JD.com is known as China’s Amazon
JD.com (JD) is one of China’s premier e-commerce companies. Known as China’s Amazon (AMZN), JD.com is focused on growing market share and scale. Currently, JD.com’s GAAP margins are pretty slim. In the last reported quarter, gross margin was just 15.0%.
Analysts expect JD’s operating margin to be a tad over 1.0% in 2019. However, JD.com is expected to improve profit margins going forward driven by high operating leverage. In the first quarter, gross margin rose close to 100 basis points.
Amazon was also operating at slim profit margins and was a loss-making company for several years. Amazon rightly believed that its market opportunity was huge and leveraged economies of scale to slowly improve the bottom line.
JD.com has enough growth drivers
JD.com is all set to benefit from an expanding e-commerce market. This e-Marketer report suggests that e-commerce sales in China are expected to grow by 30.0% in 2019 to reach almost $2 trillion. China’s online sales will account for over 35.0% of total retail sales.
China will also account for a whopping 55.8% of global e-commerce sales in 2019. The market opportunity is huge for JD.com. The company though is growing at a slower pace than the overall e-commerce market.
Chinese companies are also slated to benefit from the increased spending of China’s expanding middle class. China is still one of the fastest-growing major economies, and GDP is pegged at 6.0% for 2019.