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JD.com Is Splitting Off Its Logistics Business. Should Investors Worry?

By Brian Withers and Brian Stoffel - Apr 29, 2021 at 6:01AM

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Probably not.

JD.com (JD -1.85%) has made a name for itself by investing heavily in its efforts to become the largest e-commerce retailer in China. But now, the company is capitalizing on its expansive and robust last-mile delivery network to serve other e-commerce businesses. On a Fool Live episode recorded on April 14, Fool contributors Brian Stoffel and Brian Withers discuss whether this move is something that investors should be worried about. 

Brian Stoffel: Brian, JD is a company that I used to own. I don't anymore, and I'm curious. I remember one of the things that was really important about JD was that they could pretty much guarantee the quality of their product that was sent to people, because knockoff goods -- I mean, they're becoming a problem in the United States. My understanding is that they can be a pretty serious problem in China.

My question is, this logistics network is becoming really important. In fact, I saw that the amount of revenue they got for doing logistics as a service -- so, not delivering their own goods, but doing logistics for other people -- doubled in the fourth quarter. Does JD run the risk of losing that edge in terms of goods if they shift more toward third-party logistics? If so, is that even a threat? Because like you said, their logistics network is so big it's going to be hard even for Alibaba or Tencent to match. Is that something that we should be concerned about?

Brian Withers: I don't think so. There's a couple of things going on here, as you mentioned. JD is primarily a first-party company, where they buy the goods themselves and then resell them. Think of them like Walmart, but just online. They're putting their stamp of approval on everything that's on their website. But now, they're splitting off this logistics business and starting to pull in other customers.

You know how Amazon branded that stuff. They have their own brands, and they make it clear if you're buying from someone else, and if there's fulfillment by Amazon. I think JD.com can do similar kind of branding so that you know what to expect and know whether you're buying from a third party where JD doesn't really have any insight into where the product comes from and what they're doing.

But I think it would be really smart for them to put together a certification process for their third-party sellers to give them even more credibility. But it's a massive market. It's one of the biggest markets [for e-commerce] in the globe, and it's still growing at high 15% to 20% annual growth rates year over year. I think JD.com has a long way to go still.

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Stocks Mentioned

JD.com, Inc. Stock Quote
JD.com, Inc.
JD
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Amazon.com, Inc. Stock Quote
Amazon.com, Inc.
AMZN
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Wal-Mart Stores, Inc. Stock Quote
Wal-Mart Stores, Inc.
WMT
$124.25 (1.32%) $1.62
Tencent Holdings Limited Stock Quote
Tencent Holdings Limited
TCEHY
$43.97 (-2.89%) $-1.31
Alibaba Group Holding Limited Stock Quote
Alibaba Group Holding Limited
BABA
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