:0;vertical-align:baseline;border:0 }\nbody{ font-size:16px; line-height:1.5; color:#999; background:transparent; }\n.wrapper{ overflow:hidden;word-break:break-all;padding:10px; }\nh1,h2{ font-weight:normal; line-height:1.35; margin-bottom:.6em; }\nh3,h4,h5,h6{ line-height:1.35; margin-bottom:1em; }\nh1{ font-size:24px; }\nh2{ font-size:20px; }\nh3{ font-size:18px; }\nh4{ font-size:16px; }\nh5{ font-size:14px; }\nh6{ font-size:12px; }\np,ul,ol,blockquote,dl,table{ margin:1.2em 0; }\nul,ol{ margin-left:2em; }\nul{ list-style:disc; }\nol{ list-style:decimal; }\nli,li p{ margin:10px 0;}\nimg{ max-width:100%;display:block;margin:0 auto 1em; }\nblockquote{ color:#B5B2B1; border-left:3px solid #aaa; padding:1em; }\nstrong,b{font-weight:bold;}\nem,i{font-style:italic;}\ntable{ width:100%;border-collapse:collapse;border-spacing:1px;margin:1em 0;font-size:.9em; }\nth,td{ padding:5px;text-align:left;border:1px solid #aaa; }\nth{ font-weight:bold;background:#5d5d5d; }\n.symbol-link{font-weight:bold;}\n/* header{ border-bottom:1px solid #494756; } */\n.title{ margin:0 0 8px;line-height:1.3;color:#ddd; }\n.meta {color:#5e5c6d;font-size:13px;margin:0 0 .5em; }\na{text-decoration:none; color:#2a4b87;}\n.meta .head { display: inline-block; overflow: hidden}\n.head .h-thumb { width: 30px; height: 30px; margin: 0; padding: 0; border-radius: 50%; float: left;}\n.head .h-content { margin: 0; padding: 0 0 0 9px; float: left;}\n.head .h-name {font-size: 13px; color: #eee; margin: 0;}\n.head .h-time {font-size: 11px; color: #7E829C; margin: 0;line-height: 11px;}\n.small {font-size: 12.5px; display: inline-block; transform: scale(0.9); -webkit-transform: scale(0.9); transform-origin: left; -webkit-transform-origin: left;}\n.smaller {font-size: 12.5px; display: inline-block; transform: scale(0.8); -webkit-transform: scale(0.8); transform-origin: left; -webkit-transform-origin: left;}\n.bt-text {font-size: 12px;margin: 1.5em 0 0 0}\n.bt-text p {margin: 0}\n</style>\n</head>\n<body>\n<div class=\"wrapper\">\n<header>\n<h2 class=\"title\">\nJD.com: Its Business Model Is Deserving Of Its Current Valuation\n</h2>\n\n<h4 class=\"meta\">\n\n\n2021-06-03 23:22 GMT+8&nbsp;&nbsp;&nbsp;<a href=https://seekingalpha.com/article/4432860-jd-com-business-model-deserving-current-valuation>seekingalpha</a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\nSummary\n\nJD is often branded as the most “undervalued” stock of all its e-commerce peers by growth and value investors alike.\nEven though the company’s revenue growth rates have impressed, its ...\n\n<a href=\"https://seekingalpha.com/article/4432860-jd-com-business-model-deserving-current-valuation\">Web Link</a>\n\n</div>\n\n\n</article>\n</div>\n</body>\n</html>\n","type":0,"thumbnail":"","relate_stocks":{"09618":"京东集团-SW","JD":"京东"},"source_url":"https://seekingalpha.com/article/4432860-jd-com-business-model-deserving-current-valuation","is_english":true,"share_image_url":"https://static.laohu8.com/e9f99090a1c2ed51c021029395664489","article_id":"1171251318","content_text":"Summary\n\nJD is often branded as the most “undervalued” stock of all its e-commerce peers by growth and value investors alike.\nEven though the company’s revenue growth rates have impressed, its operating performances have not really been on par.\nI discuss why JD’s current valuations reflect the reality of its business model, and what growth and value investors should focus on to value the company.\n\nPhoto by Kevin Frayer/Getty Images News via Getty Images\nInvestment Thesis\nJD.com's (JD) low EV/Revenue multiples have often baffled growth and value investors. The relatively high revenue growth rates that the investors have grown accustomed to in the rapidly expanding Chinese e-commerce market has not cascaded down to its market cap as compared to its peers. I attempt to present my opinion on why JD may have exhibited a high revenue growth profile, but not necessarily the operating performances to match its peers.\nJD's Incredibly Low Revenue Multiples\nThe company has often been compared to Amazon (AMZN) in its early days or even compared to Shopify (SHOP) for having a revenue multiple that's way lower, and therefore implying a better buy.\nHowever when I looked under the hood into JD's business model and its operating performances, I found enough underlying weaknesses in JD's business model that perhaps indicate why the market continues to value JD at such low multiples despite having posted impressive growth rates.\nLTM Revenue Growth & Price / LTM Sales. Data Source: S&P Global Market Intelligence\nAs we can see from the chart above, JD has posted remarkable YoY revenue growth rates for the last 5 years, the \"slowest\" one being 22.7%. In fact, JD's LTM revenue growth rate has been accelerating recently, reaching 33.3% at the recent quarter. Despite that, its EV / LTM Rev multiple has consistently been under 1.1x, marking its strong appeal as a \"cheap\" growth stock.\nPrice/LTM Sales Percentile. Source: Tiger Brokers\nIn fact, JD's Price/LTM sales is currently at the 32nd percentile when we compare its multiples over the last 5 years, potentially even creating opportunities for value investors who may be on the lookout for a \"next Amazon\" type of stock that is selling for a real bargain now.\nJD and AMZN Market Cap, LTM Revenue, Revenue 3Y CAGR, EV / LTM Rev. Data Source: S&P Global Market Intelligence\nA quick glance over to Alibaba's (BABA) metrics unveil some interesting observations. Even though BABA's market cap is close to 5x that of JD's, BABA actually reported a lower LTM revenue (89% of JD's LTM revenue) than JD. In fact, BABA has reported lower revenue figures than JD over the last 5 years (see chart below). Both BABA and JD are revenue growth machines, with BABA's 3Y CAGR of 42% and JD's 3Y CAGR of 27.2%. Despite JD's impressive revenue growth, BABA is valued at 5.5x more than JD here based on their respective revenue multiples, which therefore raises the question of whether the market has unreasonably valued JD too low than what it actually deserves?\nBABA & JD LTM Revenue Trend. Data Source: S&P Global Market Intelligence\nJD Annual Active Customer Count. Data Source: Company Filings\nJD Annual Active Customer YoY Growth. Data Source: Company Filings\nIn fact, JD has been improving its active customer growth since Q3'19 as prior to that, JD had in fact suffered dramatic declines over multiple consecutive quarters of slowing customer growth. This coincided with the company's foray into Jingxi in 2019, which is the company's answer to Pinduoduo (PDD). The management also emphasized that: \"In the past 12 months, we gained 112 million new active users, with over 80% coming from lower-tier markets.\" Therefore quite clearly, Jingxi's customer growth has been the impetus behind the strong quarters of ARPC growth for JD.\nJD Average Revenue Per Active Customer. Data Source: Company Filings\nJD Average Revenue Per Active Customer YoY Growth. Data Source: Company Filings\nWhen we zoomed into the company's average revenue per active customer metrics, we could see that the underlying growth (up 11.7% YoY at the recent quarter) has been relatively healthy as well while the company continues to scale up its customer growth through the lower-tier markets.\nOkay, then how does JD's Operating Performances look like?\nEBIT Margin, CFO Margin, FCF Margin. Data Source: S&P Global Market Intelligence\nI had mentioned before in my article here for Coupang (CPNG), that for businesses that are potentially highly scalable such as JD's, we do not have to necessarily worry about the company's low operating margin business model as long as they are able to scale up quickly towards high FCF profitability. JD has always been operating with low operating margin (LTM EBIT margin of 1.2%), as that's the nature of its business model. Despite that, the company has still been able to generate relatively healthy FCF margins (LTM FCF margin 2.7%). Investors also shouldn't expect SaaS like FCF margins here as the business model is entirely different and JD is obviously going after those huge GMV growth. What we want to see though is whether the company is able to continue generating fast-growing and highly sustainable FCF moving forward.\nPeers Projected Unlevered FCF Margin. Data Source: S&P Global Market Intelligence\nPeers Projected Unlevered FCF 5Y CAGR. Data Source: S&P Global Market Intelligence\nThe problem arose when I tried to model JD's FCF growth moving forward. Quite clearly, JD does not seem to be able to improve its FCF margin strongly over time, with the projected FCF margins largely still in line with the historical ones.\nThat isn't something that we would like to see in a growth stock. Moreover the company's projected FCF margins are simply too low to be even classified as a cash flow machine. When we compare JD with its peers, we can clearly see that all of them, including AMZN are projected to generate very strong FCF growth moving forward, with JD's 5Y CAGR of 19.4% coming in last here. JD doesn't seem to be able to leverage on its relatively fast revenue growth to expand its FCF generating prowess as compared to its peers.\nNon-Peers Projected Unlevered FCF 5Y CAGR & Projected Unlevered FCF Margin. Data Source: S&P Global Market Intelligence\nIn order to help investors better understand what I mean, we can refer to the chart above to give an idea of what I meant as companies who are already in relatively stable growth stages with highly sustainable FCF margins as we model their FCF growth profile. It may be argued that Facebook (FB) is still a growth stock (but no longer as high growth as it once was) as it's still expected to generate relatively high FCF growth moving forward while commanding a remarkably high FCF margin as well. In addition, we could also see clearly that stable players often preferred by value investors such as Microsoft (MSFT), Qualcomm (QCOM) and Cisco (CSCO) are also expected to carry forward their high FCF margins moving forward. In contrast, JD's low 2.7% 5-year average FCF margin doesn't qualify it as a high quality stable stock for value investors to consider.\nWhat about JD's Growth Drivers?\nNow the interesting thing here is that JD has maintained that its business is still running at the \"high-growth\" stage as it emphasized:\n\n First of all, we prioritize growth above the importance of profitabilitybecause across all of our business lines, we are still in the high-growth stage. But each segment or each business line is actually in a different development stage. So we have kind of a differentiated investment strategy. So for JD Retail, we still -- you can see that for the first quarter and in the past few quarters, they continue to maintain a high-growth rate.\n\nThe management also added that they would likely continue to benefit from improved economies of scale and operating leverage as they bank on the rapid expansion of JD's retail business, allowing the company to continue improving its long term profit margin over time.\nJD LTM EBIT Margin & Projected EBIT Margin, LTM Unlevered FCF Margin & Projected Unlevered FCF Margin. Data Source: S&P Global Market Intelligence\nIn order to be clear of that, when I modelled JD's EBIT margin and FCF margin growth, I find it hard pressed to have agreement with the management's point of expecting sustained improvement in their operating performance over time as they scale up rapidly. First, the company is already coming off a very low base of EBIT (LTM EBIT margin: 1.2%) and FCF profitability (LTM Unlevered FCF margin: 0.8%), therefore I think it's not unreasonable to expect the company to post a significant improvement to its FCF profitability over time. However, as we can see above, those EBIT margin improvements don't really seem to cascade down to its FCF bottomline.\nJD Q1'21 Segment Revenue. Source:JD 6-K\nIt's important to note that JD retail is the company's main revenue and profit driver, accounting for 91% of Q1'21 revenue, while also subsidizing the losses from its other segments (one of which was JD Logistics which has already been spun off recently). It's difficult to see how its forays into its new businesses can be reasonably sustained over time when they don't have a highly profitable cash flow driver in JD Retail.\nAMZN EBIT Margin & Projected EBIT Margin, Unlevered FCF Margin & Projected Unlevered FCF Margin. Data Source: S&P Global Market Intelligence\nSea Limited EBIT Margin & Projected EBIT Margin, Unlevered FCF Margin & Projected Unlevered FCF Margin. Data Source: S&P Global Market Intelligence\nWe could refer to the above charts to see how important it's to have highly profitable cash flow segments to drive its operating performances even as the companies continue to scale up: AMZN with its AWS segment, as well as Sea's (SE) Garena segment, which I had covered in a recent article here. This cash flow segments allow them to reinvest into its highly scalable e-commerce segments and over time significantly improve their overall cash flow and EBIT profile. JD's business model certainly doesn't have the luxury of relying on such a segment to drive its growth, and therefore it's reflected clearly in its operating performances moving forward.\nValuations\nPeers Consensus Analysts Upside & EV / FY+1 Rev. Data Source: S&P Global Market Intelligence\nIf we simply base off JD's expected revenue growth, there's little doubt that JD seems to be valued at fire sale prices now. However, as mentioned earlier in the article, JD has always been valued at very low EV / Rev multiples historically as compared to its peers. In addition, the Street also remains highly confident of JD's upside potential (35.6%) as compared to its peers.\nJD & SE Ev / Fwd (EBITDA - CapEx) Trend. Data Source: S&P Global Market Intelligence\nAs I have emphasized earlier, using revenue figures to look at JD's growth potential may not accurately reflect the company's scalability potential. Here, we can see how SE's high potential to scale is clearly reflected in its FCF profile, where I use (EBITDA - CapEx) as a proxy here to remove the effects of lumpy working capital changes. SE's valuations are expected to come down significantly as it scales across South East Asia, generating lots of cash flow in the process. However, JD on the other hand doesn't seem to be quite as attractively valued as compared to SE when we project their growth rates forward.\nPrice Action & Technical Analysis\nSource: TradingView\nA silver lining here is that JD's long term uptrend remains intact despite the sell-off in Chinese stocks in Feb 21 that saw JD's stock price fall about 30% from its high. There are a few support levels that investors can focus on, most notably, the $70 support level that saw strong buying interest, as well as the $59 support level. The bulls are trying to retake the $79 support level which coincides with the dynamic resistance level marked by the 50-period MA at the moment. Therefore, investors who wish to add or initiate their positions may consider adding somewhere near the $70 level, and the $59 level if it retraces further, while avoiding adding near $79 in the near term.\nFor Chinese stocks, the Chinese and U.S. regulators will likely remain as the most important near term risk that may cause further compressions in its stock prices. However, as a long term investor who is still bullish on JD, I don't see that as a risk per se, but instead as an opportunity to add further into stocks like JD who in my opinion is fairly valued, and not expensive. The more the stock falls in the future due to policy changes or stiff rules from Beijing or Washington, the more attractive it will get for long term investors who have yet to initiate a position.\nWrapping it all up\nI'm a JD shareholder, and likely to remain so moving forward. What I had wanted to present in this article is to demonstrate why JD continues to trade at such low revenue multiples even as it continues to power ahead in its revenue growth. Investors should understand that although from the price action point of view JD I don't consider JD as a value trap, but I also don't consider JD as very attractive right now. It certainly deserves its current valuation and growth investors should taper their expectations in seeing the stock race ahead in the coming years.","news_type":1},"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"comments":[{"id":4571801,"gmtCreate":1622768690746,"gmtModify":1663227919431,"authorId":3581928876647615,"author":{"id":3581928876647615,"idStr":"3581928876647615","authorId":3581928876647615,"name":"Hewy","avatar":"https://static.laohu8.com/default-avatar.jpg","vip":1,"crmLevel":2,"crmLevelSwitch":0,"individualDisplayBadges":[]},"repliedAuthorId":0,"objectId":116073366,"type":1,"supId":0,"prevId":0,"content":"Ok","text":"Ok","html":"Ok"},{"id":4588426,"gmtCreate":1622860877555,"gmtModify":1635336373686,"authorId":3575420754880245,"author":{"id":3575420754880245,"idStr":"3575420754880245","authorId":3575420754880245,"name":"shawnhuat","avatar":"https://static.tigerbbs.com/ce96f5461b1fd7c34fc7f8592a7eb525","vip":1,"crmLevel":1,"crmLevelSwitch":0,"individualDisplayBadges":[]},"repliedAuthorId":0,"objectId":116073366,"type":1,"supId":0,"prevId":0,"content":"[开心]","text":"[开心]","html":"[开心]"}],"langContent":"EN"},{"id":116059962,"gmtCreate":1622767126556,"gmtModify":1704190703122,"author":{"id":"3558227267679552","authorId":"3558227267679552","name":"ChinSiang","avatar":"https://static.tigerbbs.com/f0bc36d4e7d4a75a4919f6090d283238","vip":1,"crmLevel":2,"crmLevelSwitch":0,"idStr":"3558227267679552","authorIdStr":"3558227267679552"},"htmlText":"Jd jd jd jd","listText":"Jd jd jd jd","text":"Jd jd jd jd","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":0,"commentSize":2,"repostSize":0,"link":"https://ttm.financial/post/116059962","repostId":1171251318,"repostType":4,"repost":{"id":"1171251318","pubTimestamp":1622733765,"share":"https://ttm.financial/m/news/1171251318?lang=&edition=fundamental","pubTime":"2021-06-03 23:22","market":"hk","language":"en","title":"JD.com: Its Business Model Is Deserving Of Its Current Valuation","url":"https://stock-news.laohu8.com/highlight/detail?id=1171251318","media":"seekingalpha","summary":"Summary\n\nJD is often branded as the most “undervalued” stock of all its e-commerce peers by growth a","content":"Summary\n<ul>\n <li>JD is often branded as the most “undervalued” stock of all its e-commerce peers by growth and value investors alike.</li>\n <li>Even though the company’s revenue growth rates have impressed, its operating performances have not really been on par.</li>\n <li>I discuss why JD’s current valuations reflect the reality of its business model, and what growth and value investors should focus on to value the company.</li>\n</ul>\n<img src=\"https://static.tigerbbs.com/3bc39a30a57f05b994781d4a3a51c0de\" tg-width=\"1536\" tg-height=\"1092\">Photo by Kevin Frayer/Getty Images News via Getty Images\nInvestment Thesis\nJD.com's (JD) low EV/Revenue multiples have often baffled growth and value investors. The relatively high revenue growth rates that the investors have grown accustomed to in the rapidly expanding Chinese e-commerce market has not cascaded down to its market cap as compared to its peers. I attempt to present my opinion on why JD may have exhibited a high revenue growth profile, but not necessarily the operating performances to match its peers.\nJD's Incredibly Low Revenue Multiples\nThe company has often been compared to Amazon (AMZN) in its early days or even compared to Shopify (SHOP) for having a revenue multiple that's way lower, and therefore implying a better buy.\nHowever when I looked under the hood into JD's business model and its operating performances, I found enough underlying weaknesses in JD's business model that perhaps indicate why the market continues to value JD at such low multiples despite having posted impressive growth rates.\n<img src=\"https://static.tigerbbs.com/dd8c028415efa231c377fb5f68a00858\" tg-width=\"1280\" tg-height=\"844\">LTM Revenue Growth &amp; Price / LTM Sales. Data Source: S&amp;P Global Market Intelligence\nAs we can see from the chart above, JD has posted remarkable YoY revenue growth rates for the last 5 years, the \"slowest\" one being 22.7%. In fact, JD's LTM revenue growth rate has been accelerating recently, reaching 33.3% at the recent quarter. Despite that, its EV / LTM Rev multiple has consistently been under 1.1x, marking its strong appeal as a \"cheap\" growth stock.\n<img src=\"https://static.tigerbbs.com/b5429847bb5cdb8de25028528ae70f6a\" tg-width=\"1280\" tg-height=\"811\">Price/LTM Sales Percentile. Source: Tiger Brokers\nIn fact, JD's Price/LTM sales is currently at the 32nd percentile when we compare its multiples over the last 5 years, potentially even creating opportunities for value investors who may be on the lookout for a \"next Amazon\" type of stock that is selling for a real bargain now.\n<img src=\"https://static.tigerbbs.com/4a33a3a8b9c3f7cfd6393fb14a77852c\" tg-width=\"1280\" tg-height=\"776\">JD and AMZN Market Cap, LTM Revenue, Revenue 3Y CAGR, EV / LTM Rev. Data Source: S&amp;P Global Market Intelligence\nA quick glance over to Alibaba's (BABA) metrics unveil some interesting observations. Even though BABA's market cap is close to 5x that of JD's, BABA actually reported a lower LTM revenue (89% of JD's LTM revenue) than JD. In fact, BABA has reported lower revenue figures than JD over the last 5 years (see chart below). Both BABA and JD are revenue growth machines, with BABA's 3Y CAGR of 42% and JD's 3Y CAGR of 27.2%. Despite JD's impressive revenue growth, BABA is valued at 5.5x more than JD here based on their respective revenue multiples, which therefore raises the question of whether the market has unreasonably valued JD too low than what it actually deserves?\n<img src=\"https://static.tigerbbs.com/09064245a10bfce0ca518de2ba958e28\" tg-width=\"1280\" tg-height=\"774\">BABA &amp; JD LTM Revenue Trend. Data Source: S&amp;P Global Market Intelligence\n<img src=\"https://static.tigerbbs.com/a7ad67e5be6dba93461b1cb1813d0aa8\" tg-width=\"1257\" tg-height=\"474\">JD Annual Active Customer Count. Data Source: Company Filings\n<img src=\"https://static.tigerbbs.com/b156a6b3eb509a01ef58375a4d035718\" tg-width=\"600\" tg-height=\"371\">JD Annual Active Customer YoY Growth. Data Source: Company Filings\nIn fact, JD has been improving its active customer growth since Q3'19 as prior to that, JD had in fact suffered dramatic declines over multiple consecutive quarters of slowing customer growth. This coincided with the company's foray into&nbsp;Jingxi in 2019, which is the company's answer to Pinduoduo (PDD). The management also emphasized that: \"In the past 12 months, we gained 112 million new active users, with over&nbsp;80% coming from lower-tier markets.\" Therefore quite clearly, Jingxi's customer growth has been the impetus behind the strong quarters of ARPC growth for JD.\n<img src=\"https://static.tigerbbs.com/16b3ae3a7907e114e3e3874b5f7d2851\" tg-width=\"962\" tg-height=\"595\">JD Average Revenue Per Active Customer. Data Source: Company Filings\n<img src=\"https://static.tigerbbs.com/4a17b7b3775c0d8c1ab4b05856429210\" tg-width=\"600\" tg-height=\"371\">JD Average Revenue Per Active Customer YoY Growth. Data Source: Company Filings\nWhen we zoomed into the company's average revenue per active customer metrics, we could see that the underlying growth (up 11.7% YoY at the recent quarter) has been relatively healthy as well while the company continues to scale up its customer growth through the lower-tier markets.\nOkay, then how does JD's Operating Performances look like?\n<img src=\"https://static.tigerbbs.com/365fbee247a722170a072c2dc2b83e38\" tg-width=\"1280\" tg-height=\"703\">EBIT Margin, CFO Margin, FCF Margin. Data Source: S&amp;P Global Market Intelligence\nI had mentioned before in&nbsp;my article here&nbsp;for Coupang (CPNG), that for businesses that are potentially highly scalable such as JD's, we do not have to necessarily worry about the company's low operating margin business model as long as they are able to scale up quickly towards high FCF profitability. JD has always been operating with low operating margin (LTM EBIT margin of 1.2%), as that's the nature of its business model. Despite that, the company has still been able to generate relatively healthy FCF margins (LTM FCF margin 2.7%). Investors also shouldn't expect SaaS like FCF margins here as the business model is entirely different and JD is obviously going after those huge GMV growth. What we want to see though is whether the company is able to continue generating fast-growing and highly sustainable FCF moving forward.\n<img src=\"https://static.tigerbbs.com/b36f757fa706b6f349f44add10229761\" tg-width=\"1280\" tg-height=\"708\">Peers Projected Unlevered FCF Margin. Data Source: S&amp;P Global Market Intelligence\n<img src=\"https://static.tigerbbs.com/328507a06929411b3b72e85c8c8169b2\" tg-width=\"1280\" tg-height=\"693\">Peers Projected Unlevered FCF 5Y CAGR. Data Source: S&amp;P Global Market Intelligence\nThe problem arose when I tried to model JD's FCF growth moving forward. Quite clearly, JD does not seem to be able to improve its FCF margin strongly over time, with the projected FCF margins largely still in line with the historical ones.\nThat isn't something that we would like to see in a growth stock. Moreover the company's projected FCF margins are simply too low to be even classified as a cash flow machine. When we compare JD with its peers, we can clearly see that all of them, including AMZN are projected to generate very strong FCF growth moving forward, with JD's 5Y CAGR of 19.4% coming in last here. JD doesn't seem to be able to leverage on its relatively fast revenue growth to expand its FCF generating prowess as compared to its peers.\n<img src=\"https://static.tigerbbs.com/34da8b0865452a029c93f57dc8104697\" tg-width=\"1280\" tg-height=\"684\">Non-Peers Projected Unlevered FCF 5Y CAGR &amp; Projected Unlevered FCF Margin. Data Source: S&amp;P Global Market Intelligence\nIn order to help investors better understand what I mean, we can refer to the chart above to give an idea of what I meant as companies who are already in relatively stable growth stages with highly sustainable FCF margins as we model their FCF growth profile. It may be argued that Facebook (FB) is still a growth stock (but no longer as high growth as it once was) as it's still expected to generate relatively high FCF growth moving forward while commanding a remarkably high FCF margin as well. In addition, we could also see clearly that stable players often preferred by value investors such as Microsoft (MSFT), Qualcomm (QCOM) and Cisco (CSCO) are also expected to carry forward their high FCF margins moving forward. In contrast, JD's low 2.7% 5-year average FCF margin doesn't qualify it as a high quality stable stock for value investors to consider.\nWhat about JD's Growth Drivers?\nNow the interesting thing here is that JD has maintained that its business is still running at the \"high-growth\" stage as it emphasized:\n<blockquote>\n First of all, we&nbsp;prioritize growth above the importance of profitabilitybecause across all of our business lines, we are still in the high-growth stage. But each segment or each business line is actually in a different development stage. So we have kind of a differentiated investment strategy. So for JD Retail, we still -- you can see that for the first quarter and in the past few quarters, they continue to maintain a high-growth rate.\n</blockquote>\nThe management also added that they would likely continue to benefit from improved economies of scale and operating leverage as they bank on the rapid expansion of JD's retail business, allowing the company to continue improving its long term profit margin over time.\n<img src=\"https://static.tigerbbs.com/8477039f4b9693704cbbaf64530da052\" tg-width=\"1280\" tg-height=\"706\">JD LTM EBIT Margin &amp; Projected EBIT Margin, LTM Unlevered FCF Margin &amp; Projected Unlevered FCF Margin. Data Source: S&amp;P Global Market Intelligence\nIn order to be clear of that, when I modelled JD's EBIT margin and FCF margin growth, I find it hard pressed to have agreement with the management's point of expecting sustained improvement in their operating performance over time as they scale up rapidly. First, the company is already coming off a very low base of EBIT (LTM EBIT margin: 1.2%) and FCF profitability (LTM Unlevered FCF margin: 0.8%), therefore I think it's not unreasonable to expect the company to post a significant improvement to its FCF profitability over time. However, as we can see above, those EBIT margin improvements don't really seem to cascade down to its FCF bottomline.\n<img src=\"https://static.tigerbbs.com/34fa89d4e61ac3e70091cc064b4dc51a\" tg-width=\"1280\" tg-height=\"626\">JD Q1'21 Segment Revenue. Source:JD 6-K\nIt's important to note that JD retail is the company's main revenue and profit driver, accounting for 91% of Q1'21 revenue, while also subsidizing the losses from its other segments (one of which was JD Logistics which has already been spun off recently). It's difficult to see how its forays into its new businesses can be reasonably sustained over time when they don't have a highly profitable cash flow driver in JD Retail.\n<img src=\"https://static.tigerbbs.com/85c510c5f8c49a1fde429fcbe1892c30\" tg-width=\"1280\" tg-height=\"704\">AMZN EBIT Margin &amp; Projected EBIT Margin, Unlevered FCF Margin &amp; Projected Unlevered FCF Margin. Data Source: S&amp;P Global Market Intelligence\n<img src=\"https://static.tigerbbs.com/6dcf33c4272b764cbad4a64cca5bdbfd\" tg-width=\"1280\" tg-height=\"711\">Sea Limited EBIT Margin &amp; Projected EBIT Margin, Unlevered FCF Margin &amp; Projected Unlevered FCF Margin. Data Source: S&amp;P Global Market Intelligence\nWe could refer to the above charts to see how important it's to have highly profitable cash flow segments to drive its operating performances even as the companies continue to scale up: AMZN with its AWS segment, as well as Sea's (SE) Garena segment, which I had covered in a&nbsp;recent article here. This cash flow segments allow them to reinvest into its highly scalable e-commerce segments and over time significantly improve their overall cash flow and EBIT profile. JD's business model certainly doesn't have the luxury of relying on such a segment to drive its growth, and therefore it's reflected clearly in its operating performances moving forward.\nValuations\n<img src=\"https://static.tigerbbs.com/2ec37dd8957f5cadcf9615fa414bb78d\" tg-width=\"1280\" tg-height=\"726\">Peers Consensus Analysts Upside &amp; EV / FY+1 Rev. Data Source: S&amp;P Global Market Intelligence\nIf we simply base off JD's expected revenue growth, there's little doubt that JD seems to be valued at fire sale prices now. However, as mentioned earlier in the article, JD has always been valued at very low EV / Rev multiples historically as compared to its peers. In addition, the Street also remains highly confident of JD's upside potential (35.6%) as compared to its peers.\n<img src=\"https://static.tigerbbs.com/56bd8f33da9baab688b59439b44a827b\" tg-width=\"1280\" tg-height=\"709\">JD &amp; SE Ev / Fwd (EBITDA - CapEx) Trend. Data Source: S&amp;P Global Market Intelligence\nAs I have emphasized earlier, using revenue figures to look at JD's growth potential may not accurately reflect the company's scalability potential. Here, we can see how SE's high potential to scale is clearly reflected in its FCF profile, where I use (EBITDA - CapEx) as a proxy here to remove the effects of lumpy working capital changes. SE's valuations are expected to come down significantly as it scales across South East Asia, generating lots of cash flow in the process. However, JD on the other hand doesn't seem to be quite as attractively valued as compared to SE when we project their growth rates forward.\nPrice Action &amp; Technical Analysis\n<img src=\"https://static.tigerbbs.com/98b516b4268fe8418e750d8717769eaf\" tg-width=\"1280\" tg-height=\"798\">Source: TradingView\nA silver lining here is that JD's long term uptrend remains intact despite the sell-off in Chinese stocks in Feb 21 that saw JD's stock price fall about 30% from its high. There are a few support levels that investors can focus on, most notably, the $70 support level that saw strong buying interest, as well as the $59 support level. The bulls are trying to retake the $79 support level which coincides with the dynamic resistance level marked by the 50-period MA at the moment. Therefore, investors who wish to add or initiate their positions may consider adding somewhere near the $70 level, and the $59 level if it retraces further, while avoiding adding near $79 in the near term.\nFor Chinese stocks, the Chinese and U.S. regulators will likely remain as the most important near term risk that may cause further compressions in its stock prices. However, as a long term investor who is still bullish on JD, I don't see that as a risk per se, but instead as an opportunity to add further into stocks like JD who in my opinion is fairly valued, and not expensive. The more the stock falls in the future due to policy changes or stiff rules from Beijing or Washington, the more attractive it will get for long term investors who have yet to initiate a position.\nWrapping it all up\nI'm a JD shareholder, and likely to remain so moving forward. What I had wanted to present in this article is to demonstrate why JD continues to trade at such low revenue multiples even as it continues to power ahead in its revenue growth. Investors should understand that although from the price action point of view JD I don't consider JD as a value trap, but I also don't consider JD as very attractive right now. It certainly deserves its current valuation and growth investors should taper their expectations in seeing the stock race ahead in the coming years.","collect":0,"html":"<!DOCTYPE html>\n<html>\n<head>\n<meta http-equiv=\"Content-Type\" content=\"text/html; charset=utf-8\" />\n<meta name=\"viewport\" content=\"width=device-width,initial-scale=1.0,minimum-scale=1.0,maximum-scale=1.0,user-scalable=no\"/>\n<meta name=\"format-detection\" content=\"telephone=no,email=no,address=no\" />\n<title>JD.com: Its Business Model Is Deserving Of Its Current Valuation</title>\n<style type=\"text/css\">\na,abbr,acronym,address,applet,article,aside,audio,b,big,blockquote,body,canvas,caption,center,cite,code,dd,del,details,dfn,div,dl,dt,\nem,embed,fieldset,figcaption,figure,footer,form,h1,h2,h3,h4,h5,h6,header,hgroup,html,i,iframe,img,ins,kbd,label,legend,li,mark,menu,nav,\nobject,ol,output,p,pre,q,ruby,s,samp,section,small,span,strike,strong,sub,summary,sup,table,tbody,td,tfoot,th,thead,time,tr,tt,u,ul,var,video{ font:inherit;margin:0;padding:0;vertical-align:baseline;border:0 }\nbody{ font-size:16px; line-height:1.5; color:#999; background:transparent; }\n.wrapper{ overflow:hidden;word-break:break-all;padding:10px; }\nh1,h2{ font-weight:normal; line-height:1.35; margin-bottom:.6em; }\nh3,h4,h5,h6{ line-height:1.35; margin-bottom:1em; }\nh1{ font-size:24px; }\nh2{ font-size:20px; }\nh3{ font-size:18px; }\nh4{ font-size:16px; }\nh5{ font-size:14px; }\nh6{ font-size:12px; }\np,ul,ol,blockquote,dl,table{ margin:1.2em 0; }\nul,ol{ margin-left:2em; }\nul{ list-style:disc; }\nol{ list-style:decimal; }\nli,li p{ margin:10px 0;}\nimg{ max-width:100%;display:block;margin:0 auto 1em; }\nblockquote{ color:#B5B2B1; border-left:3px solid #aaa; padding:1em; }\nstrong,b{font-weight:bold;}\nem,i{font-style:italic;}\ntable{ width:100%;border-collapse:collapse;border-spacing:1px;margin:1em 0;font-size:.9em; }\nth,td{ padding:5px;text-align:left;border:1px solid #aaa; }\nth{ font-weight:bold;background:#5d5d5d; }\n.symbol-link{font-weight:bold;}\n/* header{ border-bottom:1px solid #494756; } */\n.title{ margin:0 0 8px;line-height:1.3;color:#ddd; }\n.meta {color:#5e5c6d;font-size:13px;margin:0 0 .5em; }\na{text-decoration:none; color:#2a4b87;}\n.meta .head { display: inline-block; overflow: hidden}\n.head .h-thumb { width: 30px; height: 30px; margin: 0; padding: 0; border-radius: 50%; float: left;}\n.head .h-content { margin: 0; padding: 0 0 0 9px; float: left;}\n.head .h-name {font-size: 13px; color: #eee; margin: 0;}\n.head .h-time {font-size: 11px; color: #7E829C; margin: 0;line-height: 11px;}\n.small {font-size: 12.5px; display: inline-block; transform: scale(0.9); -webkit-transform: scale(0.9); transform-origin: left; -webkit-transform-origin: left;}\n.smaller {font-size: 12.5px; display: inline-block; transform: scale(0.8); -webkit-transform: scale(0.8); transform-origin: left; -webkit-transform-origin: left;}\n.bt-text {font-size: 12px;margin: 1.5em 0 0 0}\n.bt-text p {margin: 0}\n</style>\n</head>\n<body>\n<div class=\"wrapper\">\n<header>\n<h2 class=\"title\">\nJD.com: Its Business Model Is Deserving Of Its Current Valuation\n</h2>\n\n<h4 class=\"meta\">\n\n\n2021-06-03 23:22 GMT+8&nbsp;&nbsp;&nbsp;<a href=https://seekingalpha.com/article/4432860-jd-com-business-model-deserving-current-valuation>seekingalpha</a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\nSummary\n\nJD is often branded as the most “undervalued” stock of all its e-commerce peers by growth and value investors alike.\nEven though the company’s revenue growth rates have impressed, its ...\n\n<a href=\"https://seekingalpha.com/article/4432860-jd-com-business-model-deserving-current-valuation\">Web Link</a>\n\n</div>\n\n\n</article>\n</div>\n</body>\n</html>\n","type":0,"thumbnail":"","relate_stocks":{"09618":"京东集团-SW","JD":"京东"},"source_url":"https://seekingalpha.com/article/4432860-jd-com-business-model-deserving-current-valuation","is_english":true,"share_image_url":"https://static.laohu8.com/e9f99090a1c2ed51c021029395664489","article_id":"1171251318","content_text":"Summary\n\nJD is often branded as the most “undervalued” stock of all its e-commerce peers by growth and value investors alike.\nEven though the company’s revenue growth rates have impressed, its operating performances have not really been on par.\nI discuss why JD’s current valuations reflect the reality of its business model, and what growth and value investors should focus on to value the company.\n\nPhoto by Kevin Frayer/Getty Images News via Getty Images\nInvestment Thesis\nJD.com's (JD) low EV/Revenue multiples have often baffled growth and value investors. The relatively high revenue growth rates that the investors have grown accustomed to in the rapidly expanding Chinese e-commerce market has not cascaded down to its market cap as compared to its peers. I attempt to present my opinion on why JD may have exhibited a high revenue growth profile, but not necessarily the operating performances to match its peers.\nJD's Incredibly Low Revenue Multiples\nThe company has often been compared to Amazon (AMZN) in its early days or even compared to Shopify (SHOP) for having a revenue multiple that's way lower, and therefore implying a better buy.\nHowever when I looked under the hood into JD's business model and its operating performances, I found enough underlying weaknesses in JD's business model that perhaps indicate why the market continues to value JD at such low multiples despite having posted impressive growth rates.\nLTM Revenue Growth & Price / LTM Sales. Data Source: S&P Global Market Intelligence\nAs we can see from the chart above, JD has posted remarkable YoY revenue growth rates for the last 5 years, the \"slowest\" one being 22.7%. In fact, JD's LTM revenue growth rate has been accelerating recently, reaching 33.3% at the recent quarter. Despite that, its EV / LTM Rev multiple has consistently been under 1.1x, marking its strong appeal as a \"cheap\" growth stock.\nPrice/LTM Sales Percentile. Source: Tiger Brokers\nIn fact, JD's Price/LTM sales is currently at the 32nd percentile when we compare its multiples over the last 5 years, potentially even creating opportunities for value investors who may be on the lookout for a \"next Amazon\" type of stock that is selling for a real bargain now.\nJD and AMZN Market Cap, LTM Revenue, Revenue 3Y CAGR, EV / LTM Rev. Data Source: S&P Global Market Intelligence\nA quick glance over to Alibaba's (BABA) metrics unveil some interesting observations. Even though BABA's market cap is close to 5x that of JD's, BABA actually reported a lower LTM revenue (89% of JD's LTM revenue) than JD. In fact, BABA has reported lower revenue figures than JD over the last 5 years (see chart below). Both BABA and JD are revenue growth machines, with BABA's 3Y CAGR of 42% and JD's 3Y CAGR of 27.2%. Despite JD's impressive revenue growth, BABA is valued at 5.5x more than JD here based on their respective revenue multiples, which therefore raises the question of whether the market has unreasonably valued JD too low than what it actually deserves?\nBABA & JD LTM Revenue Trend. Data Source: S&P Global Market Intelligence\nJD Annual Active Customer Count. Data Source: Company Filings\nJD Annual Active Customer YoY Growth. Data Source: Company Filings\nIn fact, JD has been improving its active customer growth since Q3'19 as prior to that, JD had in fact suffered dramatic declines over multiple consecutive quarters of slowing customer growth. This coincided with the company's foray into Jingxi in 2019, which is the company's answer to Pinduoduo (PDD). The management also emphasized that: \"In the past 12 months, we gained 112 million new active users, with over 80% coming from lower-tier markets.\" Therefore quite clearly, Jingxi's customer growth has been the impetus behind the strong quarters of ARPC growth for JD.\nJD Average Revenue Per Active Customer. Data Source: Company Filings\nJD Average Revenue Per Active Customer YoY Growth. Data Source: Company Filings\nWhen we zoomed into the company's average revenue per active customer metrics, we could see that the underlying growth (up 11.7% YoY at the recent quarter) has been relatively healthy as well while the company continues to scale up its customer growth through the lower-tier markets.\nOkay, then how does JD's Operating Performances look like?\nEBIT Margin, CFO Margin, FCF Margin. Data Source: S&P Global Market Intelligence\nI had mentioned before in my article here for Coupang (CPNG), that for businesses that are potentially highly scalable such as JD's, we do not have to necessarily worry about the company's low operating margin business model as long as they are able to scale up quickly towards high FCF profitability. JD has always been operating with low operating margin (LTM EBIT margin of 1.2%), as that's the nature of its business model. Despite that, the company has still been able to generate relatively healthy FCF margins (LTM FCF margin 2.7%). Investors also shouldn't expect SaaS like FCF margins here as the business model is entirely different and JD is obviously going after those huge GMV growth. What we want to see though is whether the company is able to continue generating fast-growing and highly sustainable FCF moving forward.\nPeers Projected Unlevered FCF Margin. Data Source: S&P Global Market Intelligence\nPeers Projected Unlevered FCF 5Y CAGR. Data Source: S&P Global Market Intelligence\nThe problem arose when I tried to model JD's FCF growth moving forward. Quite clearly, JD does not seem to be able to improve its FCF margin strongly over time, with the projected FCF margins largely still in line with the historical ones.\nThat isn't something that we would like to see in a growth stock. Moreover the company's projected FCF margins are simply too low to be even classified as a cash flow machine. When we compare JD with its peers, we can clearly see that all of them, including AMZN are projected to generate very strong FCF growth moving forward, with JD's 5Y CAGR of 19.4% coming in last here. JD doesn't seem to be able to leverage on its relatively fast revenue growth to expand its FCF generating prowess as compared to its peers.\nNon-Peers Projected Unlevered FCF 5Y CAGR & Projected Unlevered FCF Margin. Data Source: S&P Global Market Intelligence\nIn order to help investors better understand what I mean, we can refer to the chart above to give an idea of what I meant as companies who are already in relatively stable growth stages with highly sustainable FCF margins as we model their FCF growth profile. It may be argued that Facebook (FB) is still a growth stock (but no longer as high growth as it once was) as it's still expected to generate relatively high FCF growth moving forward while commanding a remarkably high FCF margin as well. In addition, we could also see clearly that stable players often preferred by value investors such as Microsoft (MSFT), Qualcomm (QCOM) and Cisco (CSCO) are also expected to carry forward their high FCF margins moving forward. In contrast, JD's low 2.7% 5-year average FCF margin doesn't qualify it as a high quality stable stock for value investors to consider.\nWhat about JD's Growth Drivers?\nNow the interesting thing here is that JD has maintained that its business is still running at the \"high-growth\" stage as it emphasized:\n\n First of all, we prioritize growth above the importance of profitabilitybecause across all of our business lines, we are still in the high-growth stage. But each segment or each business line is actually in a different development stage. So we have kind of a differentiated investment strategy. So for JD Retail, we still -- you can see that for the first quarter and in the past few quarters, they continue to maintain a high-growth rate.\n\nThe management also added that they would likely continue to benefit from improved economies of scale and operating leverage as they bank on the rapid expansion of JD's retail business, allowing the company to continue improving its long term profit margin over time.\nJD LTM EBIT Margin & Projected EBIT Margin, LTM Unlevered FCF Margin & Projected Unlevered FCF Margin. Data Source: S&P Global Market Intelligence\nIn order to be clear of that, when I modelled JD's EBIT margin and FCF margin growth, I find it hard pressed to have agreement with the management's point of expecting sustained improvement in their operating performance over time as they scale up rapidly. First, the company is already coming off a very low base of EBIT (LTM EBIT margin: 1.2%) and FCF profitability (LTM Unlevered FCF margin: 0.8%), therefore I think it's not unreasonable to expect the company to post a significant improvement to its FCF profitability over time. However, as we can see above, those EBIT margin improvements don't really seem to cascade down to its FCF bottomline.\nJD Q1'21 Segment Revenue. Source:JD 6-K\nIt's important to note that JD retail is the company's main revenue and profit driver, accounting for 91% of Q1'21 revenue, while also subsidizing the losses from its other segments (one of which was JD Logistics which has already been spun off recently). It's difficult to see how its forays into its new businesses can be reasonably sustained over time when they don't have a highly profitable cash flow driver in JD Retail.\nAMZN EBIT Margin & Projected EBIT Margin, Unlevered FCF Margin & Projected Unlevered FCF Margin. Data Source: S&P Global Market Intelligence\nSea Limited EBIT Margin & Projected EBIT Margin, Unlevered FCF Margin & Projected Unlevered FCF Margin. Data Source: S&P Global Market Intelligence\nWe could refer to the above charts to see how important it's to have highly profitable cash flow segments to drive its operating performances even as the companies continue to scale up: AMZN with its AWS segment, as well as Sea's (SE) Garena segment, which I had covered in a recent article here. This cash flow segments allow them to reinvest into its highly scalable e-commerce segments and over time significantly improve their overall cash flow and EBIT profile. JD's business model certainly doesn't have the luxury of relying on such a segment to drive its growth, and therefore it's reflected clearly in its operating performances moving forward.\nValuations\nPeers Consensus Analysts Upside & EV / FY+1 Rev. Data Source: S&P Global Market Intelligence\nIf we simply base off JD's expected revenue growth, there's little doubt that JD seems to be valued at fire sale prices now. However, as mentioned earlier in the article, JD has always been valued at very low EV / Rev multiples historically as compared to its peers. In addition, the Street also remains highly confident of JD's upside potential (35.6%) as compared to its peers.\nJD & SE Ev / Fwd (EBITDA - CapEx) Trend. Data Source: S&P Global Market Intelligence\nAs I have emphasized earlier, using revenue figures to look at JD's growth potential may not accurately reflect the company's scalability potential. Here, we can see how SE's high potential to scale is clearly reflected in its FCF profile, where I use (EBITDA - CapEx) as a proxy here to remove the effects of lumpy working capital changes. SE's valuations are expected to come down significantly as it scales across South East Asia, generating lots of cash flow in the process. However, JD on the other hand doesn't seem to be quite as attractively valued as compared to SE when we project their growth rates forward.\nPrice Action & Technical Analysis\nSource: TradingView\nA silver lining here is that JD's long term uptrend remains intact despite the sell-off in Chinese stocks in Feb 21 that saw JD's stock price fall about 30% from its high. There are a few support levels that investors can focus on, most notably, the $70 support level that saw strong buying interest, as well as the $59 support level. The bulls are trying to retake the $79 support level which coincides with the dynamic resistance level marked by the 50-period MA at the moment. Therefore, investors who wish to add or initiate their positions may consider adding somewhere near the $70 level, and the $59 level if it retraces further, while avoiding adding near $79 in the near term.\nFor Chinese stocks, the Chinese and U.S. regulators will likely remain as the most important near term risk that may cause further compressions in its stock prices. However, as a long term investor who is still bullish on JD, I don't see that as a risk per se, but instead as an opportunity to add further into stocks like JD who in my opinion is fairly valued, and not expensive. The more the stock falls in the future due to policy changes or stiff rules from Beijing or Washington, the more attractive it will get for long term investors who have yet to initiate a position.\nWrapping it all up\nI'm a JD shareholder, and likely to remain so moving forward. What I had wanted to present in this article is to demonstrate why JD continues to trade at such low revenue multiples even as it continues to power ahead in its revenue growth. Investors should understand that although from the price action point of view JD I don't consider JD as a value trap, but I also don't consider JD as very attractive right now. It certainly deserves its current valuation and growth investors should taper their expectations in seeing the stock race ahead in the coming years.","news_type":1},"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"comments":[{"id":4571512,"gmtCreate":1622767991691,"gmtModify":1663227917850,"authorId":3558227267679552,"author":{"id":3558227267679552,"idStr":"3558227267679552","authorId":3558227267679552,"name":"ChinSiang","avatar":"https://static.tigerbbs.com/f0bc36d4e7d4a75a4919f6090d283238","vip":1,"currentWearingBadge":{"badgeId":"1026c425416b44e0aac28c11a0848493-2","templateUuid":"1026c425416b44e0aac28c11a0848493","name":"Senior Tiger","description":"Join the tiger community for 1000 days","bigImgUrl":"https://static.tigerbbs.com/0063fb68ea29c9ae6858c58630e182d5","smallImgUrl":"https://static.tigerbbs.com/96c699a93be4214d4b49aea6a5a5d1a4","grayImgUrl":"https://static.tigerbbs.com/35b0e542a9ff77046ed69ef602bc105d","redirectLinkEnabled":0,"hasAllocated":1,"isWearing":1,"stampPosition":0,"hasStamp":0,"allocationCount":1,"allocatedDate":"2023.04.16","individualDisplayEnabled":0,"individualDisplaySort":0,"categoryType":1001},"crmLevel":2,"crmLevelSwitch":0,"individualDisplayBadges":[]},"repliedAuthorId":0,"objectId":116059962,"type":1,"supId":4571474,"prevId":0,"content":"jd jd jd","text":"jd jd jd","html":"jd jd jd"},{"id":4571474,"gmtCreate":1622767880110,"gmtModify":1663227917537,"authorId":3575420754880245,"author":{"id":3575420754880245,"idStr":"3575420754880245","authorId":3575420754880245,"name":"shawnhuat","avatar":"https://static.tigerbbs.com/ce96f5461b1fd7c34fc7f8592a7eb525","vip":1,"crmLevel":1,"crmLevelSwitch":0,"individualDisplayBadges":[]},"repliedAuthorId":0,"objectId":116059962,"type":1,"supId":0,"prevId":0,"content":"uh","text":"uh","html":"uh"}],"langContent":"EN"},{"id":116035578,"gmtCreate":1622765285394,"gmtModify":1704190645428,"author":{"id":"3581803494981906","authorId":"3581803494981906","name":"haoren","avatar":"https://static.tigerbbs.com/959cadb42575ede705b330aa58d68a63","vip":1,"crmLevel":6,"crmLevelSwitch":1,"idStr":"3581803494981906","authorIdStr":"3581803494981906"},"htmlText":"Jd all the way","listText":"Jd all the way","text":"Jd all the way","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":1,"commentSize":1,"repostSize":0,"link":"https://ttm.financial/post/116035578","repostId":1171251318,"repostType":4,"repost":{"id":"1171251318","pubTimestamp":1622733765,"share":"https://ttm.financial/m/news/1171251318?lang=&edition=fundamental","pubTime":"2021-06-03 23:22","market":"hk","language":"en","title":"JD.com: Its Business Model Is Deserving Of Its Current Valuation","url":"https://stock-news.laohu8.com/highlight/detail?id=1171251318","media":"seekingalpha","summary":"Summary\n\nJD is often branded as the most “undervalued” stock of all its e-commerce peers by growth a","content":"Summary\n<ul>\n <li>JD is often branded as the most “undervalued” stock of all its e-commerce peers by growth and value investors alike.</li>\n <li>Even though the company’s revenue growth rates have impressed, its operating performances have not really been on par.</li>\n <li>I discuss why JD’s current valuations reflect the reality of its business model, and what growth and value investors should focus on to value the company.</li>\n</ul>\n<img src=\"https://static.tigerbbs.com/3bc39a30a57f05b994781d4a3a51c0de\" tg-width=\"1536\" tg-height=\"1092\">Photo by Kevin Frayer/Getty Images News via Getty Images\nInvestment Thesis\nJD.com's (JD) low EV/Revenue multiples have often baffled growth and value investors. The relatively high revenue growth rates that the investors have grown accustomed to in the rapidly expanding Chinese e-commerce market has not cascaded down to its market cap as compared to its peers. I attempt to present my opinion on why JD may have exhibited a high revenue growth profile, but not necessarily the operating performances to match its peers.\nJD's Incredibly Low Revenue Multiples\nThe company has often been compared to Amazon (AMZN) in its early days or even compared to Shopify (SHOP) for having a revenue multiple that's way lower, and therefore implying a better buy.\nHowever when I looked under the hood into JD's business model and its operating performances, I found enough underlying weaknesses in JD's business model that perhaps indicate why the market continues to value JD at such low multiples despite having posted impressive growth rates.\n<img src=\"https://static.tigerbbs.com/dd8c028415efa231c377fb5f68a00858\" tg-width=\"1280\" tg-height=\"844\">LTM Revenue Growth &amp; Price / LTM Sales. Data Source: S&amp;P Global Market Intelligence\nAs we can see from the chart above, JD has posted remarkable YoY revenue growth rates for the last 5 years, the \"slowest\" one being 22.7%. In fact, JD's LTM revenue growth rate has been accelerating recently, reaching 33.3% at the recent quarter. Despite that, its EV / LTM Rev multiple has consistently been under 1.1x, marking its strong appeal as a \"cheap\" growth stock.\n<img src=\"https://static.tigerbbs.com/b5429847bb5cdb8de25028528ae70f6a\" tg-width=\"1280\" tg-height=\"811\">Price/LTM Sales Percentile. Source: Tiger Brokers\nIn fact, JD's Price/LTM sales is currently at the 32nd percentile when we compare its multiples over the last 5 years, potentially even creating opportunities for value investors who may be on the lookout for a \"next Amazon\" type of stock that is selling for a real bargain now.\n<img src=\"https://static.tigerbbs.com/4a33a3a8b9c3f7cfd6393fb14a77852c\" tg-width=\"1280\" tg-height=\"776\">JD and AMZN Market Cap, LTM Revenue, Revenue 3Y CAGR, EV / LTM Rev. Data Source: S&amp;P Global Market Intelligence\nA quick glance over to Alibaba's (BABA) metrics unveil some interesting observations. Even though BABA's market cap is close to 5x that of JD's, BABA actually reported a lower LTM revenue (89% of JD's LTM revenue) than JD. In fact, BABA has reported lower revenue figures than JD over the last 5 years (see chart below). Both BABA and JD are revenue growth machines, with BABA's 3Y CAGR of 42% and JD's 3Y CAGR of 27.2%. Despite JD's impressive revenue growth, BABA is valued at 5.5x more than JD here based on their respective revenue multiples, which therefore raises the question of whether the market has unreasonably valued JD too low than what it actually deserves?\n<img src=\"https://static.tigerbbs.com/09064245a10bfce0ca518de2ba958e28\" tg-width=\"1280\" tg-height=\"774\">BABA &amp; JD LTM Revenue Trend. Data Source: S&amp;P Global Market Intelligence\n<img src=\"https://static.tigerbbs.com/a7ad67e5be6dba93461b1cb1813d0aa8\" tg-width=\"1257\" tg-height=\"474\">JD Annual Active Customer Count. Data Source: Company Filings\n<img src=\"https://static.tigerbbs.com/b156a6b3eb509a01ef58375a4d035718\" tg-width=\"600\" tg-height=\"371\">JD Annual Active Customer YoY Growth. Data Source: Company Filings\nIn fact, JD has been improving its active customer growth since Q3'19 as prior to that, JD had in fact suffered dramatic declines over multiple consecutive quarters of slowing customer growth. This coincided with the company's foray into&nbsp;Jingxi in 2019, which is the company's answer to Pinduoduo (PDD). The management also emphasized that: \"In the past 12 months, we gained 112 million new active users, with over&nbsp;80% coming from lower-tier markets.\" Therefore quite clearly, Jingxi's customer growth has been the impetus behind the strong quarters of ARPC growth for JD.\n<img src=\"https://static.tigerbbs.com/16b3ae3a7907e114e3e3874b5f7d2851\" tg-width=\"962\" tg-height=\"595\">JD Average Revenue Per Active Customer. Data Source: Company Filings\n<img src=\"https://static.tigerbbs.com/4a17b7b3775c0d8c1ab4b05856429210\" tg-width=\"600\" tg-height=\"371\">JD Average Revenue Per Active Customer YoY Growth. Data Source: Company Filings\nWhen we zoomed into the company's average revenue per active customer metrics, we could see that the underlying growth (up 11.7% YoY at the recent quarter) has been relatively healthy as well while the company continues to scale up its customer growth through the lower-tier markets.\nOkay, then how does JD's Operating Performances look like?\n<img src=\"https://static.tigerbbs.com/365fbee247a722170a072c2dc2b83e38\" tg-width=\"1280\" tg-height=\"703\">EBIT Margin, CFO Margin, FCF Margin. Data Source: S&amp;P Global Market Intelligence\nI had mentioned before in&nbsp;my article here&nbsp;for Coupang (CPNG), that for businesses that are potentially highly scalable such as JD's, we do not have to necessarily worry about the company's low operating margin business model as long as they are able to scale up quickly towards high FCF profitability. JD has always been operating with low operating margin (LTM EBIT margin of 1.2%), as that's the nature of its business model. Despite that, the company has still been able to generate relatively healthy FCF margins (LTM FCF margin 2.7%). Investors also shouldn't expect SaaS like FCF margins here as the business model is entirely different and JD is obviously going after those huge GMV growth. What we want to see though is whether the company is able to continue generating fast-growing and highly sustainable FCF moving forward.\n<img src=\"https://static.tigerbbs.com/b36f757fa706b6f349f44add10229761\" tg-width=\"1280\" tg-height=\"708\">Peers Projected Unlevered FCF Margin. Data Source: S&amp;P Global Market Intelligence\n<img src=\"https://static.tigerbbs.com/328507a06929411b3b72e85c8c8169b2\" tg-width=\"1280\" tg-height=\"693\">Peers Projected Unlevered FCF 5Y CAGR. Data Source: S&amp;P Global Market Intelligence\nThe problem arose when I tried to model JD's FCF growth moving forward. Quite clearly, JD does not seem to be able to improve its FCF margin strongly over time, with the projected FCF margins largely still in line with the historical ones.\nThat isn't something that we would like to see in a growth stock. Moreover the company's projected FCF margins are simply too low to be even classified as a cash flow machine. When we compare JD with its peers, we can clearly see that all of them, including AMZN are projected to generate very strong FCF growth moving forward, with JD's 5Y CAGR of 19.4% coming in last here. JD doesn't seem to be able to leverage on its relatively fast revenue growth to expand its FCF generating prowess as compared to its peers.\n<img src=\"https://static.tigerbbs.com/34da8b0865452a029c93f57dc8104697\" tg-width=\"1280\" tg-height=\"684\">Non-Peers Projected Unlevered FCF 5Y CAGR &amp; Projected Unlevered FCF Margin. Data Source: S&amp;P Global Market Intelligence\nIn order to help investors better understand what I mean, we can refer to the chart above to give an idea of what I meant as companies who are already in relatively stable growth stages with highly sustainable FCF margins as we model their FCF growth profile. It may be argued that Facebook (FB) is still a growth stock (but no longer as high growth as it once was) as it's still expected to generate relatively high FCF growth moving forward while commanding a remarkably high FCF margin as well. In addition, we could also see clearly that stable players often preferred by value investors such as Microsoft (MSFT), Qualcomm (QCOM) and Cisco (CSCO) are also expected to carry forward their high FCF margins moving forward. In contrast, JD's low 2.7% 5-year average FCF margin doesn't qualify it as a high quality stable stock for value investors to consider.\nWhat about JD's Growth Drivers?\nNow the interesting thing here is that JD has maintained that its business is still running at the \"high-growth\" stage as it emphasized:\n<blockquote>\n First of all, we&nbsp;prioritize growth above the importance of profitabilitybecause across all of our business lines, we are still in the high-growth stage. But each segment or each business line is actually in a different development stage. So we have kind of a differentiated investment strategy. So for JD Retail, we still -- you can see that for the first quarter and in the past few quarters, they continue to maintain a high-growth rate.\n</blockquote>\nThe management also added that they would likely continue to benefit from improved economies of scale and operating leverage as they bank on the rapid expansion of JD's retail business, allowing the company to continue improving its long term profit margin over time.\n<img src=\"https://static.tigerbbs.com/8477039f4b9693704cbbaf64530da052\" tg-width=\"1280\" tg-height=\"706\">JD LTM EBIT Margin &amp; Projected EBIT Margin, LTM Unlevered FCF Margin &amp; Projected Unlevered FCF Margin. Data Source: S&amp;P Global Market Intelligence\nIn order to be clear of that, when I modelled JD's EBIT margin and FCF margin growth, I find it hard pressed to have agreement with the management's point of expecting sustained improvement in their operating performance over time as they scale up rapidly. First, the company is already coming off a very low base of EBIT (LTM EBIT margin: 1.2%) and FCF profitability (LTM Unlevered FCF margin: 0.8%), therefore I think it's not unreasonable to expect the company to post a significant improvement to its FCF profitability over time. However, as we can see above, those EBIT margin improvements don't really seem to cascade down to its FCF bottomline.\n<img src=\"https://static.tigerbbs.com/34fa89d4e61ac3e70091cc064b4dc51a\" tg-width=\"1280\" tg-height=\"626\">JD Q1'21 Segment Revenue. Source:JD 6-K\nIt's important to note that JD retail is the company's main revenue and profit driver, accounting for 91% of Q1'21 revenue, while also subsidizing the losses from its other segments (one of which was JD Logistics which has already been spun off recently). It's difficult to see how its forays into its new businesses can be reasonably sustained over time when they don't have a highly profitable cash flow driver in JD Retail.\n<img src=\"https://static.tigerbbs.com/85c510c5f8c49a1fde429fcbe1892c30\" tg-width=\"1280\" tg-height=\"704\">AMZN EBIT Margin &amp; Projected EBIT Margin, Unlevered FCF Margin &amp; Projected Unlevered FCF Margin. Data Source: S&amp;P Global Market Intelligence\n<img src=\"https://static.tigerbbs.com/6dcf33c4272b764cbad4a64cca5bdbfd\" tg-width=\"1280\" tg-height=\"711\">Sea Limited EBIT Margin &amp; Projected EBIT Margin, Unlevered FCF Margin &amp; Projected Unlevered FCF Margin. Data Source: S&amp;P Global Market Intelligence\nWe could refer to the above charts to see how important it's to have highly profitable cash flow segments to drive its operating performances even as the companies continue to scale up: AMZN with its AWS segment, as well as Sea's (SE) Garena segment, which I had covered in a&nbsp;recent article here. This cash flow segments allow them to reinvest into its highly scalable e-commerce segments and over time significantly improve their overall cash flow and EBIT profile. JD's business model certainly doesn't have the luxury of relying on such a segment to drive its growth, and therefore it's reflected clearly in its operating performances moving forward.\nValuations\n<img src=\"https://static.tigerbbs.com/2ec37dd8957f5cadcf9615fa414bb78d\" tg-width=\"1280\" tg-height=\"726\">Peers Consensus Analysts Upside &amp; EV / FY+1 Rev. Data Source: S&amp;P Global Market Intelligence\nIf we simply base off JD's expected revenue growth, there's little doubt that JD seems to be valued at fire sale prices now. However, as mentioned earlier in the article, JD has always been valued at very low EV / Rev multiples historically as compared to its peers. In addition, the Street also remains highly confident of JD's upside potential (35.6%) as compared to its peers.\n<img src=\"https://static.tigerbbs.com/56bd8f33da9baab688b59439b44a827b\" tg-width=\"1280\" tg-height=\"709\">JD &amp; SE Ev / Fwd (EBITDA - CapEx) Trend. Data Source: S&amp;P Global Market Intelligence\nAs I have emphasized earlier, using revenue figures to look at JD's growth potential may not accurately reflect the company's scalability potential. Here, we can see how SE's high potential to scale is clearly reflected in its FCF profile, where I use (EBITDA - CapEx) as a proxy here to remove the effects of lumpy working capital changes. SE's valuations are expected to come down significantly as it scales across South East Asia, generating lots of cash flow in the process. However, JD on the other hand doesn't seem to be quite as attractively valued as compared to SE when we project their growth rates forward.\nPrice Action &amp; Technical Analysis\n<img src=\"https://static.tigerbbs.com/98b516b4268fe8418e750d8717769eaf\" tg-width=\"1280\" tg-height=\"798\">Source: TradingView\nA silver lining here is that JD's long term uptrend remains intact despite the sell-off in Chinese stocks in Feb 21 that saw JD's stock price fall about 30% from its high. There are a few support levels that investors can focus on, most notably, the $70 support level that saw strong buying interest, as well as the $59 support level. The bulls are trying to retake the $79 support level which coincides with the dynamic resistance level marked by the 50-period MA at the moment. Therefore, investors who wish to add or initiate their positions may consider adding somewhere near the $70 level, and the $59 level if it retraces further, while avoiding adding near $79 in the near term.\nFor Chinese stocks, the Chinese and U.S. regulators will likely remain as the most important near term risk that may cause further compressions in its stock prices. However, as a long term investor who is still bullish on JD, I don't see that as a risk per se, but instead as an opportunity to add further into stocks like JD who in my opinion is fairly valued, and not expensive. The more the stock falls in the future due to policy changes or stiff rules from Beijing or Washington, the more attractive it will get for long term investors who have yet to initiate a position.\nWrapping it all up\nI'm a JD shareholder, and likely to remain so moving forward. What I had wanted to present in this article is to demonstrate why JD continues to trade at such low revenue multiples even as it continues to power ahead in its revenue growth. Investors should understand that although from the price action point of view JD I don't consider JD as a value trap, but I also don't consider JD as very attractive right now. It certainly deserves its current valuation and growth investors should taper their expectations in seeing the stock race ahead in the coming years.","collect":0,"html":"<!DOCTYPE html>\n<html>\n<head>\n<meta http-equiv=\"Content-Type\" content=\"text/html; charset=utf-8\" />\n<meta name=\"viewport\" content=\"width=device-width,initial-scale=1.0,minimum-scale=1.0,maximum-scale=1.0,user-scalable=no\"/>\n<meta name=\"format-detection\" content=\"telephone=no,email=no,address=no\" />\n<title>JD.com: Its Business Model Is Deserving Of Its Current Valuation</title>\n<style type=\"text/css\">\na,abbr,acronym,address,applet,article,aside,audio,b,big,blockquote,body,canvas,caption,center,cite,code,dd,del,details,dfn,div,dl,dt,\nem,embed,fieldset,figcaption,figure,footer,form,h1,h2,h3,h4,h5,h6,header,hgroup,html,i,iframe,img,ins,kbd,label,legend,li,mark,menu,nav,\nobject,ol,output,p,pre,q,ruby,s,samp,section,small,span,strike,strong,sub,summary,sup,table,tbody,td,tfoot,th,thead,time,tr,tt,u,ul,var,video{ font:inherit;margin:0;padding:0;vertical-align:baseline;border:0 }\nbody{ font-size:16px; line-height:1.5; color:#999; background:transparent; }\n.wrapper{ overflow:hidden;word-break:break-all;padding:10px; }\nh1,h2{ font-weight:normal; line-height:1.35; margin-bottom:.6em; }\nh3,h4,h5,h6{ line-height:1.35; margin-bottom:1em; }\nh1{ font-size:24px; }\nh2{ font-size:20px; }\nh3{ font-size:18px; }\nh4{ font-size:16px; }\nh5{ font-size:14px; }\nh6{ font-size:12px; }\np,ul,ol,blockquote,dl,table{ margin:1.2em 0; }\nul,ol{ margin-left:2em; }\nul{ list-style:disc; }\nol{ list-style:decimal; }\nli,li p{ margin:10px 0;}\nimg{ max-width:100%;display:block;margin:0 auto 1em; }\nblockquote{ color:#B5B2B1; border-left:3px solid #aaa; padding:1em; }\nstrong,b{font-weight:bold;}\nem,i{font-style:italic;}\ntable{ width:100%;border-collapse:collapse;border-spacing:1px;margin:1em 0;font-size:.9em; }\nth,td{ padding:5px;text-align:left;border:1px solid #aaa; }\nth{ font-weight:bold;background:#5d5d5d; }\n.symbol-link{font-weight:bold;}\n/* header{ border-bottom:1px solid #494756; } */\n.title{ margin:0 0 8px;line-height:1.3;color:#ddd; }\n.meta {color:#5e5c6d;font-size:13px;margin:0 0 .5em; }\na{text-decoration:none; color:#2a4b87;}\n.meta .head { display: inline-block; overflow: hidden}\n.head .h-thumb { width: 30px; height: 30px; margin: 0; padding: 0; border-radius: 50%; float: left;}\n.head .h-content { margin: 0; padding: 0 0 0 9px; float: left;}\n.head .h-name {font-size: 13px; color: #eee; margin: 0;}\n.head .h-time {font-size: 11px; color: #7E829C; margin: 0;line-height: 11px;}\n.small {font-size: 12.5px; display: inline-block; transform: scale(0.9); -webkit-transform: scale(0.9); transform-origin: left; -webkit-transform-origin: left;}\n.smaller {font-size: 12.5px; display: inline-block; transform: scale(0.8); -webkit-transform: scale(0.8); transform-origin: left; -webkit-transform-origin: left;}\n.bt-text {font-size: 12px;margin: 1.5em 0 0 0}\n.bt-text p {margin: 0}\n</style>\n</head>\n<body>\n<div class=\"wrapper\">\n<header>\n<h2 class=\"title\">\nJD.com: Its Business Model Is Deserving Of Its Current Valuation\n</h2>\n\n<h4 class=\"meta\">\n\n\n2021-06-03 23:22 GMT+8&nbsp;&nbsp;&nbsp;<a href=https://seekingalpha.com/article/4432860-jd-com-business-model-deserving-current-valuation>seekingalpha</a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\nSummary\n\nJD is often branded as the most “undervalued” stock of all its e-commerce peers by growth and value investors alike.\nEven though the company’s revenue growth rates have impressed, its ...\n\n<a href=\"https://seekingalpha.com/article/4432860-jd-com-business-model-deserving-current-valuation\">Web Link</a>\n\n</div>\n\n\n</article>\n</div>\n</body>\n</html>\n","type":0,"thumbnail":"","relate_stocks":{"09618":"京东集团-SW","JD":"京东"},"source_url":"https://seekingalpha.com/article/4432860-jd-com-business-model-deserving-current-valuation","is_english":true,"share_image_url":"https://static.laohu8.com/e9f99090a1c2ed51c021029395664489","article_id":"1171251318","content_text":"Summary\n\nJD is often branded as the most “undervalued” stock of all its e-commerce peers by growth and value investors alike.\nEven though the company’s revenue growth rates have impressed, its operating performances have not really been on par.\nI discuss why JD’s current valuations reflect the reality of its business model, and what growth and value investors should focus on to value the company.\n\nPhoto by Kevin Frayer/Getty Images News via Getty Images\nInvestment Thesis\nJD.com's (JD) low EV/Revenue multiples have often baffled growth and value investors. The relatively high revenue growth rates that the investors have grown accustomed to in the rapidly expanding Chinese e-commerce market has not cascaded down to its market cap as compared to its peers. I attempt to present my opinion on why JD may have exhibited a high revenue growth profile, but not necessarily the operating performances to match its peers.\nJD's Incredibly Low Revenue Multiples\nThe company has often been compared to Amazon (AMZN) in its early days or even compared to Shopify (SHOP) for having a revenue multiple that's way lower, and therefore implying a better buy.\nHowever when I looked under the hood into JD's business model and its operating performances, I found enough underlying weaknesses in JD's business model that perhaps indicate why the market continues to value JD at such low multiples despite having posted impressive growth rates.\nLTM Revenue Growth & Price / LTM Sales. Data Source: S&P Global Market Intelligence\nAs we can see from the chart above, JD has posted remarkable YoY revenue growth rates for the last 5 years, the \"slowest\" one being 22.7%. In fact, JD's LTM revenue growth rate has been accelerating recently, reaching 33.3% at the recent quarter. Despite that, its EV / LTM Rev multiple has consistently been under 1.1x, marking its strong appeal as a \"cheap\" growth stock.\nPrice/LTM Sales Percentile. Source: Tiger Brokers\nIn fact, JD's Price/LTM sales is currently at the 32nd percentile when we compare its multiples over the last 5 years, potentially even creating opportunities for value investors who may be on the lookout for a \"next Amazon\" type of stock that is selling for a real bargain now.\nJD and AMZN Market Cap, LTM Revenue, Revenue 3Y CAGR, EV / LTM Rev. Data Source: S&P Global Market Intelligence\nA quick glance over to Alibaba's (BABA) metrics unveil some interesting observations. Even though BABA's market cap is close to 5x that of JD's, BABA actually reported a lower LTM revenue (89% of JD's LTM revenue) than JD. In fact, BABA has reported lower revenue figures than JD over the last 5 years (see chart below). Both BABA and JD are revenue growth machines, with BABA's 3Y CAGR of 42% and JD's 3Y CAGR of 27.2%. Despite JD's impressive revenue growth, BABA is valued at 5.5x more than JD here based on their respective revenue multiples, which therefore raises the question of whether the market has unreasonably valued JD too low than what it actually deserves?\nBABA & JD LTM Revenue Trend. Data Source: S&P Global Market Intelligence\nJD Annual Active Customer Count. Data Source: Company Filings\nJD Annual Active Customer YoY Growth. Data Source: Company Filings\nIn fact, JD has been improving its active customer growth since Q3'19 as prior to that, JD had in fact suffered dramatic declines over multiple consecutive quarters of slowing customer growth. This coincided with the company's foray into Jingxi in 2019, which is the company's answer to Pinduoduo (PDD). The management also emphasized that: \"In the past 12 months, we gained 112 million new active users, with over 80% coming from lower-tier markets.\" Therefore quite clearly, Jingxi's customer growth has been the impetus behind the strong quarters of ARPC growth for JD.\nJD Average Revenue Per Active Customer. Data Source: Company Filings\nJD Average Revenue Per Active Customer YoY Growth. Data Source: Company Filings\nWhen we zoomed into the company's average revenue per active customer metrics, we could see that the underlying growth (up 11.7% YoY at the recent quarter) has been relatively healthy as well while the company continues to scale up its customer growth through the lower-tier markets.\nOkay, then how does JD's Operating Performances look like?\nEBIT Margin, CFO Margin, FCF Margin. Data Source: S&P Global Market Intelligence\nI had mentioned before in my article here for Coupang (CPNG), that for businesses that are potentially highly scalable such as JD's, we do not have to necessarily worry about the company's low operating margin business model as long as they are able to scale up quickly towards high FCF profitability. JD has always been operating with low operating margin (LTM EBIT margin of 1.2%), as that's the nature of its business model. Despite that, the company has still been able to generate relatively healthy FCF margins (LTM FCF margin 2.7%). Investors also shouldn't expect SaaS like FCF margins here as the business model is entirely different and JD is obviously going after those huge GMV growth. What we want to see though is whether the company is able to continue generating fast-growing and highly sustainable FCF moving forward.\nPeers Projected Unlevered FCF Margin. Data Source: S&P Global Market Intelligence\nPeers Projected Unlevered FCF 5Y CAGR. Data Source: S&P Global Market Intelligence\nThe problem arose when I tried to model JD's FCF growth moving forward. Quite clearly, JD does not seem to be able to improve its FCF margin strongly over time, with the projected FCF margins largely still in line with the historical ones.\nThat isn't something that we would like to see in a growth stock. Moreover the company's projected FCF margins are simply too low to be even classified as a cash flow machine. When we compare JD with its peers, we can clearly see that all of them, including AMZN are projected to generate very strong FCF growth moving forward, with JD's 5Y CAGR of 19.4% coming in last here. JD doesn't seem to be able to leverage on its relatively fast revenue growth to expand its FCF generating prowess as compared to its peers.\nNon-Peers Projected Unlevered FCF 5Y CAGR & Projected Unlevered FCF Margin. Data Source: S&P Global Market Intelligence\nIn order to help investors better understand what I mean, we can refer to the chart above to give an idea of what I meant as companies who are already in relatively stable growth stages with highly sustainable FCF margins as we model their FCF growth profile. It may be argued that Facebook (FB) is still a growth stock (but no longer as high growth as it once was) as it's still expected to generate relatively high FCF growth moving forward while commanding a remarkably high FCF margin as well. In addition, we could also see clearly that stable players often preferred by value investors such as Microsoft (MSFT), Qualcomm (QCOM) and Cisco (CSCO) are also expected to carry forward their high FCF margins moving forward. In contrast, JD's low 2.7% 5-year average FCF margin doesn't qualify it as a high quality stable stock for value investors to consider.\nWhat about JD's Growth Drivers?\nNow the interesting thing here is that JD has maintained that its business is still running at the \"high-growth\" stage as it emphasized:\n\n First of all, we prioritize growth above the importance of profitabilitybecause across all of our business lines, we are still in the high-growth stage. But each segment or each business line is actually in a different development stage. So we have kind of a differentiated investment strategy. So for JD Retail, we still -- you can see that for the first quarter and in the past few quarters, they continue to maintain a high-growth rate.\n\nThe management also added that they would likely continue to benefit from improved economies of scale and operating leverage as they bank on the rapid expansion of JD's retail business, allowing the company to continue improving its long term profit margin over time.\nJD LTM EBIT Margin & Projected EBIT Margin, LTM Unlevered FCF Margin & Projected Unlevered FCF Margin. Data Source: S&P Global Market Intelligence\nIn order to be clear of that, when I modelled JD's EBIT margin and FCF margin growth, I find it hard pressed to have agreement with the management's point of expecting sustained improvement in their operating performance over time as they scale up rapidly. First, the company is already coming off a very low base of EBIT (LTM EBIT margin: 1.2%) and FCF profitability (LTM Unlevered FCF margin: 0.8%), therefore I think it's not unreasonable to expect the company to post a significant improvement to its FCF profitability over time. However, as we can see above, those EBIT margin improvements don't really seem to cascade down to its FCF bottomline.\nJD Q1'21 Segment Revenue. Source:JD 6-K\nIt's important to note that JD retail is the company's main revenue and profit driver, accounting for 91% of Q1'21 revenue, while also subsidizing the losses from its other segments (one of which was JD Logistics which has already been spun off recently). It's difficult to see how its forays into its new businesses can be reasonably sustained over time when they don't have a highly profitable cash flow driver in JD Retail.\nAMZN EBIT Margin & Projected EBIT Margin, Unlevered FCF Margin & Projected Unlevered FCF Margin. Data Source: S&P Global Market Intelligence\nSea Limited EBIT Margin & Projected EBIT Margin, Unlevered FCF Margin & Projected Unlevered FCF Margin. Data Source: S&P Global Market Intelligence\nWe could refer to the above charts to see how important it's to have highly profitable cash flow segments to drive its operating performances even as the companies continue to scale up: AMZN with its AWS segment, as well as Sea's (SE) Garena segment, which I had covered in a recent article here. This cash flow segments allow them to reinvest into its highly scalable e-commerce segments and over time significantly improve their overall cash flow and EBIT profile. JD's business model certainly doesn't have the luxury of relying on such a segment to drive its growth, and therefore it's reflected clearly in its operating performances moving forward.\nValuations\nPeers Consensus Analysts Upside & EV / FY+1 Rev. Data Source: S&P Global Market Intelligence\nIf we simply base off JD's expected revenue growth, there's little doubt that JD seems to be valued at fire sale prices now. However, as mentioned earlier in the article, JD has always been valued at very low EV / Rev multiples historically as compared to its peers. In addition, the Street also remains highly confident of JD's upside potential (35.6%) as compared to its peers.\nJD & SE Ev / Fwd (EBITDA - CapEx) Trend. Data Source: S&P Global Market Intelligence\nAs I have emphasized earlier, using revenue figures to look at JD's growth potential may not accurately reflect the company's scalability potential. Here, we can see how SE's high potential to scale is clearly reflected in its FCF profile, where I use (EBITDA - CapEx) as a proxy here to remove the effects of lumpy working capital changes. SE's valuations are expected to come down significantly as it scales across South East Asia, generating lots of cash flow in the process. However, JD on the other hand doesn't seem to be quite as attractively valued as compared to SE when we project their growth rates forward.\nPrice Action & Technical Analysis\nSource: TradingView\nA silver lining here is that JD's long term uptrend remains intact despite the sell-off in Chinese stocks in Feb 21 that saw JD's stock price fall about 30% from its high. There are a few support levels that investors can focus on, most notably, the $70 support level that saw strong buying interest, as well as the $59 support level. The bulls are trying to retake the $79 support level which coincides with the dynamic resistance level marked by the 50-period MA at the moment. Therefore, investors who wish to add or initiate their positions may consider adding somewhere near the $70 level, and the $59 level if it retraces further, while avoiding adding near $79 in the near term.\nFor Chinese stocks, the Chinese and U.S. regulators will likely remain as the most important near term risk that may cause further compressions in its stock prices. However, as a long term investor who is still bullish on JD, I don't see that as a risk per se, but instead as an opportunity to add further into stocks like JD who in my opinion is fairly valued, and not expensive. The more the stock falls in the future due to policy changes or stiff rules from Beijing or Washington, the more attractive it will get for long term investors who have yet to initiate a position.\nWrapping it all up\nI'm a JD shareholder, and likely to remain so moving forward. What I had wanted to present in this article is to demonstrate why JD continues to trade at such low revenue multiples even as it continues to power ahead in its revenue growth. Investors should understand that although from the price action point of view JD I don't consider JD as a value trap, but I also don't consider JD as very attractive right now. It certainly deserves its current valuation and growth investors should taper their expectations in seeing the stock race ahead in the coming years.","news_type":1},"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"comments":[{"id":4571348,"gmtCreate":1622767575660,"gmtModify":1663227918448,"authorId":3570566515210361,"author":{"id":3570566515210361,"idStr":"3570566515210361","authorId":3570566515210361,"name":"爱喝水的小猫猫","avatar":"https://community-static.tradeup.com/news/e7ef4b0c19dbcbfb2e524fcc32c97dbf","vip":1,"currentWearingBadge":{"badgeId":"4e86300037264823b9bb00ff44fc0f19-3","templateUuid":"4e86300037264823b9bb00ff44fc0f19","name":"Live trading challenger","description":"for 6 months","bigImgUrl":"https://community-static.tradeup.com/news/1f5e9ba8fa00e845d15505fef84941ce","smallImgUrl":"https://community-static.tradeup.com/news/890d6c2bdab9dd1b255a1e7e9ae2264f","grayImgUrl":"https://community-static.tradeup.com/news/aeea12778e0c2c686984e1efc3ed8fd4","redirectLinkEnabled":0,"redirectLink":"https://www.tigerbrokers.com.sg/activity/market/2023/stock-contest?adcode=StockContest2023","hasAllocated":1,"isWearing":1,"stampPosition":0,"hasStamp":0,"allocationCount":1,"allocatedDate":"2024.03.03","individualDisplayEnabled":0,"individualDisplaySort":0,"categoryType":5600},"crmLevel":8,"crmLevelSwitch":1,"individualDisplayBadges":[]},"repliedAuthorId":0,"objectId":116035578,"type":1,"supId":0,"prevId":0,"content":"Ok","text":"Ok","html":"Ok"}],"langContent":"EN"},{"id":116001128,"gmtCreate":1622764446064,"gmtModify":1704190613287,"author":{"id":"3573471135601329","authorId":"3573471135601329","name":"SKHan","avatar":"https://static.tigerbbs.com/edb016a1e76d427cf4bc5ef3a5d38289","vip":1,"crmLevel":4,"crmLevelSwitch":0,"idStr":"3573471135601329","authorIdStr":"3573471135601329"},"htmlText":"Buy?!","listText":"Buy?!","text":"Buy?!","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":4,"commentSize":2,"repostSize":0,"link":"https://ttm.financial/post/116001128","repostId":1171251318,"repostType":4,"repost":{"id":"1171251318","pubTimestamp":1622733765,"share":"https://ttm.financial/m/news/1171251318?lang=&edition=fundamental","pubTime":"2021-06-03 23:22","market":"hk","language":"en","title":"JD.com: Its Business Model Is Deserving Of Its Current Valuation","url":"https://stock-news.laohu8.com/highlight/detail?id=1171251318","media":"seekingalpha","summary":"Summary\n\nJD is often branded as the most “undervalued” stock of all its e-commerce peers by growth a","content":"Summary\n<ul>\n <li>JD is often branded as the most “undervalued” stock of all its e-commerce peers by growth and value investors alike.</li>\n <li>Even though the company’s revenue growth rates have impressed, its operating performances have not really been on par.</li>\n <li>I discuss why JD’s current valuations reflect the reality of its business model, and what growth and value investors should focus on to value the company.</li>\n</ul>\n<img src=\"https://static.tigerbbs.com/3bc39a30a57f05b994781d4a3a51c0de\" tg-width=\"1536\" tg-height=\"1092\">Photo by Kevin Frayer/Getty Images News via Getty Images\nInvestment Thesis\nJD.com's (JD) low EV/Revenue multiples have often baffled growth and value investors. The relatively high revenue growth rates that the investors have grown accustomed to in the rapidly expanding Chinese e-commerce market has not cascaded down to its market cap as compared to its peers. I attempt to present my opinion on why JD may have exhibited a high revenue growth profile, but not necessarily the operating performances to match its peers.\nJD's Incredibly Low Revenue Multiples\nThe company has often been compared to Amazon (AMZN) in its early days or even compared to Shopify (SHOP) for having a revenue multiple that's way lower, and therefore implying a better buy.\nHowever when I looked under the hood into JD's business model and its operating performances, I found enough underlying weaknesses in JD's business model that perhaps indicate why the market continues to value JD at such low multiples despite having posted impressive growth rates.\n<img src=\"https://static.tigerbbs.com/dd8c028415efa231c377fb5f68a00858\" tg-width=\"1280\" tg-height=\"844\">LTM Revenue Growth &amp; Price / LTM Sales. Data Source: S&amp;P Global Market Intelligence\nAs we can see from the chart above, JD has posted remarkable YoY revenue growth rates for the last 5 years, the \"slowest\" one being 22.7%. In fact, JD's LTM revenue growth rate has been accelerating recently, reaching 33.3% at the recent quarter. Despite that, its EV / LTM Rev multiple has consistently been under 1.1x, marking its strong appeal as a \"cheap\" growth stock.\n<img src=\"https://static.tigerbbs.com/b5429847bb5cdb8de25028528ae70f6a\" tg-width=\"1280\" tg-height=\"811\">Price/LTM Sales Percentile. Source: Tiger Brokers\nIn fact, JD's Price/LTM sales is currently at the 32nd percentile when we compare its multiples over the last 5 years, potentially even creating opportunities for value investors who may be on the lookout for a \"next Amazon\" type of stock that is selling for a real bargain now.\n<img src=\"https://static.tigerbbs.com/4a33a3a8b9c3f7cfd6393fb14a77852c\" tg-width=\"1280\" tg-height=\"776\">JD and AMZN Market Cap, LTM Revenue, Revenue 3Y CAGR, EV / LTM Rev. Data Source: S&amp;P Global Market Intelligence\nA quick glance over to Alibaba's (BABA) metrics unveil some interesting observations. Even though BABA's market cap is close to 5x that of JD's, BABA actually reported a lower LTM revenue (89% of JD's LTM revenue) than JD. In fact, BABA has reported lower revenue figures than JD over the last 5 years (see chart below). Both BABA and JD are revenue growth machines, with BABA's 3Y CAGR of 42% and JD's 3Y CAGR of 27.2%. Despite JD's impressive revenue growth, BABA is valued at 5.5x more than JD here based on their respective revenue multiples, which therefore raises the question of whether the market has unreasonably valued JD too low than what it actually deserves?\n<img src=\"https://static.tigerbbs.com/09064245a10bfce0ca518de2ba958e28\" tg-width=\"1280\" tg-height=\"774\">BABA &amp; JD LTM Revenue Trend. Data Source: S&amp;P Global Market Intelligence\n<img src=\"https://static.tigerbbs.com/a7ad67e5be6dba93461b1cb1813d0aa8\" tg-width=\"1257\" tg-height=\"474\">JD Annual Active Customer Count. Data Source: Company Filings\n<img src=\"https://static.tigerbbs.com/b156a6b3eb509a01ef58375a4d035718\" tg-width=\"600\" tg-height=\"371\">JD Annual Active Customer YoY Growth. Data Source: Company Filings\nIn fact, JD has been improving its active customer growth since Q3'19 as prior to that, JD had in fact suffered dramatic declines over multiple consecutive quarters of slowing customer growth. This coincided with the company's foray into&nbsp;Jingxi in 2019, which is the company's answer to Pinduoduo (PDD). The management also emphasized that: \"In the past 12 months, we gained 112 million new active users, with over&nbsp;80% coming from lower-tier markets.\" Therefore quite clearly, Jingxi's customer growth has been the impetus behind the strong quarters of ARPC growth for JD.\n<img src=\"https://static.tigerbbs.com/16b3ae3a7907e114e3e3874b5f7d2851\" tg-width=\"962\" tg-height=\"595\">JD Average Revenue Per Active Customer. Data Source: Company Filings\n<img src=\"https://static.tigerbbs.com/4a17b7b3775c0d8c1ab4b05856429210\" tg-width=\"600\" tg-height=\"371\">JD Average Revenue Per Active Customer YoY Growth. Data Source: Company Filings\nWhen we zoomed into the company's average revenue per active customer metrics, we could see that the underlying growth (up 11.7% YoY at the recent quarter) has been relatively healthy as well while the company continues to scale up its customer growth through the lower-tier markets.\nOkay, then how does JD's Operating Performances look like?\n<img src=\"https://static.tigerbbs.com/365fbee247a722170a072c2dc2b83e38\" tg-width=\"1280\" tg-height=\"703\">EBIT Margin, CFO Margin, FCF Margin. Data Source: S&amp;P Global Market Intelligence\nI had mentioned before in&nbsp;my article here&nbsp;for Coupang (CPNG), that for businesses that are potentially highly scalable such as JD's, we do not have to necessarily worry about the company's low operating margin business model as long as they are able to scale up quickly towards high FCF profitability. JD has always been operating with low operating margin (LTM EBIT margin of 1.2%), as that's the nature of its business model. Despite that, the company has still been able to generate relatively healthy FCF margins (LTM FCF margin 2.7%). Investors also shouldn't expect SaaS like FCF margins here as the business model is entirely different and JD is obviously going after those huge GMV growth. What we want to see though is whether the company is able to continue generating fast-growing and highly sustainable FCF moving forward.\n<img src=\"https://static.tigerbbs.com/b36f757fa706b6f349f44add10229761\" tg-width=\"1280\" tg-height=\"708\">Peers Projected Unlevered FCF Margin. Data Source: S&amp;P Global Market Intelligence\n<img src=\"https://static.tigerbbs.com/328507a06929411b3b72e85c8c8169b2\" tg-width=\"1280\" tg-height=\"693\">Peers Projected Unlevered FCF 5Y CAGR. Data Source: S&amp;P Global Market Intelligence\nThe problem arose when I tried to model JD's FCF growth moving forward. Quite clearly, JD does not seem to be able to improve its FCF margin strongly over time, with the projected FCF margins largely still in line with the historical ones.\nThat isn't something that we would like to see in a growth stock. Moreover the company's projected FCF margins are simply too low to be even classified as a cash flow machine. When we compare JD with its peers, we can clearly see that all of them, including AMZN are projected to generate very strong FCF growth moving forward, with JD's 5Y CAGR of 19.4% coming in last here. JD doesn't seem to be able to leverage on its relatively fast revenue growth to expand its FCF generating prowess as compared to its peers.\n<img src=\"https://static.tigerbbs.com/34da8b0865452a029c93f57dc8104697\" tg-width=\"1280\" tg-height=\"684\">Non-Peers Projected Unlevered FCF 5Y CAGR &amp; Projected Unlevered FCF Margin. Data Source: S&amp;P Global Market Intelligence\nIn order to help investors better understand what I mean, we can refer to the chart above to give an idea of what I meant as companies who are already in relatively stable growth stages with highly sustainable FCF margins as we model their FCF growth profile. It may be argued that Facebook (FB) is still a growth stock (but no longer as high growth as it once was) as it's still expected to generate relatively high FCF growth moving forward while commanding a remarkably high FCF margin as well. In addition, we could also see clearly that stable players often preferred by value investors such as Microsoft (MSFT), Qualcomm (QCOM) and Cisco (CSCO) are also expected to carry forward their high FCF margins moving forward. In contrast, JD's low 2.7% 5-year average FCF margin doesn't qualify it as a high quality stable stock for value investors to consider.\nWhat about JD's Growth Drivers?\nNow the interesting thing here is that JD has maintained that its business is still running at the \"high-growth\" stage as it emphasized:\n<blockquote>\n First of all, we&nbsp;prioritize growth above the importance of profitabilitybecause across all of our business lines, we are still in the high-growth stage. But each segment or each business line is actually in a different development stage. So we have kind of a differentiated investment strategy. So for JD Retail, we still -- you can see that for the first quarter and in the past few quarters, they continue to maintain a high-growth rate.\n</blockquote>\nThe management also added that they would likely continue to benefit from improved economies of scale and operating leverage as they bank on the rapid expansion of JD's retail business, allowing the company to continue improving its long term profit margin over time.\n<img src=\"https://static.tigerbbs.com/8477039f4b9693704cbbaf64530da052\" tg-width=\"1280\" tg-height=\"706\">JD LTM EBIT Margin &amp; Projected EBIT Margin, LTM Unlevered FCF Margin &amp; Projected Unlevered FCF Margin. Data Source: S&amp;P Global Market Intelligence\nIn order to be clear of that, when I modelled JD's EBIT margin and FCF margin growth, I find it hard pressed to have agreement with the management's point of expecting sustained improvement in their operating performance over time as they scale up rapidly. First, the company is already coming off a very low base of EBIT (LTM EBIT margin: 1.2%) and FCF profitability (LTM Unlevered FCF margin: 0.8%), therefore I think it's not unreasonable to expect the company to post a significant improvement to its FCF profitability over time. However, as we can see above, those EBIT margin improvements don't really seem to cascade down to its FCF bottomline.\n<img src=\"https://static.tigerbbs.com/34fa89d4e61ac3e70091cc064b4dc51a\" tg-width=\"1280\" tg-height=\"626\">JD Q1'21 Segment Revenue. Source:JD 6-K\nIt's important to note that JD retail is the company's main revenue and profit driver, accounting for 91% of Q1'21 revenue, while also subsidizing the losses from its other segments (one of which was JD Logistics which has already been spun off recently). It's difficult to see how its forays into its new businesses can be reasonably sustained over time when they don't have a highly profitable cash flow driver in JD Retail.\n<img src=\"https://static.tigerbbs.com/85c510c5f8c49a1fde429fcbe1892c30\" tg-width=\"1280\" tg-height=\"704\">AMZN EBIT Margin &amp; Projected EBIT Margin, Unlevered FCF Margin &amp; Projected Unlevered FCF Margin. Data Source: S&amp;P Global Market Intelligence\n<img src=\"https://static.tigerbbs.com/6dcf33c4272b764cbad4a64cca5bdbfd\" tg-width=\"1280\" tg-height=\"711\">Sea Limited EBIT Margin &amp; Projected EBIT Margin, Unlevered FCF Margin &amp; Projected Unlevered FCF Margin. Data Source: S&amp;P Global Market Intelligence\nWe could refer to the above charts to see how important it's to have highly profitable cash flow segments to drive its operating performances even as the companies continue to scale up: AMZN with its AWS segment, as well as Sea's (SE) Garena segment, which I had covered in a&nbsp;recent article here. This cash flow segments allow them to reinvest into its highly scalable e-commerce segments and over time significantly improve their overall cash flow and EBIT profile. JD's business model certainly doesn't have the luxury of relying on such a segment to drive its growth, and therefore it's reflected clearly in its operating performances moving forward.\nValuations\n<img src=\"https://static.tigerbbs.com/2ec37dd8957f5cadcf9615fa414bb78d\" tg-width=\"1280\" tg-height=\"726\">Peers Consensus Analysts Upside &amp; EV / FY+1 Rev. Data Source: S&amp;P Global Market Intelligence\nIf we simply base off JD's expected revenue growth, there's little doubt that JD seems to be valued at fire sale prices now. However, as mentioned earlier in the article, JD has always been valued at very low EV / Rev multiples historically as compared to its peers. In addition, the Street also remains highly confident of JD's upside potential (35.6%) as compared to its peers.\n<img src=\"https://static.tigerbbs.com/56bd8f33da9baab688b59439b44a827b\" tg-width=\"1280\" tg-height=\"709\">JD &amp; SE Ev / Fwd (EBITDA - CapEx) Trend. Data Source: S&amp;P Global Market Intelligence\nAs I have emphasized earlier, using revenue figures to look at JD's growth potential may not accurately reflect the company's scalability potential. Here, we can see how SE's high potential to scale is clearly reflected in its FCF profile, where I use (EBITDA - CapEx) as a proxy here to remove the effects of lumpy working capital changes. SE's valuations are expected to come down significantly as it scales across South East Asia, generating lots of cash flow in the process. However, JD on the other hand doesn't seem to be quite as attractively valued as compared to SE when we project their growth rates forward.\nPrice Action &amp; Technical Analysis\n<img src=\"https://static.tigerbbs.com/98b516b4268fe8418e750d8717769eaf\" tg-width=\"1280\" tg-height=\"798\">Source: TradingView\nA silver lining here is that JD's long term uptrend remains intact despite the sell-off in Chinese stocks in Feb 21 that saw JD's stock price fall about 30% from its high. There are a few support levels that investors can focus on, most notably, the $70 support level that saw strong buying interest, as well as the $59 support level. The bulls are trying to retake the $79 support level which coincides with the dynamic resistance level marked by the 50-period MA at the moment. Therefore, investors who wish to add or initiate their positions may consider adding somewhere near the $70 level, and the $59 level if it retraces further, while avoiding adding near $79 in the near term.\nFor Chinese stocks, the Chinese and U.S. regulators will likely remain as the most important near term risk that may cause further compressions in its stock prices. However, as a long term investor who is still bullish on JD, I don't see that as a risk per se, but instead as an opportunity to add further into stocks like JD who in my opinion is fairly valued, and not expensive. The more the stock falls in the future due to policy changes or stiff rules from Beijing or Washington, the more attractive it will get for long term investors who have yet to initiate a position.\nWrapping it all up\nI'm a JD shareholder, and likely to remain so moving forward. What I had wanted to present in this article is to demonstrate why JD continues to trade at such low revenue multiples even as it continues to power ahead in its revenue growth. Investors should understand that although from the price action point of view JD I don't consider JD as a value trap, but I also don't consider JD as very attractive right now. It certainly deserves its current valuation and growth investors should taper their expectations in seeing the stock race ahead in the coming years.","collect":0,"html":"<!DOCTYPE html>\n<html>\n<head>\n<meta http-equiv=\"Content-Type\" content=\"text/html; charset=utf-8\" />\n<meta name=\"viewport\" content=\"width=device-width,initial-scale=1.0,minimum-scale=1.0,maximum-scale=1.0,user-scalable=no\"/>\n<meta name=\"format-detection\" content=\"telephone=no,email=no,address=no\" />\n<title>JD.com: Its Business Model Is Deserving Of Its Current Valuation</title>\n<style type=\"text/css\">\na,abbr,acronym,address,applet,article,aside,audio,b,big,blockquote,body,canvas,caption,center,cite,code,dd,del,details,dfn,div,dl,dt,\nem,embed,fieldset,figcaption,figure,footer,form,h1,h2,h3,h4,h5,h6,header,hgroup,html,i,iframe,img,ins,kbd,label,legend,li,mark,menu,nav,\nobject,ol,output,p,pre,q,ruby,s,samp,section,small,span,strike,strong,sub,summary,sup,table,tbody,td,tfoot,th,thead,time,tr,tt,u,ul,var,video{ font:inherit;margin:0;padding:0;vertical-align:baseline;border:0 }\nbody{ font-size:16px; line-height:1.5; color:#999; background:transparent; }\n.wrapper{ overflow:hidden;word-break:break-all;padding:10px; }\nh1,h2{ font-weight:normal; line-height:1.35; margin-bottom:.6em; }\nh3,h4,h5,h6{ line-height:1.35; margin-bottom:1em; }\nh1{ font-size:24px; }\nh2{ font-size:20px; }\nh3{ font-size:18px; }\nh4{ font-size:16px; }\nh5{ font-size:14px; }\nh6{ font-size:12px; }\np,ul,ol,blockquote,dl,table{ margin:1.2em 0; }\nul,ol{ margin-left:2em; }\nul{ list-style:disc; }\nol{ list-style:decimal; }\nli,li p{ margin:10px 0;}\nimg{ max-width:100%;display:block;margin:0 auto 1em; }\nblockquote{ color:#B5B2B1; border-left:3px solid #aaa; padding:1em; }\nstrong,b{font-weight:bold;}\nem,i{font-style:italic;}\ntable{ width:100%;border-collapse:collapse;border-spacing:1px;margin:1em 0;font-size:.9em; }\nth,td{ padding:5px;text-align:left;border:1px solid #aaa; }\nth{ font-weight:bold;background:#5d5d5d; }\n.symbol-link{font-weight:bold;}\n/* header{ border-bottom:1px solid #494756; } */\n.title{ margin:0 0 8px;line-height:1.3;color:#ddd; }\n.meta {color:#5e5c6d;font-size:13px;margin:0 0 .5em; }\na{text-decoration:none; color:#2a4b87;}\n.meta .head { display: inline-block; overflow: hidden}\n.head .h-thumb { width: 30px; height: 30px; margin: 0; padding: 0; border-radius: 50%; float: left;}\n.head .h-content { margin: 0; padding: 0 0 0 9px; float: left;}\n.head .h-name {font-size: 13px; color: #eee; margin: 0;}\n.head .h-time {font-size: 11px; color: #7E829C; margin: 0;line-height: 11px;}\n.small {font-size: 12.5px; display: inline-block; transform: scale(0.9); -webkit-transform: scale(0.9); transform-origin: left; -webkit-transform-origin: left;}\n.smaller {font-size: 12.5px; display: inline-block; transform: scale(0.8); -webkit-transform: scale(0.8); transform-origin: left; -webkit-transform-origin: left;}\n.bt-text {font-size: 12px;margin: 1.5em 0 0 0}\n.bt-text p {margin: 0}\n</style>\n</head>\n<body>\n<div class=\"wrapper\">\n<header>\n<h2 class=\"title\">\nJD.com: Its Business Model Is Deserving Of Its Current Valuation\n</h2>\n\n<h4 class=\"meta\">\n\n\n2021-06-03 23:22 GMT+8&nbsp;&nbsp;&nbsp;<a href=https://seekingalpha.com/article/4432860-jd-com-business-model-deserving-current-valuation>seekingalpha</a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\nSummary\n\nJD is often branded as the most “undervalued” stock of all its e-commerce peers by growth and value investors alike.\nEven though the company’s revenue growth rates have impressed, its ...\n\n<a href=\"https://seekingalpha.com/article/4432860-jd-com-business-model-deserving-current-valuation\">Web Link</a>\n\n</div>\n\n\n</article>\n</div>\n</body>\n</html>\n","type":0,"thumbnail":"","relate_stocks":{"09618":"京东集团-SW","JD":"京东"},"source_url":"https://seekingalpha.com/article/4432860-jd-com-business-model-deserving-current-valuation","is_english":true,"share_image_url":"https://static.laohu8.com/e9f99090a1c2ed51c021029395664489","article_id":"1171251318","content_text":"Summary\n\nJD is often branded as the most “undervalued” stock of all its e-commerce peers by growth and value investors alike.\nEven though the company’s revenue growth rates have impressed, its operating performances have not really been on par.\nI discuss why JD’s current valuations reflect the reality of its business model, and what growth and value investors should focus on to value the company.\n\nPhoto by Kevin Frayer/Getty Images News via Getty Images\nInvestment Thesis\nJD.com's (JD) low EV/Revenue multiples have often baffled growth and value investors. The relatively high revenue growth rates that the investors have grown accustomed to in the rapidly expanding Chinese e-commerce market has not cascaded down to its market cap as compared to its peers. I attempt to present my opinion on why JD may have exhibited a high revenue growth profile, but not necessarily the operating performances to match its peers.\nJD's Incredibly Low Revenue Multiples\nThe company has often been compared to Amazon (AMZN) in its early days or even compared to Shopify (SHOP) for having a revenue multiple that's way lower, and therefore implying a better buy.\nHowever when I looked under the hood into JD's business model and its operating performances, I found enough underlying weaknesses in JD's business model that perhaps indicate why the market continues to value JD at such low multiples despite having posted impressive growth rates.\nLTM Revenue Growth & Price / LTM Sales. Data Source: S&P Global Market Intelligence\nAs we can see from the chart above, JD has posted remarkable YoY revenue growth rates for the last 5 years, the \"slowest\" one being 22.7%. In fact, JD's LTM revenue growth rate has been accelerating recently, reaching 33.3% at the recent quarter. Despite that, its EV / LTM Rev multiple has consistently been under 1.1x, marking its strong appeal as a \"cheap\" growth stock.\nPrice/LTM Sales Percentile. Source: Tiger Brokers\nIn fact, JD's Price/LTM sales is currently at the 32nd percentile when we compare its multiples over the last 5 years, potentially even creating opportunities for value investors who may be on the lookout for a \"next Amazon\" type of stock that is selling for a real bargain now.\nJD and AMZN Market Cap, LTM Revenue, Revenue 3Y CAGR, EV / LTM Rev. Data Source: S&P Global Market Intelligence\nA quick glance over to Alibaba's (BABA) metrics unveil some interesting observations. Even though BABA's market cap is close to 5x that of JD's, BABA actually reported a lower LTM revenue (89% of JD's LTM revenue) than JD. In fact, BABA has reported lower revenue figures than JD over the last 5 years (see chart below). Both BABA and JD are revenue growth machines, with BABA's 3Y CAGR of 42% and JD's 3Y CAGR of 27.2%. Despite JD's impressive revenue growth, BABA is valued at 5.5x more than JD here based on their respective revenue multiples, which therefore raises the question of whether the market has unreasonably valued JD too low than what it actually deserves?\nBABA & JD LTM Revenue Trend. Data Source: S&P Global Market Intelligence\nJD Annual Active Customer Count. Data Source: Company Filings\nJD Annual Active Customer YoY Growth. Data Source: Company Filings\nIn fact, JD has been improving its active customer growth since Q3'19 as prior to that, JD had in fact suffered dramatic declines over multiple consecutive quarters of slowing customer growth. This coincided with the company's foray into Jingxi in 2019, which is the company's answer to Pinduoduo (PDD). The management also emphasized that: \"In the past 12 months, we gained 112 million new active users, with over 80% coming from lower-tier markets.\" Therefore quite clearly, Jingxi's customer growth has been the impetus behind the strong quarters of ARPC growth for JD.\nJD Average Revenue Per Active Customer. Data Source: Company Filings\nJD Average Revenue Per Active Customer YoY Growth. Data Source: Company Filings\nWhen we zoomed into the company's average revenue per active customer metrics, we could see that the underlying growth (up 11.7% YoY at the recent quarter) has been relatively healthy as well while the company continues to scale up its customer growth through the lower-tier markets.\nOkay, then how does JD's Operating Performances look like?\nEBIT Margin, CFO Margin, FCF Margin. Data Source: S&P Global Market Intelligence\nI had mentioned before in my article here for Coupang (CPNG), that for businesses that are potentially highly scalable such as JD's, we do not have to necessarily worry about the company's low operating margin business model as long as they are able to scale up quickly towards high FCF profitability. JD has always been operating with low operating margin (LTM EBIT margin of 1.2%), as that's the nature of its business model. Despite that, the company has still been able to generate relatively healthy FCF margins (LTM FCF margin 2.7%). Investors also shouldn't expect SaaS like FCF margins here as the business model is entirely different and JD is obviously going after those huge GMV growth. What we want to see though is whether the company is able to continue generating fast-growing and highly sustainable FCF moving forward.\nPeers Projected Unlevered FCF Margin. Data Source: S&P Global Market Intelligence\nPeers Projected Unlevered FCF 5Y CAGR. Data Source: S&P Global Market Intelligence\nThe problem arose when I tried to model JD's FCF growth moving forward. Quite clearly, JD does not seem to be able to improve its FCF margin strongly over time, with the projected FCF margins largely still in line with the historical ones.\nThat isn't something that we would like to see in a growth stock. Moreover the company's projected FCF margins are simply too low to be even classified as a cash flow machine. When we compare JD with its peers, we can clearly see that all of them, including AMZN are projected to generate very strong FCF growth moving forward, with JD's 5Y CAGR of 19.4% coming in last here. JD doesn't seem to be able to leverage on its relatively fast revenue growth to expand its FCF generating prowess as compared to its peers.\nNon-Peers Projected Unlevered FCF 5Y CAGR & Projected Unlevered FCF Margin. Data Source: S&P Global Market Intelligence\nIn order to help investors better understand what I mean, we can refer to the chart above to give an idea of what I meant as companies who are already in relatively stable growth stages with highly sustainable FCF margins as we model their FCF growth profile. It may be argued that Facebook (FB) is still a growth stock (but no longer as high growth as it once was) as it's still expected to generate relatively high FCF growth moving forward while commanding a remarkably high FCF margin as well. In addition, we could also see clearly that stable players often preferred by value investors such as Microsoft (MSFT), Qualcomm (QCOM) and Cisco (CSCO) are also expected to carry forward their high FCF margins moving forward. In contrast, JD's low 2.7% 5-year average FCF margin doesn't qualify it as a high quality stable stock for value investors to consider.\nWhat about JD's Growth Drivers?\nNow the interesting thing here is that JD has maintained that its business is still running at the \"high-growth\" stage as it emphasized:\n\n First of all, we prioritize growth above the importance of profitabilitybecause across all of our business lines, we are still in the high-growth stage. But each segment or each business line is actually in a different development stage. So we have kind of a differentiated investment strategy. So for JD Retail, we still -- you can see that for the first quarter and in the past few quarters, they continue to maintain a high-growth rate.\n\nThe management also added that they would likely continue to benefit from improved economies of scale and operating leverage as they bank on the rapid expansion of JD's retail business, allowing the company to continue improving its long term profit margin over time.\nJD LTM EBIT Margin & Projected EBIT Margin, LTM Unlevered FCF Margin & Projected Unlevered FCF Margin. Data Source: S&P Global Market Intelligence\nIn order to be clear of that, when I modelled JD's EBIT margin and FCF margin growth, I find it hard pressed to have agreement with the management's point of expecting sustained improvement in their operating performance over time as they scale up rapidly. First, the company is already coming off a very low base of EBIT (LTM EBIT margin: 1.2%) and FCF profitability (LTM Unlevered FCF margin: 0.8%), therefore I think it's not unreasonable to expect the company to post a significant improvement to its FCF profitability over time. However, as we can see above, those EBIT margin improvements don't really seem to cascade down to its FCF bottomline.\nJD Q1'21 Segment Revenue. Source:JD 6-K\nIt's important to note that JD retail is the company's main revenue and profit driver, accounting for 91% of Q1'21 revenue, while also subsidizing the losses from its other segments (one of which was JD Logistics which has already been spun off recently). It's difficult to see how its forays into its new businesses can be reasonably sustained over time when they don't have a highly profitable cash flow driver in JD Retail.\nAMZN EBIT Margin & Projected EBIT Margin, Unlevered FCF Margin & Projected Unlevered FCF Margin. Data Source: S&P Global Market Intelligence\nSea Limited EBIT Margin & Projected EBIT Margin, Unlevered FCF Margin & Projected Unlevered FCF Margin. Data Source: S&P Global Market Intelligence\nWe could refer to the above charts to see how important it's to have highly profitable cash flow segments to drive its operating performances even as the companies continue to scale up: AMZN with its AWS segment, as well as Sea's (SE) Garena segment, which I had covered in a recent article here. This cash flow segments allow them to reinvest into its highly scalable e-commerce segments and over time significantly improve their overall cash flow and EBIT profile. JD's business model certainly doesn't have the luxury of relying on such a segment to drive its growth, and therefore it's reflected clearly in its operating performances moving forward.\nValuations\nPeers Consensus Analysts Upside & EV / FY+1 Rev. Data Source: S&P Global Market Intelligence\nIf we simply base off JD's expected revenue growth, there's little doubt that JD seems to be valued at fire sale prices now. However, as mentioned earlier in the article, JD has always been valued at very low EV / Rev multiples historically as compared to its peers. In addition, the Street also remains highly confident of JD's upside potential (35.6%) as compared to its peers.\nJD & SE Ev / Fwd (EBITDA - CapEx) Trend. Data Source: S&P Global Market Intelligence\nAs I have emphasized earlier, using revenue figures to look at JD's growth potential may not accurately reflect the company's scalability potential. Here, we can see how SE's high potential to scale is clearly reflected in its FCF profile, where I use (EBITDA - CapEx) as a proxy here to remove the effects of lumpy working capital changes. SE's valuations are expected to come down significantly as it scales across South East Asia, generating lots of cash flow in the process. However, JD on the other hand doesn't seem to be quite as attractively valued as compared to SE when we project their growth rates forward.\nPrice Action & Technical Analysis\nSource: TradingView\nA silver lining here is that JD's long term uptrend remains intact despite the sell-off in Chinese stocks in Feb 21 that saw JD's stock price fall about 30% from its high. There are a few support levels that investors can focus on, most notably, the $70 support level that saw strong buying interest, as well as the $59 support level. The bulls are trying to retake the $79 support level which coincides with the dynamic resistance level marked by the 50-period MA at the moment. Therefore, investors who wish to add or initiate their positions may consider adding somewhere near the $70 level, and the $59 level if it retraces further, while avoiding adding near $79 in the near term.\nFor Chinese stocks, the Chinese and U.S. regulators will likely remain as the most important near term risk that may cause further compressions in its stock prices. However, as a long term investor who is still bullish on JD, I don't see that as a risk per se, but instead as an opportunity to add further into stocks like JD who in my opinion is fairly valued, and not expensive. The more the stock falls in the future due to policy changes or stiff rules from Beijing or Washington, the more attractive it will get for long term investors who have yet to initiate a position.\nWrapping it all up\nI'm a JD shareholder, and likely to remain so moving forward. What I had wanted to present in this article is to demonstrate why JD continues to trade at such low revenue multiples even as it continues to power ahead in its revenue growth. Investors should understand that although from the price action point of view JD I don't consider JD as a value trap, but I also don't consider JD as very attractive right now. It certainly deserves its current valuation and growth investors should taper their expectations in seeing the stock race ahead in the coming years.","news_type":1},"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"comments":[{"id":4570317,"gmtCreate":1622764801984,"gmtModify":1663227911434,"authorId":3581687469376937,"author":{"id":3581687469376937,"idStr":"3581687469376937","authorId":3581687469376937,"name":"PSChoong","avatar":"https://static.tigerbbs.com/ffd39f1581243a7dc91c880d3bcaf308","vip":1,"currentWearingBadge":{"badgeId":"4e86300037264823b9bb00ff44fc0f19-4","templateUuid":"4e86300037264823b9bb00ff44fc0f19","name":"Live trading challenger","description":"for 8 months","bigImgUrl":"https://community-static.tradeup.com/news/e3c2981d338af1955c5a7587297c7538","smallImgUrl":"https://community-static.tradeup.com/news/11bbd9850f6167705ec224d6cdf66df2","grayImgUrl":"https://community-static.tradeup.com/news/1c641e842de95b902f6af107359ee244","redirectLinkEnabled":0,"redirectLink":"https://www.tigerbrokers.com.sg/activity/market/2023/stock-contest?adcode=StockContest2023","hasAllocated":1,"isWearing":1,"stampPosition":0,"hasStamp":0,"allocationCount":1,"allocatedDate":"2024.05.03","individualDisplayEnabled":0,"individualDisplaySort":0,"categoryType":5600},"crmLevel":4,"crmLevelSwitch":1,"individualDisplayBadges":[]},"repliedAuthorId":0,"objectId":116001128,"type":1,"supId":0,"prevId":0,"content":"Can consider...is quite reasonable price [开心]","text":"Can consider...is quite reasonable price [开心]","html":"Can consider...is quite reasonable price [开心]"},{"id":4570487,"gmtCreate":1622765099432,"gmtModify":1635337991791,"authorId":3574851080358491,"author":{"id":3574851080358491,"idStr":"3574851080358491","authorId":3574851080358491,"name":"Benstonk","avatar":"https://static.tigerbbs.com/c8a964cfa9223e4704989c9a4b9b772e","vip":1,"crmLevel":3,"crmLevelSwitch":1,"individualDisplayBadges":[]},"repliedAuthorId":0,"objectId":116001128,"type":1,"supId":0,"prevId":0,"content":"No","text":"No","html":"No"}],"langContent":"EN"},{"id":118772102,"gmtCreate":1622764167206,"gmtModify":1704190605201,"author":{"id":"3567821146661353","authorId":"3567821146661353","name":"Stoinkz","avatar":"https://static.tigerbbs.com/57bb0d10a9b43a26fb9bc3e3bc4ae031","vip":1,"crmLevel":2,"crmLevelSwitch":0,"idStr":"3567821146661353","authorIdStr":"3567821146661353"},"htmlText":"Please like and comment","listText":"Please like and comment","text":"Please like and comment","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":5,"commentSize":1,"repostSize":0,"link":"https://ttm.financial/post/118772102","repostId":1171251318,"repostType":4,"repost":{"id":"1171251318","pubTimestamp":1622733765,"share":"https://ttm.financial/m/news/1171251318?lang=&edition=fundamental","pubTime":"2021-06-03 23:22","market":"hk","language":"en","title":"JD.com: Its Business Model Is Deserving Of Its Current Valuation","url":"https://stock-news.laohu8.com/highlight/detail?id=1171251318","media":"seekingalpha","summary":"Summary\n\nJD is often branded as the most “undervalued” stock of all its e-commerce peers by growth a","content":"Summary\n<ul>\n <li>JD is often branded as the most “undervalued” stock of all its e-commerce peers by growth and value investors alike.</li>\n <li>Even though the company’s revenue growth rates have impressed, its operating performances have not really been on par.</li>\n <li>I discuss why JD’s current valuations reflect the reality of its business model, and what growth and value investors should focus on to value the company.</li>\n</ul>\n<img src=\"https://static.tigerbbs.com/3bc39a30a57f05b994781d4a3a51c0de\" tg-width=\"1536\" tg-height=\"1092\">Photo by Kevin Frayer/Getty Images News via Getty Images\nInvestment Thesis\nJD.com's (JD) low EV/Revenue multiples have often baffled growth and value investors. The relatively high revenue growth rates that the investors have grown accustomed to in the rapidly expanding Chinese e-commerce market has not cascaded down to its market cap as compared to its peers. I attempt to present my opinion on why JD may have exhibited a high revenue growth profile, but not necessarily the operating performances to match its peers.\nJD's Incredibly Low Revenue Multiples\nThe company has often been compared to Amazon (AMZN) in its early days or even compared to Shopify (SHOP) for having a revenue multiple that's way lower, and therefore implying a better buy.\nHowever when I looked under the hood into JD's business model and its operating performances, I found enough underlying weaknesses in JD's business model that perhaps indicate why the market continues to value JD at such low multiples despite having posted impressive growth rates.\n<img src=\"https://static.tigerbbs.com/dd8c028415efa231c377fb5f68a00858\" tg-width=\"1280\" tg-height=\"844\">LTM Revenue Growth &amp; Price / LTM Sales. Data Source: S&amp;P Global Market Intelligence\nAs we can see from the chart above, JD has posted remarkable YoY revenue growth rates for the last 5 years, the \"slowest\" one being 22.7%. In fact, JD's LTM revenue growth rate has been accelerating recently, reaching 33.3% at the recent quarter. Despite that, its EV / LTM Rev multiple has consistently been under 1.1x, marking its strong appeal as a \"cheap\" growth stock.\n<img src=\"https://static.tigerbbs.com/b5429847bb5cdb8de25028528ae70f6a\" tg-width=\"1280\" tg-height=\"811\">Price/LTM Sales Percentile. Source: Tiger Brokers\nIn fact, JD's Price/LTM sales is currently at the 32nd percentile when we compare its multiples over the last 5 years, potentially even creating opportunities for value investors who may be on the lookout for a \"next Amazon\" type of stock that is selling for a real bargain now.\n<img src=\"https://static.tigerbbs.com/4a33a3a8b9c3f7cfd6393fb14a77852c\" tg-width=\"1280\" tg-height=\"776\">JD and AMZN Market Cap, LTM Revenue, Revenue 3Y CAGR, EV / LTM Rev. Data Source: S&amp;P Global Market Intelligence\nA quick glance over to Alibaba's (BABA) metrics unveil some interesting observations. Even though BABA's market cap is close to 5x that of JD's, BABA actually reported a lower LTM revenue (89% of JD's LTM revenue) than JD. In fact, BABA has reported lower revenue figures than JD over the last 5 years (see chart below). Both BABA and JD are revenue growth machines, with BABA's 3Y CAGR of 42% and JD's 3Y CAGR of 27.2%. Despite JD's impressive revenue growth, BABA is valued at 5.5x more than JD here based on their respective revenue multiples, which therefore raises the question of whether the market has unreasonably valued JD too low than what it actually deserves?\n<img src=\"https://static.tigerbbs.com/09064245a10bfce0ca518de2ba958e28\" tg-width=\"1280\" tg-height=\"774\">BABA &amp; JD LTM Revenue Trend. Data Source: S&amp;P Global Market Intelligence\n<img src=\"https://static.tigerbbs.com/a7ad67e5be6dba93461b1cb1813d0aa8\" tg-width=\"1257\" tg-height=\"474\">JD Annual Active Customer Count. Data Source: Company Filings\n<img src=\"https://static.tigerbbs.com/b156a6b3eb509a01ef58375a4d035718\" tg-width=\"600\" tg-height=\"371\">JD Annual Active Customer YoY Growth. Data Source: Company Filings\nIn fact, JD has been improving its active customer growth since Q3'19 as prior to that, JD had in fact suffered dramatic declines over multiple consecutive quarters of slowing customer growth. This coincided with the company's foray into&nbsp;Jingxi in 2019, which is the company's answer to Pinduoduo (PDD). The management also emphasized that: \"In the past 12 months, we gained 112 million new active users, with over&nbsp;80% coming from lower-tier markets.\" Therefore quite clearly, Jingxi's customer growth has been the impetus behind the strong quarters of ARPC growth for JD.\n<img src=\"https://static.tigerbbs.com/16b3ae3a7907e114e3e3874b5f7d2851\" tg-width=\"962\" tg-height=\"595\">JD Average Revenue Per Active Customer. Data Source: Company Filings\n<img src=\"https://static.tigerbbs.com/4a17b7b3775c0d8c1ab4b05856429210\" tg-width=\"600\" tg-height=\"371\">JD Average Revenue Per Active Customer YoY Growth. Data Source: Company Filings\nWhen we zoomed into the company's average revenue per active customer metrics, we could see that the underlying growth (up 11.7% YoY at the recent quarter) has been relatively healthy as well while the company continues to scale up its customer growth through the lower-tier markets.\nOkay, then how does JD's Operating Performances look like?\n<img src=\"https://static.tigerbbs.com/365fbee247a722170a072c2dc2b83e38\" tg-width=\"1280\" tg-height=\"703\">EBIT Margin, CFO Margin, FCF Margin. Data Source: S&amp;P Global Market Intelligence\nI had mentioned before in&nbsp;my article here&nbsp;for Coupang (CPNG), that for businesses that are potentially highly scalable such as JD's, we do not have to necessarily worry about the company's low operating margin business model as long as they are able to scale up quickly towards high FCF profitability. JD has always been operating with low operating margin (LTM EBIT margin of 1.2%), as that's the nature of its business model. Despite that, the company has still been able to generate relatively healthy FCF margins (LTM FCF margin 2.7%). Investors also shouldn't expect SaaS like FCF margins here as the business model is entirely different and JD is obviously going after those huge GMV growth. What we want to see though is whether the company is able to continue generating fast-growing and highly sustainable FCF moving forward.\n<img src=\"https://static.tigerbbs.com/b36f757fa706b6f349f44add10229761\" tg-width=\"1280\" tg-height=\"708\">Peers Projected Unlevered FCF Margin. Data Source: S&amp;P Global Market Intelligence\n<img src=\"https://static.tigerbbs.com/328507a06929411b3b72e85c8c8169b2\" tg-width=\"1280\" tg-height=\"693\">Peers Projected Unlevered FCF 5Y CAGR. Data Source: S&amp;P Global Market Intelligence\nThe problem arose when I tried to model JD's FCF growth moving forward. Quite clearly, JD does not seem to be able to improve its FCF margin strongly over time, with the projected FCF margins largely still in line with the historical ones.\nThat isn't something that we would like to see in a growth stock. Moreover the company's projected FCF margins are simply too low to be even classified as a cash flow machine. When we compare JD with its peers, we can clearly see that all of them, including AMZN are projected to generate very strong FCF growth moving forward, with JD's 5Y CAGR of 19.4% coming in last here. JD doesn't seem to be able to leverage on its relatively fast revenue growth to expand its FCF generating prowess as compared to its peers.\n<img src=\"https://static.tigerbbs.com/34da8b0865452a029c93f57dc8104697\" tg-width=\"1280\" tg-height=\"684\">Non-Peers Projected Unlevered FCF 5Y CAGR &amp; Projected Unlevered FCF Margin. Data Source: S&amp;P Global Market Intelligence\nIn order to help investors better understand what I mean, we can refer to the chart above to give an idea of what I meant as companies who are already in relatively stable growth stages with highly sustainable FCF margins as we model their FCF growth profile. It may be argued that Facebook (FB) is still a growth stock (but no longer as high growth as it once was) as it's still expected to generate relatively high FCF growth moving forward while commanding a remarkably high FCF margin as well. In addition, we could also see clearly that stable players often preferred by value investors such as Microsoft (MSFT), Qualcomm (QCOM) and Cisco (CSCO) are also expected to carry forward their high FCF margins moving forward. In contrast, JD's low 2.7% 5-year average FCF margin doesn't qualify it as a high quality stable stock for value investors to consider.\nWhat about JD's Growth Drivers?\nNow the interesting thing here is that JD has maintained that its business is still running at the \"high-growth\" stage as it emphasized:\n<blockquote>\n First of all, we&nbsp;prioritize growth above the importance of profitabilitybecause across all of our business lines, we are still in the high-growth stage. But each segment or each business line is actually in a different development stage. So we have kind of a differentiated investment strategy. So for JD Retail, we still -- you can see that for the first quarter and in the past few quarters, they continue to maintain a high-growth rate.\n</blockquote>\nThe management also added that they would likely continue to benefit from improved economies of scale and operating leverage as they bank on the rapid expansion of JD's retail business, allowing the company to continue improving its long term profit margin over time.\n<img src=\"https://static.tigerbbs.com/8477039f4b9693704cbbaf64530da052\" tg-width=\"1280\" tg-height=\"706\">JD LTM EBIT Margin &amp; Projected EBIT Margin, LTM Unlevered FCF Margin &amp; Projected Unlevered FCF Margin. Data Source: S&amp;P Global Market Intelligence\nIn order to be clear of that, when I modelled JD's EBIT margin and FCF margin growth, I find it hard pressed to have agreement with the management's point of expecting sustained improvement in their operating performance over time as they scale up rapidly. First, the company is already coming off a very low base of EBIT (LTM EBIT margin: 1.2%) and FCF profitability (LTM Unlevered FCF margin: 0.8%), therefore I think it's not unreasonable to expect the company to post a significant improvement to its FCF profitability over time. However, as we can see above, those EBIT margin improvements don't really seem to cascade down to its FCF bottomline.\n<img src=\"https://static.tigerbbs.com/34fa89d4e61ac3e70091cc064b4dc51a\" tg-width=\"1280\" tg-height=\"626\">JD Q1'21 Segment Revenue. Source:JD 6-K\nIt's important to note that JD retail is the company's main revenue and profit driver, accounting for 91% of Q1'21 revenue, while also subsidizing the losses from its other segments (one of which was JD Logistics which has already been spun off recently). It's difficult to see how its forays into its new businesses can be reasonably sustained over time when they don't have a highly profitable cash flow driver in JD Retail.\n<img src=\"https://static.tigerbbs.com/85c510c5f8c49a1fde429fcbe1892c30\" tg-width=\"1280\" tg-height=\"704\">AMZN EBIT Margin &amp; Projected EBIT Margin, Unlevered FCF Margin &amp; Projected Unlevered FCF Margin. Data Source: S&amp;P Global Market Intelligence\n<img src=\"https://static.tigerbbs.com/6dcf33c4272b764cbad4a64cca5bdbfd\" tg-width=\"1280\" tg-height=\"711\">Sea Limited EBIT Margin &amp; Projected EBIT Margin, Unlevered FCF Margin &amp; Projected Unlevered FCF Margin. Data Source: S&amp;P Global Market Intelligence\nWe could refer to the above charts to see how important it's to have highly profitable cash flow segments to drive its operating performances even as the companies continue to scale up: AMZN with its AWS segment, as well as Sea's (SE) Garena segment, which I had covered in a&nbsp;recent article here. This cash flow segments allow them to reinvest into its highly scalable e-commerce segments and over time significantly improve their overall cash flow and EBIT profile. JD's business model certainly doesn't have the luxury of relying on such a segment to drive its growth, and therefore it's reflected clearly in its operating performances moving forward.\nValuations\n<img src=\"https://static.tigerbbs.com/2ec37dd8957f5cadcf9615fa414bb78d\" tg-width=\"1280\" tg-height=\"726\">Peers Consensus Analysts Upside &amp; EV / FY+1 Rev. Data Source: S&amp;P Global Market Intelligence\nIf we simply base off JD's expected revenue growth, there's little doubt that JD seems to be valued at fire sale prices now. However, as mentioned earlier in the article, JD has always been valued at very low EV / Rev multiples historically as compared to its peers. In addition, the Street also remains highly confident of JD's upside potential (35.6%) as compared to its peers.\n<img src=\"https://static.tigerbbs.com/56bd8f33da9baab688b59439b44a827b\" tg-width=\"1280\" tg-height=\"709\">JD &amp; SE Ev / Fwd (EBITDA - CapEx) Trend. Data Source: S&amp;P Global Market Intelligence\nAs I have emphasized earlier, using revenue figures to look at JD's growth potential may not accurately reflect the company's scalability potential. Here, we can see how SE's high potential to scale is clearly reflected in its FCF profile, where I use (EBITDA - CapEx) as a proxy here to remove the effects of lumpy working capital changes. SE's valuations are expected to come down significantly as it scales across South East Asia, generating lots of cash flow in the process. However, JD on the other hand doesn't seem to be quite as attractively valued as compared to SE when we project their growth rates forward.\nPrice Action &amp; Technical Analysis\n<img src=\"https://static.tigerbbs.com/98b516b4268fe8418e750d8717769eaf\" tg-width=\"1280\" tg-height=\"798\">Source: TradingView\nA silver lining here is that JD's long term uptrend remains intact despite the sell-off in Chinese stocks in Feb 21 that saw JD's stock price fall about 30% from its high. There are a few support levels that investors can focus on, most notably, the $70 support level that saw strong buying interest, as well as the $59 support level. The bulls are trying to retake the $79 support level which coincides with the dynamic resistance level marked by the 50-period MA at the moment. Therefore, investors who wish to add or initiate their positions may consider adding somewhere near the $70 level, and the $59 level if it retraces further, while avoiding adding near $79 in the near term.\nFor Chinese stocks, the Chinese and U.S. regulators will likely remain as the most important near term risk that may cause further compressions in its stock prices. However, as a long term investor who is still bullish on JD, I don't see that as a risk per se, but instead as an opportunity to add further into stocks like JD who in my opinion is fairly valued, and not expensive. The more the stock falls in the future due to policy changes or stiff rules from Beijing or Washington, the more attractive it will get for long term investors who have yet to initiate a position.\nWrapping it all up\nI'm a JD shareholder, and likely to remain so moving forward. What I had wanted to present in this article is to demonstrate why JD continues to trade at such low revenue multiples even as it continues to power ahead in its revenue growth. Investors should understand that although from the price action point of view JD I don't consider JD as a value trap, but I also don't consider JD as very attractive right now. It certainly deserves its current valuation and growth investors should taper their expectations in seeing the stock race ahead in the coming years.","collect":0,"html":"<!DOCTYPE html>\n<html>\n<head>\n<meta http-equiv=\"Content-Type\" content=\"text/html; charset=utf-8\" />\n<meta name=\"viewport\" content=\"width=device-width,initial-scale=1.0,minimum-scale=1.0,maximum-scale=1.0,user-scalable=no\"/>\n<meta name=\"format-detection\" content=\"telephone=no,email=no,address=no\" />\n<title>JD.com: Its Business Model Is Deserving Of Its Current Valuation</title>\n<style type=\"text/css\">\na,abbr,acronym,address,applet,article,aside,audio,b,big,blockquote,body,canvas,caption,center,cite,code,dd,del,details,dfn,div,dl,dt,\nem,embed,fieldset,figcaption,figure,footer,form,h1,h2,h3,h4,h5,h6,header,hgroup,html,i,iframe,img,ins,kbd,label,legend,li,mark,menu,nav,\nobject,ol,output,p,pre,q,ruby,s,samp,section,small,span,strike,strong,sub,summary,sup,table,tbody,td,tfoot,th,thead,time,tr,tt,u,ul,var,video{ font:inherit;margin:0;padding:0;vertical-align:baseline;border:0 }\nbody{ font-size:16px; line-height:1.5; color:#999; background:transparent; }\n.wrapper{ overflow:hidden;word-break:break-all;padding:10px; }\nh1,h2{ font-weight:normal; line-height:1.35; margin-bottom:.6em; }\nh3,h4,h5,h6{ line-height:1.35; margin-bottom:1em; }\nh1{ font-size:24px; }\nh2{ font-size:20px; }\nh3{ font-size:18px; }\nh4{ font-size:16px; }\nh5{ font-size:14px; }\nh6{ font-size:12px; }\np,ul,ol,blockquote,dl,table{ margin:1.2em 0; }\nul,ol{ margin-left:2em; }\nul{ list-style:disc; }\nol{ list-style:decimal; }\nli,li p{ margin:10px 0;}\nimg{ max-width:100%;display:block;margin:0 auto 1em; }\nblockquote{ color:#B5B2B1; border-left:3px solid #aaa; padding:1em; }\nstrong,b{font-weight:bold;}\nem,i{font-style:italic;}\ntable{ width:100%;border-collapse:collapse;border-spacing:1px;margin:1em 0;font-size:.9em; }\nth,td{ padding:5px;text-align:left;border:1px solid #aaa; }\nth{ font-weight:bold;background:#5d5d5d; }\n.symbol-link{font-weight:bold;}\n/* header{ border-bottom:1px solid #494756; } */\n.title{ margin:0 0 8px;line-height:1.3;color:#ddd; }\n.meta {color:#5e5c6d;font-size:13px;margin:0 0 .5em; }\na{text-decoration:none; color:#2a4b87;}\n.meta .head { display: inline-block; overflow: hidden}\n.head .h-thumb { width: 30px; height: 30px; margin: 0; padding: 0; border-radius: 50%; float: left;}\n.head .h-content { margin: 0; padding: 0 0 0 9px; float: left;}\n.head .h-name {font-size: 13px; color: #eee; margin: 0;}\n.head .h-time {font-size: 11px; color: #7E829C; margin: 0;line-height: 11px;}\n.small {font-size: 12.5px; display: inline-block; transform: scale(0.9); -webkit-transform: scale(0.9); transform-origin: left; -webkit-transform-origin: left;}\n.smaller {font-size: 12.5px; display: inline-block; transform: scale(0.8); -webkit-transform: scale(0.8); transform-origin: left; -webkit-transform-origin: left;}\n.bt-text {font-size: 12px;margin: 1.5em 0 0 0}\n.bt-text p {margin: 0}\n</style>\n</head>\n<body>\n<div class=\"wrapper\">\n<header>\n<h2 class=\"title\">\nJD.com: Its Business Model Is Deserving Of Its Current Valuation\n</h2>\n\n<h4 class=\"meta\">\n\n\n2021-06-03 23:22 GMT+8&nbsp;&nbsp;&nbsp;<a href=https://seekingalpha.com/article/4432860-jd-com-business-model-deserving-current-valuation>seekingalpha</a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\nSummary\n\nJD is often branded as the most “undervalued” stock of all its e-commerce peers by growth and value investors alike.\nEven though the company’s revenue growth rates have impressed, its ...\n\n<a href=\"https://seekingalpha.com/article/4432860-jd-com-business-model-deserving-current-valuation\">Web Link</a>\n\n</div>\n\n\n</article>\n</div>\n</body>\n</html>\n","type":0,"thumbnail":"","relate_stocks":{"09618":"京东集团-SW","JD":"京东"},"source_url":"https://seekingalpha.com/article/4432860-jd-com-business-model-deserving-current-valuation","is_english":true,"share_image_url":"https://static.laohu8.com/e9f99090a1c2ed51c021029395664489","article_id":"1171251318","content_text":"Summary\n\nJD is often branded as the most “undervalued” stock of all its e-commerce peers by growth and value investors alike.\nEven though the company’s revenue growth rates have impressed, its operating performances have not really been on par.\nI discuss why JD’s current valuations reflect the reality of its business model, and what growth and value investors should focus on to value the company.\n\nPhoto by Kevin Frayer/Getty Images News via Getty Images\nInvestment Thesis\nJD.com's (JD) low EV/Revenue multiples have often baffled growth and value investors. The relatively high revenue growth rates that the investors have grown accustomed to in the rapidly expanding Chinese e-commerce market has not cascaded down to its market cap as compared to its peers. I attempt to present my opinion on why JD may have exhibited a high revenue growth profile, but not necessarily the operating performances to match its peers.\nJD's Incredibly Low Revenue Multiples\nThe company has often been compared to Amazon (AMZN) in its early days or even compared to Shopify (SHOP) for having a revenue multiple that's way lower, and therefore implying a better buy.\nHowever when I looked under the hood into JD's business model and its operating performances, I found enough underlying weaknesses in JD's business model that perhaps indicate why the market continues to value JD at such low multiples despite having posted impressive growth rates.\nLTM Revenue Growth & Price / LTM Sales. Data Source: S&P Global Market Intelligence\nAs we can see from the chart above, JD has posted remarkable YoY revenue growth rates for the last 5 years, the \"slowest\" one being 22.7%. In fact, JD's LTM revenue growth rate has been accelerating recently, reaching 33.3% at the recent quarter. Despite that, its EV / LTM Rev multiple has consistently been under 1.1x, marking its strong appeal as a \"cheap\" growth stock.\nPrice/LTM Sales Percentile. Source: Tiger Brokers\nIn fact, JD's Price/LTM sales is currently at the 32nd percentile when we compare its multiples over the last 5 years, potentially even creating opportunities for value investors who may be on the lookout for a \"next Amazon\" type of stock that is selling for a real bargain now.\nJD and AMZN Market Cap, LTM Revenue, Revenue 3Y CAGR, EV / LTM Rev. Data Source: S&P Global Market Intelligence\nA quick glance over to Alibaba's (BABA) metrics unveil some interesting observations. Even though BABA's market cap is close to 5x that of JD's, BABA actually reported a lower LTM revenue (89% of JD's LTM revenue) than JD. In fact, BABA has reported lower revenue figures than JD over the last 5 years (see chart below). Both BABA and JD are revenue growth machines, with BABA's 3Y CAGR of 42% and JD's 3Y CAGR of 27.2%. Despite JD's impressive revenue growth, BABA is valued at 5.5x more than JD here based on their respective revenue multiples, which therefore raises the question of whether the market has unreasonably valued JD too low than what it actually deserves?\nBABA & JD LTM Revenue Trend. Data Source: S&P Global Market Intelligence\nJD Annual Active Customer Count. Data Source: Company Filings\nJD Annual Active Customer YoY Growth. Data Source: Company Filings\nIn fact, JD has been improving its active customer growth since Q3'19 as prior to that, JD had in fact suffered dramatic declines over multiple consecutive quarters of slowing customer growth. This coincided with the company's foray into Jingxi in 2019, which is the company's answer to Pinduoduo (PDD). The management also emphasized that: \"In the past 12 months, we gained 112 million new active users, with over 80% coming from lower-tier markets.\" Therefore quite clearly, Jingxi's customer growth has been the impetus behind the strong quarters of ARPC growth for JD.\nJD Average Revenue Per Active Customer. Data Source: Company Filings\nJD Average Revenue Per Active Customer YoY Growth. Data Source: Company Filings\nWhen we zoomed into the company's average revenue per active customer metrics, we could see that the underlying growth (up 11.7% YoY at the recent quarter) has been relatively healthy as well while the company continues to scale up its customer growth through the lower-tier markets.\nOkay, then how does JD's Operating Performances look like?\nEBIT Margin, CFO Margin, FCF Margin. Data Source: S&P Global Market Intelligence\nI had mentioned before in my article here for Coupang (CPNG), that for businesses that are potentially highly scalable such as JD's, we do not have to necessarily worry about the company's low operating margin business model as long as they are able to scale up quickly towards high FCF profitability. JD has always been operating with low operating margin (LTM EBIT margin of 1.2%), as that's the nature of its business model. Despite that, the company has still been able to generate relatively healthy FCF margins (LTM FCF margin 2.7%). Investors also shouldn't expect SaaS like FCF margins here as the business model is entirely different and JD is obviously going after those huge GMV growth. What we want to see though is whether the company is able to continue generating fast-growing and highly sustainable FCF moving forward.\nPeers Projected Unlevered FCF Margin. Data Source: S&P Global Market Intelligence\nPeers Projected Unlevered FCF 5Y CAGR. Data Source: S&P Global Market Intelligence\nThe problem arose when I tried to model JD's FCF growth moving forward. Quite clearly, JD does not seem to be able to improve its FCF margin strongly over time, with the projected FCF margins largely still in line with the historical ones.\nThat isn't something that we would like to see in a growth stock. Moreover the company's projected FCF margins are simply too low to be even classified as a cash flow machine. When we compare JD with its peers, we can clearly see that all of them, including AMZN are projected to generate very strong FCF growth moving forward, with JD's 5Y CAGR of 19.4% coming in last here. JD doesn't seem to be able to leverage on its relatively fast revenue growth to expand its FCF generating prowess as compared to its peers.\nNon-Peers Projected Unlevered FCF 5Y CAGR & Projected Unlevered FCF Margin. Data Source: S&P Global Market Intelligence\nIn order to help investors better understand what I mean, we can refer to the chart above to give an idea of what I meant as companies who are already in relatively stable growth stages with highly sustainable FCF margins as we model their FCF growth profile. It may be argued that Facebook (FB) is still a growth stock (but no longer as high growth as it once was) as it's still expected to generate relatively high FCF growth moving forward while commanding a remarkably high FCF margin as well. In addition, we could also see clearly that stable players often preferred by value investors such as Microsoft (MSFT), Qualcomm (QCOM) and Cisco (CSCO) are also expected to carry forward their high FCF margins moving forward. In contrast, JD's low 2.7% 5-year average FCF margin doesn't qualify it as a high quality stable stock for value investors to consider.\nWhat about JD's Growth Drivers?\nNow the interesting thing here is that JD has maintained that its business is still running at the \"high-growth\" stage as it emphasized:\n\n First of all, we prioritize growth above the importance of profitabilitybecause across all of our business lines, we are still in the high-growth stage. But each segment or each business line is actually in a different development stage. So we have kind of a differentiated investment strategy. So for JD Retail, we still -- you can see that for the first quarter and in the past few quarters, they continue to maintain a high-growth rate.\n\nThe management also added that they would likely continue to benefit from improved economies of scale and operating leverage as they bank on the rapid expansion of JD's retail business, allowing the company to continue improving its long term profit margin over time.\nJD LTM EBIT Margin & Projected EBIT Margin, LTM Unlevered FCF Margin & Projected Unlevered FCF Margin. Data Source: S&P Global Market Intelligence\nIn order to be clear of that, when I modelled JD's EBIT margin and FCF margin growth, I find it hard pressed to have agreement with the management's point of expecting sustained improvement in their operating performance over time as they scale up rapidly. First, the company is already coming off a very low base of EBIT (LTM EBIT margin: 1.2%) and FCF profitability (LTM Unlevered FCF margin: 0.8%), therefore I think it's not unreasonable to expect the company to post a significant improvement to its FCF profitability over time. However, as we can see above, those EBIT margin improvements don't really seem to cascade down to its FCF bottomline.\nJD Q1'21 Segment Revenue. Source:JD 6-K\nIt's important to note that JD retail is the company's main revenue and profit driver, accounting for 91% of Q1'21 revenue, while also subsidizing the losses from its other segments (one of which was JD Logistics which has already been spun off recently). It's difficult to see how its forays into its new businesses can be reasonably sustained over time when they don't have a highly profitable cash flow driver in JD Retail.\nAMZN EBIT Margin & Projected EBIT Margin, Unlevered FCF Margin & Projected Unlevered FCF Margin. Data Source: S&P Global Market Intelligence\nSea Limited EBIT Margin & Projected EBIT Margin, Unlevered FCF Margin & Projected Unlevered FCF Margin. Data Source: S&P Global Market Intelligence\nWe could refer to the above charts to see how important it's to have highly profitable cash flow segments to drive its operating performances even as the companies continue to scale up: AMZN with its AWS segment, as well as Sea's (SE) Garena segment, which I had covered in a recent article here. This cash flow segments allow them to reinvest into its highly scalable e-commerce segments and over time significantly improve their overall cash flow and EBIT profile. JD's business model certainly doesn't have the luxury of relying on such a segment to drive its growth, and therefore it's reflected clearly in its operating performances moving forward.\nValuations\nPeers Consensus Analysts Upside & EV / FY+1 Rev. Data Source: S&P Global Market Intelligence\nIf we simply base off JD's expected revenue growth, there's little doubt that JD seems to be valued at fire sale prices now. However, as mentioned earlier in the article, JD has always been valued at very low EV / Rev multiples historically as compared to its peers. In addition, the Street also remains highly confident of JD's upside potential (35.6%) as compared to its peers.\nJD & SE Ev / Fwd (EBITDA - CapEx) Trend. Data Source: S&P Global Market Intelligence\nAs I have emphasized earlier, using revenue figures to look at JD's growth potential may not accurately reflect the company's scalability potential. Here, we can see how SE's high potential to scale is clearly reflected in its FCF profile, where I use (EBITDA - CapEx) as a proxy here to remove the effects of lumpy working capital changes. SE's valuations are expected to come down significantly as it scales across South East Asia, generating lots of cash flow in the process. However, JD on the other hand doesn't seem to be quite as attractively valued as compared to SE when we project their growth rates forward.\nPrice Action & Technical Analysis\nSource: TradingView\nA silver lining here is that JD's long term uptrend remains intact despite the sell-off in Chinese stocks in Feb 21 that saw JD's stock price fall about 30% from its high. There are a few support levels that investors can focus on, most notably, the $70 support level that saw strong buying interest, as well as the $59 support level. The bulls are trying to retake the $79 support level which coincides with the dynamic resistance level marked by the 50-period MA at the moment. Therefore, investors who wish to add or initiate their positions may consider adding somewhere near the $70 level, and the $59 level if it retraces further, while avoiding adding near $79 in the near term.\nFor Chinese stocks, the Chinese and U.S. regulators will likely remain as the most important near term risk that may cause further compressions in its stock prices. However, as a long term investor who is still bullish on JD, I don't see that as a risk per se, but instead as an opportunity to add further into stocks like JD who in my opinion is fairly valued, and not expensive. The more the stock falls in the future due to policy changes or stiff rules from Beijing or Washington, the more attractive it will get for long term investors who have yet to initiate a position.\nWrapping it all up\nI'm a JD shareholder, and likely to remain so moving forward. What I had wanted to present in this article is to demonstrate why JD continues to trade at such low revenue multiples even as it continues to power ahead in its revenue growth. Investors should understand that although from the price action point of view JD I don't consider JD as a value trap, but I also don't consider JD as very attractive right now. It certainly deserves its current valuation and growth investors should taper their expectations in seeing the stock race ahead in the coming years.","news_type":1},"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"comments":[{"id":4570750,"gmtCreate":1622765843872,"gmtModify":1663227912739,"authorId":3581986219897450,"author":{"id":3581986219897450,"idStr":"3581986219897450","authorId":3581986219897450,"name":"DennisMe","avatar":"https://static.tigerbbs.com/59198f5fbfd4a0baed289097df49b643","vip":1,"crmLevel":1,"crmLevelSwitch":0,"individualDisplayBadges":[]},"repliedAuthorId":0,"objectId":118772102,"type":1,"supId":0,"prevId":0,"content":"Like my comment back thanks","text":"Like my comment back thanks","html":"Like my comment back thanks"}],"langContent":"EN"},{"id":118745281,"gmtCreate":1622763820443,"gmtModify":1704190592768,"author":{"id":"3555557009386362","authorId":"3555557009386362","name":"FuNman168","avatar":"https://static.tigerbbs.com/514a27d720a081249aac55d90187f4e2","vip":1,"crmLevel":1,"crmLevelSwitch":0,"idStr":"3555557009386362","authorIdStr":"3555557009386362"},"htmlText":"Pls like n comment&nbsp;","listText":"Pls like n comment&nbsp;","text":"Pls like n comment","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":5,"commentSize":2,"repostSize":0,"link":"https://ttm.financial/post/118745281","repostId":1171251318,"repostType":4,"repost":{"id":"1171251318","pubTimestamp":1622733765,"share":"https://ttm.financial/m/news/1171251318?lang=&edition=fundamental","pubTime":"2021-06-03 23:22","market":"hk","language":"en","title":"JD.com: Its Business Model Is Deserving Of Its Current Valuation","url":"https://stock-news.laohu8.com/highlight/detail?id=1171251318","media":"seekingalpha","summary":"Summary\n\nJD is often branded as the most “undervalued” stock of all its e-commerce peers by growth a","content":"Summary\n<ul>\n <li>JD is often branded as the most “undervalued” stock of all its e-commerce peers by growth and value investors alike.</li>\n <li>Even though the company’s revenue growth rates have impressed, its operating performances have not really been on par.</li>\n <li>I discuss why JD’s current valuations reflect the reality of its business model, and what growth and value investors should focus on to value the company.</li>\n</ul>\n<img src=\"https://static.tigerbbs.com/3bc39a30a57f05b994781d4a3a51c0de\" tg-width=\"1536\" tg-height=\"1092\">Photo by Kevin Frayer/Getty Images News via Getty Images\nInvestment Thesis\nJD.com's (JD) low EV/Revenue multiples have often baffled growth and value investors. The relatively high revenue growth rates that the investors have grown accustomed to in the rapidly expanding Chinese e-commerce market has not cascaded down to its market cap as compared to its peers. I attempt to present my opinion on why JD may have exhibited a high revenue growth profile, but not necessarily the operating performances to match its peers.\nJD's Incredibly Low Revenue Multiples\nThe company has often been compared to Amazon (AMZN) in its early days or even compared to Shopify (SHOP) for having a revenue multiple that's way lower, and therefore implying a better buy.\nHowever when I looked under the hood into JD's business model and its operating performances, I found enough underlying weaknesses in JD's business model that perhaps indicate why the market continues to value JD at such low multiples despite having posted impressive growth rates.\n<img src=\"https://static.tigerbbs.com/dd8c028415efa231c377fb5f68a00858\" tg-width=\"1280\" tg-height=\"844\">LTM Revenue Growth &amp; Price / LTM Sales. Data Source: S&amp;P Global Market Intelligence\nAs we can see from the chart above, JD has posted remarkable YoY revenue growth rates for the last 5 years, the \"slowest\" one being 22.7%. In fact, JD's LTM revenue growth rate has been accelerating recently, reaching 33.3% at the recent quarter. Despite that, its EV / LTM Rev multiple has consistently been under 1.1x, marking its strong appeal as a \"cheap\" growth stock.\n<img src=\"https://static.tigerbbs.com/b5429847bb5cdb8de25028528ae70f6a\" tg-width=\"1280\" tg-height=\"811\">Price/LTM Sales Percentile. Source: Tiger Brokers\nIn fact, JD's Price/LTM sales is currently at the 32nd percentile when we compare its multiples over the last 5 years, potentially even creating opportunities for value investors who may be on the lookout for a \"next Amazon\" type of stock that is selling for a real bargain now.\n<img src=\"https://static.tigerbbs.com/4a33a3a8b9c3f7cfd6393fb14a77852c\" tg-width=\"1280\" tg-height=\"776\">JD and AMZN Market Cap, LTM Revenue, Revenue 3Y CAGR, EV / LTM Rev. Data Source: S&amp;P Global Market Intelligence\nA quick glance over to Alibaba's (BABA) metrics unveil some interesting observations. Even though BABA's market cap is close to 5x that of JD's, BABA actually reported a lower LTM revenue (89% of JD's LTM revenue) than JD. In fact, BABA has reported lower revenue figures than JD over the last 5 years (see chart below). Both BABA and JD are revenue growth machines, with BABA's 3Y CAGR of 42% and JD's 3Y CAGR of 27.2%. Despite JD's impressive revenue growth, BABA is valued at 5.5x more than JD here based on their respective revenue multiples, which therefore raises the question of whether the market has unreasonably valued JD too low than what it actually deserves?\n<img src=\"https://static.tigerbbs.com/09064245a10bfce0ca518de2ba958e28\" tg-width=\"1280\" tg-height=\"774\">BABA &amp; JD LTM Revenue Trend. Data Source: S&amp;P Global Market Intelligence\n<img src=\"https://static.tigerbbs.com/a7ad67e5be6dba93461b1cb1813d0aa8\" tg-width=\"1257\" tg-height=\"474\">JD Annual Active Customer Count. Data Source: Company Filings\n<img src=\"https://static.tigerbbs.com/b156a6b3eb509a01ef58375a4d035718\" tg-width=\"600\" tg-height=\"371\">JD Annual Active Customer YoY Growth. Data Source: Company Filings\nIn fact, JD has been improving its active customer growth since Q3'19 as prior to that, JD had in fact suffered dramatic declines over multiple consecutive quarters of slowing customer growth. This coincided with the company's foray into&nbsp;Jingxi in 2019, which is the company's answer to Pinduoduo (PDD). The management also emphasized that: \"In the past 12 months, we gained 112 million new active users, with over&nbsp;80% coming from lower-tier markets.\" Therefore quite clearly, Jingxi's customer growth has been the impetus behind the strong quarters of ARPC growth for JD.\n<img src=\"https://static.tigerbbs.com/16b3ae3a7907e114e3e3874b5f7d2851\" tg-width=\"962\" tg-height=\"595\">JD Average Revenue Per Active Customer. Data Source: Company Filings\n<img src=\"https://static.tigerbbs.com/4a17b7b3775c0d8c1ab4b05856429210\" tg-width=\"600\" tg-height=\"371\">JD Average Revenue Per Active Customer YoY Growth. Data Source: Company Filings\nWhen we zoomed into the company's average revenue per active customer metrics, we could see that the underlying growth (up 11.7% YoY at the recent quarter) has been relatively healthy as well while the company continues to scale up its customer growth through the lower-tier markets.\nOkay, then how does JD's Operating Performances look like?\n<img src=\"https://static.tigerbbs.com/365fbee247a722170a072c2dc2b83e38\" tg-width=\"1280\" tg-height=\"703\">EBIT Margin, CFO Margin, FCF Margin. Data Source: S&amp;P Global Market Intelligence\nI had mentioned before in&nbsp;my article here&nbsp;for Coupang (CPNG), that for businesses that are potentially highly scalable such as JD's, we do not have to necessarily worry about the company's low operating margin business model as long as they are able to scale up quickly towards high FCF profitability. JD has always been operating with low operating margin (LTM EBIT margin of 1.2%), as that's the nature of its business model. Despite that, the company has still been able to generate relatively healthy FCF margins (LTM FCF margin 2.7%). Investors also shouldn't expect SaaS like FCF margins here as the business model is entirely different and JD is obviously going after those huge GMV growth. What we want to see though is whether the company is able to continue generating fast-growing and highly sustainable FCF moving forward.\n<img src=\"https://static.tigerbbs.com/b36f757fa706b6f349f44add10229761\" tg-width=\"1280\" tg-height=\"708\">Peers Projected Unlevered FCF Margin. Data Source: S&amp;P Global Market Intelligence\n<img src=\"https://static.tigerbbs.com/328507a06929411b3b72e85c8c8169b2\" tg-width=\"1280\" tg-height=\"693\">Peers Projected Unlevered FCF 5Y CAGR. Data Source: S&amp;P Global Market Intelligence\nThe problem arose when I tried to model JD's FCF growth moving forward. Quite clearly, JD does not seem to be able to improve its FCF margin strongly over time, with the projected FCF margins largely still in line with the historical ones.\nThat isn't something that we would like to see in a growth stock. Moreover the company's projected FCF margins are simply too low to be even classified as a cash flow machine. When we compare JD with its peers, we can clearly see that all of them, including AMZN are projected to generate very strong FCF growth moving forward, with JD's 5Y CAGR of 19.4% coming in last here. JD doesn't seem to be able to leverage on its relatively fast revenue growth to expand its FCF generating prowess as compared to its peers.\n<img src=\"https://static.tigerbbs.com/34da8b0865452a029c93f57dc8104697\" tg-width=\"1280\" tg-height=\"684\">Non-Peers Projected Unlevered FCF 5Y CAGR &amp; Projected Unlevered FCF Margin. Data Source: S&amp;P Global Market Intelligence\nIn order to help investors better understand what I mean, we can refer to the chart above to give an idea of what I meant as companies who are already in relatively stable growth stages with highly sustainable FCF margins as we model their FCF growth profile. It may be argued that Facebook (FB) is still a growth stock (but no longer as high growth as it once was) as it's still expected to generate relatively high FCF growth moving forward while commanding a remarkably high FCF margin as well. In addition, we could also see clearly that stable players often preferred by value investors such as Microsoft (MSFT), Qualcomm (QCOM) and Cisco (CSCO) are also expected to carry forward their high FCF margins moving forward. In contrast, JD's low 2.7% 5-year average FCF margin doesn't qualify it as a high quality stable stock for value investors to consider.\nWhat about JD's Growth Drivers?\nNow the interesting thing here is that JD has maintained that its business is still running at the \"high-growth\" stage as it emphasized:\n<blockquote>\n First of all, we&nbsp;prioritize growth above the importance of profitabilitybecause across all of our business lines, we are still in the high-growth stage. But each segment or each business line is actually in a different development stage. So we have kind of a differentiated investment strategy. So for JD Retail, we still -- you can see that for the first quarter and in the past few quarters, they continue to maintain a high-growth rate.\n</blockquote>\nThe management also added that they would likely continue to benefit from improved economies of scale and operating leverage as they bank on the rapid expansion of JD's retail business, allowing the company to continue improving its long term profit margin over time.\n<img src=\"https://static.tigerbbs.com/8477039f4b9693704cbbaf64530da052\" tg-width=\"1280\" tg-height=\"706\">JD LTM EBIT Margin &amp; Projected EBIT Margin, LTM Unlevered FCF Margin &amp; Projected Unlevered FCF Margin. Data Source: S&amp;P Global Market Intelligence\nIn order to be clear of that, when I modelled JD's EBIT margin and FCF margin growth, I find it hard pressed to have agreement with the management's point of expecting sustained improvement in their operating performance over time as they scale up rapidly. First, the company is already coming off a very low base of EBIT (LTM EBIT margin: 1.2%) and FCF profitability (LTM Unlevered FCF margin: 0.8%), therefore I think it's not unreasonable to expect the company to post a significant improvement to its FCF profitability over time. However, as we can see above, those EBIT margin improvements don't really seem to cascade down to its FCF bottomline.\n<img src=\"https://static.tigerbbs.com/34fa89d4e61ac3e70091cc064b4dc51a\" tg-width=\"1280\" tg-height=\"626\">JD Q1'21 Segment Revenue. Source:JD 6-K\nIt's important to note that JD retail is the company's main revenue and profit driver, accounting for 91% of Q1'21 revenue, while also subsidizing the losses from its other segments (one of which was JD Logistics which has already been spun off recently). It's difficult to see how its forays into its new businesses can be reasonably sustained over time when they don't have a highly profitable cash flow driver in JD Retail.\n<img src=\"https://static.tigerbbs.com/85c510c5f8c49a1fde429fcbe1892c30\" tg-width=\"1280\" tg-height=\"704\">AMZN EBIT Margin &amp; Projected EBIT Margin, Unlevered FCF Margin &amp; Projected Unlevered FCF Margin. Data Source: S&amp;P Global Market Intelligence\n<img src=\"https://static.tigerbbs.com/6dcf33c4272b764cbad4a64cca5bdbfd\" tg-width=\"1280\" tg-height=\"711\">Sea Limited EBIT Margin &amp; Projected EBIT Margin, Unlevered FCF Margin &amp; Projected Unlevered FCF Margin. Data Source: S&amp;P Global Market Intelligence\nWe could refer to the above charts to see how important it's to have highly profitable cash flow segments to drive its operating performances even as the companies continue to scale up: AMZN with its AWS segment, as well as Sea's (SE) Garena segment, which I had covered in a&nbsp;recent article here. This cash flow segments allow them to reinvest into its highly scalable e-commerce segments and over time significantly improve their overall cash flow and EBIT profile. JD's business model certainly doesn't have the luxury of relying on such a segment to drive its growth, and therefore it's reflected clearly in its operating performances moving forward.\nValuations\n<img src=\"https://static.tigerbbs.com/2ec37dd8957f5cadcf9615fa414bb78d\" tg-width=\"1280\" tg-height=\"726\">Peers Consensus Analysts Upside &amp; EV / FY+1 Rev. Data Source: S&amp;P Global Market Intelligence\nIf we simply base off JD's expected revenue growth, there's little doubt that JD seems to be valued at fire sale prices now. However, as mentioned earlier in the article, JD has always been valued at very low EV / Rev multiples historically as compared to its peers. In addition, the Street also remains highly confident of JD's upside potential (35.6%) as compared to its peers.\n<img src=\"https://static.tigerbbs.com/56bd8f33da9baab688b59439b44a827b\" tg-width=\"1280\" tg-height=\"709\">JD &amp; SE Ev / Fwd (EBITDA - CapEx) Trend. Data Source: S&amp;P Global Market Intelligence\nAs I have emphasized earlier, using revenue figures to look at JD's growth potential may not accurately reflect the company's scalability potential. Here, we can see how SE's high potential to scale is clearly reflected in its FCF profile, where I use (EBITDA - CapEx) as a proxy here to remove the effects of lumpy working capital changes. SE's valuations are expected to come down significantly as it scales across South East Asia, generating lots of cash flow in the process. However, JD on the other hand doesn't seem to be quite as attractively valued as compared to SE when we project their growth rates forward.\nPrice Action &amp; Technical Analysis\n<img src=\"https://static.tigerbbs.com/98b516b4268fe8418e750d8717769eaf\" tg-width=\"1280\" tg-height=\"798\">Source: TradingView\nA silver lining here is that JD's long term uptrend remains intact despite the sell-off in Chinese stocks in Feb 21 that saw JD's stock price fall about 30% from its high. There are a few support levels that investors can focus on, most notably, the $70 support level that saw strong buying interest, as well as the $59 support level. The bulls are trying to retake the $79 support level which coincides with the dynamic resistance level marked by the 50-period MA at the moment. Therefore, investors who wish to add or initiate their positions may consider adding somewhere near the $70 level, and the $59 level if it retraces further, while avoiding adding near $79 in the near term.\nFor Chinese stocks, the Chinese and U.S. regulators will likely remain as the most important near term risk that may cause further compressions in its stock prices. However, as a long term investor who is still bullish on JD, I don't see that as a risk per se, but instead as an opportunity to add further into stocks like JD who in my opinion is fairly valued, and not expensive. The more the stock falls in the future due to policy changes or stiff rules from Beijing or Washington, the more attractive it will get for long term investors who have yet to initiate a position.\nWrapping it all up\nI'm a JD shareholder, and likely to remain so moving forward. What I had wanted to present in this article is to demonstrate why JD continues to trade at such low revenue multiples even as it continues to power ahead in its revenue growth. Investors should understand that although from the price action point of view JD I don't consider JD as a value trap, but I also don't consider JD as very attractive right now. It certainly deserves its current valuation and growth investors should taper their expectations in seeing the stock race ahead in the coming years.","collect":0,"html":"<!DOCTYPE html>\n<html>\n<head>\n<meta http-equiv=\"Content-Type\" content=\"text/html; charset=utf-8\" />\n<meta name=\"viewport\" content=\"width=device-width,initial-scale=1.0,minimum-scale=1.0,maximum-scale=1.0,user-scalable=no\"/>\n<meta name=\"format-detection\" content=\"telephone=no,email=no,address=no\" />\n<title>JD.com: Its Business Model Is Deserving Of Its Current Valuation</title>\n<style type=\"text/css\">\na,abbr,acronym,address,applet,article,aside,audio,b,big,blockquote,body,canvas,caption,center,cite,code,dd,del,details,dfn,div,dl,dt,\nem,embed,fieldset,figcaption,figure,footer,form,h1,h2,h3,h4,h5,h6,header,hgroup,html,i,iframe,img,ins,kbd,label,legend,li,mark,menu,nav,\nobject,ol,output,p,pre,q,ruby,s,samp,section,small,span,strike,strong,sub,summary,sup,table,tbody,td,tfoot,th,thead,time,tr,tt,u,ul,var,video{ font:inherit;margin:0;padding:0;vertical-align:baseline;border:0 }\nbody{ font-size:16px; line-height:1.5; color:#999; background:transparent; }\n.wrapper{ overflow:hidden;word-break:break-all;padding:10px; }\nh1,h2{ font-weight:normal; line-height:1.35; margin-bottom:.6em; }\nh3,h4,h5,h6{ line-height:1.35; margin-bottom:1em; }\nh1{ font-size:24px; }\nh2{ font-size:20px; }\nh3{ font-size:18px; }\nh4{ font-size:16px; }\nh5{ font-size:14px; }\nh6{ font-size:12px; }\np,ul,ol,blockquote,dl,table{ margin:1.2em 0; }\nul,ol{ margin-left:2em; }\nul{ list-style:disc; }\nol{ list-style:decimal; }\nli,li p{ margin:10px 0;}\nimg{ max-width:100%;display:block;margin:0 auto 1em; }\nblockquote{ color:#B5B2B1; border-left:3px solid #aaa; padding:1em; }\nstrong,b{font-weight:bold;}\nem,i{font-style:italic;}\ntable{ width:100%;border-collapse:collapse;border-spacing:1px;margin:1em 0;font-size:.9em; }\nth,td{ padding:5px;text-align:left;border:1px solid #aaa; }\nth{ font-weight:bold;background:#5d5d5d; }\n.symbol-link{font-weight:bold;}\n/* header{ border-bottom:1px solid #494756; } */\n.title{ margin:0 0 8px;line-height:1.3;color:#ddd; }\n.meta {color:#5e5c6d;font-size:13px;margin:0 0 .5em; }\na{text-decoration:none; color:#2a4b87;}\n.meta .head { display: inline-block; overflow: hidden}\n.head .h-thumb { width: 30px; height: 30px; margin: 0; padding: 0; border-radius: 50%; float: left;}\n.head .h-content { margin: 0; padding: 0 0 0 9px; float: left;}\n.head .h-name {font-size: 13px; color: #eee; margin: 0;}\n.head .h-time {font-size: 11px; color: #7E829C; margin: 0;line-height: 11px;}\n.small {font-size: 12.5px; display: inline-block; transform: scale(0.9); -webkit-transform: scale(0.9); transform-origin: left; -webkit-transform-origin: left;}\n.smaller {font-size: 12.5px; display: inline-block; transform: scale(0.8); -webkit-transform: scale(0.8); transform-origin: left; -webkit-transform-origin: left;}\n.bt-text {font-size: 12px;margin: 1.5em 0 0 0}\n.bt-text p {margin: 0}\n</style>\n</head>\n<body>\n<div class=\"wrapper\">\n<header>\n<h2 class=\"title\">\nJD.com: Its Business Model Is Deserving Of Its Current Valuation\n</h2>\n\n<h4 class=\"meta\">\n\n\n2021-06-03 23:22 GMT+8&nbsp;&nbsp;&nbsp;<a href=https://seekingalpha.com/article/4432860-jd-com-business-model-deserving-current-valuation>seekingalpha</a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\nSummary\n\nJD is often branded as the most “undervalued” stock of all its e-commerce peers by growth and value investors alike.\nEven though the company’s revenue growth rates have impressed, its ...\n\n<a href=\"https://seekingalpha.com/article/4432860-jd-com-business-model-deserving-current-valuation\">Web Link</a>\n\n</div>\n\n\n</article>\n</div>\n</body>\n</html>\n","type":0,"thumbnail":"","relate_stocks":{"09618":"京东集团-SW","JD":"京东"},"source_url":"https://seekingalpha.com/article/4432860-jd-com-business-model-deserving-current-valuation","is_english":true,"share_image_url":"https://static.laohu8.com/e9f99090a1c2ed51c021029395664489","article_id":"1171251318","content_text":"Summary\n\nJD is often branded as the most “undervalued” stock of all its e-commerce peers by growth and value investors alike.\nEven though the company’s revenue growth rates have impressed, its operating performances have not really been on par.\nI discuss why JD’s current valuations reflect the reality of its business model, and what growth and value investors should focus on to value the company.\n\nPhoto by Kevin Frayer/Getty Images News via Getty Images\nInvestment Thesis\nJD.com's (JD) low EV/Revenue multiples have often baffled growth and value investors. The relatively high revenue growth rates that the investors have grown accustomed to in the rapidly expanding Chinese e-commerce market has not cascaded down to its market cap as compared to its peers. I attempt to present my opinion on why JD may have exhibited a high revenue growth profile, but not necessarily the operating performances to match its peers.\nJD's Incredibly Low Revenue Multiples\nThe company has often been compared to Amazon (AMZN) in its early days or even compared to Shopify (SHOP) for having a revenue multiple that's way lower, and therefore implying a better buy.\nHowever when I looked under the hood into JD's business model and its operating performances, I found enough underlying weaknesses in JD's business model that perhaps indicate why the market continues to value JD at such low multiples despite having posted impressive growth rates.\nLTM Revenue Growth & Price / LTM Sales. Data Source: S&P Global Market Intelligence\nAs we can see from the chart above, JD has posted remarkable YoY revenue growth rates for the last 5 years, the \"slowest\" one being 22.7%. In fact, JD's LTM revenue growth rate has been accelerating recently, reaching 33.3% at the recent quarter. Despite that, its EV / LTM Rev multiple has consistently been under 1.1x, marking its strong appeal as a \"cheap\" growth stock.\nPrice/LTM Sales Percentile. Source: Tiger Brokers\nIn fact, JD's Price/LTM sales is currently at the 32nd percentile when we compare its multiples over the last 5 years, potentially even creating opportunities for value investors who may be on the lookout for a \"next Amazon\" type of stock that is selling for a real bargain now.\nJD and AMZN Market Cap, LTM Revenue, Revenue 3Y CAGR, EV / LTM Rev. Data Source: S&P Global Market Intelligence\nA quick glance over to Alibaba's (BABA) metrics unveil some interesting observations. Even though BABA's market cap is close to 5x that of JD's, BABA actually reported a lower LTM revenue (89% of JD's LTM revenue) than JD. In fact, BABA has reported lower revenue figures than JD over the last 5 years (see chart below). Both BABA and JD are revenue growth machines, with BABA's 3Y CAGR of 42% and JD's 3Y CAGR of 27.2%. Despite JD's impressive revenue growth, BABA is valued at 5.5x more than JD here based on their respective revenue multiples, which therefore raises the question of whether the market has unreasonably valued JD too low than what it actually deserves?\nBABA & JD LTM Revenue Trend. Data Source: S&P Global Market Intelligence\nJD Annual Active Customer Count. Data Source: Company Filings\nJD Annual Active Customer YoY Growth. Data Source: Company Filings\nIn fact, JD has been improving its active customer growth since Q3'19 as prior to that, JD had in fact suffered dramatic declines over multiple consecutive quarters of slowing customer growth. This coincided with the company's foray into Jingxi in 2019, which is the company's answer to Pinduoduo (PDD). The management also emphasized that: \"In the past 12 months, we gained 112 million new active users, with over 80% coming from lower-tier markets.\" Therefore quite clearly, Jingxi's customer growth has been the impetus behind the strong quarters of ARPC growth for JD.\nJD Average Revenue Per Active Customer. Data Source: Company Filings\nJD Average Revenue Per Active Customer YoY Growth. Data Source: Company Filings\nWhen we zoomed into the company's average revenue per active customer metrics, we could see that the underlying growth (up 11.7% YoY at the recent quarter) has been relatively healthy as well while the company continues to scale up its customer growth through the lower-tier markets.\nOkay, then how does JD's Operating Performances look like?\nEBIT Margin, CFO Margin, FCF Margin. Data Source: S&P Global Market Intelligence\nI had mentioned before in my article here for Coupang (CPNG), that for businesses that are potentially highly scalable such as JD's, we do not have to necessarily worry about the company's low operating margin business model as long as they are able to scale up quickly towards high FCF profitability. JD has always been operating with low operating margin (LTM EBIT margin of 1.2%), as that's the nature of its business model. Despite that, the company has still been able to generate relatively healthy FCF margins (LTM FCF margin 2.7%). Investors also shouldn't expect SaaS like FCF margins here as the business model is entirely different and JD is obviously going after those huge GMV growth. What we want to see though is whether the company is able to continue generating fast-growing and highly sustainable FCF moving forward.\nPeers Projected Unlevered FCF Margin. Data Source: S&P Global Market Intelligence\nPeers Projected Unlevered FCF 5Y CAGR. Data Source: S&P Global Market Intelligence\nThe problem arose when I tried to model JD's FCF growth moving forward. Quite clearly, JD does not seem to be able to improve its FCF margin strongly over time, with the projected FCF margins largely still in line with the historical ones.\nThat isn't something that we would like to see in a growth stock. Moreover the company's projected FCF margins are simply too low to be even classified as a cash flow machine. When we compare JD with its peers, we can clearly see that all of them, including AMZN are projected to generate very strong FCF growth moving forward, with JD's 5Y CAGR of 19.4% coming in last here. JD doesn't seem to be able to leverage on its relatively fast revenue growth to expand its FCF generating prowess as compared to its peers.\nNon-Peers Projected Unlevered FCF 5Y CAGR & Projected Unlevered FCF Margin. Data Source: S&P Global Market Intelligence\nIn order to help investors better understand what I mean, we can refer to the chart above to give an idea of what I meant as companies who are already in relatively stable growth stages with highly sustainable FCF margins as we model their FCF growth profile. It may be argued that Facebook (FB) is still a growth stock (but no longer as high growth as it once was) as it's still expected to generate relatively high FCF growth moving forward while commanding a remarkably high FCF margin as well. In addition, we could also see clearly that stable players often preferred by value investors such as Microsoft (MSFT), Qualcomm (QCOM) and Cisco (CSCO) are also expected to carry forward their high FCF margins moving forward. In contrast, JD's low 2.7% 5-year average FCF margin doesn't qualify it as a high quality stable stock for value investors to consider.\nWhat about JD's Growth Drivers?\nNow the interesting thing here is that JD has maintained that its business is still running at the \"high-growth\" stage as it emphasized:\n\n First of all, we prioritize growth above the importance of profitabilitybecause across all of our business lines, we are still in the high-growth stage. But each segment or each business line is actually in a different development stage. So we have kind of a differentiated investment strategy. So for JD Retail, we still -- you can see that for the first quarter and in the past few quarters, they continue to maintain a high-growth rate.\n\nThe management also added that they would likely continue to benefit from improved economies of scale and operating leverage as they bank on the rapid expansion of JD's retail business, allowing the company to continue improving its long term profit margin over time.\nJD LTM EBIT Margin & Projected EBIT Margin, LTM Unlevered FCF Margin & Projected Unlevered FCF Margin. Data Source: S&P Global Market Intelligence\nIn order to be clear of that, when I modelled JD's EBIT margin and FCF margin growth, I find it hard pressed to have agreement with the management's point of expecting sustained improvement in their operating performance over time as they scale up rapidly. First, the company is already coming off a very low base of EBIT (LTM EBIT margin: 1.2%) and FCF profitability (LTM Unlevered FCF margin: 0.8%), therefore I think it's not unreasonable to expect the company to post a significant improvement to its FCF profitability over time. However, as we can see above, those EBIT margin improvements don't really seem to cascade down to its FCF bottomline.\nJD Q1'21 Segment Revenue. Source:JD 6-K\nIt's important to note that JD retail is the company's main revenue and profit driver, accounting for 91% of Q1'21 revenue, while also subsidizing the losses from its other segments (one of which was JD Logistics which has already been spun off recently). It's difficult to see how its forays into its new businesses can be reasonably sustained over time when they don't have a highly profitable cash flow driver in JD Retail.\nAMZN EBIT Margin & Projected EBIT Margin, Unlevered FCF Margin & Projected Unlevered FCF Margin. Data Source: S&P Global Market Intelligence\nSea Limited EBIT Margin & Projected EBIT Margin, Unlevered FCF Margin & Projected Unlevered FCF Margin. Data Source: S&P Global Market Intelligence\nWe could refer to the above charts to see how important it's to have highly profitable cash flow segments to drive its operating performances even as the companies continue to scale up: AMZN with its AWS segment, as well as Sea's (SE) Garena segment, which I had covered in a recent article here. This cash flow segments allow them to reinvest into its highly scalable e-commerce segments and over time significantly improve their overall cash flow and EBIT profile. JD's business model certainly doesn't have the luxury of relying on such a segment to drive its growth, and therefore it's reflected clearly in its operating performances moving forward.\nValuations\nPeers Consensus Analysts Upside & EV / FY+1 Rev. Data Source: S&P Global Market Intelligence\nIf we simply base off JD's expected revenue growth, there's little doubt that JD seems to be valued at fire sale prices now. However, as mentioned earlier in the article, JD has always been valued at very low EV / Rev multiples historically as compared to its peers. In addition, the Street also remains highly confident of JD's upside potential (35.6%) as compared to its peers.\nJD & SE Ev / Fwd (EBITDA - CapEx) Trend. Data Source: S&P Global Market Intelligence\nAs I have emphasized earlier, using revenue figures to look at JD's growth potential may not accurately reflect the company's scalability potential. Here, we can see how SE's high potential to scale is clearly reflected in its FCF profile, where I use (EBITDA - CapEx) as a proxy here to remove the effects of lumpy working capital changes. SE's valuations are expected to come down significantly as it scales across South East Asia, generating lots of cash flow in the process. However, JD on the other hand doesn't seem to be quite as attractively valued as compared to SE when we project their growth rates forward.\nPrice Action & Technical Analysis\nSource: TradingView\nA silver lining here is that JD's long term uptrend remains intact despite the sell-off in Chinese stocks in Feb 21 that saw JD's stock price fall about 30% from its high. There are a few support levels that investors can focus on, most notably, the $70 support level that saw strong buying interest, as well as the $59 support level. The bulls are trying to retake the $79 support level which coincides with the dynamic resistance level marked by the 50-period MA at the moment. Therefore, investors who wish to add or initiate their positions may consider adding somewhere near the $70 level, and the $59 level if it retraces further, while avoiding adding near $79 in the near term.\nFor Chinese stocks, the Chinese and U.S. regulators will likely remain as the most important near term risk that may cause further compressions in its stock prices. However, as a long term investor who is still bullish on JD, I don't see that as a risk per se, but instead as an opportunity to add further into stocks like JD who in my opinion is fairly valued, and not expensive. The more the stock falls in the future due to policy changes or stiff rules from Beijing or Washington, the more attractive it will get for long term investors who have yet to initiate a position.\nWrapping it all up\nI'm a JD shareholder, and likely to remain so moving forward. What I had wanted to present in this article is to demonstrate why JD continues to trade at such low revenue multiples even as it continues to power ahead in its revenue growth. Investors should understand that although from the price action point of view JD I don't consider JD as a value trap, but I also don't consider JD as very attractive right now. It certainly deserves its current valuation and growth investors should taper their expectations in seeing the stock race ahead in the coming years.","news_type":1},"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"comments":[{"id":4571472,"gmtCreate":1622767878792,"gmtModify":1663227917641,"authorId":3583401463837686,"author":{"id":3583401463837686,"idStr":"3583401463837686","authorId":3583401463837686,"name":"Mystique","avatar":"https://static.tigerbbs.com/80553c2968edf6d8be729b4092825a07","vip":1,"crmLevel":6,"crmLevelSwitch":0,"individualDisplayBadges":[]},"repliedAuthorId":0,"objectId":118745281,"type":1,"supId":0,"prevId":0,"content":"done","text":"done","html":"done"},{"id":4570509,"gmtCreate":1622765155495,"gmtModify":1663227911848,"authorId":3574851080358491,"author":{"id":3574851080358491,"idStr":"3574851080358491","authorId":3574851080358491,"name":"Benstonk","avatar":"https://static.tigerbbs.com/c8a964cfa9223e4704989c9a4b9b772e","vip":1,"crmLevel":3,"crmLevelSwitch":1,"individualDisplayBadges":[]},"repliedAuthorId":0,"objectId":118745281,"type":1,"supId":0,"prevId":0,"content":"Reply me thanks [What]","text":"Reply me thanks [What]","html":"Reply me thanks [What]"}],"langContent":"EN"},{"id":118745040,"gmtCreate":1622763805780,"gmtModify":1704190591963,"author":{"id":"3556329315079497","authorId":"3556329315079497","name":"Tslverde","avatar":"https://static.tigerbbs.com/5f52f5991ed363792008cd868f78181c","vip":1,"crmLevel":3,"crmLevelSwitch":0,"idStr":"3556329315079497","authorIdStr":"3556329315079497"},"htmlText":"Logistic stock. Like comment","listText":"Logistic stock. Like comment","text":"Logistic stock. Like comment","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":3,"commentSize":0,"repostSize":0,"link":"https://ttm.financial/post/118745040","repostId":1171251318,"repostType":4,"repost":{"id":"1171251318","pubTimestamp":1622733765,"share":"https://ttm.financial/m/news/1171251318?lang=&edition=fundamental","pubTime":"2021-06-03 23:22","market":"hk","language":"en","title":"JD.com: Its Business Model Is Deserving Of Its Current Valuation","url":"https://stock-news.laohu8.com/highlight/detail?id=1171251318","media":"seekingalpha","summary":"Summary\n\nJD is often branded as the most “undervalued” stock of all its e-commerce peers by growth a","content":"Summary\n<ul>\n <li>JD is often branded as the most “undervalued” stock of all its e-commerce peers by growth and value investors alike.</li>\n <li>Even though the company’s revenue growth rates have impressed, its operating performances have not really been on par.</li>\n <li>I discuss why JD’s current valuations reflect the reality of its business model, and what growth and value investors should focus on to value the company.</li>\n</ul>\n<img src=\"https://static.tigerbbs.com/3bc39a30a57f05b994781d4a3a51c0de\" tg-width=\"1536\" tg-height=\"1092\">Photo by Kevin Frayer/Getty Images News via Getty Images\nInvestment Thesis\nJD.com's (JD) low EV/Revenue multiples have often baffled growth and value investors. The relatively high revenue growth rates that the investors have grown accustomed to in the rapidly expanding Chinese e-commerce market has not cascaded down to its market cap as compared to its peers. I attempt to present my opinion on why JD may have exhibited a high revenue growth profile, but not necessarily the operating performances to match its peers.\nJD's Incredibly Low Revenue Multiples\nThe company has often been compared to Amazon (AMZN) in its early days or even compared to Shopify (SHOP) for having a revenue multiple that's way lower, and therefore implying a better buy.\nHowever when I looked under the hood into JD's business model and its operating performances, I found enough underlying weaknesses in JD's business model that perhaps indicate why the market continues to value JD at such low multiples despite having posted impressive growth rates.\n<img src=\"https://static.tigerbbs.com/dd8c028415efa231c377fb5f68a00858\" tg-width=\"1280\" tg-height=\"844\">LTM Revenue Growth &amp; Price / LTM Sales. Data Source: S&amp;P Global Market Intelligence\nAs we can see from the chart above, JD has posted remarkable YoY revenue growth rates for the last 5 years, the \"slowest\" one being 22.7%. In fact, JD's LTM revenue growth rate has been accelerating recently, reaching 33.3% at the recent quarter. Despite that, its EV / LTM Rev multiple has consistently been under 1.1x, marking its strong appeal as a \"cheap\" growth stock.\n<img src=\"https://static.tigerbbs.com/b5429847bb5cdb8de25028528ae70f6a\" tg-width=\"1280\" tg-height=\"811\">Price/LTM Sales Percentile. Source: Tiger Brokers\nIn fact, JD's Price/LTM sales is currently at the 32nd percentile when we compare its multiples over the last 5 years, potentially even creating opportunities for value investors who may be on the lookout for a \"next Amazon\" type of stock that is selling for a real bargain now.\n<img src=\"https://static.tigerbbs.com/4a33a3a8b9c3f7cfd6393fb14a77852c\" tg-width=\"1280\" tg-height=\"776\">JD and AMZN Market Cap, LTM Revenue, Revenue 3Y CAGR, EV / LTM Rev. Data Source: S&amp;P Global Market Intelligence\nA quick glance over to Alibaba's (BABA) metrics unveil some interesting observations. Even though BABA's market cap is close to 5x that of JD's, BABA actually reported a lower LTM revenue (89% of JD's LTM revenue) than JD. In fact, BABA has reported lower revenue figures than JD over the last 5 years (see chart below). Both BABA and JD are revenue growth machines, with BABA's 3Y CAGR of 42% and JD's 3Y CAGR of 27.2%. Despite JD's impressive revenue growth, BABA is valued at 5.5x more than JD here based on their respective revenue multiples, which therefore raises the question of whether the market has unreasonably valued JD too low than what it actually deserves?\n<img src=\"https://static.tigerbbs.com/09064245a10bfce0ca518de2ba958e28\" tg-width=\"1280\" tg-height=\"774\">BABA &amp; JD LTM Revenue Trend. Data Source: S&amp;P Global Market Intelligence\n<img src=\"https://static.tigerbbs.com/a7ad67e5be6dba93461b1cb1813d0aa8\" tg-width=\"1257\" tg-height=\"474\">JD Annual Active Customer Count. Data Source: Company Filings\n<img src=\"https://static.tigerbbs.com/b156a6b3eb509a01ef58375a4d035718\" tg-width=\"600\" tg-height=\"371\">JD Annual Active Customer YoY Growth. Data Source: Company Filings\nIn fact, JD has been improving its active customer growth since Q3'19 as prior to that, JD had in fact suffered dramatic declines over multiple consecutive quarters of slowing customer growth. This coincided with the company's foray into&nbsp;Jingxi in 2019, which is the company's answer to Pinduoduo (PDD). The management also emphasized that: \"In the past 12 months, we gained 112 million new active users, with over&nbsp;80% coming from lower-tier markets.\" Therefore quite clearly, Jingxi's customer growth has been the impetus behind the strong quarters of ARPC growth for JD.\n<img src=\"https://static.tigerbbs.com/16b3ae3a7907e114e3e3874b5f7d2851\" tg-width=\"962\" tg-height=\"595\">JD Average Revenue Per Active Customer. Data Source: Company Filings\n<img src=\"https://static.tigerbbs.com/4a17b7b3775c0d8c1ab4b05856429210\" tg-width=\"600\" tg-height=\"371\">JD Average Revenue Per Active Customer YoY Growth. Data Source: Company Filings\nWhen we zoomed into the company's average revenue per active customer metrics, we could see that the underlying growth (up 11.7% YoY at the recent quarter) has been relatively healthy as well while the company continues to scale up its customer growth through the lower-tier markets.\nOkay, then how does JD's Operating Performances look like?\n<img src=\"https://static.tigerbbs.com/365fbee247a722170a072c2dc2b83e38\" tg-width=\"1280\" tg-height=\"703\">EBIT Margin, CFO Margin, FCF Margin. Data Source: S&amp;P Global Market Intelligence\nI had mentioned before in&nbsp;my article here&nbsp;for Coupang (CPNG), that for businesses that are potentially highly scalable such as JD's, we do not have to necessarily worry about the company's low operating margin business model as long as they are able to scale up quickly towards high FCF profitability. JD has always been operating with low operating margin (LTM EBIT margin of 1.2%), as that's the nature of its business model. Despite that, the company has still been able to generate relatively healthy FCF margins (LTM FCF margin 2.7%). Investors also shouldn't expect SaaS like FCF margins here as the business model is entirely different and JD is obviously going after those huge GMV growth. What we want to see though is whether the company is able to continue generating fast-growing and highly sustainable FCF moving forward.\n<img src=\"https://static.tigerbbs.com/b36f757fa706b6f349f44add10229761\" tg-width=\"1280\" tg-height=\"708\">Peers Projected Unlevered FCF Margin. Data Source: S&amp;P Global Market Intelligence\n<img src=\"https://static.tigerbbs.com/328507a06929411b3b72e85c8c8169b2\" tg-width=\"1280\" tg-height=\"693\">Peers Projected Unlevered FCF 5Y CAGR. Data Source: S&amp;P Global Market Intelligence\nThe problem arose when I tried to model JD's FCF growth moving forward. Quite clearly, JD does not seem to be able to improve its FCF margin strongly over time, with the projected FCF margins largely still in line with the historical ones.\nThat isn't something that we would like to see in a growth stock. Moreover the company's projected FCF margins are simply too low to be even classified as a cash flow machine. When we compare JD with its peers, we can clearly see that all of them, including AMZN are projected to generate very strong FCF growth moving forward, with JD's 5Y CAGR of 19.4% coming in last here. JD doesn't seem to be able to leverage on its relatively fast revenue growth to expand its FCF generating prowess as compared to its peers.\n<img src=\"https://static.tigerbbs.com/34da8b0865452a029c93f57dc8104697\" tg-width=\"1280\" tg-height=\"684\">Non-Peers Projected Unlevered FCF 5Y CAGR &amp; Projected Unlevered FCF Margin. Data Source: S&amp;P Global Market Intelligence\nIn order to help investors better understand what I mean, we can refer to the chart above to give an idea of what I meant as companies who are already in relatively stable growth stages with highly sustainable FCF margins as we model their FCF growth profile. It may be argued that Facebook (FB) is still a growth stock (but no longer as high growth as it once was) as it's still expected to generate relatively high FCF growth moving forward while commanding a remarkably high FCF margin as well. In addition, we could also see clearly that stable players often preferred by value investors such as Microsoft (MSFT), Qualcomm (QCOM) and Cisco (CSCO) are also expected to carry forward their high FCF margins moving forward. In contrast, JD's low 2.7% 5-year average FCF margin doesn't qualify it as a high quality stable stock for value investors to consider.\nWhat about JD's Growth Drivers?\nNow the interesting thing here is that JD has maintained that its business is still running at the \"high-growth\" stage as it emphasized:\n<blockquote>\n First of all, we&nbsp;prioritize growth above the importance of profitabilitybecause across all of our business lines, we are still in the high-growth stage. But each segment or each business line is actually in a different development stage. So we have kind of a differentiated investment strategy. So for JD Retail, we still -- you can see that for the first quarter and in the past few quarters, they continue to maintain a high-growth rate.\n</blockquote>\nThe management also added that they would likely continue to benefit from improved economies of scale and operating leverage as they bank on the rapid expansion of JD's retail business, allowing the company to continue improving its long term profit margin over time.\n<img src=\"https://static.tigerbbs.com/8477039f4b9693704cbbaf64530da052\" tg-width=\"1280\" tg-height=\"706\">JD LTM EBIT Margin &amp; Projected EBIT Margin, LTM Unlevered FCF Margin &amp; Projected Unlevered FCF Margin. Data Source: S&amp;P Global Market Intelligence\nIn order to be clear of that, when I modelled JD's EBIT margin and FCF margin growth, I find it hard pressed to have agreement with the management's point of expecting sustained improvement in their operating performance over time as they scale up rapidly. First, the company is already coming off a very low base of EBIT (LTM EBIT margin: 1.2%) and FCF profitability (LTM Unlevered FCF margin: 0.8%), therefore I think it's not unreasonable to expect the company to post a significant improvement to its FCF profitability over time. However, as we can see above, those EBIT margin improvements don't really seem to cascade down to its FCF bottomline.\n<img src=\"https://static.tigerbbs.com/34fa89d4e61ac3e70091cc064b4dc51a\" tg-width=\"1280\" tg-height=\"626\">JD Q1'21 Segment Revenue. Source:JD 6-K\nIt's important to note that JD retail is the company's main revenue and profit driver, accounting for 91% of Q1'21 revenue, while also subsidizing the losses from its other segments (one of which was JD Logistics which has already been spun off recently). It's difficult to see how its forays into its new businesses can be reasonably sustained over time when they don't have a highly profitable cash flow driver in JD Retail.\n<img src=\"https://static.tigerbbs.com/85c510c5f8c49a1fde429fcbe1892c30\" tg-width=\"1280\" tg-height=\"704\">AMZN EBIT Margin &amp; Projected EBIT Margin, Unlevered FCF Margin &amp; Projected Unlevered FCF Margin. Data Source: S&amp;P Global Market Intelligence\n<img src=\"https://static.tigerbbs.com/6dcf33c4272b764cbad4a64cca5bdbfd\" tg-width=\"1280\" tg-height=\"711\">Sea Limited EBIT Margin &amp; Projected EBIT Margin, Unlevered FCF Margin &amp; Projected Unlevered FCF Margin. Data Source: S&amp;P Global Market Intelligence\nWe could refer to the above charts to see how important it's to have highly profitable cash flow segments to drive its operating performances even as the companies continue to scale up: AMZN with its AWS segment, as well as Sea's (SE) Garena segment, which I had covered in a&nbsp;recent article here. This cash flow segments allow them to reinvest into its highly scalable e-commerce segments and over time significantly improve their overall cash flow and EBIT profile. JD's business model certainly doesn't have the luxury of relying on such a segment to drive its growth, and therefore it's reflected clearly in its operating performances moving forward.\nValuations\n<img src=\"https://static.tigerbbs.com/2ec37dd8957f5cadcf9615fa414bb78d\" tg-width=\"1280\" tg-height=\"726\">Peers Consensus Analysts Upside &amp; EV / FY+1 Rev. Data Source: S&amp;P Global Market Intelligence\nIf we simply base off JD's expected revenue growth, there's little doubt that JD seems to be valued at fire sale prices now. However, as mentioned earlier in the article, JD has always been valued at very low EV / Rev multiples historically as compared to its peers. In addition, the Street also remains highly confident of JD's upside potential (35.6%) as compared to its peers.\n<img src=\"https://static.tigerbbs.com/56bd8f33da9baab688b59439b44a827b\" tg-width=\"1280\" tg-height=\"709\">JD &amp; SE Ev / Fwd (EBITDA - CapEx) Trend. Data Source: S&amp;P Global Market Intelligence\nAs I have emphasized earlier, using revenue figures to look at JD's growth potential may not accurately reflect the company's scalability potential. Here, we can see how SE's high potential to scale is clearly reflected in its FCF profile, where I use (EBITDA - CapEx) as a proxy here to remove the effects of lumpy working capital changes. SE's valuations are expected to come down significantly as it scales across South East Asia, generating lots of cash flow in the process. However, JD on the other hand doesn't seem to be quite as attractively valued as compared to SE when we project their growth rates forward.\nPrice Action &amp; Technical Analysis\n<img src=\"https://static.tigerbbs.com/98b516b4268fe8418e750d8717769eaf\" tg-width=\"1280\" tg-height=\"798\">Source: TradingView\nA silver lining here is that JD's long term uptrend remains intact despite the sell-off in Chinese stocks in Feb 21 that saw JD's stock price fall about 30% from its high. There are a few support levels that investors can focus on, most notably, the $70 support level that saw strong buying interest, as well as the $59 support level. The bulls are trying to retake the $79 support level which coincides with the dynamic resistance level marked by the 50-period MA at the moment. Therefore, investors who wish to add or initiate their positions may consider adding somewhere near the $70 level, and the $59 level if it retraces further, while avoiding adding near $79 in the near term.\nFor Chinese stocks, the Chinese and U.S. regulators will likely remain as the most important near term risk that may cause further compressions in its stock prices. However, as a long term investor who is still bullish on JD, I don't see that as a risk per se, but instead as an opportunity to add further into stocks like JD who in my opinion is fairly valued, and not expensive. The more the stock falls in the future due to policy changes or stiff rules from Beijing or Washington, the more attractive it will get for long term investors who have yet to initiate a position.\nWrapping it all up\nI'm a JD shareholder, and likely to remain so moving forward. What I had wanted to present in this article is to demonstrate why JD continues to trade at such low revenue multiples even as it continues to power ahead in its revenue growth. Investors should understand that although from the price action point of view JD I don't consider JD as a value trap, but I also don't consider JD as very attractive right now. It certainly deserves its current valuation and growth investors should taper their expectations in seeing the stock race ahead in the coming years.","collect":0,"html":"<!DOCTYPE html>\n<html>\n<head>\n<meta http-equiv=\"Content-Type\" content=\"text/html; charset=utf-8\" />\n<meta name=\"viewport\" content=\"width=device-width,initial-scale=1.0,minimum-scale=1.0,maximum-scale=1.0,user-scalable=no\"/>\n<meta name=\"format-detection\" content=\"telephone=no,email=no,address=no\" />\n<title>JD.com: Its Business Model Is Deserving Of Its Current Valuation</title>\n<style type=\"text/css\">\na,abbr,acronym,address,applet,article,aside,audio,b,big,blockquote,body,canvas,caption,center,cite,code,dd,del,details,dfn,div,dl,dt,\nem,embed,fieldset,figcaption,figure,footer,form,h1,h2,h3,h4,h5,h6,header,hgroup,html,i,iframe,img,ins,kbd,label,legend,li,mark,menu,nav,\nobject,ol,output,p,pre,q,ruby,s,samp,section,small,span,strike,strong,sub,summary,sup,table,tbody,td,tfoot,th,thead,time,tr,tt,u,ul,var,video{ font:inherit;margin:0;padding:0;vertical-align:baseline;border:0 }\nbody{ font-size:16px; line-height:1.5; color:#999; background:transparent; }\n.wrapper{ overflow:hidden;word-break:break-all;padding:10px; }\nh1,h2{ font-weight:normal; line-height:1.35; margin-bottom:.6em; }\nh3,h4,h5,h6{ line-height:1.35; margin-bottom:1em; }\nh1{ font-size:24px; }\nh2{ font-size:20px; }\nh3{ font-size:18px; }\nh4{ font-size:16px; }\nh5{ font-size:14px; }\nh6{ font-size:12px; }\np,ul,ol,blockquote,dl,table{ margin:1.2em 0; }\nul,ol{ margin-left:2em; }\nul{ list-style:disc; }\nol{ list-style:decimal; }\nli,li p{ margin:10px 0;}\nimg{ max-width:100%;display:block;margin:0 auto 1em; }\nblockquote{ color:#B5B2B1; border-left:3px solid #aaa; padding:1em; }\nstrong,b{font-weight:bold;}\nem,i{font-style:italic;}\ntable{ width:100%;border-collapse:collapse;border-spacing:1px;margin:1em 0;font-size:.9em; }\nth,td{ padding:5px;text-align:left;border:1px solid #aaa; }\nth{ font-weight:bold;background:#5d5d5d; }\n.symbol-link{font-weight:bold;}\n/* header{ border-bottom:1px solid #494756; } */\n.title{ margin:0 0 8px;line-height:1.3;color:#ddd; }\n.meta {color:#5e5c6d;font-size:13px;margin:0 0 .5em; }\na{text-decoration:none; color:#2a4b87;}\n.meta .head { display: inline-block; overflow: hidden}\n.head .h-thumb { width: 30px; height: 30px; margin: 0; padding: 0; border-radius: 50%; float: left;}\n.head .h-content { margin: 0; padding: 0 0 0 9px; float: left;}\n.head .h-name {font-size: 13px; color: #eee; margin: 0;}\n.head .h-time {font-size: 11px; color: #7E829C; margin: 0;line-height: 11px;}\n.small {font-size: 12.5px; display: inline-block; transform: scale(0.9); -webkit-transform: scale(0.9); transform-origin: left; -webkit-transform-origin: left;}\n.smaller {font-size: 12.5px; display: inline-block; transform: scale(0.8); -webkit-transform: scale(0.8); transform-origin: left; -webkit-transform-origin: left;}\n.bt-text {font-size: 12px;margin: 1.5em 0 0 0}\n.bt-text p {margin: 0}\n</style>\n</head>\n<body>\n<div class=\"wrapper\">\n<header>\n<h2 class=\"title\">\nJD.com: Its Business Model Is Deserving Of Its Current Valuation\n</h2>\n\n<h4 class=\"meta\">\n\n\n2021-06-03 23:22 GMT+8&nbsp;&nbsp;&nbsp;<a href=https://seekingalpha.com/article/4432860-jd-com-business-model-deserving-current-valuation>seekingalpha</a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\nSummary\n\nJD is often branded as the most “undervalued” stock of all its e-commerce peers by growth and value investors alike.\nEven though the company’s revenue growth rates have impressed, its ...\n\n<a href=\"https://seekingalpha.com/article/4432860-jd-com-business-model-deserving-current-valuation\">Web Link</a>\n\n</div>\n\n\n</article>\n</div>\n</body>\n</html>\n","type":0,"thumbnail":"","relate_stocks":{"09618":"京东集团-SW","JD":"京东"},"source_url":"https://seekingalpha.com/article/4432860-jd-com-business-model-deserving-current-valuation","is_english":true,"share_image_url":"https://static.laohu8.com/e9f99090a1c2ed51c021029395664489","article_id":"1171251318","content_text":"Summary\n\nJD is often branded as the most “undervalued” stock of all its e-commerce peers by growth and value investors alike.\nEven though the company’s revenue growth rates have impressed, its operating performances have not really been on par.\nI discuss why JD’s current valuations reflect the reality of its business model, and what growth and value investors should focus on to value the company.\n\nPhoto by Kevin Frayer/Getty Images News via Getty Images\nInvestment Thesis\nJD.com's (JD) low EV/Revenue multiples have often baffled growth and value investors. The relatively high revenue growth rates that the investors have grown accustomed to in the rapidly expanding Chinese e-commerce market has not cascaded down to its market cap as compared to its peers. I attempt to present my opinion on why JD may have exhibited a high revenue growth profile, but not necessarily the operating performances to match its peers.\nJD's Incredibly Low Revenue Multiples\nThe company has often been compared to Amazon (AMZN) in its early days or even compared to Shopify (SHOP) for having a revenue multiple that's way lower, and therefore implying a better buy.\nHowever when I looked under the hood into JD's business model and its operating performances, I found enough underlying weaknesses in JD's business model that perhaps indicate why the market continues to value JD at such low multiples despite having posted impressive growth rates.\nLTM Revenue Growth & Price / LTM Sales. Data Source: S&P Global Market Intelligence\nAs we can see from the chart above, JD has posted remarkable YoY revenue growth rates for the last 5 years, the \"slowest\" one being 22.7%. In fact, JD's LTM revenue growth rate has been accelerating recently, reaching 33.3% at the recent quarter. Despite that, its EV / LTM Rev multiple has consistently been under 1.1x, marking its strong appeal as a \"cheap\" growth stock.\nPrice/LTM Sales Percentile. Source: Tiger Brokers\nIn fact, JD's Price/LTM sales is currently at the 32nd percentile when we compare its multiples over the last 5 years, potentially even creating opportunities for value investors who may be on the lookout for a \"next Amazon\" type of stock that is selling for a real bargain now.\nJD and AMZN Market Cap, LTM Revenue, Revenue 3Y CAGR, EV / LTM Rev. Data Source: S&P Global Market Intelligence\nA quick glance over to Alibaba's (BABA) metrics unveil some interesting observations. Even though BABA's market cap is close to 5x that of JD's, BABA actually reported a lower LTM revenue (89% of JD's LTM revenue) than JD. In fact, BABA has reported lower revenue figures than JD over the last 5 years (see chart below). Both BABA and JD are revenue growth machines, with BABA's 3Y CAGR of 42% and JD's 3Y CAGR of 27.2%. Despite JD's impressive revenue growth, BABA is valued at 5.5x more than JD here based on their respective revenue multiples, which therefore raises the question of whether the market has unreasonably valued JD too low than what it actually deserves?\nBABA & JD LTM Revenue Trend. Data Source: S&P Global Market Intelligence\nJD Annual Active Customer Count. Data Source: Company Filings\nJD Annual Active Customer YoY Growth. Data Source: Company Filings\nIn fact, JD has been improving its active customer growth since Q3'19 as prior to that, JD had in fact suffered dramatic declines over multiple consecutive quarters of slowing customer growth. This coincided with the company's foray into Jingxi in 2019, which is the company's answer to Pinduoduo (PDD). The management also emphasized that: \"In the past 12 months, we gained 112 million new active users, with over 80% coming from lower-tier markets.\" Therefore quite clearly, Jingxi's customer growth has been the impetus behind the strong quarters of ARPC growth for JD.\nJD Average Revenue Per Active Customer. Data Source: Company Filings\nJD Average Revenue Per Active Customer YoY Growth. Data Source: Company Filings\nWhen we zoomed into the company's average revenue per active customer metrics, we could see that the underlying growth (up 11.7% YoY at the recent quarter) has been relatively healthy as well while the company continues to scale up its customer growth through the lower-tier markets.\nOkay, then how does JD's Operating Performances look like?\nEBIT Margin, CFO Margin, FCF Margin. Data Source: S&P Global Market Intelligence\nI had mentioned before in my article here for Coupang (CPNG), that for businesses that are potentially highly scalable such as JD's, we do not have to necessarily worry about the company's low operating margin business model as long as they are able to scale up quickly towards high FCF profitability. JD has always been operating with low operating margin (LTM EBIT margin of 1.2%), as that's the nature of its business model. Despite that, the company has still been able to generate relatively healthy FCF margins (LTM FCF margin 2.7%). Investors also shouldn't expect SaaS like FCF margins here as the business model is entirely different and JD is obviously going after those huge GMV growth. What we want to see though is whether the company is able to continue generating fast-growing and highly sustainable FCF moving forward.\nPeers Projected Unlevered FCF Margin. Data Source: S&P Global Market Intelligence\nPeers Projected Unlevered FCF 5Y CAGR. Data Source: S&P Global Market Intelligence\nThe problem arose when I tried to model JD's FCF growth moving forward. Quite clearly, JD does not seem to be able to improve its FCF margin strongly over time, with the projected FCF margins largely still in line with the historical ones.\nThat isn't something that we would like to see in a growth stock. Moreover the company's projected FCF margins are simply too low to be even classified as a cash flow machine. When we compare JD with its peers, we can clearly see that all of them, including AMZN are projected to generate very strong FCF growth moving forward, with JD's 5Y CAGR of 19.4% coming in last here. JD doesn't seem to be able to leverage on its relatively fast revenue growth to expand its FCF generating prowess as compared to its peers.\nNon-Peers Projected Unlevered FCF 5Y CAGR & Projected Unlevered FCF Margin. Data Source: S&P Global Market Intelligence\nIn order to help investors better understand what I mean, we can refer to the chart above to give an idea of what I meant as companies who are already in relatively stable growth stages with highly sustainable FCF margins as we model their FCF growth profile. It may be argued that Facebook (FB) is still a growth stock (but no longer as high growth as it once was) as it's still expected to generate relatively high FCF growth moving forward while commanding a remarkably high FCF margin as well. In addition, we could also see clearly that stable players often preferred by value investors such as Microsoft (MSFT), Qualcomm (QCOM) and Cisco (CSCO) are also expected to carry forward their high FCF margins moving forward. In contrast, JD's low 2.7% 5-year average FCF margin doesn't qualify it as a high quality stable stock for value investors to consider.\nWhat about JD's Growth Drivers?\nNow the interesting thing here is that JD has maintained that its business is still running at the \"high-growth\" stage as it emphasized:\n\n First of all, we prioritize growth above the importance of profitabilitybecause across all of our business lines, we are still in the high-growth stage. But each segment or each business line is actually in a different development stage. So we have kind of a differentiated investment strategy. So for JD Retail, we still -- you can see that for the first quarter and in the past few quarters, they continue to maintain a high-growth rate.\n\nThe management also added that they would likely continue to benefit from improved economies of scale and operating leverage as they bank on the rapid expansion of JD's retail business, allowing the company to continue improving its long term profit margin over time.\nJD LTM EBIT Margin & Projected EBIT Margin, LTM Unlevered FCF Margin & Projected Unlevered FCF Margin. Data Source: S&P Global Market Intelligence\nIn order to be clear of that, when I modelled JD's EBIT margin and FCF margin growth, I find it hard pressed to have agreement with the management's point of expecting sustained improvement in their operating performance over time as they scale up rapidly. First, the company is already coming off a very low base of EBIT (LTM EBIT margin: 1.2%) and FCF profitability (LTM Unlevered FCF margin: 0.8%), therefore I think it's not unreasonable to expect the company to post a significant improvement to its FCF profitability over time. However, as we can see above, those EBIT margin improvements don't really seem to cascade down to its FCF bottomline.\nJD Q1'21 Segment Revenue. Source:JD 6-K\nIt's important to note that JD retail is the company's main revenue and profit driver, accounting for 91% of Q1'21 revenue, while also subsidizing the losses from its other segments (one of which was JD Logistics which has already been spun off recently). It's difficult to see how its forays into its new businesses can be reasonably sustained over time when they don't have a highly profitable cash flow driver in JD Retail.\nAMZN EBIT Margin & Projected EBIT Margin, Unlevered FCF Margin & Projected Unlevered FCF Margin. Data Source: S&P Global Market Intelligence\nSea Limited EBIT Margin & Projected EBIT Margin, Unlevered FCF Margin & Projected Unlevered FCF Margin. Data Source: S&P Global Market Intelligence\nWe could refer to the above charts to see how important it's to have highly profitable cash flow segments to drive its operating performances even as the companies continue to scale up: AMZN with its AWS segment, as well as Sea's (SE) Garena segment, which I had covered in a recent article here. This cash flow segments allow them to reinvest into its highly scalable e-commerce segments and over time significantly improve their overall cash flow and EBIT profile. JD's business model certainly doesn't have the luxury of relying on such a segment to drive its growth, and therefore it's reflected clearly in its operating performances moving forward.\nValuations\nPeers Consensus Analysts Upside & EV / FY+1 Rev. Data Source: S&P Global Market Intelligence\nIf we simply base off JD's expected revenue growth, there's little doubt that JD seems to be valued at fire sale prices now. However, as mentioned earlier in the article, JD has always been valued at very low EV / Rev multiples historically as compared to its peers. In addition, the Street also remains highly confident of JD's upside potential (35.6%) as compared to its peers.\nJD & SE Ev / Fwd (EBITDA - CapEx) Trend. Data Source: S&P Global Market Intelligence\nAs I have emphasized earlier, using revenue figures to look at JD's growth potential may not accurately reflect the company's scalability potential. Here, we can see how SE's high potential to scale is clearly reflected in its FCF profile, where I use (EBITDA - CapEx) as a proxy here to remove the effects of lumpy working capital changes. SE's valuations are expected to come down significantly as it scales across South East Asia, generating lots of cash flow in the process. However, JD on the other hand doesn't seem to be quite as attractively valued as compared to SE when we project their growth rates forward.\nPrice Action & Technical Analysis\nSource: TradingView\nA silver lining here is that JD's long term uptrend remains intact despite the sell-off in Chinese stocks in Feb 21 that saw JD's stock price fall about 30% from its high. There are a few support levels that investors can focus on, most notably, the $70 support level that saw strong buying interest, as well as the $59 support level. The bulls are trying to retake the $79 support level which coincides with the dynamic resistance level marked by the 50-period MA at the moment. Therefore, investors who wish to add or initiate their positions may consider adding somewhere near the $70 level, and the $59 level if it retraces further, while avoiding adding near $79 in the near term.\nFor Chinese stocks, the Chinese and U.S. regulators will likely remain as the most important near term risk that may cause further compressions in its stock prices. However, as a long term investor who is still bullish on JD, I don't see that as a risk per se, but instead as an opportunity to add further into stocks like JD who in my opinion is fairly valued, and not expensive. The more the stock falls in the future due to policy changes or stiff rules from Beijing or Washington, the more attractive it will get for long term investors who have yet to initiate a position.\nWrapping it all up\nI'm a JD shareholder, and likely to remain so moving forward. What I had wanted to present in this article is to demonstrate why JD continues to trade at such low revenue multiples even as it continues to power ahead in its revenue growth. Investors should understand that although from the price action point of view JD I don't consider JD as a value trap, but I also don't consider JD as very attractive right now. It certainly deserves its current valuation and growth investors should taper their expectations in seeing the stock race ahead in the coming years.","news_type":1},"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"langContent":"EN"},{"id":118746440,"gmtCreate":1622763771680,"gmtModify":1704190589704,"author":{"id":"3582015516749888","authorId":"3582015516749888","name":"HH浩","avatar":"https://static.tigerbbs.com/2639351c97027c6f71c4d9729ef216d8","vip":1,"crmLevel":4,"crmLevelSwitch":0,"idStr":"3582015516749888","authorIdStr":"3582015516749888"},"htmlText":"Moving the right direction. Pls like and comment","listText":"Moving the right direction. Pls like and comment","text":"Moving the right direction. Pls like and comment","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":3,"commentSize":1,"repostSize":0,"link":"https://ttm.financial/post/118746440","repostId":1171251318,"repostType":4,"repost":{"id":"1171251318","pubTimestamp":1622733765,"share":"https://ttm.financial/m/news/1171251318?lang=&edition=fundamental","pubTime":"2021-06-03 23:22","market":"hk","language":"en","title":"JD.com: Its Business Model Is Deserving Of Its Current Valuation","url":"https://stock-news.laohu8.com/highlight/detail?id=1171251318","media":"seekingalpha","summary":"Summary\n\nJD is often branded as the most “undervalued” stock of all its e-commerce peers by growth a","content":"Summary\n<ul>\n <li>JD is often branded as the most “undervalued” stock of all its e-commerce peers by growth and value investors alike.</li>\n <li>Even though the company’s revenue growth rates have impressed, its operating performances have not really been on par.</li>\n <li>I discuss why JD’s current valuations reflect the reality of its business model, and what growth and value investors should focus on to value the company.</li>\n</ul>\n<img src=\"https://static.tigerbbs.com/3bc39a30a57f05b994781d4a3a51c0de\" tg-width=\"1536\" tg-height=\"1092\">Photo by Kevin Frayer/Getty Images News via Getty Images\nInvestment Thesis\nJD.com's (JD) low EV/Revenue multiples have often baffled growth and value investors. The relatively high revenue growth rates that the investors have grown accustomed to in the rapidly expanding Chinese e-commerce market has not cascaded down to its market cap as compared to its peers. I attempt to present my opinion on why JD may have exhibited a high revenue growth profile, but not necessarily the operating performances to match its peers.\nJD's Incredibly Low Revenue Multiples\nThe company has often been compared to Amazon (AMZN) in its early days or even compared to Shopify (SHOP) for having a revenue multiple that's way lower, and therefore implying a better buy.\nHowever when I looked under the hood into JD's business model and its operating performances, I found enough underlying weaknesses in JD's business model that perhaps indicate why the market continues to value JD at such low multiples despite having posted impressive growth rates.\n<img src=\"https://static.tigerbbs.com/dd8c028415efa231c377fb5f68a00858\" tg-width=\"1280\" tg-height=\"844\">LTM Revenue Growth &amp; Price / LTM Sales. Data Source: S&amp;P Global Market Intelligence\nAs we can see from the chart above, JD has posted remarkable YoY revenue growth rates for the last 5 years, the \"slowest\" one being 22.7%. In fact, JD's LTM revenue growth rate has been accelerating recently, reaching 33.3% at the recent quarter. Despite that, its EV / LTM Rev multiple has consistently been under 1.1x, marking its strong appeal as a \"cheap\" growth stock.\n<img src=\"https://static.tigerbbs.com/b5429847bb5cdb8de25028528ae70f6a\" tg-width=\"1280\" tg-height=\"811\">Price/LTM Sales Percentile. Source: Tiger Brokers\nIn fact, JD's Price/LTM sales is currently at the 32nd percentile when we compare its multiples over the last 5 years, potentially even creating opportunities for value investors who may be on the lookout for a \"next Amazon\" type of stock that is selling for a real bargain now.\n<img src=\"https://static.tigerbbs.com/4a33a3a8b9c3f7cfd6393fb14a77852c\" tg-width=\"1280\" tg-height=\"776\">JD and AMZN Market Cap, LTM Revenue, Revenue 3Y CAGR, EV / LTM Rev. Data Source: S&amp;P Global Market Intelligence\nA quick glance over to Alibaba's (BABA) metrics unveil some interesting observations. Even though BABA's market cap is close to 5x that of JD's, BABA actually reported a lower LTM revenue (89% of JD's LTM revenue) than JD. In fact, BABA has reported lower revenue figures than JD over the last 5 years (see chart below). Both BABA and JD are revenue growth machines, with BABA's 3Y CAGR of 42% and JD's 3Y CAGR of 27.2%. Despite JD's impressive revenue growth, BABA is valued at 5.5x more than JD here based on their respective revenue multiples, which therefore raises the question of whether the market has unreasonably valued JD too low than what it actually deserves?\n<img src=\"https://static.tigerbbs.com/09064245a10bfce0ca518de2ba958e28\" tg-width=\"1280\" tg-height=\"774\">BABA &amp; JD LTM Revenue Trend. Data Source: S&amp;P Global Market Intelligence\n<img src=\"https://static.tigerbbs.com/a7ad67e5be6dba93461b1cb1813d0aa8\" tg-width=\"1257\" tg-height=\"474\">JD Annual Active Customer Count. Data Source: Company Filings\n<img src=\"https://static.tigerbbs.com/b156a6b3eb509a01ef58375a4d035718\" tg-width=\"600\" tg-height=\"371\">JD Annual Active Customer YoY Growth. Data Source: Company Filings\nIn fact, JD has been improving its active customer growth since Q3'19 as prior to that, JD had in fact suffered dramatic declines over multiple consecutive quarters of slowing customer growth. This coincided with the company's foray into&nbsp;Jingxi in 2019, which is the company's answer to Pinduoduo (PDD). The management also emphasized that: \"In the past 12 months, we gained 112 million new active users, with over&nbsp;80% coming from lower-tier markets.\" Therefore quite clearly, Jingxi's customer growth has been the impetus behind the strong quarters of ARPC growth for JD.\n<img src=\"https://static.tigerbbs.com/16b3ae3a7907e114e3e3874b5f7d2851\" tg-width=\"962\" tg-height=\"595\">JD Average Revenue Per Active Customer. Data Source: Company Filings\n<img src=\"https://static.tigerbbs.com/4a17b7b3775c0d8c1ab4b05856429210\" tg-width=\"600\" tg-height=\"371\">JD Average Revenue Per Active Customer YoY Growth. Data Source: Company Filings\nWhen we zoomed into the company's average revenue per active customer metrics, we could see that the underlying growth (up 11.7% YoY at the recent quarter) has been relatively healthy as well while the company continues to scale up its customer growth through the lower-tier markets.\nOkay, then how does JD's Operating Performances look like?\n<img src=\"https://static.tigerbbs.com/365fbee247a722170a072c2dc2b83e38\" tg-width=\"1280\" tg-height=\"703\">EBIT Margin, CFO Margin, FCF Margin. Data Source: S&amp;P Global Market Intelligence\nI had mentioned before in&nbsp;my article here&nbsp;for Coupang (CPNG), that for businesses that are potentially highly scalable such as JD's, we do not have to necessarily worry about the company's low operating margin business model as long as they are able to scale up quickly towards high FCF profitability. JD has always been operating with low operating margin (LTM EBIT margin of 1.2%), as that's the nature of its business model. Despite that, the company has still been able to generate relatively healthy FCF margins (LTM FCF margin 2.7%). Investors also shouldn't expect SaaS like FCF margins here as the business model is entirely different and JD is obviously going after those huge GMV growth. What we want to see though is whether the company is able to continue generating fast-growing and highly sustainable FCF moving forward.\n<img src=\"https://static.tigerbbs.com/b36f757fa706b6f349f44add10229761\" tg-width=\"1280\" tg-height=\"708\">Peers Projected Unlevered FCF Margin. Data Source: S&amp;P Global Market Intelligence\n<img src=\"https://static.tigerbbs.com/328507a06929411b3b72e85c8c8169b2\" tg-width=\"1280\" tg-height=\"693\">Peers Projected Unlevered FCF 5Y CAGR. Data Source: S&amp;P Global Market Intelligence\nThe problem arose when I tried to model JD's FCF growth moving forward. Quite clearly, JD does not seem to be able to improve its FCF margin strongly over time, with the projected FCF margins largely still in line with the historical ones.\nThat isn't something that we would like to see in a growth stock. Moreover the company's projected FCF margins are simply too low to be even classified as a cash flow machine. When we compare JD with its peers, we can clearly see that all of them, including AMZN are projected to generate very strong FCF growth moving forward, with JD's 5Y CAGR of 19.4% coming in last here. JD doesn't seem to be able to leverage on its relatively fast revenue growth to expand its FCF generating prowess as compared to its peers.\n<img src=\"https://static.tigerbbs.com/34da8b0865452a029c93f57dc8104697\" tg-width=\"1280\" tg-height=\"684\">Non-Peers Projected Unlevered FCF 5Y CAGR &amp; Projected Unlevered FCF Margin. Data Source: S&amp;P Global Market Intelligence\nIn order to help investors better understand what I mean, we can refer to the chart above to give an idea of what I meant as companies who are already in relatively stable growth stages with highly sustainable FCF margins as we model their FCF growth profile. It may be argued that Facebook (FB) is still a growth stock (but no longer as high growth as it once was) as it's still expected to generate relatively high FCF growth moving forward while commanding a remarkably high FCF margin as well. In addition, we could also see clearly that stable players often preferred by value investors such as Microsoft (MSFT), Qualcomm (QCOM) and Cisco (CSCO) are also expected to carry forward their high FCF margins moving forward. In contrast, JD's low 2.7% 5-year average FCF margin doesn't qualify it as a high quality stable stock for value investors to consider.\nWhat about JD's Growth Drivers?\nNow the interesting thing here is that JD has maintained that its business is still running at the \"high-growth\" stage as it emphasized:\n<blockquote>\n First of all, we&nbsp;prioritize growth above the importance of profitabilitybecause across all of our business lines, we are still in the high-growth stage. But each segment or each business line is actually in a different development stage. So we have kind of a differentiated investment strategy. So for JD Retail, we still -- you can see that for the first quarter and in the past few quarters, they continue to maintain a high-growth rate.\n</blockquote>\nThe management also added that they would likely continue to benefit from improved economies of scale and operating leverage as they bank on the rapid expansion of JD's retail business, allowing the company to continue improving its long term profit margin over time.\n<img src=\"https://static.tigerbbs.com/8477039f4b9693704cbbaf64530da052\" tg-width=\"1280\" tg-height=\"706\">JD LTM EBIT Margin &amp; Projected EBIT Margin, LTM Unlevered FCF Margin &amp; Projected Unlevered FCF Margin. Data Source: S&amp;P Global Market Intelligence\nIn order to be clear of that, when I modelled JD's EBIT margin and FCF margin growth, I find it hard pressed to have agreement with the management's point of expecting sustained improvement in their operating performance over time as they scale up rapidly. First, the company is already coming off a very low base of EBIT (LTM EBIT margin: 1.2%) and FCF profitability (LTM Unlevered FCF margin: 0.8%), therefore I think it's not unreasonable to expect the company to post a significant improvement to its FCF profitability over time. However, as we can see above, those EBIT margin improvements don't really seem to cascade down to its FCF bottomline.\n<img src=\"https://static.tigerbbs.com/34fa89d4e61ac3e70091cc064b4dc51a\" tg-width=\"1280\" tg-height=\"626\">JD Q1'21 Segment Revenue. Source:JD 6-K\nIt's important to note that JD retail is the company's main revenue and profit driver, accounting for 91% of Q1'21 revenue, while also subsidizing the losses from its other segments (one of which was JD Logistics which has already been spun off recently). It's difficult to see how its forays into its new businesses can be reasonably sustained over time when they don't have a highly profitable cash flow driver in JD Retail.\n<img src=\"https://static.tigerbbs.com/85c510c5f8c49a1fde429fcbe1892c30\" tg-width=\"1280\" tg-height=\"704\">AMZN EBIT Margin &amp; Projected EBIT Margin, Unlevered FCF Margin &amp; Projected Unlevered FCF Margin. Data Source: S&amp;P Global Market Intelligence\n<img src=\"https://static.tigerbbs.com/6dcf33c4272b764cbad4a64cca5bdbfd\" tg-width=\"1280\" tg-height=\"711\">Sea Limited EBIT Margin &amp; Projected EBIT Margin, Unlevered FCF Margin &amp; Projected Unlevered FCF Margin. Data Source: S&amp;P Global Market Intelligence\nWe could refer to the above charts to see how important it's to have highly profitable cash flow segments to drive its operating performances even as the companies continue to scale up: AMZN with its AWS segment, as well as Sea's (SE) Garena segment, which I had covered in a&nbsp;recent article here. This cash flow segments allow them to reinvest into its highly scalable e-commerce segments and over time significantly improve their overall cash flow and EBIT profile. JD's business model certainly doesn't have the luxury of relying on such a segment to drive its growth, and therefore it's reflected clearly in its operating performances moving forward.\nValuations\n<img src=\"https://static.tigerbbs.com/2ec37dd8957f5cadcf9615fa414bb78d\" tg-width=\"1280\" tg-height=\"726\">Peers Consensus Analysts Upside &amp; EV / FY+1 Rev. Data Source: S&amp;P Global Market Intelligence\nIf we simply base off JD's expected revenue growth, there's little doubt that JD seems to be valued at fire sale prices now. However, as mentioned earlier in the article, JD has always been valued at very low EV / Rev multiples historically as compared to its peers. In addition, the Street also remains highly confident of JD's upside potential (35.6%) as compared to its peers.\n<img src=\"https://static.tigerbbs.com/56bd8f33da9baab688b59439b44a827b\" tg-width=\"1280\" tg-height=\"709\">JD &amp; SE Ev / Fwd (EBITDA - CapEx) Trend. Data Source: S&amp;P Global Market Intelligence\nAs I have emphasized earlier, using revenue figures to look at JD's growth potential may not accurately reflect the company's scalability potential. Here, we can see how SE's high potential to scale is clearly reflected in its FCF profile, where I use (EBITDA - CapEx) as a proxy here to remove the effects of lumpy working capital changes. SE's valuations are expected to come down significantly as it scales across South East Asia, generating lots of cash flow in the process. However, JD on the other hand doesn't seem to be quite as attractively valued as compared to SE when we project their growth rates forward.\nPrice Action &amp; Technical Analysis\n<img src=\"https://static.tigerbbs.com/98b516b4268fe8418e750d8717769eaf\" tg-width=\"1280\" tg-height=\"798\">Source: TradingView\nA silver lining here is that JD's long term uptrend remains intact despite the sell-off in Chinese stocks in Feb 21 that saw JD's stock price fall about 30% from its high. There are a few support levels that investors can focus on, most notably, the $70 support level that saw strong buying interest, as well as the $59 support level. The bulls are trying to retake the $79 support level which coincides with the dynamic resistance level marked by the 50-period MA at the moment. Therefore, investors who wish to add or initiate their positions may consider adding somewhere near the $70 level, and the $59 level if it retraces further, while avoiding adding near $79 in the near term.\nFor Chinese stocks, the Chinese and U.S. regulators will likely remain as the most important near term risk that may cause further compressions in its stock prices. However, as a long term investor who is still bullish on JD, I don't see that as a risk per se, but instead as an opportunity to add further into stocks like JD who in my opinion is fairly valued, and not expensive. The more the stock falls in the future due to policy changes or stiff rules from Beijing or Washington, the more attractive it will get for long term investors who have yet to initiate a position.\nWrapping it all up\nI'm a JD shareholder, and likely to remain so moving forward. What I had wanted to present in this article is to demonstrate why JD continues to trade at such low revenue multiples even as it continues to power ahead in its revenue growth. Investors should understand that although from the price action point of view JD I don't consider JD as a value trap, but I also don't consider JD as very attractive right now. It certainly deserves its current valuation and growth investors should taper their expectations in seeing the stock race ahead in the coming years.","collect":0,"html":"<!DOCTYPE html>\n<html>\n<head>\n<meta http-equiv=\"Content-Type\" content=\"text/html; charset=utf-8\" />\n<meta name=\"viewport\" content=\"width=device-width,initial-scale=1.0,minimum-scale=1.0,maximum-scale=1.0,user-scalable=no\"/>\n<meta name=\"format-detection\" content=\"telephone=no,email=no,address=no\" />\n<title>JD.com: Its Business Model Is Deserving Of Its Current Valuation</title>\n<style type=\"text/css\">\na,abbr,acronym,address,applet,article,aside,audio,b,big,blockquote,body,canvas,caption,center,cite,code,dd,del,details,dfn,div,dl,dt,\nem,embed,fieldset,figcaption,figure,footer,form,h1,h2,h3,h4,h5,h6,header,hgroup,html,i,iframe,img,ins,kbd,label,legend,li,mark,menu,nav,\nobject,ol,output,p,pre,q,ruby,s,samp,section,small,span,strike,strong,sub,summary,sup,table,tbody,td,tfoot,th,thead,time,tr,tt,u,ul,var,video{ font:inherit;margin:0;padding:0;vertical-align:baseline;border:0 }\nbody{ font-size:16px; line-height:1.5; color:#999; background:transparent; }\n.wrapper{ overflow:hidden;word-break:break-all;padding:10px; }\nh1,h2{ font-weight:normal; line-height:1.35; margin-bottom:.6em; }\nh3,h4,h5,h6{ line-height:1.35; margin-bottom:1em; }\nh1{ font-size:24px; }\nh2{ font-size:20px; }\nh3{ font-size:18px; }\nh4{ font-size:16px; }\nh5{ font-size:14px; }\nh6{ font-size:12px; }\np,ul,ol,blockquote,dl,table{ margin:1.2em 0; }\nul,ol{ margin-left:2em; }\nul{ list-style:disc; }\nol{ list-style:decimal; }\nli,li p{ margin:10px 0;}\nimg{ max-width:100%;display:block;margin:0 auto 1em; }\nblockquote{ color:#B5B2B1; border-left:3px solid #aaa; padding:1em; }\nstrong,b{font-weight:bold;}\nem,i{font-style:italic;}\ntable{ width:100%;border-collapse:collapse;border-spacing:1px;margin:1em 0;font-size:.9em; }\nth,td{ padding:5px;text-align:left;border:1px solid #aaa; }\nth{ font-weight:bold;background:#5d5d5d; }\n.symbol-link{font-weight:bold;}\n/* header{ border-bottom:1px solid #494756; } */\n.title{ margin:0 0 8px;line-height:1.3;color:#ddd; }\n.meta {color:#5e5c6d;font-size:13px;margin:0 0 .5em; }\na{text-decoration:none; color:#2a4b87;}\n.meta .head { display: inline-block; overflow: hidden}\n.head .h-thumb { width: 30px; height: 30px; margin: 0; padding: 0; border-radius: 50%; float: left;}\n.head .h-content { margin: 0; padding: 0 0 0 9px; float: left;}\n.head .h-name {font-size: 13px; color: #eee; margin: 0;}\n.head .h-time {font-size: 11px; color: #7E829C; margin: 0;line-height: 11px;}\n.small {font-size: 12.5px; display: inline-block; transform: scale(0.9); -webkit-transform: scale(0.9); transform-origin: left; -webkit-transform-origin: left;}\n.smaller {font-size: 12.5px; display: inline-block; transform: scale(0.8); -webkit-transform: scale(0.8); transform-origin: left; -webkit-transform-origin: left;}\n.bt-text {font-size: 12px;margin: 1.5em 0 0 0}\n.bt-text p {margin: 0}\n</style>\n</head>\n<body>\n<div class=\"wrapper\">\n<header>\n<h2 class=\"title\">\nJD.com: Its Business Model Is Deserving Of Its Current Valuation\n</h2>\n\n<h4 class=\"meta\">\n\n\n2021-06-03 23:22 GMT+8&nbsp;&nbsp;&nbsp;<a href=https://seekingalpha.com/article/4432860-jd-com-business-model-deserving-current-valuation>seekingalpha</a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\nSummary\n\nJD is often branded as the most “undervalued” stock of all its e-commerce peers by growth and value investors alike.\nEven though the company’s revenue growth rates have impressed, its ...\n\n<a href=\"https://seekingalpha.com/article/4432860-jd-com-business-model-deserving-current-valuation\">Web Link</a>\n\n</div>\n\n\n</article>\n</div>\n</body>\n</html>\n","type":0,"thumbnail":"","relate_stocks":{"09618":"京东集团-SW","JD":"京东"},"source_url":"https://seekingalpha.com/article/4432860-jd-com-business-model-deserving-current-valuation","is_english":true,"share_image_url":"https://static.laohu8.com/e9f99090a1c2ed51c021029395664489","article_id":"1171251318","content_text":"Summary\n\nJD is often branded as the most “undervalued” stock of all its e-commerce peers by growth and value investors alike.\nEven though the company’s revenue growth rates have impressed, its operating performances have not really been on par.\nI discuss why JD’s current valuations reflect the reality of its business model, and what growth and value investors should focus on to value the company.\n\nPhoto by Kevin Frayer/Getty Images News via Getty Images\nInvestment Thesis\nJD.com's (JD) low EV/Revenue multiples have often baffled growth and value investors. The relatively high revenue growth rates that the investors have grown accustomed to in the rapidly expanding Chinese e-commerce market has not cascaded down to its market cap as compared to its peers. I attempt to present my opinion on why JD may have exhibited a high revenue growth profile, but not necessarily the operating performances to match its peers.\nJD's Incredibly Low Revenue Multiples\nThe company has often been compared to Amazon (AMZN) in its early days or even compared to Shopify (SHOP) for having a revenue multiple that's way lower, and therefore implying a better buy.\nHowever when I looked under the hood into JD's business model and its operating performances, I found enough underlying weaknesses in JD's business model that perhaps indicate why the market continues to value JD at such low multiples despite having posted impressive growth rates.\nLTM Revenue Growth & Price / LTM Sales. Data Source: S&P Global Market Intelligence\nAs we can see from the chart above, JD has posted remarkable YoY revenue growth rates for the last 5 years, the \"slowest\" one being 22.7%. In fact, JD's LTM revenue growth rate has been accelerating recently, reaching 33.3% at the recent quarter. Despite that, its EV / LTM Rev multiple has consistently been under 1.1x, marking its strong appeal as a \"cheap\" growth stock.\nPrice/LTM Sales Percentile. Source: Tiger Brokers\nIn fact, JD's Price/LTM sales is currently at the 32nd percentile when we compare its multiples over the last 5 years, potentially even creating opportunities for value investors who may be on the lookout for a \"next Amazon\" type of stock that is selling for a real bargain now.\nJD and AMZN Market Cap, LTM Revenue, Revenue 3Y CAGR, EV / LTM Rev. Data Source: S&P Global Market Intelligence\nA quick glance over to Alibaba's (BABA) metrics unveil some interesting observations. Even though BABA's market cap is close to 5x that of JD's, BABA actually reported a lower LTM revenue (89% of JD's LTM revenue) than JD. In fact, BABA has reported lower revenue figures than JD over the last 5 years (see chart below). Both BABA and JD are revenue growth machines, with BABA's 3Y CAGR of 42% and JD's 3Y CAGR of 27.2%. Despite JD's impressive revenue growth, BABA is valued at 5.5x more than JD here based on their respective revenue multiples, which therefore raises the question of whether the market has unreasonably valued JD too low than what it actually deserves?\nBABA & JD LTM Revenue Trend. Data Source: S&P Global Market Intelligence\nJD Annual Active Customer Count. Data Source: Company Filings\nJD Annual Active Customer YoY Growth. Data Source: Company Filings\nIn fact, JD has been improving its active customer growth since Q3'19 as prior to that, JD had in fact suffered dramatic declines over multiple consecutive quarters of slowing customer growth. This coincided with the company's foray into Jingxi in 2019, which is the company's answer to Pinduoduo (PDD). The management also emphasized that: \"In the past 12 months, we gained 112 million new active users, with over 80% coming from lower-tier markets.\" Therefore quite clearly, Jingxi's customer growth has been the impetus behind the strong quarters of ARPC growth for JD.\nJD Average Revenue Per Active Customer. Data Source: Company Filings\nJD Average Revenue Per Active Customer YoY Growth. Data Source: Company Filings\nWhen we zoomed into the company's average revenue per active customer metrics, we could see that the underlying growth (up 11.7% YoY at the recent quarter) has been relatively healthy as well while the company continues to scale up its customer growth through the lower-tier markets.\nOkay, then how does JD's Operating Performances look like?\nEBIT Margin, CFO Margin, FCF Margin. Data Source: S&P Global Market Intelligence\nI had mentioned before in my article here for Coupang (CPNG), that for businesses that are potentially highly scalable such as JD's, we do not have to necessarily worry about the company's low operating margin business model as long as they are able to scale up quickly towards high FCF profitability. JD has always been operating with low operating margin (LTM EBIT margin of 1.2%), as that's the nature of its business model. Despite that, the company has still been able to generate relatively healthy FCF margins (LTM FCF margin 2.7%). Investors also shouldn't expect SaaS like FCF margins here as the business model is entirely different and JD is obviously going after those huge GMV growth. What we want to see though is whether the company is able to continue generating fast-growing and highly sustainable FCF moving forward.\nPeers Projected Unlevered FCF Margin. Data Source: S&P Global Market Intelligence\nPeers Projected Unlevered FCF 5Y CAGR. Data Source: S&P Global Market Intelligence\nThe problem arose when I tried to model JD's FCF growth moving forward. Quite clearly, JD does not seem to be able to improve its FCF margin strongly over time, with the projected FCF margins largely still in line with the historical ones.\nThat isn't something that we would like to see in a growth stock. Moreover the company's projected FCF margins are simply too low to be even classified as a cash flow machine. When we compare JD with its peers, we can clearly see that all of them, including AMZN are projected to generate very strong FCF growth moving forward, with JD's 5Y CAGR of 19.4% coming in last here. JD doesn't seem to be able to leverage on its relatively fast revenue growth to expand its FCF generating prowess as compared to its peers.\nNon-Peers Projected Unlevered FCF 5Y CAGR & Projected Unlevered FCF Margin. Data Source: S&P Global Market Intelligence\nIn order to help investors better understand what I mean, we can refer to the chart above to give an idea of what I meant as companies who are already in relatively stable growth stages with highly sustainable FCF margins as we model their FCF growth profile. It may be argued that Facebook (FB) is still a growth stock (but no longer as high growth as it once was) as it's still expected to generate relatively high FCF growth moving forward while commanding a remarkably high FCF margin as well. In addition, we could also see clearly that stable players often preferred by value investors such as Microsoft (MSFT), Qualcomm (QCOM) and Cisco (CSCO) are also expected to carry forward their high FCF margins moving forward. In contrast, JD's low 2.7% 5-year average FCF margin doesn't qualify it as a high quality stable stock for value investors to consider.\nWhat about JD's Growth Drivers?\nNow the interesting thing here is that JD has maintained that its business is still running at the \"high-growth\" stage as it emphasized:\n\n First of all, we prioritize growth above the importance of profitabilitybecause across all of our business lines, we are still in the high-growth stage. But each segment or each business line is actually in a different development stage. So we have kind of a differentiated investment strategy. So for JD Retail, we still -- you can see that for the first quarter and in the past few quarters, they continue to maintain a high-growth rate.\n\nThe management also added that they would likely continue to benefit from improved economies of scale and operating leverage as they bank on the rapid expansion of JD's retail business, allowing the company to continue improving its long term profit margin over time.\nJD LTM EBIT Margin & Projected EBIT Margin, LTM Unlevered FCF Margin & Projected Unlevered FCF Margin. Data Source: S&P Global Market Intelligence\nIn order to be clear of that, when I modelled JD's EBIT margin and FCF margin growth, I find it hard pressed to have agreement with the management's point of expecting sustained improvement in their operating performance over time as they scale up rapidly. First, the company is already coming off a very low base of EBIT (LTM EBIT margin: 1.2%) and FCF profitability (LTM Unlevered FCF margin: 0.8%), therefore I think it's not unreasonable to expect the company to post a significant improvement to its FCF profitability over time. However, as we can see above, those EBIT margin improvements don't really seem to cascade down to its FCF bottomline.\nJD Q1'21 Segment Revenue. Source:JD 6-K\nIt's important to note that JD retail is the company's main revenue and profit driver, accounting for 91% of Q1'21 revenue, while also subsidizing the losses from its other segments (one of which was JD Logistics which has already been spun off recently). It's difficult to see how its forays into its new businesses can be reasonably sustained over time when they don't have a highly profitable cash flow driver in JD Retail.\nAMZN EBIT Margin & Projected EBIT Margin, Unlevered FCF Margin & Projected Unlevered FCF Margin. Data Source: S&P Global Market Intelligence\nSea Limited EBIT Margin & Projected EBIT Margin, Unlevered FCF Margin & Projected Unlevered FCF Margin. Data Source: S&P Global Market Intelligence\nWe could refer to the above charts to see how important it's to have highly profitable cash flow segments to drive its operating performances even as the companies continue to scale up: AMZN with its AWS segment, as well as Sea's (SE) Garena segment, which I had covered in a recent article here. This cash flow segments allow them to reinvest into its highly scalable e-commerce segments and over time significantly improve their overall cash flow and EBIT profile. JD's business model certainly doesn't have the luxury of relying on such a segment to drive its growth, and therefore it's reflected clearly in its operating performances moving forward.\nValuations\nPeers Consensus Analysts Upside & EV / FY+1 Rev. Data Source: S&P Global Market Intelligence\nIf we simply base off JD's expected revenue growth, there's little doubt that JD seems to be valued at fire sale prices now. However, as mentioned earlier in the article, JD has always been valued at very low EV / Rev multiples historically as compared to its peers. In addition, the Street also remains highly confident of JD's upside potential (35.6%) as compared to its peers.\nJD & SE Ev / Fwd (EBITDA - CapEx) Trend. Data Source: S&P Global Market Intelligence\nAs I have emphasized earlier, using revenue figures to look at JD's growth potential may not accurately reflect the company's scalability potential. Here, we can see how SE's high potential to scale is clearly reflected in its FCF profile, where I use (EBITDA - CapEx) as a proxy here to remove the effects of lumpy working capital changes. SE's valuations are expected to come down significantly as it scales across South East Asia, generating lots of cash flow in the process. However, JD on the other hand doesn't seem to be quite as attractively valued as compared to SE when we project their growth rates forward.\nPrice Action & Technical Analysis\nSource: TradingView\nA silver lining here is that JD's long term uptrend remains intact despite the sell-off in Chinese stocks in Feb 21 that saw JD's stock price fall about 30% from its high. There are a few support levels that investors can focus on, most notably, the $70 support level that saw strong buying interest, as well as the $59 support level. The bulls are trying to retake the $79 support level which coincides with the dynamic resistance level marked by the 50-period MA at the moment. Therefore, investors who wish to add or initiate their positions may consider adding somewhere near the $70 level, and the $59 level if it retraces further, while avoiding adding near $79 in the near term.\nFor Chinese stocks, the Chinese and U.S. regulators will likely remain as the most important near term risk that may cause further compressions in its stock prices. However, as a long term investor who is still bullish on JD, I don't see that as a risk per se, but instead as an opportunity to add further into stocks like JD who in my opinion is fairly valued, and not expensive. The more the stock falls in the future due to policy changes or stiff rules from Beijing or Washington, the more attractive it will get for long term investors who have yet to initiate a position.\nWrapping it all up\nI'm a JD shareholder, and likely to remain so moving forward. What I had wanted to present in this article is to demonstrate why JD continues to trade at such low revenue multiples even as it continues to power ahead in its revenue growth. Investors should understand that although from the price action point of view JD I don't consider JD as a value trap, but I also don't consider JD as very attractive right now. It certainly deserves its current valuation and growth investors should taper their expectations in seeing the stock race ahead in the coming years.","news_type":1},"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"comments":[{"id":4571357,"gmtCreate":1622767592725,"gmtModify":1663227916947,"authorId":3570566515210361,"author":{"id":3570566515210361,"idStr":"3570566515210361","authorId":3570566515210361,"name":"爱喝水的小猫猫","avatar":"https://community-static.tradeup.com/news/e7ef4b0c19dbcbfb2e524fcc32c97dbf","vip":1,"currentWearingBadge":{"badgeId":"4e86300037264823b9bb00ff44fc0f19-3","templateUuid":"4e86300037264823b9bb00ff44fc0f19","name":"Live trading challenger","description":"for 6 months","bigImgUrl":"https://community-static.tradeup.com/news/1f5e9ba8fa00e845d15505fef84941ce","smallImgUrl":"https://community-static.tradeup.com/news/890d6c2bdab9dd1b255a1e7e9ae2264f","grayImgUrl":"https://community-static.tradeup.com/news/aeea12778e0c2c686984e1efc3ed8fd4","redirectLinkEnabled":0,"redirectLink":"https://www.tigerbrokers.com.sg/activity/market/2023/stock-contest?adcode=StockContest2023","hasAllocated":1,"isWearing":1,"stampPosition":0,"hasStamp":0,"allocationCount":1,"allocatedDate":"2024.03.03","individualDisplayEnabled":0,"individualDisplaySort":0,"categoryType":5600},"crmLevel":8,"crmLevelSwitch":1,"individualDisplayBadges":[]},"repliedAuthorId":0,"objectId":118746440,"type":1,"supId":0,"prevId":0,"content":"Sounds good","text":"Sounds good","html":"Sounds good"}],"langContent":"EN"},{"id":118753019,"gmtCreate":1622763293031,"gmtModify":1704190572234,"author":{"id":"3581919031797456","authorId":"3581919031797456","name":"JeffreyNeo","avatar":"https://static.tigerbbs.com/fd016aa2ec66a904f877445461310e24","vip":1,"hat":"https://static.tigerbbs.com/b073a07f77dbe6b3bec6b12311fde6bd","crmLevel":2,"crmLevelSwitch":1,"idStr":"3581919031797456","authorIdStr":"3581919031797456"},"htmlText":"1","listText":"1","text":"1","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":5,"commentSize":2,"repostSize":0,"link":"https://ttm.financial/post/118753019","repostId":1171251318,"repostType":4,"repost":{"id":"1171251318","pubTimestamp":1622733765,"share":"https://ttm.financial/m/news/1171251318?lang=&edition=fundamental","pubTime":"2021-06-03 23:22","market":"hk","language":"en","title":"JD.com: Its Business Model Is Deserving Of Its Current Valuation","url":"https://stock-news.laohu8.com/highlight/detail?id=1171251318","media":"seekingalpha","summary":"Summary\n\nJD is often branded as the most “undervalued” stock of all its e-commerce peers by growth a","content":"Summary\n<ul>\n <li>JD is often branded as the most “undervalued” stock of all its e-commerce peers by growth and value investors alike.</li>\n <li>Even though the company’s revenue growth rates have impressed, its operating performances have not really been on par.</li>\n <li>I discuss why JD’s current valuations reflect the reality of its business model, and what growth and value investors should focus on to value the company.</li>\n</ul>\n<img src=\"https://static.tigerbbs.com/3bc39a30a57f05b994781d4a3a51c0de\" tg-width=\"1536\" tg-height=\"1092\">Photo by Kevin Frayer/Getty Images News via Getty Images\nInvestment Thesis\nJD.com's (JD) low EV/Revenue multiples have often baffled growth and value investors. The relatively high revenue growth rates that the investors have grown accustomed to in the rapidly expanding Chinese e-commerce market has not cascaded down to its market cap as compared to its peers. I attempt to present my opinion on why JD may have exhibited a high revenue growth profile, but not necessarily the operating performances to match its peers.\nJD's Incredibly Low Revenue Multiples\nThe company has often been compared to Amazon (AMZN) in its early days or even compared to Shopify (SHOP) for having a revenue multiple that's way lower, and therefore implying a better buy.\nHowever when I looked under the hood into JD's business model and its operating performances, I found enough underlying weaknesses in JD's business model that perhaps indicate why the market continues to value JD at such low multiples despite having posted impressive growth rates.\n<img src=\"https://static.tigerbbs.com/dd8c028415efa231c377fb5f68a00858\" tg-width=\"1280\" tg-height=\"844\">LTM Revenue Growth &amp; Price / LTM Sales. Data Source: S&amp;P Global Market Intelligence\nAs we can see from the chart above, JD has posted remarkable YoY revenue growth rates for the last 5 years, the \"slowest\" one being 22.7%. In fact, JD's LTM revenue growth rate has been accelerating recently, reaching 33.3% at the recent quarter. Despite that, its EV / LTM Rev multiple has consistently been under 1.1x, marking its strong appeal as a \"cheap\" growth stock.\n<img src=\"https://static.tigerbbs.com/b5429847bb5cdb8de25028528ae70f6a\" tg-width=\"1280\" tg-height=\"811\">Price/LTM Sales Percentile. Source: Tiger Brokers\nIn fact, JD's Price/LTM sales is currently at the 32nd percentile when we compare its multiples over the last 5 years, potentially even creating opportunities for value investors who may be on the lookout for a \"next Amazon\" type of stock that is selling for a real bargain now.\n<img src=\"https://static.tigerbbs.com/4a33a3a8b9c3f7cfd6393fb14a77852c\" tg-width=\"1280\" tg-height=\"776\">JD and AMZN Market Cap, LTM Revenue, Revenue 3Y CAGR, EV / LTM Rev. Data Source: S&amp;P Global Market Intelligence\nA quick glance over to Alibaba's (BABA) metrics unveil some interesting observations. Even though BABA's market cap is close to 5x that of JD's, BABA actually reported a lower LTM revenue (89% of JD's LTM revenue) than JD. In fact, BABA has reported lower revenue figures than JD over the last 5 years (see chart below). Both BABA and JD are revenue growth machines, with BABA's 3Y CAGR of 42% and JD's 3Y CAGR of 27.2%. Despite JD's impressive revenue growth, BABA is valued at 5.5x more than JD here based on their respective revenue multiples, which therefore raises the question of whether the market has unreasonably valued JD too low than what it actually deserves?\n<img src=\"https://static.tigerbbs.com/09064245a10bfce0ca518de2ba958e28\" tg-width=\"1280\" tg-height=\"774\">BABA &amp; JD LTM Revenue Trend. Data Source: S&amp;P Global Market Intelligence\n<img src=\"https://static.tigerbbs.com/a7ad67e5be6dba93461b1cb1813d0aa8\" tg-width=\"1257\" tg-height=\"474\">JD Annual Active Customer Count. Data Source: Company Filings\n<img src=\"https://static.tigerbbs.com/b156a6b3eb509a01ef58375a4d035718\" tg-width=\"600\" tg-height=\"371\">JD Annual Active Customer YoY Growth. Data Source: Company Filings\nIn fact, JD has been improving its active customer growth since Q3'19 as prior to that, JD had in fact suffered dramatic declines over multiple consecutive quarters of slowing customer growth. This coincided with the company's foray into&nbsp;Jingxi in 2019, which is the company's answer to Pinduoduo (PDD). The management also emphasized that: \"In the past 12 months, we gained 112 million new active users, with over&nbsp;80% coming from lower-tier markets.\" Therefore quite clearly, Jingxi's customer growth has been the impetus behind the strong quarters of ARPC growth for JD.\n<img src=\"https://static.tigerbbs.com/16b3ae3a7907e114e3e3874b5f7d2851\" tg-width=\"962\" tg-height=\"595\">JD Average Revenue Per Active Customer. Data Source: Company Filings\n<img src=\"https://static.tigerbbs.com/4a17b7b3775c0d8c1ab4b05856429210\" tg-width=\"600\" tg-height=\"371\">JD Average Revenue Per Active Customer YoY Growth. Data Source: Company Filings\nWhen we zoomed into the company's average revenue per active customer metrics, we could see that the underlying growth (up 11.7% YoY at the recent quarter) has been relatively healthy as well while the company continues to scale up its customer growth through the lower-tier markets.\nOkay, then how does JD's Operating Performances look like?\n<img src=\"https://static.tigerbbs.com/365fbee247a722170a072c2dc2b83e38\" tg-width=\"1280\" tg-height=\"703\">EBIT Margin, CFO Margin, FCF Margin. Data Source: S&amp;P Global Market Intelligence\nI had mentioned before in&nbsp;my article here&nbsp;for Coupang (CPNG), that for businesses that are potentially highly scalable such as JD's, we do not have to necessarily worry about the company's low operating margin business model as long as they are able to scale up quickly towards high FCF profitability. JD has always been operating with low operating margin (LTM EBIT margin of 1.2%), as that's the nature of its business model. Despite that, the company has still been able to generate relatively healthy FCF margins (LTM FCF margin 2.7%). Investors also shouldn't expect SaaS like FCF margins here as the business model is entirely different and JD is obviously going after those huge GMV growth. What we want to see though is whether the company is able to continue generating fast-growing and highly sustainable FCF moving forward.\n<img src=\"https://static.tigerbbs.com/b36f757fa706b6f349f44add10229761\" tg-width=\"1280\" tg-height=\"708\">Peers Projected Unlevered FCF Margin. Data Source: S&amp;P Global Market Intelligence\n<img src=\"https://static.tigerbbs.com/328507a06929411b3b72e85c8c8169b2\" tg-width=\"1280\" tg-height=\"693\">Peers Projected Unlevered FCF 5Y CAGR. Data Source: S&amp;P Global Market Intelligence\nThe problem arose when I tried to model JD's FCF growth moving forward. Quite clearly, JD does not seem to be able to improve its FCF margin strongly over time, with the projected FCF margins largely still in line with the historical ones.\nThat isn't something that we would like to see in a growth stock. Moreover the company's projected FCF margins are simply too low to be even classified as a cash flow machine. When we compare JD with its peers, we can clearly see that all of them, including AMZN are projected to generate very strong FCF growth moving forward, with JD's 5Y CAGR of 19.4% coming in last here. JD doesn't seem to be able to leverage on its relatively fast revenue growth to expand its FCF generating prowess as compared to its peers.\n<img src=\"https://static.tigerbbs.com/34da8b0865452a029c93f57dc8104697\" tg-width=\"1280\" tg-height=\"684\">Non-Peers Projected Unlevered FCF 5Y CAGR &amp; Projected Unlevered FCF Margin. Data Source: S&amp;P Global Market Intelligence\nIn order to help investors better understand what I mean, we can refer to the chart above to give an idea of what I meant as companies who are already in relatively stable growth stages with highly sustainable FCF margins as we model their FCF growth profile. It may be argued that Facebook (FB) is still a growth stock (but no longer as high growth as it once was) as it's still expected to generate relatively high FCF growth moving forward while commanding a remarkably high FCF margin as well. In addition, we could also see clearly that stable players often preferred by value investors such as Microsoft (MSFT), Qualcomm (QCOM) and Cisco (CSCO) are also expected to carry forward their high FCF margins moving forward. In contrast, JD's low 2.7% 5-year average FCF margin doesn't qualify it as a high quality stable stock for value investors to consider.\nWhat about JD's Growth Drivers?\nNow the interesting thing here is that JD has maintained that its business is still running at the \"high-growth\" stage as it emphasized:\n<blockquote>\n First of all, we&nbsp;prioritize growth above the importance of profitabilitybecause across all of our business lines, we are still in the high-growth stage. But each segment or each business line is actually in a different development stage. So we have kind of a differentiated investment strategy. So for JD Retail, we still -- you can see that for the first quarter and in the past few quarters, they continue to maintain a high-growth rate.\n</blockquote>\nThe management also added that they would likely continue to benefit from improved economies of scale and operating leverage as they bank on the rapid expansion of JD's retail business, allowing the company to continue improving its long term profit margin over time.\n<img src=\"https://static.tigerbbs.com/8477039f4b9693704cbbaf64530da052\" tg-width=\"1280\" tg-height=\"706\">JD LTM EBIT Margin &amp; Projected EBIT Margin, LTM Unlevered FCF Margin &amp; Projected Unlevered FCF Margin. Data Source: S&amp;P Global Market Intelligence\nIn order to be clear of that, when I modelled JD's EBIT margin and FCF margin growth, I find it hard pressed to have agreement with the management's point of expecting sustained improvement in their operating performance over time as they scale up rapidly. First, the company is already coming off a very low base of EBIT (LTM EBIT margin: 1.2%) and FCF profitability (LTM Unlevered FCF margin: 0.8%), therefore I think it's not unreasonable to expect the company to post a significant improvement to its FCF profitability over time. However, as we can see above, those EBIT margin improvements don't really seem to cascade down to its FCF bottomline.\n<img src=\"https://static.tigerbbs.com/34fa89d4e61ac3e70091cc064b4dc51a\" tg-width=\"1280\" tg-height=\"626\">JD Q1'21 Segment Revenue. Source:JD 6-K\nIt's important to note that JD retail is the company's main revenue and profit driver, accounting for 91% of Q1'21 revenue, while also subsidizing the losses from its other segments (one of which was JD Logistics which has already been spun off recently). It's difficult to see how its forays into its new businesses can be reasonably sustained over time when they don't have a highly profitable cash flow driver in JD Retail.\n<img src=\"https://static.tigerbbs.com/85c510c5f8c49a1fde429fcbe1892c30\" tg-width=\"1280\" tg-height=\"704\">AMZN EBIT Margin &amp; Projected EBIT Margin, Unlevered FCF Margin &amp; Projected Unlevered FCF Margin. Data Source: S&amp;P Global Market Intelligence\n<img src=\"https://static.tigerbbs.com/6dcf33c4272b764cbad4a64cca5bdbfd\" tg-width=\"1280\" tg-height=\"711\">Sea Limited EBIT Margin &amp; Projected EBIT Margin, Unlevered FCF Margin &amp; Projected Unlevered FCF Margin. Data Source: S&amp;P Global Market Intelligence\nWe could refer to the above charts to see how important it's to have highly profitable cash flow segments to drive its operating performances even as the companies continue to scale up: AMZN with its AWS segment, as well as Sea's (SE) Garena segment, which I had covered in a&nbsp;recent article here. This cash flow segments allow them to reinvest into its highly scalable e-commerce segments and over time significantly improve their overall cash flow and EBIT profile. JD's business model certainly doesn't have the luxury of relying on such a segment to drive its growth, and therefore it's reflected clearly in its operating performances moving forward.\nValuations\n<img src=\"https://static.tigerbbs.com/2ec37dd8957f5cadcf9615fa414bb78d\" tg-width=\"1280\" tg-height=\"726\">Peers Consensus Analysts Upside &amp; EV / FY+1 Rev. Data Source: S&amp;P Global Market Intelligence\nIf we simply base off JD's expected revenue growth, there's little doubt that JD seems to be valued at fire sale prices now. However, as mentioned earlier in the article, JD has always been valued at very low EV / Rev multiples historically as compared to its peers. In addition, the Street also remains highly confident of JD's upside potential (35.6%) as compared to its peers.\n<img src=\"https://static.tigerbbs.com/56bd8f33da9baab688b59439b44a827b\" tg-width=\"1280\" tg-height=\"709\">JD &amp; SE Ev / Fwd (EBITDA - CapEx) Trend. Data Source: S&amp;P Global Market Intelligence\nAs I have emphasized earlier, using revenue figures to look at JD's growth potential may not accurately reflect the company's scalability potential. Here, we can see how SE's high potential to scale is clearly reflected in its FCF profile, where I use (EBITDA - CapEx) as a proxy here to remove the effects of lumpy working capital changes. SE's valuations are expected to come down significantly as it scales across South East Asia, generating lots of cash flow in the process. However, JD on the other hand doesn't seem to be quite as attractively valued as compared to SE when we project their growth rates forward.\nPrice Action &amp; Technical Analysis\n<img src=\"https://static.tigerbbs.com/98b516b4268fe8418e750d8717769eaf\" tg-width=\"1280\" tg-height=\"798\">Source: TradingView\nA silver lining here is that JD's long term uptrend remains intact despite the sell-off in Chinese stocks in Feb 21 that saw JD's stock price fall about 30% from its high. There are a few support levels that investors can focus on, most notably, the $70 support level that saw strong buying interest, as well as the $59 support level. The bulls are trying to retake the $79 support level which coincides with the dynamic resistance level marked by the 50-period MA at the moment. Therefore, investors who wish to add or initiate their positions may consider adding somewhere near the $70 level, and the $59 level if it retraces further, while avoiding adding near $79 in the near term.\nFor Chinese stocks, the Chinese and U.S. regulators will likely remain as the most important near term risk that may cause further compressions in its stock prices. However, as a long term investor who is still bullish on JD, I don't see that as a risk per se, but instead as an opportunity to add further into stocks like JD who in my opinion is fairly valued, and not expensive. The more the stock falls in the future due to policy changes or stiff rules from Beijing or Washington, the more attractive it will get for long term investors who have yet to initiate a position.\nWrapping it all up\nI'm a JD shareholder, and likely to remain so moving forward. What I had wanted to present in this article is to demonstrate why JD continues to trade at such low revenue multiples even as it continues to power ahead in its revenue growth. Investors should understand that although from the price action point of view JD I don't consider JD as a value trap, but I also don't consider JD as very attractive right now. It certainly deserves its current valuation and growth investors should taper their expectations in seeing the stock race ahead in the coming years.","collect":0,"html":"<!DOCTYPE html>\n<html>\n<head>\n<meta http-equiv=\"Content-Type\" content=\"text/html; charset=utf-8\" />\n<meta name=\"viewport\" content=\"width=device-width,initial-scale=1.0,minimum-scale=1.0,maximum-scale=1.0,user-scalable=no\"/>\n<meta name=\"format-detection\" content=\"telephone=no,email=no,address=no\" />\n<title>JD.com: Its Business Model Is Deserving Of Its Current Valuation</title>\n<style type=\"text/css\">\na,abbr,acronym,address,applet,article,aside,audio,b,big,blockquote,body,canvas,caption,center,cite,code,dd,del,details,dfn,div,dl,dt,\nem,embed,fieldset,figcaption,figure,footer,form,h1,h2,h3,h4,h5,h6,header,hgroup,html,i,iframe,img,ins,kbd,label,legend,li,mark,menu,nav,\nobject,ol,output,p,pre,q,ruby,s,samp,section,small,span,strike,strong,sub,summary,sup,table,tbody,td,tfoot,th,thead,time,tr,tt,u,ul,var,video{ font:inherit;margin:0;padding:0;vertical-align:baseline;border:0 }\nbody{ font-size:16px; line-height:1.5; color:#999; background:transparent; }\n.wrapper{ overflow:hidden;word-break:break-all;padding:10px; }\nh1,h2{ font-weight:normal; line-height:1.35; margin-bottom:.6em; }\nh3,h4,h5,h6{ line-height:1.35; margin-bottom:1em; }\nh1{ font-size:24px; }\nh2{ font-size:20px; }\nh3{ font-size:18px; }\nh4{ font-size:16px; }\nh5{ font-size:14px; }\nh6{ font-size:12px; }\np,ul,ol,blockquote,dl,table{ margin:1.2em 0; }\nul,ol{ margin-left:2em; }\nul{ list-style:disc; }\nol{ list-style:decimal; }\nli,li p{ margin:10px 0;}\nimg{ max-width:100%;display:block;margin:0 auto 1em; }\nblockquote{ color:#B5B2B1; border-left:3px solid #aaa; padding:1em; }\nstrong,b{font-weight:bold;}\nem,i{font-style:italic;}\ntable{ width:100%;border-collapse:collapse;border-spacing:1px;margin:1em 0;font-size:.9em; }\nth,td{ padding:5px;text-align:left;border:1px solid #aaa; }\nth{ font-weight:bold;background:#5d5d5d; }\n.symbol-link{font-weight:bold;}\n/* header{ border-bottom:1px solid #494756; } */\n.title{ margin:0 0 8px;line-height:1.3;color:#ddd; }\n.meta {color:#5e5c6d;font-size:13px;margin:0 0 .5em; }\na{text-decoration:none; color:#2a4b87;}\n.meta .head { display: inline-block; overflow: hidden}\n.head .h-thumb { width: 30px; height: 30px; margin: 0; padding: 0; border-radius: 50%; float: left;}\n.head .h-content { margin: 0; padding: 0 0 0 9px; float: left;}\n.head .h-name {font-size: 13px; color: #eee; margin: 0;}\n.head .h-time {font-size: 11px; color: #7E829C; margin: 0;line-height: 11px;}\n.small {font-size: 12.5px; display: inline-block; transform: scale(0.9); -webkit-transform: scale(0.9); transform-origin: left; -webkit-transform-origin: left;}\n.smaller {font-size: 12.5px; display: inline-block; transform: scale(0.8); -webkit-transform: scale(0.8); transform-origin: left; -webkit-transform-origin: left;}\n.bt-text {font-size: 12px;margin: 1.5em 0 0 0}\n.bt-text p {margin: 0}\n</style>\n</head>\n<body>\n<div class=\"wrapper\">\n<header>\n<h2 class=\"title\">\nJD.com: Its Business Model Is Deserving Of Its Current Valuation\n</h2>\n\n<h4 class=\"meta\">\n\n\n2021-06-03 23:22 GMT+8&nbsp;&nbsp;&nbsp;<a href=https://seekingalpha.com/article/4432860-jd-com-business-model-deserving-current-valuation>seekingalpha</a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\nSummary\n\nJD is often branded as the most “undervalued” stock of all its e-commerce peers by growth and value investors alike.\nEven though the company’s revenue growth rates have impressed, its ...\n\n<a href=\"https://seekingalpha.com/article/4432860-jd-com-business-model-deserving-current-valuation\">Web Link</a>\n\n</div>\n\n\n</article>\n</div>\n</body>\n</html>\n","type":0,"thumbnail":"","relate_stocks":{"09618":"京东集团-SW","JD":"京东"},"source_url":"https://seekingalpha.com/article/4432860-jd-com-business-model-deserving-current-valuation","is_english":true,"share_image_url":"https://static.laohu8.com/e9f99090a1c2ed51c021029395664489","article_id":"1171251318","content_text":"Summary\n\nJD is often branded as the most “undervalued” stock of all its e-commerce peers by growth and value investors alike.\nEven though the company’s revenue growth rates have impressed, its operating performances have not really been on par.\nI discuss why JD’s current valuations reflect the reality of its business model, and what growth and value investors should focus on to value the company.\n\nPhoto by Kevin Frayer/Getty Images News via Getty Images\nInvestment Thesis\nJD.com's (JD) low EV/Revenue multiples have often baffled growth and value investors. The relatively high revenue growth rates that the investors have grown accustomed to in the rapidly expanding Chinese e-commerce market has not cascaded down to its market cap as compared to its peers. I attempt to present my opinion on why JD may have exhibited a high revenue growth profile, but not necessarily the operating performances to match its peers.\nJD's Incredibly Low Revenue Multiples\nThe company has often been compared to Amazon (AMZN) in its early days or even compared to Shopify (SHOP) for having a revenue multiple that's way lower, and therefore implying a better buy.\nHowever when I looked under the hood into JD's business model and its operating performances, I found enough underlying weaknesses in JD's business model that perhaps indicate why the market continues to value JD at such low multiples despite having posted impressive growth rates.\nLTM Revenue Growth & Price / LTM Sales. Data Source: S&P Global Market Intelligence\nAs we can see from the chart above, JD has posted remarkable YoY revenue growth rates for the last 5 years, the \"slowest\" one being 22.7%. In fact, JD's LTM revenue growth rate has been accelerating recently, reaching 33.3% at the recent quarter. Despite that, its EV / LTM Rev multiple has consistently been under 1.1x, marking its strong appeal as a \"cheap\" growth stock.\nPrice/LTM Sales Percentile. Source: Tiger Brokers\nIn fact, JD's Price/LTM sales is currently at the 32nd percentile when we compare its multiples over the last 5 years, potentially even creating opportunities for value investors who may be on the lookout for a \"next Amazon\" type of stock that is selling for a real bargain now.\nJD and AMZN Market Cap, LTM Revenue, Revenue 3Y CAGR, EV / LTM Rev. Data Source: S&P Global Market Intelligence\nA quick glance over to Alibaba's (BABA) metrics unveil some interesting observations. Even though BABA's market cap is close to 5x that of JD's, BABA actually reported a lower LTM revenue (89% of JD's LTM revenue) than JD. In fact, BABA has reported lower revenue figures than JD over the last 5 years (see chart below). Both BABA and JD are revenue growth machines, with BABA's 3Y CAGR of 42% and JD's 3Y CAGR of 27.2%. Despite JD's impressive revenue growth, BABA is valued at 5.5x more than JD here based on their respective revenue multiples, which therefore raises the question of whether the market has unreasonably valued JD too low than what it actually deserves?\nBABA & JD LTM Revenue Trend. Data Source: S&P Global Market Intelligence\nJD Annual Active Customer Count. Data Source: Company Filings\nJD Annual Active Customer YoY Growth. Data Source: Company Filings\nIn fact, JD has been improving its active customer growth since Q3'19 as prior to that, JD had in fact suffered dramatic declines over multiple consecutive quarters of slowing customer growth. This coincided with the company's foray into Jingxi in 2019, which is the company's answer to Pinduoduo (PDD). The management also emphasized that: \"In the past 12 months, we gained 112 million new active users, with over 80% coming from lower-tier markets.\" Therefore quite clearly, Jingxi's customer growth has been the impetus behind the strong quarters of ARPC growth for JD.\nJD Average Revenue Per Active Customer. Data Source: Company Filings\nJD Average Revenue Per Active Customer YoY Growth. Data Source: Company Filings\nWhen we zoomed into the company's average revenue per active customer metrics, we could see that the underlying growth (up 11.7% YoY at the recent quarter) has been relatively healthy as well while the company continues to scale up its customer growth through the lower-tier markets.\nOkay, then how does JD's Operating Performances look like?\nEBIT Margin, CFO Margin, FCF Margin. Data Source: S&P Global Market Intelligence\nI had mentioned before in my article here for Coupang (CPNG), that for businesses that are potentially highly scalable such as JD's, we do not have to necessarily worry about the company's low operating margin business model as long as they are able to scale up quickly towards high FCF profitability. JD has always been operating with low operating margin (LTM EBIT margin of 1.2%), as that's the nature of its business model. Despite that, the company has still been able to generate relatively healthy FCF margins (LTM FCF margin 2.7%). Investors also shouldn't expect SaaS like FCF margins here as the business model is entirely different and JD is obviously going after those huge GMV growth. What we want to see though is whether the company is able to continue generating fast-growing and highly sustainable FCF moving forward.\nPeers Projected Unlevered FCF Margin. Data Source: S&P Global Market Intelligence\nPeers Projected Unlevered FCF 5Y CAGR. Data Source: S&P Global Market Intelligence\nThe problem arose when I tried to model JD's FCF growth moving forward. Quite clearly, JD does not seem to be able to improve its FCF margin strongly over time, with the projected FCF margins largely still in line with the historical ones.\nThat isn't something that we would like to see in a growth stock. Moreover the company's projected FCF margins are simply too low to be even classified as a cash flow machine. When we compare JD with its peers, we can clearly see that all of them, including AMZN are projected to generate very strong FCF growth moving forward, with JD's 5Y CAGR of 19.4% coming in last here. JD doesn't seem to be able to leverage on its relatively fast revenue growth to expand its FCF generating prowess as compared to its peers.\nNon-Peers Projected Unlevered FCF 5Y CAGR & Projected Unlevered FCF Margin. Data Source: S&P Global Market Intelligence\nIn order to help investors better understand what I mean, we can refer to the chart above to give an idea of what I meant as companies who are already in relatively stable growth stages with highly sustainable FCF margins as we model their FCF growth profile. It may be argued that Facebook (FB) is still a growth stock (but no longer as high growth as it once was) as it's still expected to generate relatively high FCF growth moving forward while commanding a remarkably high FCF margin as well. In addition, we could also see clearly that stable players often preferred by value investors such as Microsoft (MSFT), Qualcomm (QCOM) and Cisco (CSCO) are also expected to carry forward their high FCF margins moving forward. In contrast, JD's low 2.7% 5-year average FCF margin doesn't qualify it as a high quality stable stock for value investors to consider.\nWhat about JD's Growth Drivers?\nNow the interesting thing here is that JD has maintained that its business is still running at the \"high-growth\" stage as it emphasized:\n\n First of all, we prioritize growth above the importance of profitabilitybecause across all of our business lines, we are still in the high-growth stage. But each segment or each business line is actually in a different development stage. So we have kind of a differentiated investment strategy. So for JD Retail, we still -- you can see that for the first quarter and in the past few quarters, they continue to maintain a high-growth rate.\n\nThe management also added that they would likely continue to benefit from improved economies of scale and operating leverage as they bank on the rapid expansion of JD's retail business, allowing the company to continue improving its long term profit margin over time.\nJD LTM EBIT Margin & Projected EBIT Margin, LTM Unlevered FCF Margin & Projected Unlevered FCF Margin. Data Source: S&P Global Market Intelligence\nIn order to be clear of that, when I modelled JD's EBIT margin and FCF margin growth, I find it hard pressed to have agreement with the management's point of expecting sustained improvement in their operating performance over time as they scale up rapidly. First, the company is already coming off a very low base of EBIT (LTM EBIT margin: 1.2%) and FCF profitability (LTM Unlevered FCF margin: 0.8%), therefore I think it's not unreasonable to expect the company to post a significant improvement to its FCF profitability over time. However, as we can see above, those EBIT margin improvements don't really seem to cascade down to its FCF bottomline.\nJD Q1'21 Segment Revenue. Source:JD 6-K\nIt's important to note that JD retail is the company's main revenue and profit driver, accounting for 91% of Q1'21 revenue, while also subsidizing the losses from its other segments (one of which was JD Logistics which has already been spun off recently). It's difficult to see how its forays into its new businesses can be reasonably sustained over time when they don't have a highly profitable cash flow driver in JD Retail.\nAMZN EBIT Margin & Projected EBIT Margin, Unlevered FCF Margin & Projected Unlevered FCF Margin. Data Source: S&P Global Market Intelligence\nSea Limited EBIT Margin & Projected EBIT Margin, Unlevered FCF Margin & Projected Unlevered FCF Margin. Data Source: S&P Global Market Intelligence\nWe could refer to the above charts to see how important it's to have highly profitable cash flow segments to drive its operating performances even as the companies continue to scale up: AMZN with its AWS segment, as well as Sea's (SE) Garena segment, which I had covered in a recent article here. This cash flow segments allow them to reinvest into its highly scalable e-commerce segments and over time significantly improve their overall cash flow and EBIT profile. JD's business model certainly doesn't have the luxury of relying on such a segment to drive its growth, and therefore it's reflected clearly in its operating performances moving forward.\nValuations\nPeers Consensus Analysts Upside & EV / FY+1 Rev. Data Source: S&P Global Market Intelligence\nIf we simply base off JD's expected revenue growth, there's little doubt that JD seems to be valued at fire sale prices now. However, as mentioned earlier in the article, JD has always been valued at very low EV / Rev multiples historically as compared to its peers. In addition, the Street also remains highly confident of JD's upside potential (35.6%) as compared to its peers.\nJD & SE Ev / Fwd (EBITDA - CapEx) Trend. Data Source: S&P Global Market Intelligence\nAs I have emphasized earlier, using revenue figures to look at JD's growth potential may not accurately reflect the company's scalability potential. Here, we can see how SE's high potential to scale is clearly reflected in its FCF profile, where I use (EBITDA - CapEx) as a proxy here to remove the effects of lumpy working capital changes. SE's valuations are expected to come down significantly as it scales across South East Asia, generating lots of cash flow in the process. However, JD on the other hand doesn't seem to be quite as attractively valued as compared to SE when we project their growth rates forward.\nPrice Action & Technical Analysis\nSource: TradingView\nA silver lining here is that JD's long term uptrend remains intact despite the sell-off in Chinese stocks in Feb 21 that saw JD's stock price fall about 30% from its high. There are a few support levels that investors can focus on, most notably, the $70 support level that saw strong buying interest, as well as the $59 support level. The bulls are trying to retake the $79 support level which coincides with the dynamic resistance level marked by the 50-period MA at the moment. Therefore, investors who wish to add or initiate their positions may consider adding somewhere near the $70 level, and the $59 level if it retraces further, while avoiding adding near $79 in the near term.\nFor Chinese stocks, the Chinese and U.S. regulators will likely remain as the most important near term risk that may cause further compressions in its stock prices. However, as a long term investor who is still bullish on JD, I don't see that as a risk per se, but instead as an opportunity to add further into stocks like JD who in my opinion is fairly valued, and not expensive. The more the stock falls in the future due to policy changes or stiff rules from Beijing or Washington, the more attractive it will get for long term investors who have yet to initiate a position.\nWrapping it all up\nI'm a JD shareholder, and likely to remain so moving forward. What I had wanted to present in this article is to demonstrate why JD continues to trade at such low revenue multiples even as it continues to power ahead in its revenue growth. Investors should understand that although from the price action point of view JD I don't consider JD as a value trap, but I also don't consider JD as very attractive right now. It certainly deserves its current valuation and growth investors should taper their expectations in seeing the stock race ahead in the coming years.","news_type":1},"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"comments":[{"id":4570497,"gmtCreate":1622765122794,"gmtModify":1663227910943,"authorId":3574851080358491,"author":{"id":3574851080358491,"idStr":"3574851080358491","authorId":3574851080358491,"name":"Benstonk","avatar":"https://static.tigerbbs.com/c8a964cfa9223e4704989c9a4b9b772e","vip":1,"crmLevel":3,"crmLevelSwitch":1,"individualDisplayBadges":[]},"repliedAuthorId":0,"objectId":118753019,"type":1,"supId":0,"prevId":0,"content":"No way","text":"No way","html":"No way"},{"id":4569883,"gmtCreate":1622763820204,"gmtModify":1663227909355,"authorId":3556329315079497,"author":{"id":3556329315079497,"idStr":"3556329315079497","authorId":3556329315079497,"name":"Tslverde","avatar":"https://static.tigerbbs.com/5f52f5991ed363792008cd868f78181c","vip":1,"crmLevel":3,"crmLevelSwitch":0,"individualDisplayBadges":[]},"repliedAuthorId":0,"objectId":118753019,"type":1,"supId":0,"prevId":0,"content":"Good reply comment","text":"Good reply comment","html":"Good reply comment"}],"langContent":"EN"},{"id":118725796,"gmtCreate":1622763156115,"gmtModify":1704190566580,"author":{"id":"3580551463324218","authorId":"3580551463324218","name":"Stevenoh","avatar":"https://static.tigerbbs.com/2864e71b7de77c92cd605a0a430bc5f1","vip":1,"crmLevel":1,"crmLevelSwitch":0,"idStr":"3580551463324218","authorIdStr":"3580551463324218"},"htmlText":"Please comment and like. Thank you&nbsp;","listText":"Please comment and like. Thank you&nbsp;","text":"Please comment and like. Thank you","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":0,"commentSize":2,"repostSize":0,"link":"https://ttm.financial/post/118725796","repostId":1171251318,"repostType":4,"repost":{"id":"1171251318","pubTimestamp":1622733765,"share":"https://ttm.financial/m/news/1171251318?lang=&edition=fundamental","pubTime":"2021-06-03 23:22","market":"hk","language":"en","title":"JD.com: Its Business Model Is Deserving Of Its Current Valuation","url":"https://stock-news.laohu8.com/highlight/detail?id=1171251318","media":"seekingalpha","summary":"Summary\n\nJD is often branded as the most “undervalued” stock of all its e-commerce peers by growth a","content":"Summary\n<ul>\n <li>JD is often branded as the most “undervalued” stock of all its e-commerce peers by growth and value investors alike.</li>\n <li>Even though the company’s revenue growth rates have impressed, its operating performances have not really been on par.</li>\n <li>I discuss why JD’s current valuations reflect the reality of its business model, and what growth and value investors should focus on to value the company.</li>\n</ul>\n<img src=\"https://static.tigerbbs.com/3bc39a30a57f05b994781d4a3a51c0de\" tg-width=\"1536\" tg-height=\"1092\">Photo by Kevin Frayer/Getty Images News via Getty Images\nInvestment Thesis\nJD.com's (JD) low EV/Revenue multiples have often baffled growth and value investors. The relatively high revenue growth rates that the investors have grown accustomed to in the rapidly expanding Chinese e-commerce market has not cascaded down to its market cap as compared to its peers. I attempt to present my opinion on why JD may have exhibited a high revenue growth profile, but not necessarily the operating performances to match its peers.\nJD's Incredibly Low Revenue Multiples\nThe company has often been compared to Amazon (AMZN) in its early days or even compared to Shopify (SHOP) for having a revenue multiple that's way lower, and therefore implying a better buy.\nHowever when I looked under the hood into JD's business model and its operating performances, I found enough underlying weaknesses in JD's business model that perhaps indicate why the market continues to value JD at such low multiples despite having posted impressive growth rates.\n<img src=\"https://static.tigerbbs.com/dd8c028415efa231c377fb5f68a00858\" tg-width=\"1280\" tg-height=\"844\">LTM Revenue Growth &amp; Price / LTM Sales. Data Source: S&amp;P Global Market Intelligence\nAs we can see from the chart above, JD has posted remarkable YoY revenue growth rates for the last 5 years, the \"slowest\" one being 22.7%. In fact, JD's LTM revenue growth rate has been accelerating recently, reaching 33.3% at the recent quarter. Despite that, its EV / LTM Rev multiple has consistently been under 1.1x, marking its strong appeal as a \"cheap\" growth stock.\n<img src=\"https://static.tigerbbs.com/b5429847bb5cdb8de25028528ae70f6a\" tg-width=\"1280\" tg-height=\"811\">Price/LTM Sales Percentile. Source: Tiger Brokers\nIn fact, JD's Price/LTM sales is currently at the 32nd percentile when we compare its multiples over the last 5 years, potentially even creating opportunities for value investors who may be on the lookout for a \"next Amazon\" type of stock that is selling for a real bargain now.\n<img src=\"https://static.tigerbbs.com/4a33a3a8b9c3f7cfd6393fb14a77852c\" tg-width=\"1280\" tg-height=\"776\">JD and AMZN Market Cap, LTM Revenue, Revenue 3Y CAGR, EV / LTM Rev. Data Source: S&amp;P Global Market Intelligence\nA quick glance over to Alibaba's (BABA) metrics unveil some interesting observations. Even though BABA's market cap is close to 5x that of JD's, BABA actually reported a lower LTM revenue (89% of JD's LTM revenue) than JD. In fact, BABA has reported lower revenue figures than JD over the last 5 years (see chart below). Both BABA and JD are revenue growth machines, with BABA's 3Y CAGR of 42% and JD's 3Y CAGR of 27.2%. Despite JD's impressive revenue growth, BABA is valued at 5.5x more than JD here based on their respective revenue multiples, which therefore raises the question of whether the market has unreasonably valued JD too low than what it actually deserves?\n<img src=\"https://static.tigerbbs.com/09064245a10bfce0ca518de2ba958e28\" tg-width=\"1280\" tg-height=\"774\">BABA &amp; JD LTM Revenue Trend. Data Source: S&amp;P Global Market Intelligence\n<img src=\"https://static.tigerbbs.com/a7ad67e5be6dba93461b1cb1813d0aa8\" tg-width=\"1257\" tg-height=\"474\">JD Annual Active Customer Count. Data Source: Company Filings\n<img src=\"https://static.tigerbbs.com/b156a6b3eb509a01ef58375a4d035718\" tg-width=\"600\" tg-height=\"371\">JD Annual Active Customer YoY Growth. Data Source: Company Filings\nIn fact, JD has been improving its active customer growth since Q3'19 as prior to that, JD had in fact suffered dramatic declines over multiple consecutive quarters of slowing customer growth. This coincided with the company's foray into&nbsp;Jingxi in 2019, which is the company's answer to Pinduoduo (PDD). The management also emphasized that: \"In the past 12 months, we gained 112 million new active users, with over&nbsp;80% coming from lower-tier markets.\" Therefore quite clearly, Jingxi's customer growth has been the impetus behind the strong quarters of ARPC growth for JD.\n<img src=\"https://static.tigerbbs.com/16b3ae3a7907e114e3e3874b5f7d2851\" tg-width=\"962\" tg-height=\"595\">JD Average Revenue Per Active Customer. Data Source: Company Filings\n<img src=\"https://static.tigerbbs.com/4a17b7b3775c0d8c1ab4b05856429210\" tg-width=\"600\" tg-height=\"371\">JD Average Revenue Per Active Customer YoY Growth. Data Source: Company Filings\nWhen we zoomed into the company's average revenue per active customer metrics, we could see that the underlying growth (up 11.7% YoY at the recent quarter) has been relatively healthy as well while the company continues to scale up its customer growth through the lower-tier markets.\nOkay, then how does JD's Operating Performances look like?\n<img src=\"https://static.tigerbbs.com/365fbee247a722170a072c2dc2b83e38\" tg-width=\"1280\" tg-height=\"703\">EBIT Margin, CFO Margin, FCF Margin. Data Source: S&amp;P Global Market Intelligence\nI had mentioned before in&nbsp;my article here&nbsp;for Coupang (CPNG), that for businesses that are potentially highly scalable such as JD's, we do not have to necessarily worry about the company's low operating margin business model as long as they are able to scale up quickly towards high FCF profitability. JD has always been operating with low operating margin (LTM EBIT margin of 1.2%), as that's the nature of its business model. Despite that, the company has still been able to generate relatively healthy FCF margins (LTM FCF margin 2.7%). Investors also shouldn't expect SaaS like FCF margins here as the business model is entirely different and JD is obviously going after those huge GMV growth. What we want to see though is whether the company is able to continue generating fast-growing and highly sustainable FCF moving forward.\n<img src=\"https://static.tigerbbs.com/b36f757fa706b6f349f44add10229761\" tg-width=\"1280\" tg-height=\"708\">Peers Projected Unlevered FCF Margin. Data Source: S&amp;P Global Market Intelligence\n<img src=\"https://static.tigerbbs.com/328507a06929411b3b72e85c8c8169b2\" tg-width=\"1280\" tg-height=\"693\">Peers Projected Unlevered FCF 5Y CAGR. Data Source: S&amp;P Global Market Intelligence\nThe problem arose when I tried to model JD's FCF growth moving forward. Quite clearly, JD does not seem to be able to improve its FCF margin strongly over time, with the projected FCF margins largely still in line with the historical ones.\nThat isn't something that we would like to see in a growth stock. Moreover the company's projected FCF margins are simply too low to be even classified as a cash flow machine. When we compare JD with its peers, we can clearly see that all of them, including AMZN are projected to generate very strong FCF growth moving forward, with JD's 5Y CAGR of 19.4% coming in last here. JD doesn't seem to be able to leverage on its relatively fast revenue growth to expand its FCF generating prowess as compared to its peers.\n<img src=\"https://static.tigerbbs.com/34da8b0865452a029c93f57dc8104697\" tg-width=\"1280\" tg-height=\"684\">Non-Peers Projected Unlevered FCF 5Y CAGR &amp; Projected Unlevered FCF Margin. Data Source: S&amp;P Global Market Intelligence\nIn order to help investors better understand what I mean, we can refer to the chart above to give an idea of what I meant as companies who are already in relatively stable growth stages with highly sustainable FCF margins as we model their FCF growth profile. It may be argued that Facebook (FB) is still a growth stock (but no longer as high growth as it once was) as it's still expected to generate relatively high FCF growth moving forward while commanding a remarkably high FCF margin as well. In addition, we could also see clearly that stable players often preferred by value investors such as Microsoft (MSFT), Qualcomm (QCOM) and Cisco (CSCO) are also expected to carry forward their high FCF margins moving forward. In contrast, JD's low 2.7% 5-year average FCF margin doesn't qualify it as a high quality stable stock for value investors to consider.\nWhat about JD's Growth Drivers?\nNow the interesting thing here is that JD has maintained that its business is still running at the \"high-growth\" stage as it emphasized:\n<blockquote>\n First of all, we&nbsp;prioritize growth above the importance of profitabilitybecause across all of our business lines, we are still in the high-growth stage. But each segment or each business line is actually in a different development stage. So we have kind of a differentiated investment strategy. So for JD Retail, we still -- you can see that for the first quarter and in the past few quarters, they continue to maintain a high-growth rate.\n</blockquote>\nThe management also added that they would likely continue to benefit from improved economies of scale and operating leverage as they bank on the rapid expansion of JD's retail business, allowing the company to continue improving its long term profit margin over time.\n<img src=\"https://static.tigerbbs.com/8477039f4b9693704cbbaf64530da052\" tg-width=\"1280\" tg-height=\"706\">JD LTM EBIT Margin &amp; Projected EBIT Margin, LTM Unlevered FCF Margin &amp; Projected Unlevered FCF Margin. Data Source: S&amp;P Global Market Intelligence\nIn order to be clear of that, when I modelled JD's EBIT margin and FCF margin growth, I find it hard pressed to have agreement with the management's point of expecting sustained improvement in their operating performance over time as they scale up rapidly. First, the company is already coming off a very low base of EBIT (LTM EBIT margin: 1.2%) and FCF profitability (LTM Unlevered FCF margin: 0.8%), therefore I think it's not unreasonable to expect the company to post a significant improvement to its FCF profitability over time. However, as we can see above, those EBIT margin improvements don't really seem to cascade down to its FCF bottomline.\n<img src=\"https://static.tigerbbs.com/34fa89d4e61ac3e70091cc064b4dc51a\" tg-width=\"1280\" tg-height=\"626\">JD Q1'21 Segment Revenue. Source:JD 6-K\nIt's important to note that JD retail is the company's main revenue and profit driver, accounting for 91% of Q1'21 revenue, while also subsidizing the losses from its other segments (one of which was JD Logistics which has already been spun off recently). It's difficult to see how its forays into its new businesses can be reasonably sustained over time when they don't have a highly profitable cash flow driver in JD Retail.\n<img src=\"https://static.tigerbbs.com/85c510c5f8c49a1fde429fcbe1892c30\" tg-width=\"1280\" tg-height=\"704\">AMZN EBIT Margin &amp; Projected EBIT Margin, Unlevered FCF Margin &amp; Projected Unlevered FCF Margin. Data Source: S&amp;P Global Market Intelligence\n<img src=\"https://static.tigerbbs.com/6dcf33c4272b764cbad4a64cca5bdbfd\" tg-width=\"1280\" tg-height=\"711\">Sea Limited EBIT Margin &amp; Projected EBIT Margin, Unlevered FCF Margin &amp; Projected Unlevered FCF Margin. Data Source: S&amp;P Global Market Intelligence\nWe could refer to the above charts to see how important it's to have highly profitable cash flow segments to drive its operating performances even as the companies continue to scale up: AMZN with its AWS segment, as well as Sea's (SE) Garena segment, which I had covered in a&nbsp;recent article here. This cash flow segments allow them to reinvest into its highly scalable e-commerce segments and over time significantly improve their overall cash flow and EBIT profile. JD's business model certainly doesn't have the luxury of relying on such a segment to drive its growth, and therefore it's reflected clearly in its operating performances moving forward.\nValuations\n<img src=\"https://static.tigerbbs.com/2ec37dd8957f5cadcf9615fa414bb78d\" tg-width=\"1280\" tg-height=\"726\">Peers Consensus Analysts Upside &amp; EV / FY+1 Rev. Data Source: S&amp;P Global Market Intelligence\nIf we simply base off JD's expected revenue growth, there's little doubt that JD seems to be valued at fire sale prices now. However, as mentioned earlier in the article, JD has always been valued at very low EV / Rev multiples historically as compared to its peers. In addition, the Street also remains highly confident of JD's upside potential (35.6%) as compared to its peers.\n<img src=\"https://static.tigerbbs.com/56bd8f33da9baab688b59439b44a827b\" tg-width=\"1280\" tg-height=\"709\">JD &amp; SE Ev / Fwd (EBITDA - CapEx) Trend. Data Source: S&amp;P Global Market Intelligence\nAs I have emphasized earlier, using revenue figures to look at JD's growth potential may not accurately reflect the company's scalability potential. Here, we can see how SE's high potential to scale is clearly reflected in its FCF profile, where I use (EBITDA - CapEx) as a proxy here to remove the effects of lumpy working capital changes. SE's valuations are expected to come down significantly as it scales across South East Asia, generating lots of cash flow in the process. However, JD on the other hand doesn't seem to be quite as attractively valued as compared to SE when we project their growth rates forward.\nPrice Action &amp; Technical Analysis\n<img src=\"https://static.tigerbbs.com/98b516b4268fe8418e750d8717769eaf\" tg-width=\"1280\" tg-height=\"798\">Source: TradingView\nA silver lining here is that JD's long term uptrend remains intact despite the sell-off in Chinese stocks in Feb 21 that saw JD's stock price fall about 30% from its high. There are a few support levels that investors can focus on, most notably, the $70 support level that saw strong buying interest, as well as the $59 support level. The bulls are trying to retake the $79 support level which coincides with the dynamic resistance level marked by the 50-period MA at the moment. Therefore, investors who wish to add or initiate their positions may consider adding somewhere near the $70 level, and the $59 level if it retraces further, while avoiding adding near $79 in the near term.\nFor Chinese stocks, the Chinese and U.S. regulators will likely remain as the most important near term risk that may cause further compressions in its stock prices. However, as a long term investor who is still bullish on JD, I don't see that as a risk per se, but instead as an opportunity to add further into stocks like JD who in my opinion is fairly valued, and not expensive. The more the stock falls in the future due to policy changes or stiff rules from Beijing or Washington, the more attractive it will get for long term investors who have yet to initiate a position.\nWrapping it all up\nI'm a JD shareholder, and likely to remain so moving forward. What I had wanted to present in this article is to demonstrate why JD continues to trade at such low revenue multiples even as it continues to power ahead in its revenue growth. Investors should understand that although from the price action point of view JD I don't consider JD as a value trap, but I also don't consider JD as very attractive right now. It certainly deserves its current valuation and growth investors should taper their expectations in seeing the stock race ahead in the coming years.","collect":0,"html":"<!DOCTYPE html>\n<html>\n<head>\n<meta http-equiv=\"Content-Type\" content=\"text/html; charset=utf-8\" />\n<meta name=\"viewport\" content=\"width=device-width,initial-scale=1.0,minimum-scale=1.0,maximum-scale=1.0,user-scalable=no\"/>\n<meta name=\"format-detection\" content=\"telephone=no,email=no,address=no\" />\n<title>JD.com: Its Business Model Is Deserving Of Its Current Valuation</title>\n<style type=\"text/css\">\na,abbr,acronym,address,applet,article,aside,audio,b,big,blockquote,body,canvas,caption,center,cite,code,dd,del,details,dfn,div,dl,dt,\nem,embed,fieldset,figcaption,figure,footer,form,h1,h2,h3,h4,h5,h6,header,hgroup,html,i,iframe,img,ins,kbd,label,legend,li,mark,menu,nav,\nobject,ol,output,p,pre,q,ruby,s,samp,section,small,span,strike,strong,sub,summary,sup,table,tbody,td,tfoot,th,thead,time,tr,tt,u,ul,var,video{ font:inherit;margin:0;padding:0;vertical-align:baseline;border:0 }\nbody{ font-size:16px; line-height:1.5; color:#999; background:transparent; }\n.wrapper{ overflow:hidden;word-break:break-all;padding:10px; }\nh1,h2{ font-weight:normal; line-height:1.35; margin-bottom:.6em; }\nh3,h4,h5,h6{ line-height:1.35; margin-bottom:1em; }\nh1{ font-size:24px; }\nh2{ font-size:20px; }\nh3{ font-size:18px; }\nh4{ font-size:16px; }\nh5{ font-size:14px; }\nh6{ font-size:12px; }\np,ul,ol,blockquote,dl,table{ margin:1.2em 0; }\nul,ol{ margin-left:2em; }\nul{ list-style:disc; }\nol{ list-style:decimal; }\nli,li p{ margin:10px 0;}\nimg{ max-width:100%;display:block;margin:0 auto 1em; }\nblockquote{ color:#B5B2B1; border-left:3px solid #aaa; padding:1em; }\nstrong,b{font-weight:bold;}\nem,i{font-style:italic;}\ntable{ width:100%;border-collapse:collapse;border-spacing:1px;margin:1em 0;font-size:.9em; }\nth,td{ padding:5px;text-align:left;border:1px solid #aaa; }\nth{ font-weight:bold;background:#5d5d5d; }\n.symbol-link{font-weight:bold;}\n/* header{ border-bottom:1px solid #494756; } */\n.title{ margin:0 0 8px;line-height:1.3;color:#ddd; }\n.meta {color:#5e5c6d;font-size:13px;margin:0 0 .5em; }\na{text-decoration:none; color:#2a4b87;}\n.meta .head { display: inline-block; overflow: hidden}\n.head .h-thumb { width: 30px; height: 30px; margin: 0; padding: 0; border-radius: 50%; float: left;}\n.head .h-content { margin: 0; padding: 0 0 0 9px; float: left;}\n.head .h-name {font-size: 13px; color: #eee; margin: 0;}\n.head .h-time {font-size: 11px; color: #7E829C; margin: 0;line-height: 11px;}\n.small {font-size: 12.5px; display: inline-block; transform: scale(0.9); -webkit-transform: scale(0.9); transform-origin: left; -webkit-transform-origin: left;}\n.smaller {font-size: 12.5px; display: inline-block; transform: scale(0.8); -webkit-transform: scale(0.8); transform-origin: left; -webkit-transform-origin: left;}\n.bt-text {font-size: 12px;margin: 1.5em 0 0 0}\n.bt-text p {margin: 0}\n</style>\n</head>\n<body>\n<div class=\"wrapper\">\n<header>\n<h2 class=\"title\">\nJD.com: Its Business Model Is Deserving Of Its Current Valuation\n</h2>\n\n<h4 class=\"meta\">\n\n\n2021-06-03 23:22 GMT+8&nbsp;&nbsp;&nbsp;<a href=https://seekingalpha.com/article/4432860-jd-com-business-model-deserving-current-valuation>seekingalpha</a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\nSummary\n\nJD is often branded as the most “undervalued” stock of all its e-commerce peers by growth and value investors alike.\nEven though the company’s revenue growth rates have impressed, its ...\n\n<a href=\"https://seekingalpha.com/article/4432860-jd-com-business-model-deserving-current-valuation\">Web Link</a>\n\n</div>\n\n\n</article>\n</div>\n</body>\n</html>\n","type":0,"thumbnail":"","relate_stocks":{"09618":"京东集团-SW","JD":"京东"},"source_url":"https://seekingalpha.com/article/4432860-jd-com-business-model-deserving-current-valuation","is_english":true,"share_image_url":"https://static.laohu8.com/e9f99090a1c2ed51c021029395664489","article_id":"1171251318","content_text":"Summary\n\nJD is often branded as the most “undervalued” stock of all its e-commerce peers by growth and value investors alike.\nEven though the company’s revenue growth rates have impressed, its operating performances have not really been on par.\nI discuss why JD’s current valuations reflect the reality of its business model, and what growth and value investors should focus on to value the company.\n\nPhoto by Kevin Frayer/Getty Images News via Getty Images\nInvestment Thesis\nJD.com's (JD) low EV/Revenue multiples have often baffled growth and value investors. The relatively high revenue growth rates that the investors have grown accustomed to in the rapidly expanding Chinese e-commerce market has not cascaded down to its market cap as compared to its peers. I attempt to present my opinion on why JD may have exhibited a high revenue growth profile, but not necessarily the operating performances to match its peers.\nJD's Incredibly Low Revenue Multiples\nThe company has often been compared to Amazon (AMZN) in its early days or even compared to Shopify (SHOP) for having a revenue multiple that's way lower, and therefore implying a better buy.\nHowever when I looked under the hood into JD's business model and its operating performances, I found enough underlying weaknesses in JD's business model that perhaps indicate why the market continues to value JD at such low multiples despite having posted impressive growth rates.\nLTM Revenue Growth & Price / LTM Sales. Data Source: S&P Global Market Intelligence\nAs we can see from the chart above, JD has posted remarkable YoY revenue growth rates for the last 5 years, the \"slowest\" one being 22.7%. In fact, JD's LTM revenue growth rate has been accelerating recently, reaching 33.3% at the recent quarter. Despite that, its EV / LTM Rev multiple has consistently been under 1.1x, marking its strong appeal as a \"cheap\" growth stock.\nPrice/LTM Sales Percentile. Source: Tiger Brokers\nIn fact, JD's Price/LTM sales is currently at the 32nd percentile when we compare its multiples over the last 5 years, potentially even creating opportunities for value investors who may be on the lookout for a \"next Amazon\" type of stock that is selling for a real bargain now.\nJD and AMZN Market Cap, LTM Revenue, Revenue 3Y CAGR, EV / LTM Rev. Data Source: S&P Global Market Intelligence\nA quick glance over to Alibaba's (BABA) metrics unveil some interesting observations. Even though BABA's market cap is close to 5x that of JD's, BABA actually reported a lower LTM revenue (89% of JD's LTM revenue) than JD. In fact, BABA has reported lower revenue figures than JD over the last 5 years (see chart below). Both BABA and JD are revenue growth machines, with BABA's 3Y CAGR of 42% and JD's 3Y CAGR of 27.2%. Despite JD's impressive revenue growth, BABA is valued at 5.5x more than JD here based on their respective revenue multiples, which therefore raises the question of whether the market has unreasonably valued JD too low than what it actually deserves?\nBABA & JD LTM Revenue Trend. Data Source: S&P Global Market Intelligence\nJD Annual Active Customer Count. Data Source: Company Filings\nJD Annual Active Customer YoY Growth. Data Source: Company Filings\nIn fact, JD has been improving its active customer growth since Q3'19 as prior to that, JD had in fact suffered dramatic declines over multiple consecutive quarters of slowing customer growth. This coincided with the company's foray into Jingxi in 2019, which is the company's answer to Pinduoduo (PDD). The management also emphasized that: \"In the past 12 months, we gained 112 million new active users, with over 80% coming from lower-tier markets.\" Therefore quite clearly, Jingxi's customer growth has been the impetus behind the strong quarters of ARPC growth for JD.\nJD Average Revenue Per Active Customer. Data Source: Company Filings\nJD Average Revenue Per Active Customer YoY Growth. Data Source: Company Filings\nWhen we zoomed into the company's average revenue per active customer metrics, we could see that the underlying growth (up 11.7% YoY at the recent quarter) has been relatively healthy as well while the company continues to scale up its customer growth through the lower-tier markets.\nOkay, then how does JD's Operating Performances look like?\nEBIT Margin, CFO Margin, FCF Margin. Data Source: S&P Global Market Intelligence\nI had mentioned before in my article here for Coupang (CPNG), that for businesses that are potentially highly scalable such as JD's, we do not have to necessarily worry about the company's low operating margin business model as long as they are able to scale up quickly towards high FCF profitability. JD has always been operating with low operating margin (LTM EBIT margin of 1.2%), as that's the nature of its business model. Despite that, the company has still been able to generate relatively healthy FCF margins (LTM FCF margin 2.7%). Investors also shouldn't expect SaaS like FCF margins here as the business model is entirely different and JD is obviously going after those huge GMV growth. What we want to see though is whether the company is able to continue generating fast-growing and highly sustainable FCF moving forward.\nPeers Projected Unlevered FCF Margin. Data Source: S&P Global Market Intelligence\nPeers Projected Unlevered FCF 5Y CAGR. Data Source: S&P Global Market Intelligence\nThe problem arose when I tried to model JD's FCF growth moving forward. Quite clearly, JD does not seem to be able to improve its FCF margin strongly over time, with the projected FCF margins largely still in line with the historical ones.\nThat isn't something that we would like to see in a growth stock. Moreover the company's projected FCF margins are simply too low to be even classified as a cash flow machine. When we compare JD with its peers, we can clearly see that all of them, including AMZN are projected to generate very strong FCF growth moving forward, with JD's 5Y CAGR of 19.4% coming in last here. JD doesn't seem to be able to leverage on its relatively fast revenue growth to expand its FCF generating prowess as compared to its peers.\nNon-Peers Projected Unlevered FCF 5Y CAGR & Projected Unlevered FCF Margin. Data Source: S&P Global Market Intelligence\nIn order to help investors better understand what I mean, we can refer to the chart above to give an idea of what I meant as companies who are already in relatively stable growth stages with highly sustainable FCF margins as we model their FCF growth profile. It may be argued that Facebook (FB) is still a growth stock (but no longer as high growth as it once was) as it's still expected to generate relatively high FCF growth moving forward while commanding a remarkably high FCF margin as well. In addition, we could also see clearly that stable players often preferred by value investors such as Microsoft (MSFT), Qualcomm (QCOM) and Cisco (CSCO) are also expected to carry forward their high FCF margins moving forward. In contrast, JD's low 2.7% 5-year average FCF margin doesn't qualify it as a high quality stable stock for value investors to consider.\nWhat about JD's Growth Drivers?\nNow the interesting thing here is that JD has maintained that its business is still running at the \"high-growth\" stage as it emphasized:\n\n First of all, we prioritize growth above the importance of profitabilitybecause across all of our business lines, we are still in the high-growth stage. But each segment or each business line is actually in a different development stage. So we have kind of a differentiated investment strategy. So for JD Retail, we still -- you can see that for the first quarter and in the past few quarters, they continue to maintain a high-growth rate.\n\nThe management also added that they would likely continue to benefit from improved economies of scale and operating leverage as they bank on the rapid expansion of JD's retail business, allowing the company to continue improving its long term profit margin over time.\nJD LTM EBIT Margin & Projected EBIT Margin, LTM Unlevered FCF Margin & Projected Unlevered FCF Margin. Data Source: S&P Global Market Intelligence\nIn order to be clear of that, when I modelled JD's EBIT margin and FCF margin growth, I find it hard pressed to have agreement with the management's point of expecting sustained improvement in their operating performance over time as they scale up rapidly. First, the company is already coming off a very low base of EBIT (LTM EBIT margin: 1.2%) and FCF profitability (LTM Unlevered FCF margin: 0.8%), therefore I think it's not unreasonable to expect the company to post a significant improvement to its FCF profitability over time. However, as we can see above, those EBIT margin improvements don't really seem to cascade down to its FCF bottomline.\nJD Q1'21 Segment Revenue. Source:JD 6-K\nIt's important to note that JD retail is the company's main revenue and profit driver, accounting for 91% of Q1'21 revenue, while also subsidizing the losses from its other segments (one of which was JD Logistics which has already been spun off recently). It's difficult to see how its forays into its new businesses can be reasonably sustained over time when they don't have a highly profitable cash flow driver in JD Retail.\nAMZN EBIT Margin & Projected EBIT Margin, Unlevered FCF Margin & Projected Unlevered FCF Margin. Data Source: S&P Global Market Intelligence\nSea Limited EBIT Margin & Projected EBIT Margin, Unlevered FCF Margin & Projected Unlevered FCF Margin. Data Source: S&P Global Market Intelligence\nWe could refer to the above charts to see how important it's to have highly profitable cash flow segments to drive its operating performances even as the companies continue to scale up: AMZN with its AWS segment, as well as Sea's (SE) Garena segment, which I had covered in a recent article here. This cash flow segments allow them to reinvest into its highly scalable e-commerce segments and over time significantly improve their overall cash flow and EBIT profile. JD's business model certainly doesn't have the luxury of relying on such a segment to drive its growth, and therefore it's reflected clearly in its operating performances moving forward.\nValuations\nPeers Consensus Analysts Upside & EV / FY+1 Rev. Data Source: S&P Global Market Intelligence\nIf we simply base off JD's expected revenue growth, there's little doubt that JD seems to be valued at fire sale prices now. However, as mentioned earlier in the article, JD has always been valued at very low EV / Rev multiples historically as compared to its peers. In addition, the Street also remains highly confident of JD's upside potential (35.6%) as compared to its peers.\nJD & SE Ev / Fwd (EBITDA - CapEx) Trend. Data Source: S&P Global Market Intelligence\nAs I have emphasized earlier, using revenue figures to look at JD's growth potential may not accurately reflect the company's scalability potential. Here, we can see how SE's high potential to scale is clearly reflected in its FCF profile, where I use (EBITDA - CapEx) as a proxy here to remove the effects of lumpy working capital changes. SE's valuations are expected to come down significantly as it scales across South East Asia, generating lots of cash flow in the process. However, JD on the other hand doesn't seem to be quite as attractively valued as compared to SE when we project their growth rates forward.\nPrice Action & Technical Analysis\nSource: TradingView\nA silver lining here is that JD's long term uptrend remains intact despite the sell-off in Chinese stocks in Feb 21 that saw JD's stock price fall about 30% from its high. There are a few support levels that investors can focus on, most notably, the $70 support level that saw strong buying interest, as well as the $59 support level. The bulls are trying to retake the $79 support level which coincides with the dynamic resistance level marked by the 50-period MA at the moment. Therefore, investors who wish to add or initiate their positions may consider adding somewhere near the $70 level, and the $59 level if it retraces further, while avoiding adding near $79 in the near term.\nFor Chinese stocks, the Chinese and U.S. regulators will likely remain as the most important near term risk that may cause further compressions in its stock prices. However, as a long term investor who is still bullish on JD, I don't see that as a risk per se, but instead as an opportunity to add further into stocks like JD who in my opinion is fairly valued, and not expensive. The more the stock falls in the future due to policy changes or stiff rules from Beijing or Washington, the more attractive it will get for long term investors who have yet to initiate a position.\nWrapping it all up\nI'm a JD shareholder, and likely to remain so moving forward. What I had wanted to present in this article is to demonstrate why JD continues to trade at such low revenue multiples even as it continues to power ahead in its revenue growth. Investors should understand that although from the price action point of view JD I don't consider JD as a value trap, but I also don't consider JD as very attractive right now. It certainly deserves its current valuation and growth investors should taper their expectations in seeing the stock race ahead in the coming years.","news_type":1},"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"comments":[{"id":4569846,"gmtCreate":1622763723875,"gmtModify":1663227907530,"authorId":3577779385577340,"author":{"id":3577779385577340,"idStr":"3577779385577340","authorId":3577779385577340,"name":"要剁手了","avatar":"https://static.tigerbbs.com/406b7545b22b1d6e524e10a4d52b5bbc","vip":1,"crmLevel":2,"crmLevelSwitch":0,"individualDisplayBadges":[]},"repliedAuthorId":0,"objectId":118725796,"type":1,"supId":4569693,"prevId":0,"content":"Like and comment too, Thanks ","text":"Like and comment too, Thanks ","html":"Like and comment too, Thanks "},{"id":4569693,"gmtCreate":1622763298998,"gmtModify":1663227907357,"authorId":3581919031797456,"author":{"id":3581919031797456,"idStr":"3581919031797456","authorId":3581919031797456,"name":"JeffreyNeo","avatar":"https://static.tigerbbs.com/fd016aa2ec66a904f877445461310e24","vip":1,"crmLevel":2,"crmLevelSwitch":1,"individualDisplayBadges":[]},"repliedAuthorId":0,"objectId":118725796,"type":1,"supId":0,"prevId":0,"content":"1","text":"1","html":"1"}],"langContent":"EN"},{"id":118764050,"gmtCreate":1622762822670,"gmtModify":1704190553335,"author":{"id":"3576797297333074","authorId":"3576797297333074","name":"Silverliner","avatar":"https://static.tigerbbs.com/7076b22d78b344d76b27343d28d92649","vip":1,"crmLevel":1,"crmLevelSwitch":0,"idStr":"3576797297333074","authorIdStr":"3576797297333074"},"htmlText":"Buy more?","listText":"Buy more?","text":"Buy more?","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":1,"commentSize":2,"repostSize":0,"link":"https://ttm.financial/post/118764050","repostId":1171251318,"repostType":4,"repost":{"id":"1171251318","pubTimestamp":1622733765,"share":"https://ttm.financial/m/news/1171251318?lang=&edition=fundamental","pubTime":"2021-06-03 23:22","market":"hk","language":"en","title":"JD.com: Its Business Model Is Deserving Of Its Current Valuation","url":"https://stock-news.laohu8.com/highlight/detail?id=1171251318","media":"seekingalpha","summary":"Summary\n\nJD is often branded as the most “undervalued” stock of all its e-commerce peers by growth a","content":"Summary\n<ul>\n <li>JD is often branded as the most “undervalued” stock of all its e-commerce peers by growth and value investors alike.</li>\n <li>Even though the company’s revenue growth rates have impressed, its operating performances have not really been on par.</li>\n <li>I discuss why JD’s current valuations reflect the reality of its business model, and what growth and value investors should focus on to value the company.</li>\n</ul>\n<img src=\"https://static.tigerbbs.com/3bc39a30a57f05b994781d4a3a51c0de\" tg-width=\"1536\" tg-height=\"1092\">Photo by Kevin Frayer/Getty Images News via Getty Images\nInvestment Thesis\nJD.com's (JD) low EV/Revenue multiples have often baffled growth and value investors. The relatively high revenue growth rates that the investors have grown accustomed to in the rapidly expanding Chinese e-commerce market has not cascaded down to its market cap as compared to its peers. I attempt to present my opinion on why JD may have exhibited a high revenue growth profile, but not necessarily the operating performances to match its peers.\nJD's Incredibly Low Revenue Multiples\nThe company has often been compared to Amazon (AMZN) in its early days or even compared to Shopify (SHOP) for having a revenue multiple that's way lower, and therefore implying a better buy.\nHowever when I looked under the hood into JD's business model and its operating performances, I found enough underlying weaknesses in JD's business model that perhaps indicate why the market continues to value JD at such low multiples despite having posted impressive growth rates.\n<img src=\"https://static.tigerbbs.com/dd8c028415efa231c377fb5f68a00858\" tg-width=\"1280\" tg-height=\"844\">LTM Revenue Growth &amp; Price / LTM Sales. Data Source: S&amp;P Global Market Intelligence\nAs we can see from the chart above, JD has posted remarkable YoY revenue growth rates for the last 5 years, the \"slowest\" one being 22.7%. In fact, JD's LTM revenue growth rate has been accelerating recently, reaching 33.3% at the recent quarter. Despite that, its EV / LTM Rev multiple has consistently been under 1.1x, marking its strong appeal as a \"cheap\" growth stock.\n<img src=\"https://static.tigerbbs.com/b5429847bb5cdb8de25028528ae70f6a\" tg-width=\"1280\" tg-height=\"811\">Price/LTM Sales Percentile. Source: Tiger Brokers\nIn fact, JD's Price/LTM sales is currently at the 32nd percentile when we compare its multiples over the last 5 years, potentially even creating opportunities for value investors who may be on the lookout for a \"next Amazon\" type of stock that is selling for a real bargain now.\n<img src=\"https://static.tigerbbs.com/4a33a3a8b9c3f7cfd6393fb14a77852c\" tg-width=\"1280\" tg-height=\"776\">JD and AMZN Market Cap, LTM Revenue, Revenue 3Y CAGR, EV / LTM Rev. Data Source: S&amp;P Global Market Intelligence\nA quick glance over to Alibaba's (BABA) metrics unveil some interesting observations. Even though BABA's market cap is close to 5x that of JD's, BABA actually reported a lower LTM revenue (89% of JD's LTM revenue) than JD. In fact, BABA has reported lower revenue figures than JD over the last 5 years (see chart below). Both BABA and JD are revenue growth machines, with BABA's 3Y CAGR of 42% and JD's 3Y CAGR of 27.2%. Despite JD's impressive revenue growth, BABA is valued at 5.5x more than JD here based on their respective revenue multiples, which therefore raises the question of whether the market has unreasonably valued JD too low than what it actually deserves?\n<img src=\"https://static.tigerbbs.com/09064245a10bfce0ca518de2ba958e28\" tg-width=\"1280\" tg-height=\"774\">BABA &amp; JD LTM Revenue Trend. Data Source: S&amp;P Global Market Intelligence\n<img src=\"https://static.tigerbbs.com/a7ad67e5be6dba93461b1cb1813d0aa8\" tg-width=\"1257\" tg-height=\"474\">JD Annual Active Customer Count. Data Source: Company Filings\n<img src=\"https://static.tigerbbs.com/b156a6b3eb509a01ef58375a4d035718\" tg-width=\"600\" tg-height=\"371\">JD Annual Active Customer YoY Growth. Data Source: Company Filings\nIn fact, JD has been improving its active customer growth since Q3'19 as prior to that, JD had in fact suffered dramatic declines over multiple consecutive quarters of slowing customer growth. This coincided with the company's foray into&nbsp;Jingxi in 2019, which is the company's answer to Pinduoduo (PDD). The management also emphasized that: \"In the past 12 months, we gained 112 million new active users, with over&nbsp;80% coming from lower-tier markets.\" Therefore quite clearly, Jingxi's customer growth has been the impetus behind the strong quarters of ARPC growth for JD.\n<img src=\"https://static.tigerbbs.com/16b3ae3a7907e114e3e3874b5f7d2851\" tg-width=\"962\" tg-height=\"595\">JD Average Revenue Per Active Customer. Data Source: Company Filings\n<img src=\"https://static.tigerbbs.com/4a17b7b3775c0d8c1ab4b05856429210\" tg-width=\"600\" tg-height=\"371\">JD Average Revenue Per Active Customer YoY Growth. Data Source: Company Filings\nWhen we zoomed into the company's average revenue per active customer metrics, we could see that the underlying growth (up 11.7% YoY at the recent quarter) has been relatively healthy as well while the company continues to scale up its customer growth through the lower-tier markets.\nOkay, then how does JD's Operating Performances look like?\n<img src=\"https://static.tigerbbs.com/365fbee247a722170a072c2dc2b83e38\" tg-width=\"1280\" tg-height=\"703\">EBIT Margin, CFO Margin, FCF Margin. Data Source: S&amp;P Global Market Intelligence\nI had mentioned before in&nbsp;my article here&nbsp;for Coupang (CPNG), that for businesses that are potentially highly scalable such as JD's, we do not have to necessarily worry about the company's low operating margin business model as long as they are able to scale up quickly towards high FCF profitability. JD has always been operating with low operating margin (LTM EBIT margin of 1.2%), as that's the nature of its business model. Despite that, the company has still been able to generate relatively healthy FCF margins (LTM FCF margin 2.7%). Investors also shouldn't expect SaaS like FCF margins here as the business model is entirely different and JD is obviously going after those huge GMV growth. What we want to see though is whether the company is able to continue generating fast-growing and highly sustainable FCF moving forward.\n<img src=\"https://static.tigerbbs.com/b36f757fa706b6f349f44add10229761\" tg-width=\"1280\" tg-height=\"708\">Peers Projected Unlevered FCF Margin. Data Source: S&amp;P Global Market Intelligence\n<img src=\"https://static.tigerbbs.com/328507a06929411b3b72e85c8c8169b2\" tg-width=\"1280\" tg-height=\"693\">Peers Projected Unlevered FCF 5Y CAGR. Data Source: S&amp;P Global Market Intelligence\nThe problem arose when I tried to model JD's FCF growth moving forward. Quite clearly, JD does not seem to be able to improve its FCF margin strongly over time, with the projected FCF margins largely still in line with the historical ones.\nThat isn't something that we would like to see in a growth stock. Moreover the company's projected FCF margins are simply too low to be even classified as a cash flow machine. When we compare JD with its peers, we can clearly see that all of them, including AMZN are projected to generate very strong FCF growth moving forward, with JD's 5Y CAGR of 19.4% coming in last here. JD doesn't seem to be able to leverage on its relatively fast revenue growth to expand its FCF generating prowess as compared to its peers.\n<img src=\"https://static.tigerbbs.com/34da8b0865452a029c93f57dc8104697\" tg-width=\"1280\" tg-height=\"684\">Non-Peers Projected Unlevered FCF 5Y CAGR &amp; Projected Unlevered FCF Margin. Data Source: S&amp;P Global Market Intelligence\nIn order to help investors better understand what I mean, we can refer to the chart above to give an idea of what I meant as companies who are already in relatively stable growth stages with highly sustainable FCF margins as we model their FCF growth profile. It may be argued that Facebook (FB) is still a growth stock (but no longer as high growth as it once was) as it's still expected to generate relatively high FCF growth moving forward while commanding a remarkably high FCF margin as well. In addition, we could also see clearly that stable players often preferred by value investors such as Microsoft (MSFT), Qualcomm (QCOM) and Cisco (CSCO) are also expected to carry forward their high FCF margins moving forward. In contrast, JD's low 2.7% 5-year average FCF margin doesn't qualify it as a high quality stable stock for value investors to consider.\nWhat about JD's Growth Drivers?\nNow the interesting thing here is that JD has maintained that its business is still running at the \"high-growth\" stage as it emphasized:\n<blockquote>\n First of all, we&nbsp;prioritize growth above the importance of profitabilitybecause across all of our business lines, we are still in the high-growth stage. But each segment or each business line is actually in a different development stage. So we have kind of a differentiated investment strategy. So for JD Retail, we still -- you can see that for the first quarter and in the past few quarters, they continue to maintain a high-growth rate.\n</blockquote>\nThe management also added that they would likely continue to benefit from improved economies of scale and operating leverage as they bank on the rapid expansion of JD's retail business, allowing the company to continue improving its long term profit margin over time.\n<img src=\"https://static.tigerbbs.com/8477039f4b9693704cbbaf64530da052\" tg-width=\"1280\" tg-height=\"706\">JD LTM EBIT Margin &amp; Projected EBIT Margin, LTM Unlevered FCF Margin &amp; Projected Unlevered FCF Margin. Data Source: S&amp;P Global Market Intelligence\nIn order to be clear of that, when I modelled JD's EBIT margin and FCF margin growth, I find it hard pressed to have agreement with the management's point of expecting sustained improvement in their operating performance over time as they scale up rapidly. First, the company is already coming off a very low base of EBIT (LTM EBIT margin: 1.2%) and FCF profitability (LTM Unlevered FCF margin: 0.8%), therefore I think it's not unreasonable to expect the company to post a significant improvement to its FCF profitability over time. However, as we can see above, those EBIT margin improvements don't really seem to cascade down to its FCF bottomline.\n<img src=\"https://static.tigerbbs.com/34fa89d4e61ac3e70091cc064b4dc51a\" tg-width=\"1280\" tg-height=\"626\">JD Q1'21 Segment Revenue. Source:JD 6-K\nIt's important to note that JD retail is the company's main revenue and profit driver, accounting for 91% of Q1'21 revenue, while also subsidizing the losses from its other segments (one of which was JD Logistics which has already been spun off recently). It's difficult to see how its forays into its new businesses can be reasonably sustained over time when they don't have a highly profitable cash flow driver in JD Retail.\n<img src=\"https://static.tigerbbs.com/85c510c5f8c49a1fde429fcbe1892c30\" tg-width=\"1280\" tg-height=\"704\">AMZN EBIT Margin &amp; Projected EBIT Margin, Unlevered FCF Margin &amp; Projected Unlevered FCF Margin. Data Source: S&amp;P Global Market Intelligence\n<img src=\"https://static.tigerbbs.com/6dcf33c4272b764cbad4a64cca5bdbfd\" tg-width=\"1280\" tg-height=\"711\">Sea Limited EBIT Margin &amp; Projected EBIT Margin, Unlevered FCF Margin &amp; Projected Unlevered FCF Margin. Data Source: S&amp;P Global Market Intelligence\nWe could refer to the above charts to see how important it's to have highly profitable cash flow segments to drive its operating performances even as the companies continue to scale up: AMZN with its AWS segment, as well as Sea's (SE) Garena segment, which I had covered in a&nbsp;recent article here. This cash flow segments allow them to reinvest into its highly scalable e-commerce segments and over time significantly improve their overall cash flow and EBIT profile. JD's business model certainly doesn't have the luxury of relying on such a segment to drive its growth, and therefore it's reflected clearly in its operating performances moving forward.\nValuations\n<img src=\"https://static.tigerbbs.com/2ec37dd8957f5cadcf9615fa414bb78d\" tg-width=\"1280\" tg-height=\"726\">Peers Consensus Analysts Upside &amp; EV / FY+1 Rev. Data Source: S&amp;P Global Market Intelligence\nIf we simply base off JD's expected revenue growth, there's little doubt that JD seems to be valued at fire sale prices now. However, as mentioned earlier in the article, JD has always been valued at very low EV / Rev multiples historically as compared to its peers. In addition, the Street also remains highly confident of JD's upside potential (35.6%) as compared to its peers.\n<img src=\"https://static.tigerbbs.com/56bd8f33da9baab688b59439b44a827b\" tg-width=\"1280\" tg-height=\"709\">JD &amp; SE Ev / Fwd (EBITDA - CapEx) Trend. Data Source: S&amp;P Global Market Intelligence\nAs I have emphasized earlier, using revenue figures to look at JD's growth potential may not accurately reflect the company's scalability potential. Here, we can see how SE's high potential to scale is clearly reflected in its FCF profile, where I use (EBITDA - CapEx) as a proxy here to remove the effects of lumpy working capital changes. SE's valuations are expected to come down significantly as it scales across South East Asia, generating lots of cash flow in the process. However, JD on the other hand doesn't seem to be quite as attractively valued as compared to SE when we project their growth rates forward.\nPrice Action &amp; Technical Analysis\n<img src=\"https://static.tigerbbs.com/98b516b4268fe8418e750d8717769eaf\" tg-width=\"1280\" tg-height=\"798\">Source: TradingView\nA silver lining here is that JD's long term uptrend remains intact despite the sell-off in Chinese stocks in Feb 21 that saw JD's stock price fall about 30% from its high. There are a few support levels that investors can focus on, most notably, the $70 support level that saw strong buying interest, as well as the $59 support level. The bulls are trying to retake the $79 support level which coincides with the dynamic resistance level marked by the 50-period MA at the moment. Therefore, investors who wish to add or initiate their positions may consider adding somewhere near the $70 level, and the $59 level if it retraces further, while avoiding adding near $79 in the near term.\nFor Chinese stocks, the Chinese and U.S. regulators will likely remain as the most important near term risk that may cause further compressions in its stock prices. However, as a long term investor who is still bullish on JD, I don't see that as a risk per se, but instead as an opportunity to add further into stocks like JD who in my opinion is fairly valued, and not expensive. The more the stock falls in the future due to policy changes or stiff rules from Beijing or Washington, the more attractive it will get for long term investors who have yet to initiate a position.\nWrapping it all up\nI'm a JD shareholder, and likely to remain so moving forward. What I had wanted to present in this article is to demonstrate why JD continues to trade at such low revenue multiples even as it continues to power ahead in its revenue growth. Investors should understand that although from the price action point of view JD I don't consider JD as a value trap, but I also don't consider JD as very attractive right now. It certainly deserves its current valuation and growth investors should taper their expectations in seeing the stock race ahead in the coming years.","collect":0,"html":"<!DOCTYPE html>\n<html>\n<head>\n<meta http-equiv=\"Content-Type\" content=\"text/html; charset=utf-8\" />\n<meta name=\"viewport\" content=\"width=device-width,initial-scale=1.0,minimum-scale=1.0,maximum-scale=1.0,user-scalable=no\"/>\n<meta name=\"format-detection\" content=\"telephone=no,email=no,address=no\" />\n<title>JD.com: Its Business Model Is Deserving Of Its Current Valuation</title>\n<style type=\"text/css\">\na,abbr,acronym,address,applet,article,aside,audio,b,big,blockquote,body,canvas,caption,center,cite,code,dd,del,details,dfn,div,dl,dt,\nem,embed,fieldset,figcaption,figure,footer,form,h1,h2,h3,h4,h5,h6,header,hgroup,html,i,iframe,img,ins,kbd,label,legend,li,mark,menu,nav,\nobject,ol,output,p,pre,q,ruby,s,samp,section,small,span,strike,strong,sub,summary,sup,table,tbody,td,tfoot,th,thead,time,tr,tt,u,ul,var,video{ font:inherit;margin:0;padding:0;vertical-align:baseline;border:0 }\nbody{ font-size:16px; line-height:1.5; color:#999; background:transparent; }\n.wrapper{ overflow:hidden;word-break:break-all;padding:10px; }\nh1,h2{ font-weight:normal; line-height:1.35; margin-bottom:.6em; }\nh3,h4,h5,h6{ line-height:1.35; margin-bottom:1em; }\nh1{ font-size:24px; }\nh2{ font-size:20px; }\nh3{ font-size:18px; }\nh4{ font-size:16px; }\nh5{ font-size:14px; }\nh6{ font-size:12px; }\np,ul,ol,blockquote,dl,table{ margin:1.2em 0; }\nul,ol{ margin-left:2em; }\nul{ list-style:disc; }\nol{ list-style:decimal; }\nli,li p{ margin:10px 0;}\nimg{ max-width:100%;display:block;margin:0 auto 1em; }\nblockquote{ color:#B5B2B1; border-left:3px solid #aaa; padding:1em; }\nstrong,b{font-weight:bold;}\nem,i{font-style:italic;}\ntable{ width:100%;border-collapse:collapse;border-spacing:1px;margin:1em 0;font-size:.9em; }\nth,td{ padding:5px;text-align:left;border:1px solid #aaa; }\nth{ font-weight:bold;background:#5d5d5d; }\n.symbol-link{font-weight:bold;}\n/* header{ border-bottom:1px solid #494756; } */\n.title{ margin:0 0 8px;line-height:1.3;color:#ddd; }\n.meta {color:#5e5c6d;font-size:13px;margin:0 0 .5em; }\na{text-decoration:none; color:#2a4b87;}\n.meta .head { display: inline-block; overflow: hidden}\n.head .h-thumb { width: 30px; height: 30px; margin: 0; padding: 0; border-radius: 50%; float: left;}\n.head .h-content { margin: 0; padding: 0 0 0 9px; float: left;}\n.head .h-name {font-size: 13px; color: #eee; margin: 0;}\n.head .h-time {font-size: 11px; color: #7E829C; margin: 0;line-height: 11px;}\n.small {font-size: 12.5px; display: inline-block; transform: scale(0.9); -webkit-transform: scale(0.9); transform-origin: left; -webkit-transform-origin: left;}\n.smaller {font-size: 12.5px; display: inline-block; transform: scale(0.8); -webkit-transform: scale(0.8); transform-origin: left; -webkit-transform-origin: left;}\n.bt-text {font-size: 12px;margin: 1.5em 0 0 0}\n.bt-text p {margin: 0}\n</style>\n</head>\n<body>\n<div class=\"wrapper\">\n<header>\n<h2 class=\"title\">\nJD.com: Its Business Model Is Deserving Of Its Current Valuation\n</h2>\n\n<h4 class=\"meta\">\n\n\n2021-06-03 23:22 GMT+8&nbsp;&nbsp;&nbsp;<a href=https://seekingalpha.com/article/4432860-jd-com-business-model-deserving-current-valuation>seekingalpha</a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\nSummary\n\nJD is often branded as the most “undervalued” stock of all its e-commerce peers by growth and value investors alike.\nEven though the company’s revenue growth rates have impressed, its ...\n\n<a href=\"https://seekingalpha.com/article/4432860-jd-com-business-model-deserving-current-valuation\">Web Link</a>\n\n</div>\n\n\n</article>\n</div>\n</body>\n</html>\n","type":0,"thumbnail":"","relate_stocks":{"09618":"京东集团-SW","JD":"京东"},"source_url":"https://seekingalpha.com/article/4432860-jd-com-business-model-deserving-current-valuation","is_english":true,"share_image_url":"https://static.laohu8.com/e9f99090a1c2ed51c021029395664489","article_id":"1171251318","content_text":"Summary\n\nJD is often branded as the most “undervalued” stock of all its e-commerce peers by growth and value investors alike.\nEven though the company’s revenue growth rates have impressed, its operating performances have not really been on par.\nI discuss why JD’s current valuations reflect the reality of its business model, and what growth and value investors should focus on to value the company.\n\nPhoto by Kevin Frayer/Getty Images News via Getty Images\nInvestment Thesis\nJD.com's (JD) low EV/Revenue multiples have often baffled growth and value investors. The relatively high revenue growth rates that the investors have grown accustomed to in the rapidly expanding Chinese e-commerce market has not cascaded down to its market cap as compared to its peers. I attempt to present my opinion on why JD may have exhibited a high revenue growth profile, but not necessarily the operating performances to match its peers.\nJD's Incredibly Low Revenue Multiples\nThe company has often been compared to Amazon (AMZN) in its early days or even compared to Shopify (SHOP) for having a revenue multiple that's way lower, and therefore implying a better buy.\nHowever when I looked under the hood into JD's business model and its operating performances, I found enough underlying weaknesses in JD's business model that perhaps indicate why the market continues to value JD at such low multiples despite having posted impressive growth rates.\nLTM Revenue Growth & Price / LTM Sales. Data Source: S&P Global Market Intelligence\nAs we can see from the chart above, JD has posted remarkable YoY revenue growth rates for the last 5 years, the \"slowest\" one being 22.7%. In fact, JD's LTM revenue growth rate has been accelerating recently, reaching 33.3% at the recent quarter. Despite that, its EV / LTM Rev multiple has consistently been under 1.1x, marking its strong appeal as a \"cheap\" growth stock.\nPrice/LTM Sales Percentile. Source: Tiger Brokers\nIn fact, JD's Price/LTM sales is currently at the 32nd percentile when we compare its multiples over the last 5 years, potentially even creating opportunities for value investors who may be on the lookout for a \"next Amazon\" type of stock that is selling for a real bargain now.\nJD and AMZN Market Cap, LTM Revenue, Revenue 3Y CAGR, EV / LTM Rev. Data Source: S&P Global Market Intelligence\nA quick glance over to Alibaba's (BABA) metrics unveil some interesting observations. Even though BABA's market cap is close to 5x that of JD's, BABA actually reported a lower LTM revenue (89% of JD's LTM revenue) than JD. In fact, BABA has reported lower revenue figures than JD over the last 5 years (see chart below). Both BABA and JD are revenue growth machines, with BABA's 3Y CAGR of 42% and JD's 3Y CAGR of 27.2%. Despite JD's impressive revenue growth, BABA is valued at 5.5x more than JD here based on their respective revenue multiples, which therefore raises the question of whether the market has unreasonably valued JD too low than what it actually deserves?\nBABA & JD LTM Revenue Trend. Data Source: S&P Global Market Intelligence\nJD Annual Active Customer Count. Data Source: Company Filings\nJD Annual Active Customer YoY Growth. Data Source: Company Filings\nIn fact, JD has been improving its active customer growth since Q3'19 as prior to that, JD had in fact suffered dramatic declines over multiple consecutive quarters of slowing customer growth. This coincided with the company's foray into Jingxi in 2019, which is the company's answer to Pinduoduo (PDD). The management also emphasized that: \"In the past 12 months, we gained 112 million new active users, with over 80% coming from lower-tier markets.\" Therefore quite clearly, Jingxi's customer growth has been the impetus behind the strong quarters of ARPC growth for JD.\nJD Average Revenue Per Active Customer. Data Source: Company Filings\nJD Average Revenue Per Active Customer YoY Growth. Data Source: Company Filings\nWhen we zoomed into the company's average revenue per active customer metrics, we could see that the underlying growth (up 11.7% YoY at the recent quarter) has been relatively healthy as well while the company continues to scale up its customer growth through the lower-tier markets.\nOkay, then how does JD's Operating Performances look like?\nEBIT Margin, CFO Margin, FCF Margin. Data Source: S&P Global Market Intelligence\nI had mentioned before in my article here for Coupang (CPNG), that for businesses that are potentially highly scalable such as JD's, we do not have to necessarily worry about the company's low operating margin business model as long as they are able to scale up quickly towards high FCF profitability. JD has always been operating with low operating margin (LTM EBIT margin of 1.2%), as that's the nature of its business model. Despite that, the company has still been able to generate relatively healthy FCF margins (LTM FCF margin 2.7%). Investors also shouldn't expect SaaS like FCF margins here as the business model is entirely different and JD is obviously going after those huge GMV growth. What we want to see though is whether the company is able to continue generating fast-growing and highly sustainable FCF moving forward.\nPeers Projected Unlevered FCF Margin. Data Source: S&P Global Market Intelligence\nPeers Projected Unlevered FCF 5Y CAGR. Data Source: S&P Global Market Intelligence\nThe problem arose when I tried to model JD's FCF growth moving forward. Quite clearly, JD does not seem to be able to improve its FCF margin strongly over time, with the projected FCF margins largely still in line with the historical ones.\nThat isn't something that we would like to see in a growth stock. Moreover the company's projected FCF margins are simply too low to be even classified as a cash flow machine. When we compare JD with its peers, we can clearly see that all of them, including AMZN are projected to generate very strong FCF growth moving forward, with JD's 5Y CAGR of 19.4% coming in last here. JD doesn't seem to be able to leverage on its relatively fast revenue growth to expand its FCF generating prowess as compared to its peers.\nNon-Peers Projected Unlevered FCF 5Y CAGR & Projected Unlevered FCF Margin. Data Source: S&P Global Market Intelligence\nIn order to help investors better understand what I mean, we can refer to the chart above to give an idea of what I meant as companies who are already in relatively stable growth stages with highly sustainable FCF margins as we model their FCF growth profile. It may be argued that Facebook (FB) is still a growth stock (but no longer as high growth as it once was) as it's still expected to generate relatively high FCF growth moving forward while commanding a remarkably high FCF margin as well. In addition, we could also see clearly that stable players often preferred by value investors such as Microsoft (MSFT), Qualcomm (QCOM) and Cisco (CSCO) are also expected to carry forward their high FCF margins moving forward. In contrast, JD's low 2.7% 5-year average FCF margin doesn't qualify it as a high quality stable stock for value investors to consider.\nWhat about JD's Growth Drivers?\nNow the interesting thing here is that JD has maintained that its business is still running at the \"high-growth\" stage as it emphasized:\n\n First of all, we prioritize growth above the importance of profitabilitybecause across all of our business lines, we are still in the high-growth stage. But each segment or each business line is actually in a different development stage. So we have kind of a differentiated investment strategy. So for JD Retail, we still -- you can see that for the first quarter and in the past few quarters, they continue to maintain a high-growth rate.\n\nThe management also added that they would likely continue to benefit from improved economies of scale and operating leverage as they bank on the rapid expansion of JD's retail business, allowing the company to continue improving its long term profit margin over time.\nJD LTM EBIT Margin & Projected EBIT Margin, LTM Unlevered FCF Margin & Projected Unlevered FCF Margin. Data Source: S&P Global Market Intelligence\nIn order to be clear of that, when I modelled JD's EBIT margin and FCF margin growth, I find it hard pressed to have agreement with the management's point of expecting sustained improvement in their operating performance over time as they scale up rapidly. First, the company is already coming off a very low base of EBIT (LTM EBIT margin: 1.2%) and FCF profitability (LTM Unlevered FCF margin: 0.8%), therefore I think it's not unreasonable to expect the company to post a significant improvement to its FCF profitability over time. However, as we can see above, those EBIT margin improvements don't really seem to cascade down to its FCF bottomline.\nJD Q1'21 Segment Revenue. Source:JD 6-K\nIt's important to note that JD retail is the company's main revenue and profit driver, accounting for 91% of Q1'21 revenue, while also subsidizing the losses from its other segments (one of which was JD Logistics which has already been spun off recently). It's difficult to see how its forays into its new businesses can be reasonably sustained over time when they don't have a highly profitable cash flow driver in JD Retail.\nAMZN EBIT Margin & Projected EBIT Margin, Unlevered FCF Margin & Projected Unlevered FCF Margin. Data Source: S&P Global Market Intelligence\nSea Limited EBIT Margin & Projected EBIT Margin, Unlevered FCF Margin & Projected Unlevered FCF Margin. Data Source: S&P Global Market Intelligence\nWe could refer to the above charts to see how important it's to have highly profitable cash flow segments to drive its operating performances even as the companies continue to scale up: AMZN with its AWS segment, as well as Sea's (SE) Garena segment, which I had covered in a recent article here. This cash flow segments allow them to reinvest into its highly scalable e-commerce segments and over time significantly improve their overall cash flow and EBIT profile. JD's business model certainly doesn't have the luxury of relying on such a segment to drive its growth, and therefore it's reflected clearly in its operating performances moving forward.\nValuations\nPeers Consensus Analysts Upside & EV / FY+1 Rev. Data Source: S&P Global Market Intelligence\nIf we simply base off JD's expected revenue growth, there's little doubt that JD seems to be valued at fire sale prices now. However, as mentioned earlier in the article, JD has always been valued at very low EV / Rev multiples historically as compared to its peers. In addition, the Street also remains highly confident of JD's upside potential (35.6%) as compared to its peers.\nJD & SE Ev / Fwd (EBITDA - CapEx) Trend. Data Source: S&P Global Market Intelligence\nAs I have emphasized earlier, using revenue figures to look at JD's growth potential may not accurately reflect the company's scalability potential. Here, we can see how SE's high potential to scale is clearly reflected in its FCF profile, where I use (EBITDA - CapEx) as a proxy here to remove the effects of lumpy working capital changes. SE's valuations are expected to come down significantly as it scales across South East Asia, generating lots of cash flow in the process. However, JD on the other hand doesn't seem to be quite as attractively valued as compared to SE when we project their growth rates forward.\nPrice Action & Technical Analysis\nSource: TradingView\nA silver lining here is that JD's long term uptrend remains intact despite the sell-off in Chinese stocks in Feb 21 that saw JD's stock price fall about 30% from its high. There are a few support levels that investors can focus on, most notably, the $70 support level that saw strong buying interest, as well as the $59 support level. The bulls are trying to retake the $79 support level which coincides with the dynamic resistance level marked by the 50-period MA at the moment. Therefore, investors who wish to add or initiate their positions may consider adding somewhere near the $70 level, and the $59 level if it retraces further, while avoiding adding near $79 in the near term.\nFor Chinese stocks, the Chinese and U.S. regulators will likely remain as the most important near term risk that may cause further compressions in its stock prices. However, as a long term investor who is still bullish on JD, I don't see that as a risk per se, but instead as an opportunity to add further into stocks like JD who in my opinion is fairly valued, and not expensive. The more the stock falls in the future due to policy changes or stiff rules from Beijing or Washington, the more attractive it will get for long term investors who have yet to initiate a position.\nWrapping it all up\nI'm a JD shareholder, and likely to remain so moving forward. What I had wanted to present in this article is to demonstrate why JD continues to trade at such low revenue multiples even as it continues to power ahead in its revenue growth. Investors should understand that although from the price action point of view JD I don't consider JD as a value trap, but I also don't consider JD as very attractive right now. It certainly deserves its current valuation and growth investors should taper their expectations in seeing the stock race ahead in the coming years.","news_type":1},"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"comments":[{"id":4569670,"gmtCreate":1622763227662,"gmtModify":1663227910640,"authorId":3573471135601329,"author":{"id":3573471135601329,"idStr":"3573471135601329","authorId":3573471135601329,"name":"SKHan","avatar":"https://static.tigerbbs.com/edb016a1e76d427cf4bc5ef3a5d38289","vip":1,"crmLevel":4,"crmLevelSwitch":0,"individualDisplayBadges":[]},"repliedAuthorId":0,"objectId":118764050,"type":1,"supId":4569532,"prevId":0,"content":"?","text":"?","html":"?"},{"id":4569532,"gmtCreate":1622762856253,"gmtModify":1663227907537,"authorId":3579767039150345,"author":{"id":3579767039150345,"idStr":"3579767039150345","authorId":3579767039150345,"name":"jim83","avatar":"https://static.tigerbbs.com/ca8cbdd681b4f0a6f22dde46c1a332a4","vip":1,"crmLevel":1,"crmLevelSwitch":0,"individualDisplayBadges":[]},"repliedAuthorId":0,"objectId":118764050,"type":1,"supId":0,"prevId":0,"content":"yes","text":"yes","html":"yes"}],"langContent":"EN"},{"id":118769164,"gmtCreate":1622762593658,"gmtModify":1704190543640,"author":{"id":"3579263894255367","authorId":"3579263894255367","name":"Sheryl04","avatar":"https://static.tigerbbs.com/cb46b4965d4b2d0792ca657332a149a5","vip":1,"crmLevel":4,"crmLevelSwitch":0,"idStr":"3579263894255367","authorIdStr":"3579263894255367"},"htmlText":"Pls like","listText":"Pls like","text":"Pls like","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":3,"commentSize":1,"repostSize":0,"link":"https://ttm.financial/post/118769164","repostId":1171251318,"repostType":4,"repost":{"id":"1171251318","pubTimestamp":1622733765,"share":"https://ttm.financial/m/news/1171251318?lang=&edition=fundamental","pubTime":"2021-06-03 23:22","market":"hk","language":"en","title":"JD.com: Its Business Model Is Deserving Of Its Current Valuation","url":"https://stock-news.laohu8.com/highlight/detail?id=1171251318","media":"seekingalpha","summary":"Summary\n\nJD is often branded as the most “undervalued” stock of all its e-commerce peers by growth a","content":"Summary\n<ul>\n <li>JD is often branded as the most “undervalued” stock of all its e-commerce peers by growth and value investors alike.</li>\n <li>Even though the company’s revenue growth rates have impressed, its operating performances have not really been on par.</li>\n <li>I discuss why JD’s current valuations reflect the reality of its business model, and what growth and value investors should focus on to value the company.</li>\n</ul>\n<img src=\"https://static.tigerbbs.com/3bc39a30a57f05b994781d4a3a51c0de\" tg-width=\"1536\" tg-height=\"1092\">Photo by Kevin Frayer/Getty Images News via Getty Images\nInvestment Thesis\nJD.com's (JD) low EV/Revenue multiples have often baffled growth and value investors. The relatively high revenue growth rates that the investors have grown accustomed to in the rapidly expanding Chinese e-commerce market has not cascaded down to its market cap as compared to its peers. I attempt to present my opinion on why JD may have exhibited a high revenue growth profile, but not necessarily the operating performances to match its peers.\nJD's Incredibly Low Revenue Multiples\nThe company has often been compared to Amazon (AMZN) in its early days or even compared to Shopify (SHOP) for having a revenue multiple that's way lower, and therefore implying a better buy.\nHowever when I looked under the hood into JD's business model and its operating performances, I found enough underlying weaknesses in JD's business model that perhaps indicate why the market continues to value JD at such low multiples despite having posted impressive growth rates.\n<img src=\"https://static.tigerbbs.com/dd8c028415efa231c377fb5f68a00858\" tg-width=\"1280\" tg-height=\"844\">LTM Revenue Growth &amp; Price / LTM Sales. Data Source: S&amp;P Global Market Intelligence\nAs we can see from the chart above, JD has posted remarkable YoY revenue growth rates for the last 5 years, the \"slowest\" one being 22.7%. In fact, JD's LTM revenue growth rate has been accelerating recently, reaching 33.3% at the recent quarter. Despite that, its EV / LTM Rev multiple has consistently been under 1.1x, marking its strong appeal as a \"cheap\" growth stock.\n<img src=\"https://static.tigerbbs.com/b5429847bb5cdb8de25028528ae70f6a\" tg-width=\"1280\" tg-height=\"811\">Price/LTM Sales Percentile. Source: Tiger Brokers\nIn fact, JD's Price/LTM sales is currently at the 32nd percentile when we compare its multiples over the last 5 years, potentially even creating opportunities for value investors who may be on the lookout for a \"next Amazon\" type of stock that is selling for a real bargain now.\n<img src=\"https://static.tigerbbs.com/4a33a3a8b9c3f7cfd6393fb14a77852c\" tg-width=\"1280\" tg-height=\"776\">JD and AMZN Market Cap, LTM Revenue, Revenue 3Y CAGR, EV / LTM Rev. Data Source: S&amp;P Global Market Intelligence\nA quick glance over to Alibaba's (BABA) metrics unveil some interesting observations. Even though BABA's market cap is close to 5x that of JD's, BABA actually reported a lower LTM revenue (89% of JD's LTM revenue) than JD. In fact, BABA has reported lower revenue figures than JD over the last 5 years (see chart below). Both BABA and JD are revenue growth machines, with BABA's 3Y CAGR of 42% and JD's 3Y CAGR of 27.2%. Despite JD's impressive revenue growth, BABA is valued at 5.5x more than JD here based on their respective revenue multiples, which therefore raises the question of whether the market has unreasonably valued JD too low than what it actually deserves?\n<img src=\"https://static.tigerbbs.com/09064245a10bfce0ca518de2ba958e28\" tg-width=\"1280\" tg-height=\"774\">BABA &amp; JD LTM Revenue Trend. Data Source: S&amp;P Global Market Intelligence\n<img src=\"https://static.tigerbbs.com/a7ad67e5be6dba93461b1cb1813d0aa8\" tg-width=\"1257\" tg-height=\"474\">JD Annual Active Customer Count. Data Source: Company Filings\n<img src=\"https://static.tigerbbs.com/b156a6b3eb509a01ef58375a4d035718\" tg-width=\"600\" tg-height=\"371\">JD Annual Active Customer YoY Growth. Data Source: Company Filings\nIn fact, JD has been improving its active customer growth since Q3'19 as prior to that, JD had in fact suffered dramatic declines over multiple consecutive quarters of slowing customer growth. This coincided with the company's foray into&nbsp;Jingxi in 2019, which is the company's answer to Pinduoduo (PDD). The management also emphasized that: \"In the past 12 months, we gained 112 million new active users, with over&nbsp;80% coming from lower-tier markets.\" Therefore quite clearly, Jingxi's customer growth has been the impetus behind the strong quarters of ARPC growth for JD.\n<img src=\"https://static.tigerbbs.com/16b3ae3a7907e114e3e3874b5f7d2851\" tg-width=\"962\" tg-height=\"595\">JD Average Revenue Per Active Customer. Data Source: Company Filings\n<img src=\"https://static.tigerbbs.com/4a17b7b3775c0d8c1ab4b05856429210\" tg-width=\"600\" tg-height=\"371\">JD Average Revenue Per Active Customer YoY Growth. Data Source: Company Filings\nWhen we zoomed into the company's average revenue per active customer metrics, we could see that the underlying growth (up 11.7% YoY at the recent quarter) has been relatively healthy as well while the company continues to scale up its customer growth through the lower-tier markets.\nOkay, then how does JD's Operating Performances look like?\n<img src=\"https://static.tigerbbs.com/365fbee247a722170a072c2dc2b83e38\" tg-width=\"1280\" tg-height=\"703\">EBIT Margin, CFO Margin, FCF Margin. Data Source: S&amp;P Global Market Intelligence\nI had mentioned before in&nbsp;my article here&nbsp;for Coupang (CPNG), that for businesses that are potentially highly scalable such as JD's, we do not have to necessarily worry about the company's low operating margin business model as long as they are able to scale up quickly towards high FCF profitability. JD has always been operating with low operating margin (LTM EBIT margin of 1.2%), as that's the nature of its business model. Despite that, the company has still been able to generate relatively healthy FCF margins (LTM FCF margin 2.7%). Investors also shouldn't expect SaaS like FCF margins here as the business model is entirely different and JD is obviously going after those huge GMV growth. What we want to see though is whether the company is able to continue generating fast-growing and highly sustainable FCF moving forward.\n<img src=\"https://static.tigerbbs.com/b36f757fa706b6f349f44add10229761\" tg-width=\"1280\" tg-height=\"708\">Peers Projected Unlevered FCF Margin. Data Source: S&amp;P Global Market Intelligence\n<img src=\"https://static.tigerbbs.com/328507a06929411b3b72e85c8c8169b2\" tg-width=\"1280\" tg-height=\"693\">Peers Projected Unlevered FCF 5Y CAGR. Data Source: S&amp;P Global Market Intelligence\nThe problem arose when I tried to model JD's FCF growth moving forward. Quite clearly, JD does not seem to be able to improve its FCF margin strongly over time, with the projected FCF margins largely still in line with the historical ones.\nThat isn't something that we would like to see in a growth stock. Moreover the company's projected FCF margins are simply too low to be even classified as a cash flow machine. When we compare JD with its peers, we can clearly see that all of them, including AMZN are projected to generate very strong FCF growth moving forward, with JD's 5Y CAGR of 19.4% coming in last here. JD doesn't seem to be able to leverage on its relatively fast revenue growth to expand its FCF generating prowess as compared to its peers.\n<img src=\"https://static.tigerbbs.com/34da8b0865452a029c93f57dc8104697\" tg-width=\"1280\" tg-height=\"684\">Non-Peers Projected Unlevered FCF 5Y CAGR &amp; Projected Unlevered FCF Margin. Data Source: S&amp;P Global Market Intelligence\nIn order to help investors better understand what I mean, we can refer to the chart above to give an idea of what I meant as companies who are already in relatively stable growth stages with highly sustainable FCF margins as we model their FCF growth profile. It may be argued that Facebook (FB) is still a growth stock (but no longer as high growth as it once was) as it's still expected to generate relatively high FCF growth moving forward while commanding a remarkably high FCF margin as well. In addition, we could also see clearly that stable players often preferred by value investors such as Microsoft (MSFT), Qualcomm (QCOM) and Cisco (CSCO) are also expected to carry forward their high FCF margins moving forward. In contrast, JD's low 2.7% 5-year average FCF margin doesn't qualify it as a high quality stable stock for value investors to consider.\nWhat about JD's Growth Drivers?\nNow the interesting thing here is that JD has maintained that its business is still running at the \"high-growth\" stage as it emphasized:\n<blockquote>\n First of all, we&nbsp;prioritize growth above the importance of profitabilitybecause across all of our business lines, we are still in the high-growth stage. But each segment or each business line is actually in a different development stage. So we have kind of a differentiated investment strategy. So for JD Retail, we still -- you can see that for the first quarter and in the past few quarters, they continue to maintain a high-growth rate.\n</blockquote>\nThe management also added that they would likely continue to benefit from improved economies of scale and operating leverage as they bank on the rapid expansion of JD's retail business, allowing the company to continue improving its long term profit margin over time.\n<img src=\"https://static.tigerbbs.com/8477039f4b9693704cbbaf64530da052\" tg-width=\"1280\" tg-height=\"706\">JD LTM EBIT Margin &amp; Projected EBIT Margin, LTM Unlevered FCF Margin &amp; Projected Unlevered FCF Margin. Data Source: S&amp;P Global Market Intelligence\nIn order to be clear of that, when I modelled JD's EBIT margin and FCF margin growth, I find it hard pressed to have agreement with the management's point of expecting sustained improvement in their operating performance over time as they scale up rapidly. First, the company is already coming off a very low base of EBIT (LTM EBIT margin: 1.2%) and FCF profitability (LTM Unlevered FCF margin: 0.8%), therefore I think it's not unreasonable to expect the company to post a significant improvement to its FCF profitability over time. However, as we can see above, those EBIT margin improvements don't really seem to cascade down to its FCF bottomline.\n<img src=\"https://static.tigerbbs.com/34fa89d4e61ac3e70091cc064b4dc51a\" tg-width=\"1280\" tg-height=\"626\">JD Q1'21 Segment Revenue. Source:JD 6-K\nIt's important to note that JD retail is the company's main revenue and profit driver, accounting for 91% of Q1'21 revenue, while also subsidizing the losses from its other segments (one of which was JD Logistics which has already been spun off recently). It's difficult to see how its forays into its new businesses can be reasonably sustained over time when they don't have a highly profitable cash flow driver in JD Retail.\n<img src=\"https://static.tigerbbs.com/85c510c5f8c49a1fde429fcbe1892c30\" tg-width=\"1280\" tg-height=\"704\">AMZN EBIT Margin &amp; Projected EBIT Margin, Unlevered FCF Margin &amp; Projected Unlevered FCF Margin. Data Source: S&amp;P Global Market Intelligence\n<img src=\"https://static.tigerbbs.com/6dcf33c4272b764cbad4a64cca5bdbfd\" tg-width=\"1280\" tg-height=\"711\">Sea Limited EBIT Margin &amp; Projected EBIT Margin, Unlevered FCF Margin &amp; Projected Unlevered FCF Margin. Data Source: S&amp;P Global Market Intelligence\nWe could refer to the above charts to see how important it's to have highly profitable cash flow segments to drive its operating performances even as the companies continue to scale up: AMZN with its AWS segment, as well as Sea's (SE) Garena segment, which I had covered in a&nbsp;recent article here. This cash flow segments allow them to reinvest into its highly scalable e-commerce segments and over time significantly improve their overall cash flow and EBIT profile. JD's business model certainly doesn't have the luxury of relying on such a segment to drive its growth, and therefore it's reflected clearly in its operating performances moving forward.\nValuations\n<img src=\"https://static.tigerbbs.com/2ec37dd8957f5cadcf9615fa414bb78d\" tg-width=\"1280\" tg-height=\"726\">Peers Consensus Analysts Upside &amp; EV / FY+1 Rev. Data Source: S&amp;P Global Market Intelligence\nIf we simply base off JD's expected revenue growth, there's little doubt that JD seems to be valued at fire sale prices now. However, as mentioned earlier in the article, JD has always been valued at very low EV / Rev multiples historically as compared to its peers. In addition, the Street also remains highly confident of JD's upside potential (35.6%) as compared to its peers.\n<img src=\"https://static.tigerbbs.com/56bd8f33da9baab688b59439b44a827b\" tg-width=\"1280\" tg-height=\"709\">JD &amp; SE Ev / Fwd (EBITDA - CapEx) Trend. Data Source: S&amp;P Global Market Intelligence\nAs I have emphasized earlier, using revenue figures to look at JD's growth potential may not accurately reflect the company's scalability potential. Here, we can see how SE's high potential to scale is clearly reflected in its FCF profile, where I use (EBITDA - CapEx) as a proxy here to remove the effects of lumpy working capital changes. SE's valuations are expected to come down significantly as it scales across South East Asia, generating lots of cash flow in the process. However, JD on the other hand doesn't seem to be quite as attractively valued as compared to SE when we project their growth rates forward.\nPrice Action &amp; Technical Analysis\n<img src=\"https://static.tigerbbs.com/98b516b4268fe8418e750d8717769eaf\" tg-width=\"1280\" tg-height=\"798\">Source: TradingView\nA silver lining here is that JD's long term uptrend remains intact despite the sell-off in Chinese stocks in Feb 21 that saw JD's stock price fall about 30% from its high. There are a few support levels that investors can focus on, most notably, the $70 support level that saw strong buying interest, as well as the $59 support level. The bulls are trying to retake the $79 support level which coincides with the dynamic resistance level marked by the 50-period MA at the moment. Therefore, investors who wish to add or initiate their positions may consider adding somewhere near the $70 level, and the $59 level if it retraces further, while avoiding adding near $79 in the near term.\nFor Chinese stocks, the Chinese and U.S. regulators will likely remain as the most important near term risk that may cause further compressions in its stock prices. However, as a long term investor who is still bullish on JD, I don't see that as a risk per se, but instead as an opportunity to add further into stocks like JD who in my opinion is fairly valued, and not expensive. The more the stock falls in the future due to policy changes or stiff rules from Beijing or Washington, the more attractive it will get for long term investors who have yet to initiate a position.\nWrapping it all up\nI'm a JD shareholder, and likely to remain so moving forward. What I had wanted to present in this article is to demonstrate why JD continues to trade at such low revenue multiples even as it continues to power ahead in its revenue growth. Investors should understand that although from the price action point of view JD I don't consider JD as a value trap, but I also don't consider JD as very attractive right now. It certainly deserves its current valuation and growth investors should taper their expectations in seeing the stock race ahead in the coming years.","collect":0,"html":"<!DOCTYPE html>\n<html>\n<head>\n<meta http-equiv=\"Content-Type\" content=\"text/html; charset=utf-8\" />\n<meta name=\"viewport\" content=\"width=device-width,initial-scale=1.0,minimum-scale=1.0,maximum-scale=1.0,user-scalable=no\"/>\n<meta name=\"format-detection\" content=\"telephone=no,email=no,address=no\" />\n<title>JD.com: Its Business Model Is Deserving Of Its Current Valuation</title>\n<style type=\"text/css\">\na,abbr,acronym,address,applet,article,aside,audio,b,big,blockquote,body,canvas,caption,center,cite,code,dd,del,details,dfn,div,dl,dt,\nem,embed,fieldset,figcaption,figure,footer,form,h1,h2,h3,h4,h5,h6,header,hgroup,html,i,iframe,img,ins,kbd,label,legend,li,mark,menu,nav,\nobject,ol,output,p,pre,q,ruby,s,samp,section,small,span,strike,strong,sub,summary,sup,table,tbody,td,tfoot,th,thead,time,tr,tt,u,ul,var,video{ font:inherit;margin:0;padding:0;vertical-align:baseline;border:0 }\nbody{ font-size:16px; line-height:1.5; color:#999; background:transparent; }\n.wrapper{ overflow:hidden;word-break:break-all;padding:10px; }\nh1,h2{ font-weight:normal; line-height:1.35; margin-bottom:.6em; }\nh3,h4,h5,h6{ line-height:1.35; margin-bottom:1em; }\nh1{ font-size:24px; }\nh2{ font-size:20px; }\nh3{ font-size:18px; }\nh4{ font-size:16px; }\nh5{ font-size:14px; }\nh6{ font-size:12px; }\np,ul,ol,blockquote,dl,table{ margin:1.2em 0; }\nul,ol{ margin-left:2em; }\nul{ list-style:disc; }\nol{ list-style:decimal; }\nli,li p{ margin:10px 0;}\nimg{ max-width:100%;display:block;margin:0 auto 1em; }\nblockquote{ color:#B5B2B1; border-left:3px solid #aaa; padding:1em; }\nstrong,b{font-weight:bold;}\nem,i{font-style:italic;}\ntable{ width:100%;border-collapse:collapse;border-spacing:1px;margin:1em 0;font-size:.9em; }\nth,td{ padding:5px;text-align:left;border:1px solid #aaa; }\nth{ font-weight:bold;background:#5d5d5d; }\n.symbol-link{font-weight:bold;}\n/* header{ border-bottom:1px solid #494756; } */\n.title{ margin:0 0 8px;line-height:1.3;color:#ddd; }\n.meta {color:#5e5c6d;font-size:13px;margin:0 0 .5em; }\na{text-decoration:none; color:#2a4b87;}\n.meta .head { display: inline-block; overflow: hidden}\n.head .h-thumb { width: 30px; height: 30px; margin: 0; padding: 0; border-radius: 50%; float: left;}\n.head .h-content { margin: 0; padding: 0 0 0 9px; float: left;}\n.head .h-name {font-size: 13px; color: #eee; margin: 0;}\n.head .h-time {font-size: 11px; color: #7E829C; margin: 0;line-height: 11px;}\n.small {font-size: 12.5px; display: inline-block; transform: scale(0.9); -webkit-transform: scale(0.9); transform-origin: left; -webkit-transform-origin: left;}\n.smaller {font-size: 12.5px; display: inline-block; transform: scale(0.8); -webkit-transform: scale(0.8); transform-origin: left; -webkit-transform-origin: left;}\n.bt-text {font-size: 12px;margin: 1.5em 0 0 0}\n.bt-text p {margin: 0}\n</style>\n</head>\n<body>\n<div class=\"wrapper\">\n<header>\n<h2 class=\"title\">\nJD.com: Its Business Model Is Deserving Of Its Current Valuation\n</h2>\n\n<h4 class=\"meta\">\n\n\n2021-06-03 23:22 GMT+8&nbsp;&nbsp;&nbsp;<a href=https://seekingalpha.com/article/4432860-jd-com-business-model-deserving-current-valuation>seekingalpha</a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\nSummary\n\nJD is often branded as the most “undervalued” stock of all its e-commerce peers by growth and value investors alike.\nEven though the company’s revenue growth rates have impressed, its ...\n\n<a href=\"https://seekingalpha.com/article/4432860-jd-com-business-model-deserving-current-valuation\">Web Link</a>\n\n</div>\n\n\n</article>\n</div>\n</body>\n</html>\n","type":0,"thumbnail":"","relate_stocks":{"09618":"京东集团-SW","JD":"京东"},"source_url":"https://seekingalpha.com/article/4432860-jd-com-business-model-deserving-current-valuation","is_english":true,"share_image_url":"https://static.laohu8.com/e9f99090a1c2ed51c021029395664489","article_id":"1171251318","content_text":"Summary\n\nJD is often branded as the most “undervalued” stock of all its e-commerce peers by growth and value investors alike.\nEven though the company’s revenue growth rates have impressed, its operating performances have not really been on par.\nI discuss why JD’s current valuations reflect the reality of its business model, and what growth and value investors should focus on to value the company.\n\nPhoto by Kevin Frayer/Getty Images News via Getty Images\nInvestment Thesis\nJD.com's (JD) low EV/Revenue multiples have often baffled growth and value investors. The relatively high revenue growth rates that the investors have grown accustomed to in the rapidly expanding Chinese e-commerce market has not cascaded down to its market cap as compared to its peers. I attempt to present my opinion on why JD may have exhibited a high revenue growth profile, but not necessarily the operating performances to match its peers.\nJD's Incredibly Low Revenue Multiples\nThe company has often been compared to Amazon (AMZN) in its early days or even compared to Shopify (SHOP) for having a revenue multiple that's way lower, and therefore implying a better buy.\nHowever when I looked under the hood into JD's business model and its operating performances, I found enough underlying weaknesses in JD's business model that perhaps indicate why the market continues to value JD at such low multiples despite having posted impressive growth rates.\nLTM Revenue Growth & Price / LTM Sales. Data Source: S&P Global Market Intelligence\nAs we can see from the chart above, JD has posted remarkable YoY revenue growth rates for the last 5 years, the \"slowest\" one being 22.7%. In fact, JD's LTM revenue growth rate has been accelerating recently, reaching 33.3% at the recent quarter. Despite that, its EV / LTM Rev multiple has consistently been under 1.1x, marking its strong appeal as a \"cheap\" growth stock.\nPrice/LTM Sales Percentile. Source: Tiger Brokers\nIn fact, JD's Price/LTM sales is currently at the 32nd percentile when we compare its multiples over the last 5 years, potentially even creating opportunities for value investors who may be on the lookout for a \"next Amazon\" type of stock that is selling for a real bargain now.\nJD and AMZN Market Cap, LTM Revenue, Revenue 3Y CAGR, EV / LTM Rev. Data Source: S&P Global Market Intelligence\nA quick glance over to Alibaba's (BABA) metrics unveil some interesting observations. Even though BABA's market cap is close to 5x that of JD's, BABA actually reported a lower LTM revenue (89% of JD's LTM revenue) than JD. In fact, BABA has reported lower revenue figures than JD over the last 5 years (see chart below). Both BABA and JD are revenue growth machines, with BABA's 3Y CAGR of 42% and JD's 3Y CAGR of 27.2%. Despite JD's impressive revenue growth, BABA is valued at 5.5x more than JD here based on their respective revenue multiples, which therefore raises the question of whether the market has unreasonably valued JD too low than what it actually deserves?\nBABA & JD LTM Revenue Trend. Data Source: S&P Global Market Intelligence\nJD Annual Active Customer Count. Data Source: Company Filings\nJD Annual Active Customer YoY Growth. Data Source: Company Filings\nIn fact, JD has been improving its active customer growth since Q3'19 as prior to that, JD had in fact suffered dramatic declines over multiple consecutive quarters of slowing customer growth. This coincided with the company's foray into Jingxi in 2019, which is the company's answer to Pinduoduo (PDD). The management also emphasized that: \"In the past 12 months, we gained 112 million new active users, with over 80% coming from lower-tier markets.\" Therefore quite clearly, Jingxi's customer growth has been the impetus behind the strong quarters of ARPC growth for JD.\nJD Average Revenue Per Active Customer. Data Source: Company Filings\nJD Average Revenue Per Active Customer YoY Growth. Data Source: Company Filings\nWhen we zoomed into the company's average revenue per active customer metrics, we could see that the underlying growth (up 11.7% YoY at the recent quarter) has been relatively healthy as well while the company continues to scale up its customer growth through the lower-tier markets.\nOkay, then how does JD's Operating Performances look like?\nEBIT Margin, CFO Margin, FCF Margin. Data Source: S&P Global Market Intelligence\nI had mentioned before in my article here for Coupang (CPNG), that for businesses that are potentially highly scalable such as JD's, we do not have to necessarily worry about the company's low operating margin business model as long as they are able to scale up quickly towards high FCF profitability. JD has always been operating with low operating margin (LTM EBIT margin of 1.2%), as that's the nature of its business model. Despite that, the company has still been able to generate relatively healthy FCF margins (LTM FCF margin 2.7%). Investors also shouldn't expect SaaS like FCF margins here as the business model is entirely different and JD is obviously going after those huge GMV growth. What we want to see though is whether the company is able to continue generating fast-growing and highly sustainable FCF moving forward.\nPeers Projected Unlevered FCF Margin. Data Source: S&P Global Market Intelligence\nPeers Projected Unlevered FCF 5Y CAGR. Data Source: S&P Global Market Intelligence\nThe problem arose when I tried to model JD's FCF growth moving forward. Quite clearly, JD does not seem to be able to improve its FCF margin strongly over time, with the projected FCF margins largely still in line with the historical ones.\nThat isn't something that we would like to see in a growth stock. Moreover the company's projected FCF margins are simply too low to be even classified as a cash flow machine. When we compare JD with its peers, we can clearly see that all of them, including AMZN are projected to generate very strong FCF growth moving forward, with JD's 5Y CAGR of 19.4% coming in last here. JD doesn't seem to be able to leverage on its relatively fast revenue growth to expand its FCF generating prowess as compared to its peers.\nNon-Peers Projected Unlevered FCF 5Y CAGR & Projected Unlevered FCF Margin. Data Source: S&P Global Market Intelligence\nIn order to help investors better understand what I mean, we can refer to the chart above to give an idea of what I meant as companies who are already in relatively stable growth stages with highly sustainable FCF margins as we model their FCF growth profile. It may be argued that Facebook (FB) is still a growth stock (but no longer as high growth as it once was) as it's still expected to generate relatively high FCF growth moving forward while commanding a remarkably high FCF margin as well. In addition, we could also see clearly that stable players often preferred by value investors such as Microsoft (MSFT), Qualcomm (QCOM) and Cisco (CSCO) are also expected to carry forward their high FCF margins moving forward. In contrast, JD's low 2.7% 5-year average FCF margin doesn't qualify it as a high quality stable stock for value investors to consider.\nWhat about JD's Growth Drivers?\nNow the interesting thing here is that JD has maintained that its business is still running at the \"high-growth\" stage as it emphasized:\n\n First of all, we prioritize growth above the importance of profitabilitybecause across all of our business lines, we are still in the high-growth stage. But each segment or each business line is actually in a different development stage. So we have kind of a differentiated investment strategy. So for JD Retail, we still -- you can see that for the first quarter and in the past few quarters, they continue to maintain a high-growth rate.\n\nThe management also added that they would likely continue to benefit from improved economies of scale and operating leverage as they bank on the rapid expansion of JD's retail business, allowing the company to continue improving its long term profit margin over time.\nJD LTM EBIT Margin & Projected EBIT Margin, LTM Unlevered FCF Margin & Projected Unlevered FCF Margin. Data Source: S&P Global Market Intelligence\nIn order to be clear of that, when I modelled JD's EBIT margin and FCF margin growth, I find it hard pressed to have agreement with the management's point of expecting sustained improvement in their operating performance over time as they scale up rapidly. First, the company is already coming off a very low base of EBIT (LTM EBIT margin: 1.2%) and FCF profitability (LTM Unlevered FCF margin: 0.8%), therefore I think it's not unreasonable to expect the company to post a significant improvement to its FCF profitability over time. However, as we can see above, those EBIT margin improvements don't really seem to cascade down to its FCF bottomline.\nJD Q1'21 Segment Revenue. Source:JD 6-K\nIt's important to note that JD retail is the company's main revenue and profit driver, accounting for 91% of Q1'21 revenue, while also subsidizing the losses from its other segments (one of which was JD Logistics which has already been spun off recently). It's difficult to see how its forays into its new businesses can be reasonably sustained over time when they don't have a highly profitable cash flow driver in JD Retail.\nAMZN EBIT Margin & Projected EBIT Margin, Unlevered FCF Margin & Projected Unlevered FCF Margin. Data Source: S&P Global Market Intelligence\nSea Limited EBIT Margin & Projected EBIT Margin, Unlevered FCF Margin & Projected Unlevered FCF Margin. Data Source: S&P Global Market Intelligence\nWe could refer to the above charts to see how important it's to have highly profitable cash flow segments to drive its operating performances even as the companies continue to scale up: AMZN with its AWS segment, as well as Sea's (SE) Garena segment, which I had covered in a recent article here. This cash flow segments allow them to reinvest into its highly scalable e-commerce segments and over time significantly improve their overall cash flow and EBIT profile. JD's business model certainly doesn't have the luxury of relying on such a segment to drive its growth, and therefore it's reflected clearly in its operating performances moving forward.\nValuations\nPeers Consensus Analysts Upside & EV / FY+1 Rev. Data Source: S&P Global Market Intelligence\nIf we simply base off JD's expected revenue growth, there's little doubt that JD seems to be valued at fire sale prices now. However, as mentioned earlier in the article, JD has always been valued at very low EV / Rev multiples historically as compared to its peers. In addition, the Street also remains highly confident of JD's upside potential (35.6%) as compared to its peers.\nJD & SE Ev / Fwd (EBITDA - CapEx) Trend. Data Source: S&P Global Market Intelligence\nAs I have emphasized earlier, using revenue figures to look at JD's growth potential may not accurately reflect the company's scalability potential. Here, we can see how SE's high potential to scale is clearly reflected in its FCF profile, where I use (EBITDA - CapEx) as a proxy here to remove the effects of lumpy working capital changes. SE's valuations are expected to come down significantly as it scales across South East Asia, generating lots of cash flow in the process. However, JD on the other hand doesn't seem to be quite as attractively valued as compared to SE when we project their growth rates forward.\nPrice Action & Technical Analysis\nSource: TradingView\nA silver lining here is that JD's long term uptrend remains intact despite the sell-off in Chinese stocks in Feb 21 that saw JD's stock price fall about 30% from its high. There are a few support levels that investors can focus on, most notably, the $70 support level that saw strong buying interest, as well as the $59 support level. The bulls are trying to retake the $79 support level which coincides with the dynamic resistance level marked by the 50-period MA at the moment. Therefore, investors who wish to add or initiate their positions may consider adding somewhere near the $70 level, and the $59 level if it retraces further, while avoiding adding near $79 in the near term.\nFor Chinese stocks, the Chinese and U.S. regulators will likely remain as the most important near term risk that may cause further compressions in its stock prices. However, as a long term investor who is still bullish on JD, I don't see that as a risk per se, but instead as an opportunity to add further into stocks like JD who in my opinion is fairly valued, and not expensive. The more the stock falls in the future due to policy changes or stiff rules from Beijing or Washington, the more attractive it will get for long term investors who have yet to initiate a position.\nWrapping it all up\nI'm a JD shareholder, and likely to remain so moving forward. What I had wanted to present in this article is to demonstrate why JD continues to trade at such low revenue multiples even as it continues to power ahead in its revenue growth. Investors should understand that although from the price action point of view JD I don't consider JD as a value trap, but I also don't consider JD as very attractive right now. It certainly deserves its current valuation and growth investors should taper their expectations in seeing the stock race ahead in the coming years.","news_type":1},"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"comments":[{"id":4569604,"gmtCreate":1622763030867,"gmtModify":1663227909846,"authorId":3575273204402761,"author":{"id":3575273204402761,"idStr":"3575273204402761","authorId":3575273204402761,"name":"1521yes","avatar":"https://static.tigerbbs.com/5c7c5c91dad8a3479b64a59aca3d3845","vip":1,"currentWearingBadge":{"badgeId":"44212b71d0be4ec88898348dbe882e03-3","templateUuid":"44212b71d0be4ec88898348dbe882e03","name":"President Tiger","description":"The transaction amount of the securities account reaches $1,000,000","bigImgUrl":"https://static.tigerbbs.com/fbeac6bb240db7da8b972e5183d050ba","smallImgUrl":"https://static.tigerbbs.com/436cdf80292b99f0a992e78750ac4e3a","grayImgUrl":"https://static.tigerbbs.com/506a259a7b456f037592c3b23c779599","redirectLinkEnabled":0,"hasAllocated":1,"isWearing":1,"stampPosition":0,"hasStamp":0,"allocationCount":1,"allocatedDate":"2021.12.22","exceedPercentage":"93.87%","individualDisplayEnabled":0,"individualDisplaySort":0,"categoryType":1101},"crmLevel":3,"crmLevelSwitch":1,"individualDisplayBadges":[]},"repliedAuthorId":0,"objectId":118769164,"type":1,"supId":0,"prevId":0,"content":"like","text":"like","html":"like"}],"langContent":"EN"},{"id":118760776,"gmtCreate":1622762580195,"gmtModify":1704190542995,"author":{"id":"3581823222182692","authorId":"3581823222182692","name":"AJAJ","avatar":"https://static.tigerbbs.com/d39956ed0487a0f393611b7d94da0db0","vip":1,"hat":"https://static.tigerbbs.com/a3dee1aa3a3a3c1814833a4d3f8a5669","crmLevel":2,"crmLevelSwitch":0,"idStr":"3581823222182692","authorIdStr":"3581823222182692"},"htmlText":"Ok pls like and comment&nbsp;","listText":"Ok pls like and comment&nbsp;","text":"Ok pls like and comment","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":3,"commentSize":2,"repostSize":0,"link":"https://ttm.financial/post/118760776","repostId":1171251318,"repostType":4,"repost":{"id":"1171251318","pubTimestamp":1622733765,"share":"https://ttm.financial/m/news/1171251318?lang=&edition=fundamental","pubTime":"2021-06-03 23:22","market":"hk","language":"en","title":"JD.com: Its Business Model Is Deserving Of Its Current Valuation","url":"https://stock-news.laohu8.com/highlight/detail?id=1171251318","media":"seekingalpha","summary":"Summary\n\nJD is often branded as the most “undervalued” stock of all its e-commerce peers by growth a","content":"Summary\n<ul>\n <li>JD is often branded as the most “undervalued” stock of all its e-commerce peers by growth and value investors alike.</li>\n <li>Even though the company’s revenue growth rates have impressed, its operating performances have not really been on par.</li>\n <li>I discuss why JD’s current valuations reflect the reality of its business model, and what growth and value investors should focus on to value the company.</li>\n</ul>\n<img src=\"https://static.tigerbbs.com/3bc39a30a57f05b994781d4a3a51c0de\" tg-width=\"1536\" tg-height=\"1092\">Photo by Kevin Frayer/Getty Images News via Getty Images\nInvestment Thesis\nJD.com's (JD) low EV/Revenue multiples have often baffled growth and value investors. The relatively high revenue growth rates that the investors have grown accustomed to in the rapidly expanding Chinese e-commerce market has not cascaded down to its market cap as compared to its peers. I attempt to present my opinion on why JD may have exhibited a high revenue growth profile, but not necessarily the operating performances to match its peers.\nJD's Incredibly Low Revenue Multiples\nThe company has often been compared to Amazon (AMZN) in its early days or even compared to Shopify (SHOP) for having a revenue multiple that's way lower, and therefore implying a better buy.\nHowever when I looked under the hood into JD's business model and its operating performances, I found enough underlying weaknesses in JD's business model that perhaps indicate why the market continues to value JD at such low multiples despite having posted impressive growth rates.\n<img src=\"https://static.tigerbbs.com/dd8c028415efa231c377fb5f68a00858\" tg-width=\"1280\" tg-height=\"844\">LTM Revenue Growth &amp; Price / LTM Sales. Data Source: S&amp;P Global Market Intelligence\nAs we can see from the chart above, JD has posted remarkable YoY revenue growth rates for the last 5 years, the \"slowest\" one being 22.7%. In fact, JD's LTM revenue growth rate has been accelerating recently, reaching 33.3% at the recent quarter. Despite that, its EV / LTM Rev multiple has consistently been under 1.1x, marking its strong appeal as a \"cheap\" growth stock.\n<img src=\"https://static.tigerbbs.com/b5429847bb5cdb8de25028528ae70f6a\" tg-width=\"1280\" tg-height=\"811\">Price/LTM Sales Percentile. Source: Tiger Brokers\nIn fact, JD's Price/LTM sales is currently at the 32nd percentile when we compare its multiples over the last 5 years, potentially even creating opportunities for value investors who may be on the lookout for a \"next Amazon\" type of stock that is selling for a real bargain now.\n<img src=\"https://static.tigerbbs.com/4a33a3a8b9c3f7cfd6393fb14a77852c\" tg-width=\"1280\" tg-height=\"776\">JD and AMZN Market Cap, LTM Revenue, Revenue 3Y CAGR, EV / LTM Rev. Data Source: S&amp;P Global Market Intelligence\nA quick glance over to Alibaba's (BABA) metrics unveil some interesting observations. Even though BABA's market cap is close to 5x that of JD's, BABA actually reported a lower LTM revenue (89% of JD's LTM revenue) than JD. In fact, BABA has reported lower revenue figures than JD over the last 5 years (see chart below). Both BABA and JD are revenue growth machines, with BABA's 3Y CAGR of 42% and JD's 3Y CAGR of 27.2%. Despite JD's impressive revenue growth, BABA is valued at 5.5x more than JD here based on their respective revenue multiples, which therefore raises the question of whether the market has unreasonably valued JD too low than what it actually deserves?\n<img src=\"https://static.tigerbbs.com/09064245a10bfce0ca518de2ba958e28\" tg-width=\"1280\" tg-height=\"774\">BABA &amp; JD LTM Revenue Trend. Data Source: S&amp;P Global Market Intelligence\n<img src=\"https://static.tigerbbs.com/a7ad67e5be6dba93461b1cb1813d0aa8\" tg-width=\"1257\" tg-height=\"474\">JD Annual Active Customer Count. Data Source: Company Filings\n<img src=\"https://static.tigerbbs.com/b156a6b3eb509a01ef58375a4d035718\" tg-width=\"600\" tg-height=\"371\">JD Annual Active Customer YoY Growth. Data Source: Company Filings\nIn fact, JD has been improving its active customer growth since Q3'19 as prior to that, JD had in fact suffered dramatic declines over multiple consecutive quarters of slowing customer growth. This coincided with the company's foray into&nbsp;Jingxi in 2019, which is the company's answer to Pinduoduo (PDD). The management also emphasized that: \"In the past 12 months, we gained 112 million new active users, with over&nbsp;80% coming from lower-tier markets.\" Therefore quite clearly, Jingxi's customer growth has been the impetus behind the strong quarters of ARPC growth for JD.\n<img src=\"https://static.tigerbbs.com/16b3ae3a7907e114e3e3874b5f7d2851\" tg-width=\"962\" tg-height=\"595\">JD Average Revenue Per Active Customer. Data Source: Company Filings\n<img src=\"https://static.tigerbbs.com/4a17b7b3775c0d8c1ab4b05856429210\" tg-width=\"600\" tg-height=\"371\">JD Average Revenue Per Active Customer YoY Growth. Data Source: Company Filings\nWhen we zoomed into the company's average revenue per active customer metrics, we could see that the underlying growth (up 11.7% YoY at the recent quarter) has been relatively healthy as well while the company continues to scale up its customer growth through the lower-tier markets.\nOkay, then how does JD's Operating Performances look like?\n<img src=\"https://static.tigerbbs.com/365fbee247a722170a072c2dc2b83e38\" tg-width=\"1280\" tg-height=\"703\">EBIT Margin, CFO Margin, FCF Margin. Data Source: S&amp;P Global Market Intelligence\nI had mentioned before in&nbsp;my article here&nbsp;for Coupang (CPNG), that for businesses that are potentially highly scalable such as JD's, we do not have to necessarily worry about the company's low operating margin business model as long as they are able to scale up quickly towards high FCF profitability. JD has always been operating with low operating margin (LTM EBIT margin of 1.2%), as that's the nature of its business model. Despite that, the company has still been able to generate relatively healthy FCF margins (LTM FCF margin 2.7%). Investors also shouldn't expect SaaS like FCF margins here as the business model is entirely different and JD is obviously going after those huge GMV growth. What we want to see though is whether the company is able to continue generating fast-growing and highly sustainable FCF moving forward.\n<img src=\"https://static.tigerbbs.com/b36f757fa706b6f349f44add10229761\" tg-width=\"1280\" tg-height=\"708\">Peers Projected Unlevered FCF Margin. Data Source: S&amp;P Global Market Intelligence\n<img src=\"https://static.tigerbbs.com/328507a06929411b3b72e85c8c8169b2\" tg-width=\"1280\" tg-height=\"693\">Peers Projected Unlevered FCF 5Y CAGR. Data Source: S&amp;P Global Market Intelligence\nThe problem arose when I tried to model JD's FCF growth moving forward. Quite clearly, JD does not seem to be able to improve its FCF margin strongly over time, with the projected FCF margins largely still in line with the historical ones.\nThat isn't something that we would like to see in a growth stock. Moreover the company's projected FCF margins are simply too low to be even classified as a cash flow machine. When we compare JD with its peers, we can clearly see that all of them, including AMZN are projected to generate very strong FCF growth moving forward, with JD's 5Y CAGR of 19.4% coming in last here. JD doesn't seem to be able to leverage on its relatively fast revenue growth to expand its FCF generating prowess as compared to its peers.\n<img src=\"https://static.tigerbbs.com/34da8b0865452a029c93f57dc8104697\" tg-width=\"1280\" tg-height=\"684\">Non-Peers Projected Unlevered FCF 5Y CAGR &amp; Projected Unlevered FCF Margin. Data Source: S&amp;P Global Market Intelligence\nIn order to help investors better understand what I mean, we can refer to the chart above to give an idea of what I meant as companies who are already in relatively stable growth stages with highly sustainable FCF margins as we model their FCF growth profile. It may be argued that Facebook (FB) is still a growth stock (but no longer as high growth as it once was) as it's still expected to generate relatively high FCF growth moving forward while commanding a remarkably high FCF margin as well. In addition, we could also see clearly that stable players often preferred by value investors such as Microsoft (MSFT), Qualcomm (QCOM) and Cisco (CSCO) are also expected to carry forward their high FCF margins moving forward. In contrast, JD's low 2.7% 5-year average FCF margin doesn't qualify it as a high quality stable stock for value investors to consider.\nWhat about JD's Growth Drivers?\nNow the interesting thing here is that JD has maintained that its business is still running at the \"high-growth\" stage as it emphasized:\n<blockquote>\n First of all, we&nbsp;prioritize growth above the importance of profitabilitybecause across all of our business lines, we are still in the high-growth stage. But each segment or each business line is actually in a different development stage. So we have kind of a differentiated investment strategy. So for JD Retail, we still -- you can see that for the first quarter and in the past few quarters, they continue to maintain a high-growth rate.\n</blockquote>\nThe management also added that they would likely continue to benefit from improved economies of scale and operating leverage as they bank on the rapid expansion of JD's retail business, allowing the company to continue improving its long term profit margin over time.\n<img src=\"https://static.tigerbbs.com/8477039f4b9693704cbbaf64530da052\" tg-width=\"1280\" tg-height=\"706\">JD LTM EBIT Margin &amp; Projected EBIT Margin, LTM Unlevered FCF Margin &amp; Projected Unlevered FCF Margin. Data Source: S&amp;P Global Market Intelligence\nIn order to be clear of that, when I modelled JD's EBIT margin and FCF margin growth, I find it hard pressed to have agreement with the management's point of expecting sustained improvement in their operating performance over time as they scale up rapidly. First, the company is already coming off a very low base of EBIT (LTM EBIT margin: 1.2%) and FCF profitability (LTM Unlevered FCF margin: 0.8%), therefore I think it's not unreasonable to expect the company to post a significant improvement to its FCF profitability over time. However, as we can see above, those EBIT margin improvements don't really seem to cascade down to its FCF bottomline.\n<img src=\"https://static.tigerbbs.com/34fa89d4e61ac3e70091cc064b4dc51a\" tg-width=\"1280\" tg-height=\"626\">JD Q1'21 Segment Revenue. Source:JD 6-K\nIt's important to note that JD retail is the company's main revenue and profit driver, accounting for 91% of Q1'21 revenue, while also subsidizing the losses from its other segments (one of which was JD Logistics which has already been spun off recently). It's difficult to see how its forays into its new businesses can be reasonably sustained over time when they don't have a highly profitable cash flow driver in JD Retail.\n<img src=\"https://static.tigerbbs.com/85c510c5f8c49a1fde429fcbe1892c30\" tg-width=\"1280\" tg-height=\"704\">AMZN EBIT Margin &amp; Projected EBIT Margin, Unlevered FCF Margin &amp; Projected Unlevered FCF Margin. Data Source: S&amp;P Global Market Intelligence\n<img src=\"https://static.tigerbbs.com/6dcf33c4272b764cbad4a64cca5bdbfd\" tg-width=\"1280\" tg-height=\"711\">Sea Limited EBIT Margin &amp; Projected EBIT Margin, Unlevered FCF Margin &amp; Projected Unlevered FCF Margin. Data Source: S&amp;P Global Market Intelligence\nWe could refer to the above charts to see how important it's to have highly profitable cash flow segments to drive its operating performances even as the companies continue to scale up: AMZN with its AWS segment, as well as Sea's (SE) Garena segment, which I had covered in a&nbsp;recent article here. This cash flow segments allow them to reinvest into its highly scalable e-commerce segments and over time significantly improve their overall cash flow and EBIT profile. JD's business model certainly doesn't have the luxury of relying on such a segment to drive its growth, and therefore it's reflected clearly in its operating performances moving forward.\nValuations\n<img src=\"https://static.tigerbbs.com/2ec37dd8957f5cadcf9615fa414bb78d\" tg-width=\"1280\" tg-height=\"726\">Peers Consensus Analysts Upside &amp; EV / FY+1 Rev. Data Source: S&amp;P Global Market Intelligence\nIf we simply base off JD's expected revenue growth, there's little doubt that JD seems to be valued at fire sale prices now. However, as mentioned earlier in the article, JD has always been valued at very low EV / Rev multiples historically as compared to its peers. In addition, the Street also remains highly confident of JD's upside potential (35.6%) as compared to its peers.\n<img src=\"https://static.tigerbbs.com/56bd8f33da9baab688b59439b44a827b\" tg-width=\"1280\" tg-height=\"709\">JD &amp; SE Ev / Fwd (EBITDA - CapEx) Trend. Data Source: S&amp;P Global Market Intelligence\nAs I have emphasized earlier, using revenue figures to look at JD's growth potential may not accurately reflect the company's scalability potential. Here, we can see how SE's high potential to scale is clearly reflected in its FCF profile, where I use (EBITDA - CapEx) as a proxy here to remove the effects of lumpy working capital changes. SE's valuations are expected to come down significantly as it scales across South East Asia, generating lots of cash flow in the process. However, JD on the other hand doesn't seem to be quite as attractively valued as compared to SE when we project their growth rates forward.\nPrice Action &amp; Technical Analysis\n<img src=\"https://static.tigerbbs.com/98b516b4268fe8418e750d8717769eaf\" tg-width=\"1280\" tg-height=\"798\">Source: TradingView\nA silver lining here is that JD's long term uptrend remains intact despite the sell-off in Chinese stocks in Feb 21 that saw JD's stock price fall about 30% from its high. There are a few support levels that investors can focus on, most notably, the $70 support level that saw strong buying interest, as well as the $59 support level. The bulls are trying to retake the $79 support level which coincides with the dynamic resistance level marked by the 50-period MA at the moment. Therefore, investors who wish to add or initiate their positions may consider adding somewhere near the $70 level, and the $59 level if it retraces further, while avoiding adding near $79 in the near term.\nFor Chinese stocks, the Chinese and U.S. regulators will likely remain as the most important near term risk that may cause further compressions in its stock prices. However, as a long term investor who is still bullish on JD, I don't see that as a risk per se, but instead as an opportunity to add further into stocks like JD who in my opinion is fairly valued, and not expensive. The more the stock falls in the future due to policy changes or stiff rules from Beijing or Washington, the more attractive it will get for long term investors who have yet to initiate a position.\nWrapping it all up\nI'm a JD shareholder, and likely to remain so moving forward. What I had wanted to present in this article is to demonstrate why JD continues to trade at such low revenue multiples even as it continues to power ahead in its revenue growth. Investors should understand that although from the price action point of view JD I don't consider JD as a value trap, but I also don't consider JD as very attractive right now. It certainly deserves its current valuation and growth investors should taper their expectations in seeing the stock race ahead in the coming years.","collect":0,"html":"<!DOCTYPE html>\n<html>\n<head>\n<meta http-equiv=\"Content-Type\" content=\"text/html; charset=utf-8\" />\n<meta name=\"viewport\" content=\"width=device-width,initial-scale=1.0,minimum-scale=1.0,maximum-scale=1.0,user-scalable=no\"/>\n<meta name=\"format-detection\" content=\"telephone=no,email=no,address=no\" />\n<title>JD.com: Its Business Model Is Deserving Of Its Current Valuation</title>\n<style type=\"text/css\">\na,abbr,acronym,address,applet,article,aside,audio,b,big,blockquote,body,canvas,caption,center,cite,code,dd,del,details,dfn,div,dl,dt,\nem,embed,fieldset,figcaption,figure,footer,form,h1,h2,h3,h4,h5,h6,header,hgroup,html,i,iframe,img,ins,kbd,label,legend,li,mark,menu,nav,\nobject,ol,output,p,pre,q,ruby,s,samp,section,small,span,strike,strong,sub,summary,sup,table,tbody,td,tfoot,th,thead,time,tr,tt,u,ul,var,video{ font:inherit;margin:0;padding:0;vertical-align:baseline;border:0 }\nbody{ font-size:16px; line-height:1.5; color:#999; background:transparent; }\n.wrapper{ overflow:hidden;word-break:break-all;padding:10px; }\nh1,h2{ font-weight:normal; line-height:1.35; margin-bottom:.6em; }\nh3,h4,h5,h6{ line-height:1.35; margin-bottom:1em; }\nh1{ font-size:24px; }\nh2{ font-size:20px; }\nh3{ font-size:18px; }\nh4{ font-size:16px; }\nh5{ font-size:14px; }\nh6{ font-size:12px; }\np,ul,ol,blockquote,dl,table{ margin:1.2em 0; }\nul,ol{ margin-left:2em; }\nul{ list-style:disc; }\nol{ list-style:decimal; }\nli,li p{ margin:10px 0;}\nimg{ max-width:100%;display:block;margin:0 auto 1em; }\nblockquote{ color:#B5B2B1; border-left:3px solid #aaa; padding:1em; }\nstrong,b{font-weight:bold;}\nem,i{font-style:italic;}\ntable{ width:100%;border-collapse:collapse;border-spacing:1px;margin:1em 0;font-size:.9em; }\nth,td{ padding:5px;text-align:left;border:1px solid #aaa; }\nth{ font-weight:bold;background:#5d5d5d; }\n.symbol-link{font-weight:bold;}\n/* header{ border-bottom:1px solid #494756; } */\n.title{ margin:0 0 8px;line-height:1.3;color:#ddd; }\n.meta {color:#5e5c6d;font-size:13px;margin:0 0 .5em; }\na{text-decoration:none; color:#2a4b87;}\n.meta .head { display: inline-block; overflow: hidden}\n.head .h-thumb { width: 30px; height: 30px; margin: 0; padding: 0; border-radius: 50%; float: left;}\n.head .h-content { margin: 0; padding: 0 0 0 9px; float: left;}\n.head .h-name {font-size: 13px; color: #eee; margin: 0;}\n.head .h-time {font-size: 11px; color: #7E829C; margin: 0;line-height: 11px;}\n.small {font-size: 12.5px; display: inline-block; transform: scale(0.9); -webkit-transform: scale(0.9); transform-origin: left; -webkit-transform-origin: left;}\n.smaller {font-size: 12.5px; display: inline-block; transform: scale(0.8); -webkit-transform: scale(0.8); transform-origin: left; -webkit-transform-origin: left;}\n.bt-text {font-size: 12px;margin: 1.5em 0 0 0}\n.bt-text p {margin: 0}\n</style>\n</head>\n<body>\n<div class=\"wrapper\">\n<header>\n<h2 class=\"title\">\nJD.com: Its Business Model Is Deserving Of Its Current Valuation\n</h2>\n\n<h4 class=\"meta\">\n\n\n2021-06-03 23:22 GMT+8&nbsp;&nbsp;&nbsp;<a href=https://seekingalpha.com/article/4432860-jd-com-business-model-deserving-current-valuation>seekingalpha</a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\nSummary\n\nJD is often branded as the most “undervalued” stock of all its e-commerce peers by growth and value investors alike.\nEven though the company’s revenue growth rates have impressed, its ...\n\n<a href=\"https://seekingalpha.com/article/4432860-jd-com-business-model-deserving-current-valuation\">Web Link</a>\n\n</div>\n\n\n</article>\n</div>\n</body>\n</html>\n","type":0,"thumbnail":"","relate_stocks":{"09618":"京东集团-SW","JD":"京东"},"source_url":"https://seekingalpha.com/article/4432860-jd-com-business-model-deserving-current-valuation","is_english":true,"share_image_url":"https://static.laohu8.com/e9f99090a1c2ed51c021029395664489","article_id":"1171251318","content_text":"Summary\n\nJD is often branded as the most “undervalued” stock of all its e-commerce peers by growth and value investors alike.\nEven though the company’s revenue growth rates have impressed, its operating performances have not really been on par.\nI discuss why JD’s current valuations reflect the reality of its business model, and what growth and value investors should focus on to value the company.\n\nPhoto by Kevin Frayer/Getty Images News via Getty Images\nInvestment Thesis\nJD.com's (JD) low EV/Revenue multiples have often baffled growth and value investors. The relatively high revenue growth rates that the investors have grown accustomed to in the rapidly expanding Chinese e-commerce market has not cascaded down to its market cap as compared to its peers. I attempt to present my opinion on why JD may have exhibited a high revenue growth profile, but not necessarily the operating performances to match its peers.\nJD's Incredibly Low Revenue Multiples\nThe company has often been compared to Amazon (AMZN) in its early days or even compared to Shopify (SHOP) for having a revenue multiple that's way lower, and therefore implying a better buy.\nHowever when I looked under the hood into JD's business model and its operating performances, I found enough underlying weaknesses in JD's business model that perhaps indicate why the market continues to value JD at such low multiples despite having posted impressive growth rates.\nLTM Revenue Growth & Price / LTM Sales. Data Source: S&P Global Market Intelligence\nAs we can see from the chart above, JD has posted remarkable YoY revenue growth rates for the last 5 years, the \"slowest\" one being 22.7%. In fact, JD's LTM revenue growth rate has been accelerating recently, reaching 33.3% at the recent quarter. Despite that, its EV / LTM Rev multiple has consistently been under 1.1x, marking its strong appeal as a \"cheap\" growth stock.\nPrice/LTM Sales Percentile. Source: Tiger Brokers\nIn fact, JD's Price/LTM sales is currently at the 32nd percentile when we compare its multiples over the last 5 years, potentially even creating opportunities for value investors who may be on the lookout for a \"next Amazon\" type of stock that is selling for a real bargain now.\nJD and AMZN Market Cap, LTM Revenue, Revenue 3Y CAGR, EV / LTM Rev. Data Source: S&P Global Market Intelligence\nA quick glance over to Alibaba's (BABA) metrics unveil some interesting observations. Even though BABA's market cap is close to 5x that of JD's, BABA actually reported a lower LTM revenue (89% of JD's LTM revenue) than JD. In fact, BABA has reported lower revenue figures than JD over the last 5 years (see chart below). Both BABA and JD are revenue growth machines, with BABA's 3Y CAGR of 42% and JD's 3Y CAGR of 27.2%. Despite JD's impressive revenue growth, BABA is valued at 5.5x more than JD here based on their respective revenue multiples, which therefore raises the question of whether the market has unreasonably valued JD too low than what it actually deserves?\nBABA & JD LTM Revenue Trend. Data Source: S&P Global Market Intelligence\nJD Annual Active Customer Count. Data Source: Company Filings\nJD Annual Active Customer YoY Growth. Data Source: Company Filings\nIn fact, JD has been improving its active customer growth since Q3'19 as prior to that, JD had in fact suffered dramatic declines over multiple consecutive quarters of slowing customer growth. This coincided with the company's foray into Jingxi in 2019, which is the company's answer to Pinduoduo (PDD). The management also emphasized that: \"In the past 12 months, we gained 112 million new active users, with over 80% coming from lower-tier markets.\" Therefore quite clearly, Jingxi's customer growth has been the impetus behind the strong quarters of ARPC growth for JD.\nJD Average Revenue Per Active Customer. Data Source: Company Filings\nJD Average Revenue Per Active Customer YoY Growth. Data Source: Company Filings\nWhen we zoomed into the company's average revenue per active customer metrics, we could see that the underlying growth (up 11.7% YoY at the recent quarter) has been relatively healthy as well while the company continues to scale up its customer growth through the lower-tier markets.\nOkay, then how does JD's Operating Performances look like?\nEBIT Margin, CFO Margin, FCF Margin. Data Source: S&P Global Market Intelligence\nI had mentioned before in my article here for Coupang (CPNG), that for businesses that are potentially highly scalable such as JD's, we do not have to necessarily worry about the company's low operating margin business model as long as they are able to scale up quickly towards high FCF profitability. JD has always been operating with low operating margin (LTM EBIT margin of 1.2%), as that's the nature of its business model. Despite that, the company has still been able to generate relatively healthy FCF margins (LTM FCF margin 2.7%). Investors also shouldn't expect SaaS like FCF margins here as the business model is entirely different and JD is obviously going after those huge GMV growth. What we want to see though is whether the company is able to continue generating fast-growing and highly sustainable FCF moving forward.\nPeers Projected Unlevered FCF Margin. Data Source: S&P Global Market Intelligence\nPeers Projected Unlevered FCF 5Y CAGR. Data Source: S&P Global Market Intelligence\nThe problem arose when I tried to model JD's FCF growth moving forward. Quite clearly, JD does not seem to be able to improve its FCF margin strongly over time, with the projected FCF margins largely still in line with the historical ones.\nThat isn't something that we would like to see in a growth stock. Moreover the company's projected FCF margins are simply too low to be even classified as a cash flow machine. When we compare JD with its peers, we can clearly see that all of them, including AMZN are projected to generate very strong FCF growth moving forward, with JD's 5Y CAGR of 19.4% coming in last here. JD doesn't seem to be able to leverage on its relatively fast revenue growth to expand its FCF generating prowess as compared to its peers.\nNon-Peers Projected Unlevered FCF 5Y CAGR & Projected Unlevered FCF Margin. Data Source: S&P Global Market Intelligence\nIn order to help investors better understand what I mean, we can refer to the chart above to give an idea of what I meant as companies who are already in relatively stable growth stages with highly sustainable FCF margins as we model their FCF growth profile. It may be argued that Facebook (FB) is still a growth stock (but no longer as high growth as it once was) as it's still expected to generate relatively high FCF growth moving forward while commanding a remarkably high FCF margin as well. In addition, we could also see clearly that stable players often preferred by value investors such as Microsoft (MSFT), Qualcomm (QCOM) and Cisco (CSCO) are also expected to carry forward their high FCF margins moving forward. In contrast, JD's low 2.7% 5-year average FCF margin doesn't qualify it as a high quality stable stock for value investors to consider.\nWhat about JD's Growth Drivers?\nNow the interesting thing here is that JD has maintained that its business is still running at the \"high-growth\" stage as it emphasized:\n\n First of all, we prioritize growth above the importance of profitabilitybecause across all of our business lines, we are still in the high-growth stage. But each segment or each business line is actually in a different development stage. So we have kind of a differentiated investment strategy. So for JD Retail, we still -- you can see that for the first quarter and in the past few quarters, they continue to maintain a high-growth rate.\n\nThe management also added that they would likely continue to benefit from improved economies of scale and operating leverage as they bank on the rapid expansion of JD's retail business, allowing the company to continue improving its long term profit margin over time.\nJD LTM EBIT Margin & Projected EBIT Margin, LTM Unlevered FCF Margin & Projected Unlevered FCF Margin. Data Source: S&P Global Market Intelligence\nIn order to be clear of that, when I modelled JD's EBIT margin and FCF margin growth, I find it hard pressed to have agreement with the management's point of expecting sustained improvement in their operating performance over time as they scale up rapidly. First, the company is already coming off a very low base of EBIT (LTM EBIT margin: 1.2%) and FCF profitability (LTM Unlevered FCF margin: 0.8%), therefore I think it's not unreasonable to expect the company to post a significant improvement to its FCF profitability over time. However, as we can see above, those EBIT margin improvements don't really seem to cascade down to its FCF bottomline.\nJD Q1'21 Segment Revenue. Source:JD 6-K\nIt's important to note that JD retail is the company's main revenue and profit driver, accounting for 91% of Q1'21 revenue, while also subsidizing the losses from its other segments (one of which was JD Logistics which has already been spun off recently). It's difficult to see how its forays into its new businesses can be reasonably sustained over time when they don't have a highly profitable cash flow driver in JD Retail.\nAMZN EBIT Margin & Projected EBIT Margin, Unlevered FCF Margin & Projected Unlevered FCF Margin. Data Source: S&P Global Market Intelligence\nSea Limited EBIT Margin & Projected EBIT Margin, Unlevered FCF Margin & Projected Unlevered FCF Margin. Data Source: S&P Global Market Intelligence\nWe could refer to the above charts to see how important it's to have highly profitable cash flow segments to drive its operating performances even as the companies continue to scale up: AMZN with its AWS segment, as well as Sea's (SE) Garena segment, which I had covered in a recent article here. This cash flow segments allow them to reinvest into its highly scalable e-commerce segments and over time significantly improve their overall cash flow and EBIT profile. JD's business model certainly doesn't have the luxury of relying on such a segment to drive its growth, and therefore it's reflected clearly in its operating performances moving forward.\nValuations\nPeers Consensus Analysts Upside & EV / FY+1 Rev. Data Source: S&P Global Market Intelligence\nIf we simply base off JD's expected revenue growth, there's little doubt that JD seems to be valued at fire sale prices now. However, as mentioned earlier in the article, JD has always been valued at very low EV / Rev multiples historically as compared to its peers. In addition, the Street also remains highly confident of JD's upside potential (35.6%) as compared to its peers.\nJD & SE Ev / Fwd (EBITDA - CapEx) Trend. Data Source: S&P Global Market Intelligence\nAs I have emphasized earlier, using revenue figures to look at JD's growth potential may not accurately reflect the company's scalability potential. Here, we can see how SE's high potential to scale is clearly reflected in its FCF profile, where I use (EBITDA - CapEx) as a proxy here to remove the effects of lumpy working capital changes. SE's valuations are expected to come down significantly as it scales across South East Asia, generating lots of cash flow in the process. However, JD on the other hand doesn't seem to be quite as attractively valued as compared to SE when we project their growth rates forward.\nPrice Action & Technical Analysis\nSource: TradingView\nA silver lining here is that JD's long term uptrend remains intact despite the sell-off in Chinese stocks in Feb 21 that saw JD's stock price fall about 30% from its high. There are a few support levels that investors can focus on, most notably, the $70 support level that saw strong buying interest, as well as the $59 support level. The bulls are trying to retake the $79 support level which coincides with the dynamic resistance level marked by the 50-period MA at the moment. Therefore, investors who wish to add or initiate their positions may consider adding somewhere near the $70 level, and the $59 level if it retraces further, while avoiding adding near $79 in the near term.\nFor Chinese stocks, the Chinese and U.S. regulators will likely remain as the most important near term risk that may cause further compressions in its stock prices. However, as a long term investor who is still bullish on JD, I don't see that as a risk per se, but instead as an opportunity to add further into stocks like JD who in my opinion is fairly valued, and not expensive. The more the stock falls in the future due to policy changes or stiff rules from Beijing or Washington, the more attractive it will get for long term investors who have yet to initiate a position.\nWrapping it all up\nI'm a JD shareholder, and likely to remain so moving forward. What I had wanted to present in this article is to demonstrate why JD continues to trade at such low revenue multiples even as it continues to power ahead in its revenue growth. Investors should understand that although from the price action point of view JD I don't consider JD as a value trap, but I also don't consider JD as very attractive right now. It certainly deserves its current valuation and growth investors should taper their expectations in seeing the stock race ahead in the coming years.","news_type":1},"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"comments":[{"id":4576836,"gmtCreate":1622792090237,"gmtModify":1663227940045,"authorId":3561980891009703,"author":{"id":3561980891009703,"idStr":"3561980891009703","authorId":3561980891009703,"name":"WangZhai","avatar":"https://static.tigerbbs.com/bc2671102b0ba42d45bf457532bb6784","vip":1,"crmLevel":2,"crmLevelSwitch":0,"individualDisplayBadges":[]},"repliedAuthorId":0,"objectId":118760776,"type":1,"supId":0,"prevId":0,"content":"Thanks for sharing","text":"Thanks for sharing","html":"Thanks for sharing"},{"id":4569477,"gmtCreate":1622762712783,"gmtModify":1663227908050,"authorId":3581755105789274,"author":{"id":3581755105789274,"idStr":"3581755105789274","authorId":3581755105789274,"name":"cghtkh","avatar":"https://static.tigerbbs.com/846f65e1c791f6992ded152c28befc02","vip":1,"crmLevel":4,"crmLevelSwitch":0,"individualDisplayBadges":[]},"repliedAuthorId":0,"objectId":118760776,"type":1,"supId":0,"prevId":0,"content":"yeah","text":"yeah","html":"yeah"}],"langContent":"EN"},{"id":118785842,"gmtCreate":1622762479886,"gmtModify":1704190537809,"author":{"id":"3575936524316467","authorId":"3575936524316467","name":"Jo16","avatar":"https://static.tigerbbs.com/571ddd98185628f88d032e8ceae7f7d3","vip":1,"crmLevel":2,"crmLevelSwitch":0,"idStr":"3575936524316467","authorIdStr":"3575936524316467"},"htmlText":"Buy&nbsp;","listText":"Buy&nbsp;","text":"Buy","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":1,"commentSize":0,"repostSize":0,"link":"https://ttm.financial/post/118785842","repostId":1171251318,"repostType":4,"repost":{"id":"1171251318","pubTimestamp":1622733765,"share":"https://ttm.financial/m/news/1171251318?lang=&edition=fundamental","pubTime":"2021-06-03 23:22","market":"hk","language":"en","title":"JD.com: Its Business Model Is Deserving Of Its Current Valuation","url":"https://stock-news.laohu8.com/highlight/detail?id=1171251318","media":"seekingalpha","summary":"Summary\n\nJD is often branded as the most “undervalued” stock of all its e-commerce peers by growth a","content":"Summary\n<ul>\n <li>JD is often branded as the most “undervalued” stock of all its e-commerce peers by growth and value investors alike.</li>\n <li>Even though the company’s revenue growth rates have impressed, its operating performances have not really been on par.</li>\n <li>I discuss why JD’s current valuations reflect the reality of its business model, and what growth and value investors should focus on to value the company.</li>\n</ul>\n<img src=\"https://static.tigerbbs.com/3bc39a30a57f05b994781d4a3a51c0de\" tg-width=\"1536\" tg-height=\"1092\">Photo by Kevin Frayer/Getty Images News via Getty Images\nInvestment Thesis\nJD.com's (JD) low EV/Revenue multiples have often baffled growth and value investors. The relatively high revenue growth rates that the investors have grown accustomed to in the rapidly expanding Chinese e-commerce market has not cascaded down to its market cap as compared to its peers. I attempt to present my opinion on why JD may have exhibited a high revenue growth profile, but not necessarily the operating performances to match its peers.\nJD's Incredibly Low Revenue Multiples\nThe company has often been compared to Amazon (AMZN) in its early days or even compared to Shopify (SHOP) for having a revenue multiple that's way lower, and therefore implying a better buy.\nHowever when I looked under the hood into JD's business model and its operating performances, I found enough underlying weaknesses in JD's business model that perhaps indicate why the market continues to value JD at such low multiples despite having posted impressive growth rates.\n<img src=\"https://static.tigerbbs.com/dd8c028415efa231c377fb5f68a00858\" tg-width=\"1280\" tg-height=\"844\">LTM Revenue Growth &amp; Price / LTM Sales. Data Source: S&amp;P Global Market Intelligence\nAs we can see from the chart above, JD has posted remarkable YoY revenue growth rates for the last 5 years, the \"slowest\" one being 22.7%. In fact, JD's LTM revenue growth rate has been accelerating recently, reaching 33.3% at the recent quarter. Despite that, its EV / LTM Rev multiple has consistently been under 1.1x, marking its strong appeal as a \"cheap\" growth stock.\n<img src=\"https://static.tigerbbs.com/b5429847bb5cdb8de25028528ae70f6a\" tg-width=\"1280\" tg-height=\"811\">Price/LTM Sales Percentile. Source: Tiger Brokers\nIn fact, JD's Price/LTM sales is currently at the 32nd percentile when we compare its multiples over the last 5 years, potentially even creating opportunities for value investors who may be on the lookout for a \"next Amazon\" type of stock that is selling for a real bargain now.\n<img src=\"https://static.tigerbbs.com/4a33a3a8b9c3f7cfd6393fb14a77852c\" tg-width=\"1280\" tg-height=\"776\">JD and AMZN Market Cap, LTM Revenue, Revenue 3Y CAGR, EV / LTM Rev. Data Source: S&amp;P Global Market Intelligence\nA quick glance over to Alibaba's (BABA) metrics unveil some interesting observations. Even though BABA's market cap is close to 5x that of JD's, BABA actually reported a lower LTM revenue (89% of JD's LTM revenue) than JD. In fact, BABA has reported lower revenue figures than JD over the last 5 years (see chart below). Both BABA and JD are revenue growth machines, with BABA's 3Y CAGR of 42% and JD's 3Y CAGR of 27.2%. Despite JD's impressive revenue growth, BABA is valued at 5.5x more than JD here based on their respective revenue multiples, which therefore raises the question of whether the market has unreasonably valued JD too low than what it actually deserves?\n<img src=\"https://static.tigerbbs.com/09064245a10bfce0ca518de2ba958e28\" tg-width=\"1280\" tg-height=\"774\">BABA &amp; JD LTM Revenue Trend. Data Source: S&amp;P Global Market Intelligence\n<img src=\"https://static.tigerbbs.com/a7ad67e5be6dba93461b1cb1813d0aa8\" tg-width=\"1257\" tg-height=\"474\">JD Annual Active Customer Count. Data Source: Company Filings\n<img src=\"https://static.tigerbbs.com/b156a6b3eb509a01ef58375a4d035718\" tg-width=\"600\" tg-height=\"371\">JD Annual Active Customer YoY Growth. Data Source: Company Filings\nIn fact, JD has been improving its active customer growth since Q3'19 as prior to that, JD had in fact suffered dramatic declines over multiple consecutive quarters of slowing customer growth. This coincided with the company's foray into&nbsp;Jingxi in 2019, which is the company's answer to Pinduoduo (PDD). The management also emphasized that: \"In the past 12 months, we gained 112 million new active users, with over&nbsp;80% coming from lower-tier markets.\" Therefore quite clearly, Jingxi's customer growth has been the impetus behind the strong quarters of ARPC growth for JD.\n<img src=\"https://static.tigerbbs.com/16b3ae3a7907e114e3e3874b5f7d2851\" tg-width=\"962\" tg-height=\"595\">JD Average Revenue Per Active Customer. Data Source: Company Filings\n<img src=\"https://static.tigerbbs.com/4a17b7b3775c0d8c1ab4b05856429210\" tg-width=\"600\" tg-height=\"371\">JD Average Revenue Per Active Customer YoY Growth. Data Source: Company Filings\nWhen we zoomed into the company's average revenue per active customer metrics, we could see that the underlying growth (up 11.7% YoY at the recent quarter) has been relatively healthy as well while the company continues to scale up its customer growth through the lower-tier markets.\nOkay, then how does JD's Operating Performances look like?\n<img src=\"https://static.tigerbbs.com/365fbee247a722170a072c2dc2b83e38\" tg-width=\"1280\" tg-height=\"703\">EBIT Margin, CFO Margin, FCF Margin. Data Source: S&amp;P Global Market Intelligence\nI had mentioned before in&nbsp;my article here&nbsp;for Coupang (CPNG), that for businesses that are potentially highly scalable such as JD's, we do not have to necessarily worry about the company's low operating margin business model as long as they are able to scale up quickly towards high FCF profitability. JD has always been operating with low operating margin (LTM EBIT margin of 1.2%), as that's the nature of its business model. Despite that, the company has still been able to generate relatively healthy FCF margins (LTM FCF margin 2.7%). Investors also shouldn't expect SaaS like FCF margins here as the business model is entirely different and JD is obviously going after those huge GMV growth. What we want to see though is whether the company is able to continue generating fast-growing and highly sustainable FCF moving forward.\n<img src=\"https://static.tigerbbs.com/b36f757fa706b6f349f44add10229761\" tg-width=\"1280\" tg-height=\"708\">Peers Projected Unlevered FCF Margin. Data Source: S&amp;P Global Market Intelligence\n<img src=\"https://static.tigerbbs.com/328507a06929411b3b72e85c8c8169b2\" tg-width=\"1280\" tg-height=\"693\">Peers Projected Unlevered FCF 5Y CAGR. Data Source: S&amp;P Global Market Intelligence\nThe problem arose when I tried to model JD's FCF growth moving forward. Quite clearly, JD does not seem to be able to improve its FCF margin strongly over time, with the projected FCF margins largely still in line with the historical ones.\nThat isn't something that we would like to see in a growth stock. Moreover the company's projected FCF margins are simply too low to be even classified as a cash flow machine. When we compare JD with its peers, we can clearly see that all of them, including AMZN are projected to generate very strong FCF growth moving forward, with JD's 5Y CAGR of 19.4% coming in last here. JD doesn't seem to be able to leverage on its relatively fast revenue growth to expand its FCF generating prowess as compared to its peers.\n<img src=\"https://static.tigerbbs.com/34da8b0865452a029c93f57dc8104697\" tg-width=\"1280\" tg-height=\"684\">Non-Peers Projected Unlevered FCF 5Y CAGR &amp; Projected Unlevered FCF Margin. Data Source: S&amp;P Global Market Intelligence\nIn order to help investors better understand what I mean, we can refer to the chart above to give an idea of what I meant as companies who are already in relatively stable growth stages with highly sustainable FCF margins as we model their FCF growth profile. It may be argued that Facebook (FB) is still a growth stock (but no longer as high growth as it once was) as it's still expected to generate relatively high FCF growth moving forward while commanding a remarkably high FCF margin as well. In addition, we could also see clearly that stable players often preferred by value investors such as Microsoft (MSFT), Qualcomm (QCOM) and Cisco (CSCO) are also expected to carry forward their high FCF margins moving forward. In contrast, JD's low 2.7% 5-year average FCF margin doesn't qualify it as a high quality stable stock for value investors to consider.\nWhat about JD's Growth Drivers?\nNow the interesting thing here is that JD has maintained that its business is still running at the \"high-growth\" stage as it emphasized:\n<blockquote>\n First of all, we&nbsp;prioritize growth above the importance of profitabilitybecause across all of our business lines, we are still in the high-growth stage. But each segment or each business line is actually in a different development stage. So we have kind of a differentiated investment strategy. So for JD Retail, we still -- you can see that for the first quarter and in the past few quarters, they continue to maintain a high-growth rate.\n</blockquote>\nThe management also added that they would likely continue to benefit from improved economies of scale and operating leverage as they bank on the rapid expansion of JD's retail business, allowing the company to continue improving its long term profit margin over time.\n<img src=\"https://static.tigerbbs.com/8477039f4b9693704cbbaf64530da052\" tg-width=\"1280\" tg-height=\"706\">JD LTM EBIT Margin &amp; Projected EBIT Margin, LTM Unlevered FCF Margin &amp; Projected Unlevered FCF Margin. Data Source: S&amp;P Global Market Intelligence\nIn order to be clear of that, when I modelled JD's EBIT margin and FCF margin growth, I find it hard pressed to have agreement with the management's point of expecting sustained improvement in their operating performance over time as they scale up rapidly. First, the company is already coming off a very low base of EBIT (LTM EBIT margin: 1.2%) and FCF profitability (LTM Unlevered FCF margin: 0.8%), therefore I think it's not unreasonable to expect the company to post a significant improvement to its FCF profitability over time. However, as we can see above, those EBIT margin improvements don't really seem to cascade down to its FCF bottomline.\n<img src=\"https://static.tigerbbs.com/34fa89d4e61ac3e70091cc064b4dc51a\" tg-width=\"1280\" tg-height=\"626\">JD Q1'21 Segment Revenue. Source:JD 6-K\nIt's important to note that JD retail is the company's main revenue and profit driver, accounting for 91% of Q1'21 revenue, while also subsidizing the losses from its other segments (one of which was JD Logistics which has already been spun off recently). It's difficult to see how its forays into its new businesses can be reasonably sustained over time when they don't have a highly profitable cash flow driver in JD Retail.\n<img src=\"https://static.tigerbbs.com/85c510c5f8c49a1fde429fcbe1892c30\" tg-width=\"1280\" tg-height=\"704\">AMZN EBIT Margin &amp; Projected EBIT Margin, Unlevered FCF Margin &amp; Projected Unlevered FCF Margin. Data Source: S&amp;P Global Market Intelligence\n<img src=\"https://static.tigerbbs.com/6dcf33c4272b764cbad4a64cca5bdbfd\" tg-width=\"1280\" tg-height=\"711\">Sea Limited EBIT Margin &amp; Projected EBIT Margin, Unlevered FCF Margin &amp; Projected Unlevered FCF Margin. Data Source: S&amp;P Global Market Intelligence\nWe could refer to the above charts to see how important it's to have highly profitable cash flow segments to drive its operating performances even as the companies continue to scale up: AMZN with its AWS segment, as well as Sea's (SE) Garena segment, which I had covered in a&nbsp;recent article here. This cash flow segments allow them to reinvest into its highly scalable e-commerce segments and over time significantly improve their overall cash flow and EBIT profile. JD's business model certainly doesn't have the luxury of relying on such a segment to drive its growth, and therefore it's reflected clearly in its operating performances moving forward.\nValuations\n<img src=\"https://static.tigerbbs.com/2ec37dd8957f5cadcf9615fa414bb78d\" tg-width=\"1280\" tg-height=\"726\">Peers Consensus Analysts Upside &amp; EV / FY+1 Rev. Data Source: S&amp;P Global Market Intelligence\nIf we simply base off JD's expected revenue growth, there's little doubt that JD seems to be valued at fire sale prices now. However, as mentioned earlier in the article, JD has always been valued at very low EV / Rev multiples historically as compared to its peers. In addition, the Street also remains highly confident of JD's upside potential (35.6%) as compared to its peers.\n<img src=\"https://static.tigerbbs.com/56bd8f33da9baab688b59439b44a827b\" tg-width=\"1280\" tg-height=\"709\">JD &amp; SE Ev / Fwd (EBITDA - CapEx) Trend. Data Source: S&amp;P Global Market Intelligence\nAs I have emphasized earlier, using revenue figures to look at JD's growth potential may not accurately reflect the company's scalability potential. Here, we can see how SE's high potential to scale is clearly reflected in its FCF profile, where I use (EBITDA - CapEx) as a proxy here to remove the effects of lumpy working capital changes. SE's valuations are expected to come down significantly as it scales across South East Asia, generating lots of cash flow in the process. However, JD on the other hand doesn't seem to be quite as attractively valued as compared to SE when we project their growth rates forward.\nPrice Action &amp; Technical Analysis\n<img src=\"https://static.tigerbbs.com/98b516b4268fe8418e750d8717769eaf\" tg-width=\"1280\" tg-height=\"798\">Source: TradingView\nA silver lining here is that JD's long term uptrend remains intact despite the sell-off in Chinese stocks in Feb 21 that saw JD's stock price fall about 30% from its high. There are a few support levels that investors can focus on, most notably, the $70 support level that saw strong buying interest, as well as the $59 support level. The bulls are trying to retake the $79 support level which coincides with the dynamic resistance level marked by the 50-period MA at the moment. Therefore, investors who wish to add or initiate their positions may consider adding somewhere near the $70 level, and the $59 level if it retraces further, while avoiding adding near $79 in the near term.\nFor Chinese stocks, the Chinese and U.S. regulators will likely remain as the most important near term risk that may cause further compressions in its stock prices. However, as a long term investor who is still bullish on JD, I don't see that as a risk per se, but instead as an opportunity to add further into stocks like JD who in my opinion is fairly valued, and not expensive. The more the stock falls in the future due to policy changes or stiff rules from Beijing or Washington, the more attractive it will get for long term investors who have yet to initiate a position.\nWrapping it all up\nI'm a JD shareholder, and likely to remain so moving forward. What I had wanted to present in this article is to demonstrate why JD continues to trade at such low revenue multiples even as it continues to power ahead in its revenue growth. Investors should understand that although from the price action point of view JD I don't consider JD as a value trap, but I also don't consider JD as very attractive right now. It certainly deserves its current valuation and growth investors should taper their expectations in seeing the stock race ahead in the coming years.","collect":0,"html":"<!DOCTYPE html>\n<html>\n<head>\n<meta http-equiv=\"Content-Type\" content=\"text/html; charset=utf-8\" />\n<meta name=\"viewport\" content=\"width=device-width,initial-scale=1.0,minimum-scale=1.0,maximum-scale=1.0,user-scalable=no\"/>\n<meta name=\"format-detection\" content=\"telephone=no,email=no,address=no\" />\n<title>JD.com: Its Business Model Is Deserving Of Its Current Valuation</title>\n<style type=\"text/css\">\na,abbr,acronym,address,applet,article,aside,audio,b,big,blockquote,body,canvas,caption,center,cite,code,dd,del,details,dfn,div,dl,dt,\nem,embed,fieldset,figcaption,figure,footer,form,h1,h2,h3,h4,h5,h6,header,hgroup,html,i,iframe,img,ins,kbd,label,legend,li,mark,menu,nav,\nobject,ol,output,p,pre,q,ruby,s,samp,section,small,span,strike,strong,sub,summary,sup,table,tbody,td,tfoot,th,thead,time,tr,tt,u,ul,var,video{ font:inherit;margin:0;padding:0;vertical-align:baseline;border:0 }\nbody{ font-size:16px; line-height:1.5; color:#999; background:transparent; }\n.wrapper{ overflow:hidden;word-break:break-all;padding:10px; }\nh1,h2{ font-weight:normal; line-height:1.35; margin-bottom:.6em; }\nh3,h4,h5,h6{ line-height:1.35; margin-bottom:1em; }\nh1{ font-size:24px; }\nh2{ font-size:20px; }\nh3{ font-size:18px; }\nh4{ font-size:16px; }\nh5{ font-size:14px; }\nh6{ font-size:12px; }\np,ul,ol,blockquote,dl,table{ margin:1.2em 0; }\nul,ol{ margin-left:2em; }\nul{ list-style:disc; }\nol{ list-style:decimal; }\nli,li p{ margin:10px 0;}\nimg{ max-width:100%;display:block;margin:0 auto 1em; }\nblockquote{ color:#B5B2B1; border-left:3px solid #aaa; padding:1em; }\nstrong,b{font-weight:bold;}\nem,i{font-style:italic;}\ntable{ width:100%;border-collapse:collapse;border-spacing:1px;margin:1em 0;font-size:.9em; }\nth,td{ padding:5px;text-align:left;border:1px solid #aaa; }\nth{ font-weight:bold;background:#5d5d5d; }\n.symbol-link{font-weight:bold;}\n/* header{ border-bottom:1px solid #494756; } */\n.title{ margin:0 0 8px;line-height:1.3;color:#ddd; }\n.meta {color:#5e5c6d;font-size:13px;margin:0 0 .5em; }\na{text-decoration:none; color:#2a4b87;}\n.meta .head { display: inline-block; overflow: hidden}\n.head .h-thumb { width: 30px; height: 30px; margin: 0; padding: 0; border-radius: 50%; float: left;}\n.head .h-content { margin: 0; padding: 0 0 0 9px; float: left;}\n.head .h-name {font-size: 13px; color: #eee; margin: 0;}\n.head .h-time {font-size: 11px; color: #7E829C; margin: 0;line-height: 11px;}\n.small {font-size: 12.5px; display: inline-block; transform: scale(0.9); -webkit-transform: scale(0.9); transform-origin: left; -webkit-transform-origin: left;}\n.smaller {font-size: 12.5px; display: inline-block; transform: scale(0.8); -webkit-transform: scale(0.8); transform-origin: left; -webkit-transform-origin: left;}\n.bt-text {font-size: 12px;margin: 1.5em 0 0 0}\n.bt-text p {margin: 0}\n</style>\n</head>\n<body>\n<div class=\"wrapper\">\n<header>\n<h2 class=\"title\">\nJD.com: Its Business Model Is Deserving Of Its Current Valuation\n</h2>\n\n<h4 class=\"meta\">\n\n\n2021-06-03 23:22 GMT+8&nbsp;&nbsp;&nbsp;<a href=https://seekingalpha.com/article/4432860-jd-com-business-model-deserving-current-valuation>seekingalpha</a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\nSummary\n\nJD is often branded as the most “undervalued” stock of all its e-commerce peers by growth and value investors alike.\nEven though the company’s revenue growth rates have impressed, its ...\n\n<a href=\"https://seekingalpha.com/article/4432860-jd-com-business-model-deserving-current-valuation\">Web Link</a>\n\n</div>\n\n\n</article>\n</div>\n</body>\n</html>\n","type":0,"thumbnail":"","relate_stocks":{"09618":"京东集团-SW","JD":"京东"},"source_url":"https://seekingalpha.com/article/4432860-jd-com-business-model-deserving-current-valuation","is_english":true,"share_image_url":"https://static.laohu8.com/e9f99090a1c2ed51c021029395664489","article_id":"1171251318","content_text":"Summary\n\nJD is often branded as the most “undervalued” stock of all its e-commerce peers by growth and value investors alike.\nEven though the company’s revenue growth rates have impressed, its operating performances have not really been on par.\nI discuss why JD’s current valuations reflect the reality of its business model, and what growth and value investors should focus on to value the company.\n\nPhoto by Kevin Frayer/Getty Images News via Getty Images\nInvestment Thesis\nJD.com's (JD) low EV/Revenue multiples have often baffled growth and value investors. The relatively high revenue growth rates that the investors have grown accustomed to in the rapidly expanding Chinese e-commerce market has not cascaded down to its market cap as compared to its peers. I attempt to present my opinion on why JD may have exhibited a high revenue growth profile, but not necessarily the operating performances to match its peers.\nJD's Incredibly Low Revenue Multiples\nThe company has often been compared to Amazon (AMZN) in its early days or even compared to Shopify (SHOP) for having a revenue multiple that's way lower, and therefore implying a better buy.\nHowever when I looked under the hood into JD's business model and its operating performances, I found enough underlying weaknesses in JD's business model that perhaps indicate why the market continues to value JD at such low multiples despite having posted impressive growth rates.\nLTM Revenue Growth & Price / LTM Sales. Data Source: S&P Global Market Intelligence\nAs we can see from the chart above, JD has posted remarkable YoY revenue growth rates for the last 5 years, the \"slowest\" one being 22.7%. In fact, JD's LTM revenue growth rate has been accelerating recently, reaching 33.3% at the recent quarter. Despite that, its EV / LTM Rev multiple has consistently been under 1.1x, marking its strong appeal as a \"cheap\" growth stock.\nPrice/LTM Sales Percentile. Source: Tiger Brokers\nIn fact, JD's Price/LTM sales is currently at the 32nd percentile when we compare its multiples over the last 5 years, potentially even creating opportunities for value investors who may be on the lookout for a \"next Amazon\" type of stock that is selling for a real bargain now.\nJD and AMZN Market Cap, LTM Revenue, Revenue 3Y CAGR, EV / LTM Rev. Data Source: S&P Global Market Intelligence\nA quick glance over to Alibaba's (BABA) metrics unveil some interesting observations. Even though BABA's market cap is close to 5x that of JD's, BABA actually reported a lower LTM revenue (89% of JD's LTM revenue) than JD. In fact, BABA has reported lower revenue figures than JD over the last 5 years (see chart below). Both BABA and JD are revenue growth machines, with BABA's 3Y CAGR of 42% and JD's 3Y CAGR of 27.2%. Despite JD's impressive revenue growth, BABA is valued at 5.5x more than JD here based on their respective revenue multiples, which therefore raises the question of whether the market has unreasonably valued JD too low than what it actually deserves?\nBABA & JD LTM Revenue Trend. Data Source: S&P Global Market Intelligence\nJD Annual Active Customer Count. Data Source: Company Filings\nJD Annual Active Customer YoY Growth. Data Source: Company Filings\nIn fact, JD has been improving its active customer growth since Q3'19 as prior to that, JD had in fact suffered dramatic declines over multiple consecutive quarters of slowing customer growth. This coincided with the company's foray into Jingxi in 2019, which is the company's answer to Pinduoduo (PDD). The management also emphasized that: \"In the past 12 months, we gained 112 million new active users, with over 80% coming from lower-tier markets.\" Therefore quite clearly, Jingxi's customer growth has been the impetus behind the strong quarters of ARPC growth for JD.\nJD Average Revenue Per Active Customer. Data Source: Company Filings\nJD Average Revenue Per Active Customer YoY Growth. Data Source: Company Filings\nWhen we zoomed into the company's average revenue per active customer metrics, we could see that the underlying growth (up 11.7% YoY at the recent quarter) has been relatively healthy as well while the company continues to scale up its customer growth through the lower-tier markets.\nOkay, then how does JD's Operating Performances look like?\nEBIT Margin, CFO Margin, FCF Margin. Data Source: S&P Global Market Intelligence\nI had mentioned before in my article here for Coupang (CPNG), that for businesses that are potentially highly scalable such as JD's, we do not have to necessarily worry about the company's low operating margin business model as long as they are able to scale up quickly towards high FCF profitability. JD has always been operating with low operating margin (LTM EBIT margin of 1.2%), as that's the nature of its business model. Despite that, the company has still been able to generate relatively healthy FCF margins (LTM FCF margin 2.7%). Investors also shouldn't expect SaaS like FCF margins here as the business model is entirely different and JD is obviously going after those huge GMV growth. What we want to see though is whether the company is able to continue generating fast-growing and highly sustainable FCF moving forward.\nPeers Projected Unlevered FCF Margin. Data Source: S&P Global Market Intelligence\nPeers Projected Unlevered FCF 5Y CAGR. Data Source: S&P Global Market Intelligence\nThe problem arose when I tried to model JD's FCF growth moving forward. Quite clearly, JD does not seem to be able to improve its FCF margin strongly over time, with the projected FCF margins largely still in line with the historical ones.\nThat isn't something that we would like to see in a growth stock. Moreover the company's projected FCF margins are simply too low to be even classified as a cash flow machine. When we compare JD with its peers, we can clearly see that all of them, including AMZN are projected to generate very strong FCF growth moving forward, with JD's 5Y CAGR of 19.4% coming in last here. JD doesn't seem to be able to leverage on its relatively fast revenue growth to expand its FCF generating prowess as compared to its peers.\nNon-Peers Projected Unlevered FCF 5Y CAGR & Projected Unlevered FCF Margin. Data Source: S&P Global Market Intelligence\nIn order to help investors better understand what I mean, we can refer to the chart above to give an idea of what I meant as companies who are already in relatively stable growth stages with highly sustainable FCF margins as we model their FCF growth profile. It may be argued that Facebook (FB) is still a growth stock (but no longer as high growth as it once was) as it's still expected to generate relatively high FCF growth moving forward while commanding a remarkably high FCF margin as well. In addition, we could also see clearly that stable players often preferred by value investors such as Microsoft (MSFT), Qualcomm (QCOM) and Cisco (CSCO) are also expected to carry forward their high FCF margins moving forward. In contrast, JD's low 2.7% 5-year average FCF margin doesn't qualify it as a high quality stable stock for value investors to consider.\nWhat about JD's Growth Drivers?\nNow the interesting thing here is that JD has maintained that its business is still running at the \"high-growth\" stage as it emphasized:\n\n First of all, we prioritize growth above the importance of profitabilitybecause across all of our business lines, we are still in the high-growth stage. But each segment or each business line is actually in a different development stage. So we have kind of a differentiated investment strategy. So for JD Retail, we still -- you can see that for the first quarter and in the past few quarters, they continue to maintain a high-growth rate.\n\nThe management also added that they would likely continue to benefit from improved economies of scale and operating leverage as they bank on the rapid expansion of JD's retail business, allowing the company to continue improving its long term profit margin over time.\nJD LTM EBIT Margin & Projected EBIT Margin, LTM Unlevered FCF Margin & Projected Unlevered FCF Margin. Data Source: S&P Global Market Intelligence\nIn order to be clear of that, when I modelled JD's EBIT margin and FCF margin growth, I find it hard pressed to have agreement with the management's point of expecting sustained improvement in their operating performance over time as they scale up rapidly. First, the company is already coming off a very low base of EBIT (LTM EBIT margin: 1.2%) and FCF profitability (LTM Unlevered FCF margin: 0.8%), therefore I think it's not unreasonable to expect the company to post a significant improvement to its FCF profitability over time. However, as we can see above, those EBIT margin improvements don't really seem to cascade down to its FCF bottomline.\nJD Q1'21 Segment Revenue. Source:JD 6-K\nIt's important to note that JD retail is the company's main revenue and profit driver, accounting for 91% of Q1'21 revenue, while also subsidizing the losses from its other segments (one of which was JD Logistics which has already been spun off recently). It's difficult to see how its forays into its new businesses can be reasonably sustained over time when they don't have a highly profitable cash flow driver in JD Retail.\nAMZN EBIT Margin & Projected EBIT Margin, Unlevered FCF Margin & Projected Unlevered FCF Margin. Data Source: S&P Global Market Intelligence\nSea Limited EBIT Margin & Projected EBIT Margin, Unlevered FCF Margin & Projected Unlevered FCF Margin. Data Source: S&P Global Market Intelligence\nWe could refer to the above charts to see how important it's to have highly profitable cash flow segments to drive its operating performances even as the companies continue to scale up: AMZN with its AWS segment, as well as Sea's (SE) Garena segment, which I had covered in a recent article here. This cash flow segments allow them to reinvest into its highly scalable e-commerce segments and over time significantly improve their overall cash flow and EBIT profile. JD's business model certainly doesn't have the luxury of relying on such a segment to drive its growth, and therefore it's reflected clearly in its operating performances moving forward.\nValuations\nPeers Consensus Analysts Upside & EV / FY+1 Rev. Data Source: S&P Global Market Intelligence\nIf we simply base off JD's expected revenue growth, there's little doubt that JD seems to be valued at fire sale prices now. However, as mentioned earlier in the article, JD has always been valued at very low EV / Rev multiples historically as compared to its peers. In addition, the Street also remains highly confident of JD's upside potential (35.6%) as compared to its peers.\nJD & SE Ev / Fwd (EBITDA - CapEx) Trend. Data Source: S&P Global Market Intelligence\nAs I have emphasized earlier, using revenue figures to look at JD's growth potential may not accurately reflect the company's scalability potential. Here, we can see how SE's high potential to scale is clearly reflected in its FCF profile, where I use (EBITDA - CapEx) as a proxy here to remove the effects of lumpy working capital changes. SE's valuations are expected to come down significantly as it scales across South East Asia, generating lots of cash flow in the process. However, JD on the other hand doesn't seem to be quite as attractively valued as compared to SE when we project their growth rates forward.\nPrice Action & Technical Analysis\nSource: TradingView\nA silver lining here is that JD's long term uptrend remains intact despite the sell-off in Chinese stocks in Feb 21 that saw JD's stock price fall about 30% from its high. There are a few support levels that investors can focus on, most notably, the $70 support level that saw strong buying interest, as well as the $59 support level. The bulls are trying to retake the $79 support level which coincides with the dynamic resistance level marked by the 50-period MA at the moment. Therefore, investors who wish to add or initiate their positions may consider adding somewhere near the $70 level, and the $59 level if it retraces further, while avoiding adding near $79 in the near term.\nFor Chinese stocks, the Chinese and U.S. regulators will likely remain as the most important near term risk that may cause further compressions in its stock prices. However, as a long term investor who is still bullish on JD, I don't see that as a risk per se, but instead as an opportunity to add further into stocks like JD who in my opinion is fairly valued, and not expensive. The more the stock falls in the future due to policy changes or stiff rules from Beijing or Washington, the more attractive it will get for long term investors who have yet to initiate a position.\nWrapping it all up\nI'm a JD shareholder, and likely to remain so moving forward. What I had wanted to present in this article is to demonstrate why JD continues to trade at such low revenue multiples even as it continues to power ahead in its revenue growth. Investors should understand that although from the price action point of view JD I don't consider JD as a value trap, but I also don't consider JD as very attractive right now. It certainly deserves its current valuation and growth investors should taper their expectations in seeing the stock race ahead in the coming years.","news_type":1},"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"langContent":"EN"}],"hasMoreComments":true,"newsSizeData":{"likeSize":249,"commentSize":54,"repostSize":0,"favoriteSize":0,"likeStatus":false,"favoriteStatus":false}}