JD.com Inc., a major Chinese e-commerce company, has filed to raise up to 1.5 billion US dollars in an initial public offering (IPO) in the US, making it the largest IPO of a Chinese Internet company in the states thus far.
JD is a major competitor to Alibaba Group Holding Ltd., China's biggest e-commerce company, which is also considering going public in what is expected to be a much larger IPO valued around 100 billion. JD's business model is more similar to that of Amazon.com in that it is a direct seller of goods held in sprawling warehouses, while Alibaba runs online marketplaces.
The company's most distinctive feature is its highly efficient delivery team that reaches third-tier cities and is currently expanding to rural villages. Below is the latest advertisement of the company that highlights its delivery service:
JD.com, founded by its chairman Richard Liu Qiangdong only ten years ago, had 35.8 million customer accounts by the end of the third quarter of last year. After two years of losses, the company said it registered a profit of 60 million yuan (about 9.9 million US dollars) in the first three quarters of last year, mainly due to interest income.
The company said it would use the funds raised to “acquire land use rights, build new warehouses and establish more delivery stations,” according to the filing. It currently operates 82 warehouses and 1,453 delivery stations across China.
Although the company's profit comes from its interest and the reach of its e-commerce platform is far behind Alibaba and Tencents, JD.com has its supporters. IT news commentators Xie Pu and Xu Ji highlighted the great potentials of the company's logistics, in particular its nationwide warehouse and goods delivery network:
We support JD.com because Richard Liu sees the intertwine between the virtual and the real. In the past ten years, it built its logistics system. JD.com is a logistic infrastructure. It helps the company to sustain and expand its business.
We support JD.com because it does not make easy money. E-commerce is no game and it has very little profit margin. To make money by building its logistic infrastructure and hiring tens of thousands delivery workers, this is not an easy task and the long-term effect will show.
China’s e-commerce boom
By 2015, China will have surpassed the US as the leading e-commerce market, according to consulting firm Bain & Company. On November 11, China marked its “Super Singles” day for jewelry and other sales to entice couples to shop for their loved ones. Sales hit five billion US dollars. By comparison, last year’s Black Friday and Cyber Monday sales combined reached around three billion dollars.
In such as huge market, local corporates such as JD.com perform much better than international giant corporates such as Amazon. Chinese New York Times columnist Li Chengdong compared JD.com and Amazon's performances in China on his Weibo:
In the rest of the world, Amazon occupies the number one position in all its markets. The company has been in China for about ten years and its services in China are on average better than the rest of the world. Amazon has more money, better technology, more advanced warehouses than JD.com. If I have to explain why Amazon cannot beat down JD.com, it is because of Richard Liu. Amazon is run by a team of professional managers [rather than an entrepreneur like Liu].
However, Jing Nanke, who is customer of both Amazon and JD.com, disagreed with Li's judgement:
Nonsense, I am customer of both online platforms and I like JD better. Its customer service, delivery service and platform friendliness is better than Amazon. I don't think Amazon can gain an upper hand in China.
Lingpeng1973 said the “professional managers” of Amazon are poor at localization of e-commerce:
The professional managers don't understand how to run e-commerce in China and they are responsible to Seattle. They don't want to make mistakes rather than taking risks to compete for success. Thus, when competing with Richard Liu and Li Guoxin [CEO of Dangdang.com, China's biggest online bookstore], who play the game differently, it barely makes business. Because of Amazon's super technology and warehouses, it had great potential before. Now that JD.com, among others, have established themselves in China, Amazon has lost its edge.
Li Guoqing, CEO of another online retailer, Dangdang.com, believed that going public in the US could help JD.com to improve the company's capital flow and transparency:
Now the US capital market is becoming overheated, which offers good timing for fundraising. Liu once said “JD will gain profits in 2013 but will not go public in 2014″, but I would advise him to go public in the first quarter of 2014 so as to improve capital flow and increase audit transparency.