To The Moon

JD.com stock rose after a company executive said in a TV interview that the Chinese e-commerce giant may move into on-demand food delivery in China.

JD.com is considering expanding into on-demand food delivery service, a top executive of the Chinese e-commerce giant said in a Bloomberg TV interview. Such a move would pit JD against two of China’s other e-commerce giants, Alibaba Group Holding and Meituan. Alibaba-owned Ele.me and MeituanDianping currently dominate China’s online food-delivery business.

$JD.com(JD)$ $Alibaba(BABA)$ $MEITUAN-W(03690)$

The news lifted JD’s shares 5.2% to $65.23 on Friday. The stock is down about 6% this year.

In the Bloomberg interview, JD Retail CEO Xin Lijun said that the company has “considered and explored” a food-delivery business that would draw on its majority stake in on-demand delivery operator $Dada Nexus Limited(DADA)$. Dada shares gained 8.5% on Friday.

“Dada has strong capability in same-city delivery, so other competitors are guessing whether we would do this business,” Xin said. “We did thoroughly consider it. As for when we will start doing it, it depends on our capacity and when we can build up a talent team.”

Chinese tech news reported last week that JD was making a foray into food delivery, but investors didn’t react to the news until the Bloomberg interview. LatePost noted that the JD team had begun collaborating with restaurants in Zhengzhou, a city in China’s Henan Province.

Media representatives for Dada and JD didn’t immediately respond for additional detail.

Dada operates JD Daojia, which already facilitates same-day local grocery delivery, and Dada Now, which is open to merchants and individual senders across different industries and product categories. Since 2016, JD has continued to invest in Dada and held about 47% of the company at the end of 2021. In February, JD paid an additional $546 million to increase its ownershipto a 52% majority stake.

In a mid-May research note on JD’sfirst-quarter results, Benchmark equity research analysts Fawne Jiang and Long Lin lowered their price target to $106 but maintained a Buy rating for the company. JD’s net revenue in the quarter increased 18% year over year and beat analyst expectations.

“Downside risks to valuation include slower-than-expected [gross merchandise value] growth, investment/execution risks on logistics expansion, [and] slower growth in traffic and active users,” the analysts wrote.

The food-delivery market that JD enters is quite large and could offer a new revenue stream for the company. Chinese consultancy Zhiyan pegged the number of total users at 544 million in 2021,accordingto the South China Morning Post, while a report from IMARC Groupvalued the online food delivery market in China at $58.7 billion in 2021. IMARC forecasts the market to double by 2027, reaching a value of $118.5 billion.

The market is also extremely concentrated. Zhiyan says Meituan controls 69% of the market, while Ele.me has 26%. Meituan completed 14 billion food deliveries in 2021, according to its annual report, an increase from about 10 billion in 2020.

source: Barron