Why JD.com (JD) Stock Will Reach $165 Per Share or $260 Billion Market Cap - YouTube

Hello everyone, this is Victor here. Welcome to  the Intelligent Investor Channel, where you will  

learn about “stock investing and personal finance”  that will help you become a great investor. 

In today’s video, I am going  to talk about JD.com stock.  

I’m going to talk about “Why I  believe JD stock will grow to $165  

per share or $260 billion in market cap within  the next 3 years.” I am also going to talk about  

JD’s long-term business prospects that  will be the catalysts for the stock. 

So in this video, I am  going to cover these topics: 

First, company Overview: What is JD.com? Second, what is JD’s Intrinsic Value, and Why  

I believe the stock will grow to $165/share  or $260 Billion Market Cap within 3 years? 

Third, JD’s market share vs Alibaba and Pinduoduo Fourth, JD’s competitive advantages 

Fifth, what are the catalysts that  will drive JD’s long-term growth? 

Sixth, JD’s biggest risks Seventh, conclusion: Why I  

am investing in JD, and why I believe JD will  reach $165/share or $260 billion within 3 years 

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I will continue to make many great videos about  stock investing and personal finance that will  

help you become a great investor. Let’s start. First Company overview: What is JD.com? 

JD.com is the 2nd largest e-commerce company  in China behind Alibaba. JD is known as Amazon  

of China because JD’s business model is very  similar to Amazon’s. JD is primarily a B2C  

or Business-to-Consumer online retail store.  JD buys inventories directly from suppliers,  

makes sure its products are genuine and not fake,  owns all its warehouses, fulfillment centers  

and delivery networks, and sells its products  directly to customers through its website and  

app. JD also has other businesses—including JD  Health, JD Logistic, JD marketplace, JD Cloud, and  

JD Property, but as of now, JD earns 88.5% of its  total net revenues from its online retail store,  

selling products directly to customers. JD’s  online retail store also contributes all of the  

company’s operating income, offset by JD’s other  businesses such as JD Health and JD Logistics  

that are not making profits yet. On a side note,  JD health had an initial public offering (or IPO)  

in the Hong Kong stock exchange this week right  before this video. And JD, the parent company,  

is likely going to list JD Logistics in the  secondary market in the Hong Kong stock exchange  

or the Shanghai stock exchange next year. Second, What is JD’s Intrinsic Value,  

and Why I believe the stock will grow to  $165/share or $260 Billion Market Cap? 

At the time of making this video, JD’s share price  is at $83 per share or $128 billion in market cap. 

If we look at JD’s most recent quarterly  earnings release, you will see JD’s net revenues  

have been growing consistently at a compound  annual growth rate of 34% each year between  

2015 and 2019–this is a good sign because  it shows JD’s core e-commerce business  

is growing even if JD does not have the largest  market share in China. Another important metric is  

JD’s free cash flow growth. A great company always  has consistent free cash flow growth. JD’s free  

cash flow growth has also been growing steadily  with a compound annual growth rate of 28.73%  

each year between 2015 and 2019. JD’s free cash  flow was negative in 2018 because of the enormous  

capital expenditure of $21.4 billion RMB in 2018. Now, to calculate JD’s intrinsic value,  

one easy way is to use JD’s most recent “12  months of free cash flow,” (which is $30.2  

billion RMB or $4.61 billion USD) and multiply it  by “a reasonable multiple” based on JD’s expected  

growth rate over the next 5 years. In this case,  JD’s most recent 12 months of free cash flow is  

$30.2 billion RMB (or $4.61 billion USD) and a  reasonable multiple for JD is 28.73, which is JD’s  

compound annual growth rate between 2015 and  2019. If we multiply $4.61 billion USD free cash  

flow by 28.73 multiple, JD’s current instinct  value or fair value is around $132 billion.  

In comparison, JD’s current market cap is at  $128 billion. This means JD stock is either  

“fairly valued” or “slightly undervalued” now. You may wonder: “How will JD reach $165  

per share or $260 Billion Market  Cap within the next 3 years?” 

JD will need to “double its revenue and free  cash flow” for the stock to double in price or  

market cap within the next 3 years; otherwise,  if the JD stock doubles to $165 per share or  

$260 billion market cap without growing its  “revenue and free cash flow” first, then the stock  

will eventually have a huge correction because  the stock growth is based on market hype and not  

based on JD’s business fundamentals. In the long  run, the stock price will always increase in value  

based on the company’s business  fundamentals and not based on market hype. 

This is my estimate and prediction—If JD  achieves the same or a similar compound annual  

growth rate of 28% each year for the next 3  years, the stock will reach $165 per share or $260  

Billion Market Cap during the same period, because  the company’s revenue and free cash flow will more  

than double. Of course, we should not look at  JD’s growth history to calculate JD’s future  

growth. There needs to be “positive catalysts”  or “positive economic trends” that will drive  

JD’s increasing revenue and increasing cash  flow growth. I will explain JD’s catalysts that  

I believe will drive JD’s future revenue  and free cash flow growth in this video. 

Third, What is JD’s market share in China? According to eMarketer, Alibaba owned  

55.9% of the retail e-commerce market share, JD  owned 16.7%, and Pinduoduo owned 7.3% in 2019.  

The market share numbers haven’t changed much  in 2020. According to eMarketer, “Alibaba,  

JD.com and Pinduoduo will command 83.6% of the  retail e-commerce market in 2020 compared with  

80.3% last year.” This means the e-commerce  market in China is a trio-poly. The entire  

e-commerce market in China is dominated by  these three companies, especially Alibaba. 

Here are some interesting facts about Alibaba, JD  and Pinduduo. According to their latest quarterly  

earnings ended on Sept 30th this year, Alibaba’s  annual active customers were 757 million compared  

with JD’s 441 million and Pinduoduo’s 731.3  million. Pinduoduo’s user growth rate is higher  

than Alibaba’s and JD’s, but Pinduoduo’s revenue  is more than 10 times less than Alibaba’s and  

JD’s. Pinduoduo is also losing money every quarter  while Alibaba and JD are reporting profits almost  

every quarter. For example, in the latest Sept 30  quarter, Alibaba’s revenue was $155 billion RMB;  

JD’s revenue was $174 billion RMB, and  Pinduoduo’s revenue was $14 billion RMB—more than  

10 times less than Alibaba’s and JD’s revenues. Here is the very interesting part. Pinduoduo is  

valued at $181 billion market cap while JD is  valued at $128 billion market cap. Why is this  

the case? The market is giving Pinduoduo a much  higher market cap valuation because Pinduduo’s  

revenue growth is much higher than JD’s revenue  growth; Pinduoduo’s monthly active user is also  

growing at a faster pace than JD’s. But to be  fair, Pinduoduo’s “average spending per customer”  

is much lower than JD’s and Alibaba’s because  Pinduoduo’s main target customers are from  

Tier 3 and 4 cities in China. Pinduoduo’s  main customers are much more price-conscious.  

In comparison, JD and Alibaba’s “average  spending per customer” is much higher than  

Pinduduo’s. This is because JD and Alibaba’s main  customers are from Tier 1 and 2 cities in China,  

where customers are much wealthier and less  price-conscious than Tier 3 and 4 cities in China. 

Fourth, What are JD’s Competitive Advantages? JD’s biggest competitive advantage  

is its nationwide logistics network in China.  JD is known for delivering products to customers  

within the same day or the next day within 24  hours. According to JD, 90% of its orders are  

delivered either the same day or the next  day within 24 hours—which is faster than  

Alibaba’s and other competitors. Similar to  Amazon, JD buys its inventory from suppliers,  

owns its warehouses, owns its fulfillment centers  and manages its logistic network. JD owns 800  

warehouses, has fulfillment centers in 7 major  cities in China, and covers most areas in China.  

In comparison, Alibaba’s business model is much  more profitable than JD’s because Alibaba has zero  

inventory and Alibaba’s business model is much  less capital intensive. Alibaba operates online  

marketplaces connecting businesses-to-businesses  (B2B) and businesses-to-consumers (B2C). Alibaba  

uses its affiliated Cainiao logistics to deliver  products to customers. JD’s logistics in China  

tends to be faster and more efficient than  Alibaba’s affiliated Cainiao logistics—this is  

why JD can deliver about 90% of its orders within  24 hours. Not even Amazon can achieve this rate. 

JD’s second biggest competitive advantage is  that it has “higher quality and more authentic  

products” than other competitors. JD has to buy  its inventory from suppliers and to ensure its  

products are genuine before selling them on its  website and app. This prevents many counterfeit  

or lower quality products that are often  sold on Alibaba’s market or Pinduoduo.  

JD has a smaller selection of products than  Alibaba’s B2B & B2C marketplaces. Many customers  

buy things on JD because JD tends to have higher  quality products and because JD usually has  

the fastest delivery service within 24 hours. Fifth, What are the Catalysts that will Drive  

JD’s Long-Term Growth? I believe JD’s  

B2C e-commerce business will continue to grow  for many years because of these catalysts: 

First, China has the largest  population in the world. China has  

a 1.4 billion population compared with India’s  1.38 billion and the US’ 331 million. China also  

has the largest e-commerce market. According  to eMarketer, Asia-Pacific is expected to have  

$2.45 trillion in e-commerce sales compared with  North America’s $749 billion in e-commerce sales  

in 2020. The report states “China’s $2.09 trillion  in e-commerce means that Asia-Pacific will produce  

62.6% of All digital sales.” Second, according to eMarketer, China is expected  

to have the biggest retail market in the world  surpassing the US for the first time in 2020. 

Third, more people are buying products online  more than ever using their smartphones. The  

pandemic has accelerated e-commerce growth for  several years ahead in China as well as in the  

rest of the world. Alibaba and JD are the  two largest e-commerce companies in Tier 1  

and Tier 2 cities in China. As long as people  are continually shifting their purchases online  

using their smartphones, I believe JD’s B2C  e-commerce business will continue to grow. 

Fourth, JD may not have the largest  e-commerce market share like  

Alibaba in China, but many customers are using JD  while also using Alibaba, because JD tends to have  

higher quality products (since JD has to buy  products directly from suppliers) and because JD’s  

logistics is usually the best or fastest in China. Sixth, What are JD’s Biggest Risks? 

I believe JD has two main  risks we should know about: 

First, the biggest risk is whether JD will be  delisted from the US stock exchange within the  

next 3 years? Recently, the US Congress passed  a bill called the “Holding Foreign Companies  

Accountable Act” that can potentially delist  any Chinese companies from US stock exchanges  

if the Chinese companies cannot be audited by  the Public Company Accounting Oversight Board  

(PCAOB) within the next 3 years. I believe the  chance of JD getting delisted is small because  

JD is already audited by one of the Big Four  Accounting Firms Deloitte. Also, there are 217  

Chinese companies listed in the US stock exchanges  with a total market cap of $2.2 trillion as of  

Oct 2, 2020—this is about 6% of the entire  US stock market. Imagine delisting all the  

Chinese companies in the US exchanges within the  next 3 years, because they cannot be audited by  

PCAOB due to Chinese regulations. This  will have a huge economic impact on  

the US stock market and many investors. I  also believe the US and Chinese regulators  

will eventually reach a compromise to allow  PCAOB to audit Chinese companies to a certain  

limited degree while still complying with Chinese  regulations. What is the worst-case scenario  

if JD gets delisted? I believe the worst-case  scenario is that JD’s ADR shares will be converted  

to JD’s Hong Kong shares. JD is already  listed on the Hong Kong stock exchange. 

The second biggest risk is increasing competition  from Alibaba and Pinduoduo. I believe the Chinese  

e-commerce market is large enough for 3 large  players, Alibaba, JD and Pinduoduo. China has  

the largest population, the largest e-commerce  market in the world, and a retail market  

size that is larger than the US (according to  eMarketer). Because of China’s anti-monopoly laws,  

Alibaba will not be able to have an entire  monopoly in the e-commerce market in China. I  

believe JD will continue to be the #2 e-commerce  company in China for many years because of  

JD’s competitive advantages I mentioned earlier. Conclusion: Why I am investing in JD,  

and Why I believe JD will Eventually  Reach $165/share or $260 Billion 

Before making this video, I invested around $5,000  in JD (representing less than 1% of my portfolio)  

because I like JD’s business model (which is  similar to Amazon’s) and because I also like JD’s  

long-term business prospects. It’s also important  to reduce risk and not have too much exposure to  

Chinese companies. I only invested a small amount  of money in JD because Chinese stocks’ biggest  

risk is always regulation changes—such as the  current Holding Foreign Companies Accountable Act  

that may delist Chinese companies if they  cannot be audited by PCAOB within 3 years.  

I believe the worst-case scenario of this new  bill is forcing Chinese companies to re-list their  

shares in the Hong Kong stock exchange or the  Shanghai stock exchange. JD is already listed on  

the Hong Kong stock exchange. If JD is delisted,  I believe the worst-case scenario is converting  

JD’s ADR shares to its Hong Kong shares. Based on my estimate earlier, I believe it  

will take JD 3 years to double its “revenue and  free cash flow,” assuming JD achieves the same  

compound annual growth rate of 28% each year  driven by the catalysts I mentioned earlier.  

If JD doubles its revenue and free cash  flow growth within the next 3 years,  

I believe the stock will reach $165 per share or  $260 Billion Market Cap during the same period. 

If you like this video, hit the like button  and subscribe. I will continue to make  

many great videos about stock investing and  personal finance that will help you become a great  

investor. This is Victor from The Intelligent  Investor Channel. Thank you for watching!