Steve's September Update: International Opportunities | 7investing
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Steve’s September Update: International Opportunities

September 22, 2020

JD.com (NASDAQ: JD) has been on my investing radar of late for two big reasons: My own shares of the Chinese e-commerce giant have not only doubled in value since I finally bought the stock in March, but I also believe the business is poised to sustain or even accelerate its growth in the coming years.

For perspective, JD.com currently boasts a market capitalization of roughly $116 billion – huge in its own right by still absolutely dwarfed by Amazon.com’s $1.48 trillion market cap as of this writing.

Much like Amazon.com has done here in the United States, JD.com made the decision early on to invest heavily in its own logistics, warehousing, and delivery infrastructure network throughout China rather than simply serving as an online marketplace platform like eBay has done. That approach has served to differentiate JD from competitors by delighting Chinese consumers since it went online in 2004. But its momentum is only gaining steam amid the pandemic; revenue last quarter soared nearly 34% year over year to $28.5 billion, including a more-than 45% increase in “general merchandise” sales led by its grocery and pharmacy segments. JD’s operating income also more than doubled, to $714 million, as the company capitalized on the fruits of its increasing scale.

And Similar to fellow Chinese tech titan Tencent, JD is reportedly working to unlock the value of several of its subsidiary and affiliate businesses for shareholders through a series of IPOs. If industry rumblings are to be trusted, its soon-to-be-public assets apparently include its smart supply chain business JD Logistics, finance arm JD Digits, and its online health care unit JD Health.

Of course, operating in China is arguably a risk in and of itself. JD’s growth trajectory could be threatened a result of both unique government regulations on the e-commerce industry in the country, and slowing economic growth stemming from international trade tensions that could stymie consumer spending there.

But JD.com has done an admirable job navigating these headwinds in recent years nonetheless. And with the growing middle class in China still fueling its top- and bottom-line gains as more commerce shifts online, I see no reason JD can’t eventually grow to rival the size of its most popular U.S.-based counterpart.