Daily Management Review

JD.com Shares Fall on News of Alibaba-Suning Agreement, Owner Liu Qiangdong Looses $500 Million


08/11/2015




JD.com Shares Fall on News of Alibaba-Suning Agreement, Owner Liu Qiangdong Looses $500 Million
Following the agreement between China’s online retail giant Alibaba Group Holding  Chinese electronics retailer Suning Commerce Group, JB.com, the biggest rival of Alibaba, saw its share tumble over fears of increased rivalry.

The news from China shook the shares of JD.com in the New York stock exchange and the prices slumped overnight.

On Monday, Alibaba had made the announcement of acquiring 20 percent stake at Suning Commerce Group along with extensive agreements of sharing of resources and expertise with the brick and mortar electronic goods retailer.

The drop in the share values of JD.com resulted in the billionaire owner of the company, Liu Qiangdong, losing out millions. Reports said that the Chinese billionaire lost more than $500 million from Liu’s wealth on Monday as the price of JD.com fell by 6.3% of their value after Alibaba Group’s announcement of the agreement.

However, according to a Forbes estimate, the Chinese billionaire entrepreneur still has a total worth of a projected $8.2 billion even after the drop in the company shares.

According to analysts, the fall in JD.com shares came with a particular clause of the agreement between Alibaba and Suning which allowed the electronic retail chain to open up a store in Alibaba’s online mall. This would allow Alibaba to offer electronic products thereby expanding Alibaba’s offering in the market segment that has been a JD.com strength.

The rating for JD.com was cut from “overweight” to “equal-weight” by a research report published on Monday by Morgan Stanley after the announcement of JD.com of the latest earnings report on Friday. The price target for the company was also lowered from $41 to $35.
 
While announcing the cuts Morgan Stanley had commented that “Competition is coming,” for JD.com that is hinted at the potential competition that is expected for JD.com from the agreement between Alibaba and Suning announced on Monday. The report hinted that competition is expected in the strong zone of JD.com – the electronic product market.
 
JD.com closed at $30.06 per share on Monday.

The agreement between Alibaba and Suning not only allows the electronic retailer to offer consumer electronics, home appliances and baby products at Alibaba website but also allow the on-line retailer to utilize the strong logistics power that the electronics retailer has comprising of a nationwide logistics network that covers 2,800 counties and cities.

Alibaba hopes that it would be able to use the strong distribution network to ensure that its customers are able to get products delivered on time and be able to serve customers in the Chinese market that the company had not been able to reach so far.

Jingdong (JD.com), formerly known as 360Buy, is one of China's largest B2C on-line retailers and now listed on NASDAQ. The company was founded in July 1998 by Liu Qiangdong, also known as Richard Liu. The company’s B2C platform went on-line in 2004.

The company started business as an on-line magneto-optical store but later one diversified into selling electronics, mobile phones, computers, etc. the company changed its domain name twice, first from Jingdong Mall to 360buy.com in June 2007 and then to JD.com in 2013.

(Source: www.forbes.com)






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