JD.com (9618:HK) founder Richard Liu is reinventing the company by investing in new segments, speeding up an overseas foray, and at the same time, competing with Meituan in new arenas from food delivery to travel. This is an attempt to revive the company that has languished since a 2020 government crackdown, leading to years of lacklustre performance in a tough environment.
What does the turnaround plan include
JD began by announcing that it would enter the food delivery business in China, directly competing against Meituan and launching aggressively with various incentives. Founder Richard Liu even donned a uniform and delivered food on an electric bike in a publicity stunt.
JD followed through by entering into the hotel reservation and flight booking business in China, once again competing directly with Meituan. The company is also offering incentives such as zero commission for hotel merchants and is building out supply chain services to support the travel industry. This expansion aims to leverage JD’s user base and partnerships to boost its travel offerings and provide a comprehensive platform for both travelers and hotels.
JD also announced that it would apply for stablecoin licenses in all major currency countries worldwide. JD is not the only one in this pursuit as companies like Alibaba, Amazon and even Walmart have similarly made such plans public.
We think that having a highly motivated founder sure helps as some of these ventures may require a mid- to long-term outlook. With the support of the founder himself who is also the largest shareholder, this would alleviate the pressure on the management to chase short term profits and allow them to open up JD’s significant cash balance as ammo for its forays.
Investors may be in for a roller coaster ride
Having the founder lead the charge is not a guaranteed formula for success. Richard intends for the current CEO Sandy Xu to take full leadership of JD’s domestic business, which will free him up to focus on JD’s expansion plans.
In a candid reflection on the eve of JD’s signature Jun 18 shopping festival, Richard openly admitted that JD has lost its way.
No innovation, no growth, no progress. It should be considered the most unremarkable and least-valuable five years in my entrepreneurial history
This comment, coupled with potential leadership changes across the various JD units, suggest that JD would not just focus on new ventures but also shake up its existing businesses, especially segments with weaker growth or market positioning.
JD has the cash to fuel its plans and more
JD boasts an extremely strong balance sheet with nearly RMB 270 billion in net cash available to fund its acquisition. It is also highly profitable to the tune of RMB 44 billion a year as it focused on profitability across all its segments in the recent years.
JD last traded at a market capitalisation of HK 400 billion which means that more than two thirds of its market capitalisation is backed by cash. This also indicates that the stock is currently trading at low valuations.
Meituan is also on an expansion path
Meituan is also actively pursuing global expansion, with a significant focus on South America and the Middle East. They are investing US$1 billion over five years to launch and expand their food delivery service, Keeta, in Brazil.
Keeta, the international brand of Meituan, originally started in Hong Kong in May 2023. As Hong Kong is a small city, Meituan quickly expanded to Saudi Arabia and then other Gulf nations shortly after. In Hong Kong, Keeta quickly became the market leader in terms of order volume, surpassing both Deliveroo and Food Panda. Keeta is also involved in drone delivery services in Hong Kong, with plans to expand its drone delivery network.
With JD now competing directly with both of Meituan’s core segments domestically, Meituan may need to shift focus back to defending its number one position at home as the domestic market likely would be of much more value than any upside from the overseas expansion plan.
Just like JD, Meituan also sought profitability in recent years and has a strong balance sheet of around RMB 210 billion in net cash to fund its acquisitions. It is now profitable to the tune of RMB 35 billion a year.
It is worth noting that this profitability is despite Meituan burning cash on new initiatives for many years. Meituan burned RMB 7 billion and RMB 20 billion in 2024 and 2023 respectively. These cash-burning initiatives currently includes Meituan Select (community group buying) and Kuailv (B2B food distribution) as well as various investments into bike sharing, e-moped sharing, power banks and micro-credit services.
This means that while JD’s cash profile looks stronger now, it may not look as great once JD starts burning cash.
Meituan last traded at a market capitalisation of HK 800 billion which means that a quarter of its market capitalisation is backed by cash.
Is it time to buy JD or Meituan?
Competition will be fierce, and we think that this time, both companies would engage in healthy competition as any fight to the bottom would lead to untenable positions for both companies in any regulatory crackdown.
As expansion plans include both domestic and international as well as in new segments, should these two companies somewhat succeed and gain a toehold, the total addressable market for both companies would increase and would be beneficial in the long run.
In this case, we think the risk is on Meituan to defend its number one turf at home. The worst case for JD would be to not succeed in its new ventures and to waste a couple of billions. At the same time, with JD’s renewed vigor at home, there could be added profits which would offset the investment costs for these new ventures.
Closing statements
Recently, a resignation letter from an Alibaba employee went viral for its candid critiques of Alibaba’s current internal state of operations, its past failures and possible reasons. Jack Ma responded to the letter with well wishes to the employee, considered a rare move that may be interpreted as a sign that he read the letter and did not have negative thoughts about the employee’s willingness to share.
The letter also mentioned a myriad of project and investment failures over the years, serving as a sign that many big Chinese tech companies are reassessing their strategic positioning to ensure survival in a competitive landscape, following lacklustre performance due to the tough environment in the past few years.
At the onset, it seems like JD is investing in multiple opportunities to see what ones bear fruit. We also think that it may be a case of JD trying to expand into every possible opportunity to gain a toehold there, given that it is not able to be the number one player in any of the existing segments that it operate in.
Perhaps it wouldn’t hurt for JD’s founder to take a read at that resignation letter and take note of the pitfalls, so as to improve the company’s chances of success.
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