To The Moon

JD.Com Inc (JD) has fallen Wednesday morning, with the stock falling -1.57% in pre-market trading to 34.49. JD's short-term technical score of 21 indicates that the stock has traded less bullishly over the last month than 79% of stocks on the market. In the Internet Retail industry, which ranks 125 out of 146 industries, the stock ranks higher than 33% of stocks. JD.Com Inc has fallen 1.66% over the past month, closing at $34.23 on April 26. During this period of time, the stock fell as low as $34.23 and as high as $38.20. JD has an average analyst recommendation of Strong Buy. The company has an average price target of $61.46.

JD.com Inc. (JD, Financial), also known as Jingdong, is a leading e-commerce company based in Beijing. Founded by Liu Qiangdong in 1998 as a physical electronics store before transitioning to an online business in 2004, the company has grown into one of the two largest business-to-consumer online retailers in China by transaction volume and revenue, the other being Alibaba's (BABA, Financial) Tmall. In fact, in terms of revenue, JD.com is China’s largest online and biggest overall retailer.

A solid omni-channel platform

JD.com has a vast user base, serving hundreds of millions of customers. Its platform offers a wide range of products, covering everything from electronics and appliances to clothing, food and more. The company has invested heavily in its own logistics network, building a reputation for fast and reliable delivery, even in rural areas of China. This network includes warehouses, delivery stations and a fleet of delivery vehicles.

The company also operates a marketplace where third-party vendors can list and sell their products. The company earns revenue from this segment through commissions, advertising services and other value-added services.

It has been a pioneer in implementing new technologies in its operations. The company has used artificial intelligence and big data to improve its supply chain and customer service, and it has tested drone delivery in rural areas ofChina. JD.com has also been able to diversify its business into areas like health care and fintech. JD Health offers telemedicine services and online pharmacy, while JD Digits (known as JD Finance before 2018) provides fintech services like consumer credit products and digital payment solutions.

JD.com has attracted significant foreign investment, including a notable investment from Walmart (WMT, Financial), but the two guru investors that own shares are Chase Coleman (Trades, Portfolio) and Michael Burry (Trades, Portfolio), each with around 10% of their portfolio in the stock.

Latest quarter

Positive financials continue to add on to the history of growth at JD.com. On May 11, the company reported first-quarter numbers with non-GAAP earnings of 69 cents per share topping expectations by 19 cents and revenue of $35.40 billion beating projections by $560 million.

The first quarter saw sequential growth of 20% in the number of third-party merchants registering a transaction. The count of users who made repeat purchases, as well as those who made any purchase at all, increased by nearly 20% and 30% respectively.

These users account for a larger share of the total base, leading to growth in both shopping frequency and average revenue per user. One of the biggest factors in growing a business is the frequency in which customers come back, and JD appears to be doing an excellent job in that category.

“JD saw strong growth in profitability in the first quarter as we continued to streamline our operations, optimize our product portfolio and expand our service offerings,” CEO Lei Xu said. “JD.com has built China’s most trusted brand in retail, and is uniquely positioned to provide our loyal user base with the superior quality, value, speed and selection they have come to expect, while maintaining the flexibility to seize upon multiple growth opportunities across our businesses.”

Growth and performance

In 2021, the stock peaked at over $103 per share. Today, it sits in the mid-$30s. Over the last year alone, the stock has dropped nearly 33%.

Going back a decade, since its initial public offering in 2014, JD has grown significantly stronger financially. The company has increased revenue from $18.5 billion to over $152 billion, with gross margins improving from the 5.2% to 8.3%. Profits have been slightly more erratic, with JD losing money until 2019. Despite the poor short-term performance, 19 analysts have JD’s earnings per share estimates above $4 by the end of 2025, with revenue growing to more than $190 billion in that same time frame.

At last report, JD had $28.5 billion in cash and just $4.2 billion in long-term debt, pulling its enterprise value down to around $35 billion. So, if it does earn over $4 per share, that would put the earnings yield north of 20% in just a few years.

Durable competitve advantage

JD's durable competitive advantage is anchored by the intangible assets of high reliability and assurance. This is reflected in its on-hand inventory, quality control and fast proprietary logistics services. Its cost advantage is amplified by the economies of scale in its first-party business. Another part of the company's unique value lies in its speedy, reliable and superior proprietary logistics services. To a lesser degree, JD.com stands out for its higher assurance of product authenticity on its first-party platform in a country where counterfeit goods are rampant.

More importantly, the company's adjusted return on invested capital rebounded to 15.3% in 2022 thanks to cost-saving measures, and is projected to rise to 26% by 2027. It will likely continue to expand margins, so investors should be looking to "where the puck is going" in terms of future profits, which should be a lot higher than they are now.

I am personally vested in this🫣

DYODD @TigerStars