The markets $SPX500 opens 0.15% uop today as our portfolio have another good day with Polymetal $POLY.L up by over 1% and Diageo $DGE.L up by 0.8%. Only two stocks are in red today, GameStop $GME and Allergan $AGN both down by about 0.25%.
JD.com Stock Analysis - The Amazon of China 🇨🇳
If you had invested $10 000 in Amazon $AMZN in 2010, today, you would have $150 000. JD.com $JD.CH is at the same stage Amazon was ten years ago. Should you invest? Unlike Alibaba $BABA which is just a marketplace, JD.com is an actual retailer with $67 billion in revenues last year.
JD.com has the same business model as Amazon but unlike Amazon, they don't have AWS (Amazon Web Services) and we know that now most of the profits of Amazon come from AWS. Amazon is becoming more and more a tech company. JD.com, however, remains a retailer and they have a very low profit margin of 1%. Actually, they are losing money but their non-GAAP profit margin is 1% but they want it to reach 3%. I believe that they can do it but it is unsustainable. Their gross margin is 15% while Alibaba has a gross margin of 45%, Amazon 26% and Walmart $WMT 25%.
JD.com has good partners such as Google $GOOG ; Walmart, which owns 20% of the company and Tencent $0700.HK , which owns 12% of the company. These partners can really help them compete with Alibaba.
Just like Alibaba, JD is incorporated in the Cayman Islands and it is a Variable Interest Entity (VIE). You cannot own JD.com, you can only own a subsidiary incorporated in the Cayman Islands, which as per a contract says that you are to receive the profits of the company without any ownership or voting rights. Many Chinese companies such as Alibaba or NIO $NIO uses VIE as loopholes to Chinese laws but JD has something different. They own several VIEs themselves and these numbers are included in their books. Berkshire Hathaway $BRK.B owns 5% of Apple but they cannot list Apple's revenues on their books. 20% of the revenues of JD come from the VIEs that they 'own' and they contribute over half of their losses. I don't want to scare you about the VIEs but you just need to understand them before investing.
JD.com has been growing at a very fast rate over the past years with a good balance sheet. And looking at the valuations, I won't say that the stock is expensive. It is much cheaper than I was expecting. This stock is, however, very volatile. With the low profit margin, there are years where they are going to lose money and the stock may crash. Then, it will be a good time to invest and wait for them to have a great year to sell. Buy low, sell high.
JD.com makes it on my watchlist but there are other companies ahead of it such as China Mobile $CHL and ICBC $1398.HK
Watch the full video on YouTube:
https://www.youtube.com/watch?v=G98PAfCBhtE&list=UUPO3uUyoXSaFWG-Ldq1mqEQ
You can find the full analysis of JD.com on my investment research partnership:
https://ishfaaqpeerally.teachable.com/courses/662813/lectures/13530567
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