New York: Not even a stronger alliance with the world’s largest retailer was enough to convince short sellers that JD.com Inc.’s recovery will last.
Bearish bets on China’s second-largest e-commerce company rose to record levels after Wal-Mart Stores Inc. said in a regulatory filing that it raised its stake to 10.8 per cent from 5.9 per cent. The increased investment came after a 34 per cent rally in JD.com’s US-traded stock in the past four months narrowed its 2016 decline to 16 per cent.
Wal-Mart is boosting support as JD.com’s 2016 adjusted net loss is forecast to widen 10 per cent to 947 million yuan ($142 million) as intensifying competition with market leader Alibaba Group Holding Ltd. forces the company to increase spending. Expenses are rising as JD.com expands its delivery network to serve smaller towns and increases product offerings. Economic growth that is decelerating to the slowest pace since 1990 adds to the challenge.
“An expectation that a partnership with an American company will bring an improvement to JD.com right away may be overly optimistic,” Gil Luria, an analyst who covers technology and e-commerce companies at Wedbush Securities Inc., said by phone. “Investors need to see a competitive matchup versus Alibaba, which is a hard task now that the economic growth is slowing.”
Wal-Mart Chief Executive Officer Doug McMillon has said that the company needs to succeed in China, where it estimates 25 per cent of global retail growth will come from in the next five years. The closer collaboration can help JD.com increase delivery speeds to rural areas.
“We believe this strategic alliance will help us grow e-commerce even faster in China,” said Dan Toporek, a spokesman for Wal-Mart. Josh Gartner, a JD.com spokesman in Beijing, declined to comment on the stock performance or the partnership with Wal-Mart.
A significant share of JD.com’s business is generated from selling products it holds in its own inventory. This has helped speed deliveries, guarantee products’ authenticity and thus gain market share. It also has driven up costs. Operating losses are projected to widen to 1 billion yuan at the end of this year from 864 billion yuan in the first quarter, according to analysts surveyed by Bloomberg.
The number of shares borrowed to sell JD.com short rose to 62.4 million last week, the most since the company’s 2014 initial public offering.
“It’s more Wal-Mart’s attempt to increase their exposure to the Chinese retail sector than JD.com’s attempt to beat the main competitor,” Michelle Ma, an analyst at Bloomberg Intelligence, said by phone from Hong Kong. “Alibaba has a stronger overall online platform, in terms of user traffic, engagement, the brand name and the breadth of the product offering.”
Jialong Shi, an analyst at Nomura who rates the stock a buy, said the collaboration with Wal-Mart should help the company gain an advantage in the fast-moving consumer goods industry, such as home appliances, soft drinks and processed foods.
“For consumers online, you have a great partner to be able to do online to offline shopping with,” said Brendan Ahern, chief investment officer at KraneShares, which runs an exchange-traded fund investing in Chinese internet companies. “A partnership with a widely-known brand for Chinese consumers will have a big additive effect.”
