On August 21 (Wednesday), affected by Walmart’s divestment of its stake in JD.com, JD.com’s Hong Kong stock fell by as much as 11% during the trading day. In response, JD.com announced an emergency buyback of its own shares, amounting to approximately 3.9 billion US dollars. Walmart was previously the second largest shareholder of JD.com, holding a 9.4% stake.
According to documents filed with the U.S. Securities and Exchange Commission (SEC), Walmart has completed the sale of all its holdings in JD.com, ending an eight-year investment in the Chinese e-commerce company.
The Wall Street Journal reported on August 21 that Walmart sold 144.5 million shares of JD.com at a price of $24.95 per American Depositary Receipt (ADR). This price was 11.5% lower than the closing price of JD.com’s ADRs on Tuesday, August 20, of $28.15, marking the lower end of the previously guided price range, with a total cash-out amount of $3.6 billion.
As a result of this development, on August 21, JD.com’s US-listed shares plummeted by 9.54% in after-hours trading to $25.50. In Hong Kong, JD.com’s stock price also experienced a sharp decline of 11.5% in the morning session, falling below the HK$100 mark.
Faced with the steep drop in stock price, JD.com issued a statement at noon on the Hong Kong Stock Exchange, announcing that the company had spent approximately $3.9 billion to repurchase shares today. They stated that this buyback was within the limits set by the $30 billion share repurchase plan approved in March this year.
As of March 31, 2024, Walmart held 145 million Class A ordinary shares and 72 million American Depositary Shares of JD.com, representing a 9.4% stake and 3.1% voting rights, making it the second largest shareholder of JD.com. The founder of JD.com, Liu Qiangdong, is the largest shareholder with an 11.2% stake and 70.5% voting rights.
Regarding Walmart’s divestment of its stake in JD.com, individuals close to JD.com stated that the changes in shareholding will not affect any aspects of cooperation between the two companies. They reaffirmed that both parties remain important strategic partners to each other and intend to maintain close business relationships to expand their domestic and international market operations.
Walmart stated that this decision allows the company to focus on its strong business in Walmart China and Sam’s Club in China, as well as allocate funds to other priorities. Over the past eight years, JD.com has been a cherished partner for Walmart, and the company is committed to maintaining a continuous business relationship with JD.com.
Reuters noted that Walmart’s clearance action indicates that the once highly favored Chinese e-commerce industry is no longer as thriving, with intense price competition and unwillingness of consumers to spend money leading to shrinking profit margins for Chinese e-commerce platforms.
Analysts close to the transaction believe that this deal will help Walmart alleviate its own financial pressure, as its second-quarter revenue growth has slowed, cash flow has decreased, and it is part of a diversified strategy to deal with changes in the current market environment, optimizing resource allocation.
The “honeymoon period” between JD.com and Walmart began in 2016 when Walmart’s Yihaodian was merged into JD.com, and Walmart acquired approximately 5% stake in JD.com. Based on JD.com’s stock price at the time, the value of this transaction was approximately $1.5 billion. Subsequently, Walmart’s stake quickly climbed, surpassing 10% at one point.
Under the cooperation agreement at the time, JD.com and Walmart were to collaborate in multiple strategic areas. Apart from JD.com gaining ownership of Yihaodian’s main assets, Walmart’s Sam’s Club opened an official flagship store on the JD.com platform.
The two companies also collaborated in the supply chain sector, including expanding the variety of imported products. Walmart’s physical stores in China were integrated into JD.com’s invested logistics platform “Dada” and e-commerce platform “Jingdong Daojia,” making them key partners.
Walmart has publicly stated that while in some countries, Walmart undertakes full pipeline construction on its own, in the Chinese market, it needs to find local business partners to collaborate with.
For JD.com, Walmart not only brought mature supply chain resources but also supplemented its lack of offline channels, helping to enhance the efficiency of the entire supply chain, reduce delivery time, and lower costs. The alliance with Walmart also saved JD.com a lot of effort in its overseas business.
However, the retail industry in China continues to face challenges of consumer confidence, with Chinese e-commerce giants such as JD.com, Alibaba, and Pinduoduo engaging in fierce price wars to attract consumers, putting significant pressure on companies’ revenue and profit margins. JD.com’s stock price has plummeted by approximately 70% from its peak in early 2021.