JD.Com Inc (ADR) (NASDAQ:JD), which was believed to be the next Amazon.com, Inc. (NASDAQ:AMZN) by some, represents China’s second-largest online retailer. JD.Com started trading on the NASDAQ back in 2014, when it raised $1.78 billion in its initial public offering (IPO). The company’s stock performance was great in the first half of this year, but concerns around China’s economic slowdown have sent the stock plummeting since. There is indeed growing evidence that the world’s second-largest economy is slowing down, which in turn might impact the activities and operations of the Chinese retailer even more. China’s factory output grew by 6.1% year-over-year, missing forecasts of 6.4%. At the same time, the growth in fixed-asset investment fell to 10.9% year-to-date, marking a 15-year low. Nevertheless, JD.Com remains among the most popular stocks among the hedge funds tracked by Insider Monkey, with 75 investors holding stakes in the retailer at the end of the second quarter, seven more than at the end of March. The value of these hedge funds’ investments increased as well, reaching $11.81 billion at the end of the quarter, up from $8.23 billion. In this article we will discuss the company’s performance in more detail and will also talk about the thoughts of some well-known money managers on JD.Com.
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Tiger Global Management, founded by Tiger Cub Chase Coleman with seed money from legendary investor Julian Robertson, discussed its investment in JD.Com Inc (ADR) (NASDAQ:JD) in a letter to investors covering the first quarter of this year. JD.Com is Tiger Global’s largest position, consisting of 70.18 million American Depositary Receipts (ADRs) valued at $2.39 billion as of June 30. This sizable stake accounts for 24.46% of the investment firm’s public equity portfolio. Tiger Global Management believes that JD.Com benefits from “retail leapfrogging” in emerging markets, implying that the retailer can expand rapidly in other markets through the adoption of its website without going through unnecessary intermediary steps. The investment firm outlines that “the limited retail footprint and relatively small size of leading offline retailers, e-commerce companies have been able to achieve dominant positions in certain developing markets”. JD.Com has been fulfilling the firm’s expectations on this matter over the last few months. This summer, the Chinese online retailer chose Russia as its first foreign market for expansion and intends to become an e-commerce leader in this market within five years. JD.Com already launched a Russian-language website in June and signed a delivery contract with Russian logistics operator SPSR Express. Going back to the letter, Tiger Global also indicated that:
“While the stock has performed well and expectations have risen, we continue to believe that JD is attractively valued over the long term and well-positioned within a large and growing e-commerce market. As with other rapidly growing retail businesses, we expect JD’s incremental margins to increase with time as the company leverages fixed costs, resulting in attractive net margins once the company reaches scale. Between 2014 and 2022, we expect Chinese e-commerce penetration to roughly double from 20% to 40%, implying an addressable market size of approximately $1.3 trillion in 2022. Given JD’s leading position in fulfilled e-commerce and the scale of its logistics network, we believe the company can grow its market share meaningfully over time. If JD is able to double its e-commerce market share from 10% to 20% over the next seven years, and our assumption about e-commerce penetration is correct, the company could represent a percentage of the addressable retail market in China comparable to Walmart in the US.”
However, the team of experts at Tiger Global might not have anticipated the Chinese economic pullback, which has seriously affected global stock markets, and the performance of JD.Com in particular. But the fundamentally-oriented investment firm is surely focused on the long-term performance of this company, which looks quite bright despite the current challenges and headwinds. As the letter suggests, Tiger Global is looking at JD.Com as five-year or ten-year investment and might hold on to this bullish position until the retailer achieves the expectations and delivers the desired returns.
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Just recently, the management of JD.Com Inc (ADR) (NASDAQ:JD) announced a share buyback program in an attempt to revitalize its stock performance. To be more detailed, the Chinese e-commerce company is set to buy up to $1 billion worth of ADSs over the next two years. It is worth noting that JD.Com’s ADSs have lost more than 36% over the past three-month period, but managed to stay almost 5% in the green year-to-date. In the meantime, it seems that JD.Com has been gaining ground against its rival Alibaba Group Holding Ltd (NYSE:BABA), which still represents Asia’s largest e-commerce company. Many believe that JD.Com’s business model and ability to provide higher quality products through a direct delivery model will enable it to grow at a faster pace than Alibaba. JD.Com has been able to gain market share against its rival, as the company has achieved growth in sales that more than doubled the sales growth of Alibaba this year. Lone Pine Capital, founded by another Tiger Cub Steve Mandel, represents the third-largest shareholder of JD.Com, holding 41.89 million shares as of June 30.
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