With Walmart announcing this week its complete withdrawal from JD.com’s shareholder ranks to focus on operating physical stores in China, JD.com’s stock price plummeted on the day, dealing a significant blow to China’s already fiercely competitive e-commerce market.
Intense price competition and consumer downgrade have continuously squeezed the profit margins of China’s e-commerce industry. Walmart, once the second-largest shareholder of JD.com, has sold off its stake worth over $3.6 billion, marking the end of Walmart’s 8-year investment in JD.com. This move has raised concerns in the market about JD.com’s ability to navigate the changing landscape in the future.
Walmart’s exit reflects the severe challenges facing the Chinese e-commerce market. E-commerce giants in China like JD.com, Alibaba, and Pinduoduo are facing fierce price competition, with consumer confidence issues persistently affecting the market. To attract shoppers, these e-commerce companies are engaged in cutthroat price wars, putting immense pressure on their revenue and profit margins.
According to Reuters, JD.com’s business model includes direct sales to consumers and reliance on its self-built logistics network, a strategy that has helped it grow its market share from 14% a decade ago to 27% in 2023. This approach has built trust among consumers, leading them to purchase high-value branded electronics and appliances online and ensuring fast delivery. However, JD.com’s high cost structure and once-effective logistics system have now become lagging factors compared to its competitors.
During last week’s earnings conference call, JD.com’s CEO, Xu Ran, reiterated the key role of the low-price strategy in driving its growth when predicting better-than-expected quarterly profits.
However, analysts are skeptical whether supply chain optimization can further boost revenue growth. Reuters quoted technology industry analyst Rui Ma as saying, “JD.com’s established strategy of partnering with manufacturers to offer low-cost high-value goods sounds good, but I am skeptical if this will be the biggest growth driver in the short term.”
JD.com’s stock price has plummeted by about 70% from its peak in early 2021. Faced with a slowdown in the Chinese market, JD.com is striving to tackle the challenges by expanding third-party merchants, optimizing its supply chain and logistics, and implementing a low-price strategy. However, in the broader context of China’s economic slowdown, the effectiveness of these measures in driving growth remains uncertain.
On Wednesday, August 21, following the news of Walmart selling its shares, JD.com’s stock price in the Hong Kong market plunged by as much as 11.5%, breaking the HK$100 mark, and dropped by 9.54% after-hours in the U.S. JD.com responded by investing around $390 million in share buybacks and has fully utilized the repurchase quota under its approved $3 billion stock buyback plan in March this year.
According to filings with the U.S. Securities and Exchange Commission (SEC), Walmart has completed the sale of all its JD.com shares, selling 144.5 million shares of JD.com at a price of $24.95 per American Depositary Receipt (ADR), totaling $3.6 billion in cash. This price is 11.5% lower than JD.com’s ADR closing price of $28.15 on Tuesday, August 20, and at the lower end of the previously guided price range.
Walmart’s sale of JD.com shares marks the end of their investment partnership since 2016. At that time, Walmart sold its “Yihaodian” subsidiary in exchange for approximately 5% of JD.com shares. Based on JD.com’s stock price at the time, the transaction was valued at around $1.5 billion. This value has since soared to over 10%, and as of March 31 this year, Walmart still held a 9.4% stake in JD.com.
Under the cooperation agreement at the time, JD.com and Walmart collaborated in various strategic areas, including JD.com acquiring the main assets of Yihaodian, Walmart’s “Sam’s Club” opening an official flagship store on JD.com’s platform, and collaboration in the supply chain. Walmart’s physical stores were also integrated into JD.com’s invested logistics platform “Dada” and e-commerce platform “Jingdong Daojia,” making them key partners.
However, the stagnant state of the Chinese e-commerce market has made the integration with retailers less attractive. In a statement, Walmart mentioned that this decision allows the company to focus on its business in China, including Walmart China and Sam’s Club operations, and allocate funds to other priorities. Walmart emphasized that despite exiting the shareholder ranks, it still values its cooperation with JD.com.