Yang Li cannot stop JD's pace

Authors | Liu Baodan Zhou Zhiyu

Editor | Zhang Xiaoling

JD.com, which was prepared to make a big move on Double 11, ended up in a crisis due to a collaboration "gone wrong" with stand-up comedian Yang Li, leading to rumors of a run on JD Finance.

JD.com responded swiftly, publicly apologized, terminated the collaboration with Yang Li, dispelled the rumors of a run on the company, and strived to minimize the impact.

After JD.com's apology on October 18th, the stock price rose by 2.65%.

The Yang Li incident seems to be just a side story in the recent soaring of JD.com's stock price. In fact, amidst the wave of stock market rebound and revaluation of Chinese assets, JD.com, as one of China's e-commerce representatives, surged by 60% in ten days, leading the way for Chinese concept stocks.

Apart from the positive stimulus brought by policies, Richard Liu's return and his leadership in pushing JD.com to compete on price have also contributed to the continuous improvement of JD.com's fundamentals.

Of course, the Yang Li incident serves as a warning. While JD.com is consolidating its base in 3C products and expanding into niche markets like clothing, with its user base continuously growing, careful consideration must be given to the selection of spokespersons.

Now, the e-commerce market is undergoing a major reshuffle, and JD.com is facing an unprecedentedly complex situation. Whether Richard Liu can once again lead JD.com to glory remains full of uncertainties.

Soaring

Chinese concept stocks have seen their biggest rebound in three years, with JD.com playing a significant role in this capital wave.

On October 7th, JD.com's stock price reached $47.820, hitting a new high for the year and doubling from $21.180 in March. On that day, JD.com's market value reached $68.9 billion, marking a new high in 19 months.

From September 17th to the peak on October 7th, JD.com's Hong Kong stock price surged by up to 79.01%, outperforming the Hang Seng Tech Index by over 20 percentage points during the same period. JD.com's market value also soared by over HKD 280 billion.

Behind the strong recovery of JD.com's stock price, the U.S. cut interest rates for the first time in four years, combined with a package of policies from the domestic central bank that released optimistic expectations for economic growth, triggering global capital inflows and a collective rise in Chinese concept stocks.

Nomura stated that China's stimulus policies launched at the end of September focus on stabilizing the real estate market and revitalizing consumer demand. If consumer sentiment improves, the Chinese e-commerce sector is expected to outperform the broader market in the short term.

As a result, e-commerce stocks have entered a phase of revaluation. On September 30th, Goldman Sachs pointed out in its latest research report that the e-commerce industry will be one of the most important areas for revaluation in the Chinese internet sector, with e-commerce being raised to the top two preferences, alongside the gaming industry.

In this context, JD.com's strong cyclical characteristics have been highlighted, especially as the nationwide policy of trading in old appliances for new ones is gradually implemented. As a major platform for home appliance consumption, JD.com will benefit from this round of consumption stimulus.

On September 26th, Morgan Stanley published a report stating that JD.com's stock price outperformed the KraneShares Chinese Internet Index and major e-commerce peers during the same period, mainly due to positive news about the appliance trade-in policy and undervaluation.

Shensong Capital's director Shen Meng believes that JD.com's previous stock price was impacted by emerging e-commerce models such as live streaming and group buying, leading to a significant correction. With Richard Liu intensifying efforts in frontline operations and guiding JD.com back to stability, coupled with the central bank's stimulus policies since September driving the overall upward trend in the secondary market In fact, after hitting a low point in the stock price at the beginning of the year, JD.com's stock price has started to rise with the boost of improved performance and the resumption of capital share repurchases after a four-year hiatus.

On March 6th, JD.com released an impressive quarterly report, with a Non-GAAP net profit of 8.4 billion yuan and an annual net profit of 35.2 billion yuan, both exceeding market expectations. Coupled with a plan to repurchase up to 3 billion US dollars over the next three years, this has driven JD.com's stock price rebound.

By the end of the day, JD.com's US stock price rose by 16.18%, reaching a new high since March 2022, increasing its market value by nearly 40 billion RMB.

With this round of recovery in Chinese concept stocks, JD.com has swept away the shadow of Walmart's exit and ushered in a new capital cycle.

Challenge

From its listing in 2014 to the peak of Chinese concept stocks in 2021, JD.com's market value surged from 28.6 billion US dollars to 165.9 billion US dollars, a 5.8-fold increase in 7 years. Subsequently, JD.com's stock price continued to decline along with the downturn of Chinese concept stocks.

Now, JD.com's capital story may be at a crucial turning point.

Since the return of Liu Qiangdong at the end of 2022, JD.com has embarked on a series of reforms. Strategically, JD.com is vigorously supporting third-party merchants to achieve low prices, deepening its ecological strategy, and in the e-commerce business, JD.com is using procurement and sales as a breakthrough to counter the strong growth of live streaming e-commerce.

After a series of counterattacks, JD.com's strategic efforts have begun to pay off. On August 15th, JD.com Group announced its performance for the second quarter of 2024, with a gross profit margin increasing significantly by 137 basis points year-on-year to 15.8%. Operating profit and net profit under non-GAAP reached historical highs.

This wave of stock price increases can be seen as an affirmation of JD.com's performance over the past two years. The key going forward is whether JD.com can sustain this positive momentum, as its current market value is still less than half of its peak period.

The key going forward is whether JD.com can seize this opportunity and how much room for imagination there is in JD.com's future valuation. This is currently the focus of capital attention.

In the short term, the capital market will be influenced by emotions, but in the long run, the stock price will ultimately reflect the economic fundamentals and JD.com's performance.

Institutions such as Morgan Stanley, Nomura, Citigroup, CICC, and Haitong International have expressed optimistic expectations for JD.com. Nomura has raised its target price for JD.com's US stock by 39.5% to $53, while Morgan Stanley reaffirmed JD.com as the top pick in the e-commerce industry.

Morgan Stanley believes that JD.com has effectively seized the opportunity for the recovery of demand for home appliances and electronic products through its gradually implemented trade-in policy, making its revenue growth in the second half of the year more resilient than its peers. The bank expects JD.com's third-quarter revenue to increase by 5% year-on-year to 260 billion yuan, with adjusted net profit reaching 11.5 billion yuan, in line with the upper market expectations.

UBS believes that JD.com has short- to medium-term growth momentum and is undervalued. As the current price is equivalent to a forecasted P/E ratio of 9 times in 2025, the valuation is relatively cheap, and they believe JD.com has greater profit surprises and revaluation potential.

In the future, JD.com will need to make greater breakthroughs strategically to continue its upward trend in stock price.

Currently, the e-commerce business faces fierce market competition, and JD.com's focus is on exploring verticals such as apparel, automobiles, and continuously exploring offline businesses. Internationally, JD.com is still struggling to compete with rivals such as Pinduoduo and Alibaba Xu Ran stated in the second quarter conference call that JD.com will continue to focus on user experience, price competitiveness, and platform ecosystem.

Although JD.com has strategic determination, there are still many risk factors affecting JD.com's stock price. For example, the Yang Li incident is a case in point. Yang Li's appearance triggered some JD.com users to boycott, casting a shadow over this crucial Singles' Day period.

E-commerce is undergoing a major reshuffle, and the market competition landscape is in a state of dynamic change. In this historically intense e-commerce battle, Liu Qiangdong and JD.com must proceed with caution every step of the way