Education Series: Single-Stock ETPs

E-Commerce ETPs, Part 2: JD.com and Shopify

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“E-Commerce companies” – once restricted to the likes of Amazon and eBay – are now legion. As we mentioned in our article in December, there are now over 24 million stores selling online using a variety of means – a far cry from simply books and used items.

Part 1 of this two-part series described how “old school” e-commerce giants are working to move past online retail. This concluding article will dig deep into identifying the edge-defining efforts and present the outlook for two rising e-commerce stars challenging the status quo – JD.com (ticker: JD) from China and Shopify (ticker: SHOP) from Canada.


Online Retail Differentiators

Compared to Alibaba, JD.com is the “true blue” online retailer, i.e. it’s predominantly focused on B2C e-commerce. The two rivals had been at each other’s throats for several years, with JD.com’s continual ascent in online retail a constant source of concern for Alibaba. Tencent owns 15% of the company and Walmart China and eBay are its partners.

Over the years, the company has focused on innovative methods to attract both direct consumers and merchants. JD.com launched “Jingxi” on China’s dominant chatting app WeChat as a mini-program in a bid to target users in China’s lesser-developed areas, home to several lower-tier cities and villages. Over a single year (2019), JD.com attracted 28 million new annual active consumers, 70% of which came from tier-three to tier-six cities in the country in the last three months of 2019.

In China’s fragmented retail market, it’s a tough undertaking challenging Alibaba. Nonetheless, after years of perseverance, 2019 was the year JD.com finally overtook Alibaba in terms of quarterly customer account increase.

It was a stalwart year for another reason: the company earned an annual profit for the first time.

Now, JD.com was not alone in doing an early focus on China’s lower-tier cities and villages: Pinduoduo had an early lead on the company in this aspect. However, the average account on JD.com spent nearly 3X as much as that on Pinduoduo by the end of 2019.

The company operates its own fulfillment network and logistics infrastructure, and owns the inventory for a sizable portion of its sales. These strategies attract merchants and consumers who demand high-quality goods. However, it bears noting that Pinduoduo hasn’t lost its edge in number of user accounts: as of Q4 2020, Pinduoduo had about 720 million accounts while JD.com had 417.9 million.

The company’s focus on building out a logistics company – JD Logistics – for third-party sellers is a means to differentiate itself in China’s cut-throat e-commerce market. Focusing on same-day and next-day deliveries and investing in automated logistics warehouses, JD Logistics raked in 73.4 billion RMB ($11.4 billion) as revenue in 2020, a 47% year-on-year rise. Despite being one of only 4 courier companies in China retaining normal business during the pandemic and a flush of orders bringing down per unit cost, JD Logistics reported a 4 billion RMB loss ($621 million) in 2020, more than the 2.2 billion RMB ($342 million) loss the year before. Also, the logistics arm remains cripplingly dependent on JD.com’s business: more than 50% of JD Logistics’ revenue came from JD Group and other affiliated companies.

Over on the Western Hemisphere, Shopify has been an upstart in a business landscape that wasn’t supposed to be quite as cut-throat. Offering online retailers a suite of services including payments, marketing, shipping and customer engagement tools, Shopify’s growth story has been nothing short of stellar. Heralded as a saviour of small businesses during the pandemic and from the monopoly of the likes of Amazon, more than 1.7 million businesses in approximately 175 countries are using the company’s platform as of May 2021.

In 2020 alone, it is estimated that over 50% of all Shopify merchants were based in the United States.

Shopify’s Gross Merchandise Value (GMV) has grown from a paltry $707.4 million to a whopping $119.6 billion in 2020.

457 million people bought from a Shopify store in 2020, representing a year-on-year increase of 52.33%.

The company has two streams of business: in its “Subscription Services” segment, merchants pay a monthly fee for the use of its platform for Point-Of-Sale (POS) sales across regions and stores, as well as sales of apps, themes, and domains. Its “Merchant Solutions” segment’s revenues primarily consist of payment processing fees, with referral fees, advertising revenue and sales of POS hardware also included.

Across these two segments, the company generated $2.93 billion in annual revenue in 2020, representing a year-on-year increase of 85.44%. 2020 was an important year for Shopify as it registered a whopping turnaround by posting its first annual operating profit.

Shopify also stood at the No. 2 spot in e-commerce market share in the U.S. in 2020, surpassing the likes of Walmart and eBay.


In Conclusion

JD.com exemplifies the difficulty of setting up a large e-commerce business: loss-leading expenditure in technology, promotions and an extensive logistics network is a typical feature in this sector. Given the ease of switching between online retailers, it makes sense that offering effective logistics solutions to other e-commerce businesses is one way of ensuring long-term survival and revenue growth. Similar to JD.com with logistics, Shopify has become a one-stop solution for other e-commerce sellers’ growth strategies at a reasonable rate.

Looking into the stock performance of these rising stars in the year to date (YTD) versus the benchmark S&P 500 (SPX) reveals another interesting story.

Unlike the reasons for the dip seen in Alibaba, JD.com’s drop was the result of the company’s announcement to sustain spending on logistics and new initiatives after higher-than-expected revenue in Q4 2020. With improving fundamentals, indicators that online retail will account for over 50% of all sales in China and strong revenue growth, analysts continue to project an upside on the company’s growth story.

After the initial exuberance in Q1 2021 seen in Shopify, the stocks went into decline relative to the benchmark until the trend was bucked in May 2021. On May 18, Google announced a deepening of its partnership with Shopify that would make it easier for the latter’s 1.7 million merchants to reach shoppers via Google Search, Maps, Lens, Images and YouTube. Following this announcement, Shopify stock popped up by around 4% on at least two consecutive days.

As we demonstrated during our coverage of “internet companies”, Google’s mainstay is ad revenue – which Amazon had been eating into in recent years.

This move by Google is designed to both hit back at Amazon’s growing clout in this area and partake in the growth story of smaller online sellers.


  1. JD Operating Income 2013-2021, MacroTrends
  2. Amazon competitor Shopify cuts app store fees for developers on first $1 million in revenue, CNBC
  3. China’s Regulators Punished Tech Giants and Rattled Investors. What Could Come Next., Barrons

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Sandeep joined Leverage Shares in September 2020. He leads research on existing and new product lines, asset classes, and strategies, with special emphasis on analysis of recent events and developments.

Sandeep has longstanding experience with financial markets. Starting with a Chicago-based hedge fund as a financial engineer, his career has spanned a variety of domains and organizations over a course of 8 years – from Barclays Capital’s Prime Services Division to (most recently) Nasdaq’s Index Research Team.

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Violeta joined Leverage Shares in September 2022. She is responsible for conducting technical analysis, macro and equity research, providing valuable insights to help shape investment strategies for clients.

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Violeta is a certified market technician from the Australian Technical Analysts Association and holds a Post Graduate Diploma of Applied Finance and Investment from Kaplan Professional (FINSIA), Australia, where she was a lecturer for a number of years.

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He joined LS from UniCredit, where he was a corporate relationship manager for multinationals. His previous experience is in corporate finance and fund administration at firms like IBM Bulgaria and DeGiro / FundShare.

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