They appeared to have $2.4 billion in returns or 22% of their net GMV in the most recent period. Often in the IPO filing, you will see JD refer to gross GMV and net GMV. JD.com seems to have a rather higher return rate. Therefore, when JD.com gets third party delivery workers to drop off goods, they also have to rely on those people to do Cash On Delivery and then send this back the chain to JD.com. JD.com has to rely on others' payment systems. As Tencent continues to push into e-commerce, it will push transactions to be done via their Tenpay system. When they ship goods via third party delivery systems, these typically young and lower paid workers are only dropping off goods. Taobao transactions are conducted via Alipay. They don't have their own payment system, putting them at a big disadvantage against Taobao and Tencent. Raising money from the IPO will help buffer their cash but presumably only temporarily before they're back at the same crossroads.ħ. If they don't expand into other SKUs, they stay a consumer electronics online store with lots of competitors in China like Suning and Taobao. If they expand into other SKUs, their short term profitability takes a hit and they probably have to pass on this pain to their suppliers who might revolt. If JD.com was to continue to stretch out days payable to suppliers, it's unlikely that they would stay so agreeable. This is not a business that would not be operating today without staying in the good graces of its suppliers. Additionally, they note that their days payable has been increasing over the last 2 years from the 30 day range to now over 40 days. According to the IPO filing, they've got $2 billion in payables and advances from customers and about $1.4 billion in cash on hand as of the end of September. JD.com is a business that's survived this long thanks to the mercy of its suppliers. If you haven't, you're bound to have hiccups and face near-term hits to your profitability.Ħ. If you've been a business that's dealt with such complexity, you can handle it. When you start going into areas like apparel, 5 new colors in 3 different sizes represent 15 new SKUs. If you're an e-commerce business starting out, standardized SKUs are better like consumer electronics. When you start expanding your SKUs as an e-commerce business, execution is hard. If consumer tastes shift - as they do when it comes to electronics - it's JD.com that's stuck with the inventory.ĥ. That means all the warehouses which they proudly discuss having invested in over the past few years are housing JD.com inventory. Their inventories have tripled in the last 2 years. JD.com has huge inventory risk being in the first part business. one that is balanced like Amazon or another that is almost all 3rd parties selling (like Alibaba's Taobao). Why is that important? Because it carries a lot more risk to JD.com investors buying into that type of business vs. JD.com says it is going to do the same in the future, yet the vast majority of its revenues today (70%) come from their 1st party business. Amazon's business is based on its first party business (where they sell stuff themselves to their customers) and thirty party business (where they sell others' stuff to their customers). And their stock has remain depressed ever since.Ĥ. It turned out to be much more difficult than they thought to make the leap from low margin books to other SKUs. Dangdang only sold books at the time of the IPO, but they promised this was just their Trojan Horse to sell Chinese consumers all kinds of goods. And for some time, American investors bought this idea of the next Amazon from China, bidding their shares above $30 or about a market cap of $3 billion. There was another company who IPO'ed saying they would be the next Amazon of China: Dangdang. If it only it was as easy to actually "flip the switch" as it is to casually drop the phrase when meeting with American investors.ģ. The fact that they haven't been able to diversify in the last 3 years, suggests they're having a hard time doing that. You would think they would try to sell more than just consumer electronics before their IPO. Although JD.com likes to paint a picture that it is building out a low profit platform today, which they will be able to "flip the switch" on in the future to sell many more goods like Amazon, they haven't been able to do this so far. This is partly why their gross margins are so low (less than 10% in 2013).Ģ. 85% of JD.com's revenues are from selling consumer electronics. Here are some relevant points I pulled out of the filing:ġ.
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