Source: Leverage Shares analysis

There have been two notable events in the stock trajectory over the past year:

• Walmart unloaded its stake in the company to focus on its own business in China, leading to a 10% drop in August 2024

• Moody’s updated the company’s issuer and senior unsecured ratings to A3 from Baa1 and revised its outlook to stable in September 2024, leading to a strong uptick, which almost immediately afterwards began to peter out.

Another rise was seen in January 2025 on account of several factors: the company’s then-ongoing share repurchase program, with $3.6 billion in repurchases in 2024, was infused with a new $5 billion authorization through 2027, the Chinese government announced consumption subsidies that imparted notions of support of further revenue growth in its core electronics and home appliances segments, and signs of a broad Chinese market recovery.

Again, all of these tailwinds petered out to impart a net annual performance of about 7% across both tickers. While a number of institutions, such as Citi¹, have cut the target price for the ticker, they maintain a « Buy » rating on account of the company’s ongoing forays.

The company is a new entrant in the « on-demand delivery » subsector in China, which connects customers with local businesses’ offerings (generally food but possibly also other items in the future), with immediate courier delivery. Various estimates place this subsector as being dominated by two companies:

• Hong Kong-listed and Tencent-backed Meituan, which is estimated to hold around 60-70+% of the market;

• Alibaba-backed Ele.me which is estimated to hold most of the balance.

In effect, these two companies are estimated to hold 80-90+% of the total market, with little room for maneuvering by new entrants. Given its extensive network of retail infrastructure and logistic network, JD.com has been venturing into this space and drawing the attention of institutional investors.

The company launched « Food Delivery » in February, which it reported at the end of April as having reached 10 million daily orders² and serving 300,000+ restaurants across 166 Chinese cities by the 22nd of April. The company also promised a number of incentives:

• « Zero commissions all year round » for onboarded restaurants

• After accusing its competitors³ of issuing warnings to couriers/delivery riders wanting to work with the company, it promised riders « cross-platform flexibility »

• After announcing plans to double its full-time delivery riders’ roster to 100,000 in the next three months, it offers delivery riders social insurance (pension, medical, unemployment and workplace injury) to full-time riders and medical insurance to part-time riders.

As of Q1 2025, the “Food Delivery” business showed the highest year-on-year revenue growth among all its businesses at a solid 18.1%. However, it also has the worst operating margin among them at a negative 23.1%. The delivery business is an extremely low-margin business on a per-transaction basis, with scale being the only practical means of delivering sustained long-term investor attractiveness. Given its enhanced issuer ratings from Moody’s, institutional investors likely consider that the company will be able to access capital to fund growth and has the physical resources at hand to stay engaged for a period long enough to deliver results and carve out market share.

While the product sales growth trend of 4% is an encouraging trend, it’s likely that this may not be a full-year trend, given the seasonality of consumer goods sales. As it stands, the percentage share of relatively higher-margin electronics goods are in decline – possibly indicative of economic headwinds and cautionary attitudes among Chinese buyers.

Around the same time as the earnings call, JD.com, Alibaba as well as ByteDance’s Douyin kicked off a mid-year shopping festival wherein discounts offered will likely further eat into margins. Any expectation of sales spikes will therefore need to account for the loss of margins and bottom-line pass-throughs in order to impute growth for the FY. Meanwhile, synergy between the new « Delivery » business and « Services » might promote greater revenue growth but it is somewhat unlikely to manifest this early on.

Nonetheless, despite the ticker’s sluggish price growth in the past year, it’s important to note that institutions aren’t expecting massive growth per se. Instead, the company’s a fixture in the commerce space and would seek signs of a durable foothold in the market to maintain their conviction.

The lack of a massive growth trend might not be to all retail investors’ interest. Plus given that it is a Chinese company, it is unable to meet all the requirements stipulated in the « America First Investment Policy » order, which implies that the threat of the U.S. ticker delisting is never going to be low or zero this year. All in all, the conviction in the company’s ticker is bound to be shaky going forward.

Professional investors in Europe might like to consider the +3x JD.com Long ETP (JD3) for magnified exposure during upticks of the stock’s trajectory while the -1x JD.com Short ETP (JD1S) is the equivalent of a short position without the need for maintaining a margin.

Footnotes:

1. « Citi cuts JD.com stock price target to $51, maintains Buy rating' », Investing.com, 28 April 2025
2. « JD.com Unveils New Product Growth Initiative to Incubate 600 100-Million-Yuan Bestsellers in 2025 », Jingdong (JD) Corporate Blog, 16 April 2025
3. « China’s JD.com calls out anti-competitive pressures on food delivery couriers », Reuters, 22 April 2025