JD.com’s billionaire founder, Richard Liu.
Billy H.C. Kwok/BloombergRichard Liu has seen his wealth cut by more than half this year, dropping to $5.1 billion. The e-commerce site he founded and runs as chairman, JD.com, has been struggling to shift its strategy toward selling more discounted products amid the tepid recovery in China’s economy, and analysts say a turnaround is still nowhere in sight.
Shares of the dual-listed firm have dropped about 60% on the Nasdaq since peaking in January. In Hong Kong, they have plunged by a similar degree to a record low, making JD.com the worst performer in the Hang Seng Tech Index so far this year.
Analysts say the Beijing-based firm is struggling to implement a low-cost strategy Liu outlined in February. Back then, the mogul had pledged to invest more than $1 billion in subsidies to win over budget shoppers, effectively making lower price points a centerpiece of his strategy.
While shifting to sell more value-for-money products, such as $1.3 toothpastes and $11 bluetooth earbuds, as the Chinese economy slows may seem straightforward, the execution hasn’t lived up to its billing. The company lags behind competitors including Alibaba and PDD Holdings when it comes to attracting merchants and distributors that sell low-cost goods, according to an October 16 research note by Morningstar analyst Chelsey Tam. Plus, management still wants to protect margins somewhat, meaning price cuts aren’t as aggressive as those by rivals, according to Wang Xiaoyan, a Shanghai-based analyst at research firm 86Research.
“A successful transition to the low-price model requires a lot of financial investment and management’s firm commitment to a price war,” Wang said. But as of today, JD.com’s management are still hoping to control costs, and the results from their low-price strategy haven’t turned out well, she added.
This leaves JD.com trailing behind rivals including Alibaba and PDD Holdings in revenue and user growth, while sales at its traditional stronghold markets—namely electronic devices and large-ticket items—are under pressure due to lackluster demand across the board. In the second quarter, when the company replaced its CEO as part of a surprise reshuffle at the top, the company’s revenue grew 7.6% to $39.5 billion, and its net income jumped 50% to $900 million.
The results were better than many expected, although its top-line growth rate fell short of Alibaba’s 14% during the April-June period, and PDD’s whopping 66%. A JD.com spokesperson didn’t respond to requests seeking comment.
Analysts say a recovery doesn’t seem to be on the horizon. Last week, at least seven Wall Street brokerages including Jefferies and Morgan Stanley have either downgraded the firm or lowered their price targets. Jefferies analyst Thomas Chong, who cut his price target from $97 to $80, but still maintains a buy rating, predicted that third-quarter revenues will only grow 1% to $34 billion, according to an October 12 research note. “We adjust our revenue estimates, factoring in the impact of macro headwinds amid gradual recovery in consumer sentiment as well as strategic adjustment,” he said in the note.
Eric Wen, founder and chief executive of research firm Blue Lotus Capital Advisors, said JD.com may have to wait until next year for signs of renewed growth. This is because the broader consumption and economy may improve more in 2024, as previous stimulus efforts began to take effect, placing the country’s economic recovery on a firmer footing in the third quarter of this year.
But he also called on JD.com to improve its business strategy by accelerating expansion outside of China amid the rising competition it faces at home. “JD.com hasn’t been doing enough of this,” he said. “It, for example, can learn from Amazon and export some of its logistic abilities abroad.”