Alibaba Group Holding is one of the largest e-commerce companies in the world as measured by gross merchandise value, but it’s not the only powerhouse in China. Rival JD.com (NASDAQ:JD) has also become a major player in this industry, and is growing quickly. Not surprisingly, long-term shareholders have been well rewarded, as the share price has skyrocketed 185% over the past three years.
However, market sentiment regarding Chinese companies has wavered recently, and JD’s share price currently sits well below its 52-week high. In this Backstage Pass video, which aired on Sept. 14, 2021, Motley Fool contributor Jose Najarro shares his thoughts on JD.com.
Jose Najarro: For those that don’t know, JD.com is a huge e-commerce in China. We’re starting with some international ones right now. Let me just share my screen for you guys real quick. Share screen. Hopefully, you should be able to see.
Firstly, I just wanted to show how the website looks. Many people sometimes find out all of these stocks, but don’t really see the website. I think a great way is just to look at the website and see how similar they are to some of our e-commerce platforms as well. This is their website. You can pretty much go online, purchase whatever you need. You see a lot of small items from watches to shoes. It’s pretty much an e-commerce play, but they do so much more than that.
In the second slide, I wanted to take a little closer look at revenue breakdown for this company. The first thing on the top left, we can see revenue grew about 26% year over year. That to me is super impressive because unfortunately, COVID happened and 2020 was a strong year for a lot of e-commerce and fintech companies. Whatever is dealing with digital saw a nice growth. But coming into these few quarters, we haven’t seen that strong growth, but this company still reported 26% year-over-year growth in their net revenues.
They pretty much have two major segments for revenue. First is net product revenues. Your net product revenues are pretty much your typical e-commerce sales, the fees they collect from there. Then they have their net service revenues. Their net service revenues, we can see both are up strong. Net product revenue, which is mainly their e-commerce segment, is up 23% year over year. Their net service revenue is up 49% year over year. It still makes up a small portion. We can see most of their revenue actually comes from the net product revenue. But the net service revenue, this is where we’re seeing a lot of e-commerce, where you start paying for slots on advertisement. If you go to some of your favorite e-commerce right now, if you search an item, usually the first three to four items are featured, which are normally advertisement. These are where some of these e-commerce businesses make money.
JD.com also has some other services, mainly the logistics. They have a lot of the transportation. Then they also have other services that they are entering into. One of them is what they call JD Health. I’m going to talk a little bit about them. But one of the bullish case I hear a lot about JD.com is their overall innovative tech. This is one of the first few companies to start delivering products in their regions with drones. They also have some form of automation robots that help out with their logistics centers. They’re always focusing on improving that.
In another innovative market, for example, the augmented reality and the virtual reality, they’ve worked with cosmetic products and shoes. Let’s say you want to see how some form of makeup or some cosmetic item looks on your skin feature, you can use the camera and with the AR technology that they have, it will be able to show that, hey, maybe this is the product for you. Maybe this is not the product for you. They’re definitely a company that’s not only in the e-commerce game, but they’re also innovating into different markets.
Now, I stopped sharing the screen, but I definitely had some more information to share about the company. Let me just pull that up. Like I mentioned, net revenue for this company grew at some impressive levels. But another thing: Annual active customers grew 27.4% compared to the same time last year. This is something you want to see. A lot of these, like I said, e-commerce, gaming, all these digital companies saw a slowdown year to year when it came to growth as things started to open back up. JD still at the moment is seeing 27.4% in annual active customer accounts. Like I mentioned, they are also into telemedicine, they entered JD Health. This started when COVID began in China. They’re expanding into a lot of innovative markets.
I do want to say, just like I mentioned with Sea Limited, nothing comes without risk. Right now, we are definitely seeing that, I want to say, negative sentiment toward Chinese stocks and especially with the overall government. JD stock has taken about a 25% drop from its 52-week high closing at the moment right now. Mainly it’s due to just that overall negative sentiment. We’ve seen a lot of the Chinese government’s targets are in tech companies. At the moment, there hasn’t really been much directed toward JD. JD hasn’t donated any money to anybody right now. But that fear that, “Hey, they might come out for JD” is building some form of, I want to say, bearish sentiment. Not necessarily a bad thing, but definitely affecting the short-term volatility in the stock price. I think those were my overall thoughts of JD.
This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.