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Hedge Fund Sentiment Has This To Say About JD.Com Inc (ADR) (JD)

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JD.Com Inc (ADR) (NASDAQ:JD), which was believed to be the next, Inc. (NASDAQ:AMZN) by some, represents China’s second-largest online retailer. JD.Com started trading on the NASDAQ back in 2014, when it raised $1.78 billion in its initial public offering (IPO). The company’s stock performance was great in the first half of this year, but concerns around China’s economic slowdown have sent the stock plummeting since. There is indeed growing evidence that the world’s second-largest economy is slowing down, which in turn might impact the activities and operations of the Chinese retailer even more. China’s factory output grew by 6.1% year-over-year, missing forecasts of 6.4%. At the same time, the growth in fixed-asset investment fell to 10.9% year-to-date, marking a 15-year low. Nevertheless, JD.Com remains among the most popular stocks among the hedge funds tracked by Insider Monkey, with 75 investors holding stakes in the retailer at the end of the second quarter, seven more than at the end of March. The value of these hedge funds’ investments increased as well, reaching $11.81 billion at the end of the quarter, up from $8.23 billion.  In this article we will discuss the company’s performance in more detail and will also talk about the thoughts of some well-known money managers on JD.Com.

Biggest eCommerce Websites in the World

At Insider Monkey, we track hedge funds’ moves in order to identify actionable patterns and profit from them. Our research has shown that hedge funds’ large-cap stock picks historically underperformed the S&P 500 Total Return Index by an average of seven basis points per month between 1999 and 2012. On the other hand, the 15 most popular small-cap stocks among hedge funds outperformed the S&P 500 Index by an average of 95 basis points per month (read the details here). Since the official launch of our small-cap strategy in August 2012, it has performed just as predicted, returning 118% and beating the market by more than 60 percentage points. We believe the data is clear: investors will be better off by focusing on small-cap stocks utilizing hedge fund expertise (while avoiding their high fees at the same time) rather than large-cap stocks.

Tiger Global Management, founded by Tiger Cub Chase Coleman with seed money from legendary investor Julian Robertson, discussed its investment in JD.Com Inc (ADR) (NASDAQ:JD) in a letter to investors covering the first quarter of this year. JD.Com is Tiger Global’s largest position, consisting of 70.18 million American Depositary Receipts (ADRs) valued at $2.39 billion as of June 30. This sizable stake accounts for 24.46% of the investment firm’s public equity portfolio. Tiger Global Management believes that JD.Com benefits from “retail leapfrogging” in emerging markets, implying that the retailer can expand rapidly in other markets through the adoption of its website without going through unnecessary intermediary steps. The investment firm outlines that “the limited retail footprint and relatively small size of leading offline retailers, e-commerce companies have been able to achieve dominant positions in certain developing markets”. JD.Com has been fulfilling the firm’s expectations on this matter over the last few months. This summer, the Chinese online retailer chose Russia as its first foreign market for expansion and intends to become an e-commerce leader in this market within five years. JD.Com already launched a Russian-language website in June and signed a delivery contract with Russian logistics operator SPSR Express. Going back to the letter, Tiger Global also indicated that:

“While the stock has performed well and expectations have risen, we continue to believe that JD is attractively valued over the long term and well-positioned within a large and growing e-commerce market. As with other rapidly growing retail businesses, we expect JD’s incremental margins to increase with time as the company leverages fixed costs, resulting in attractive net margins once the company reaches scale. Between 2014 and 2022, we expect Chinese e-commerce penetration to roughly double from 20% to 40%, implying an addressable market size of approximately $1.3 trillion in 2022. Given JD’s leading position in fulfilled e-commerce and the scale of its logistics network, we believe the company can grow its market share meaningfully over time. If JD is able to double its e-commerce market share from 10% to 20% over the next seven years, and our assumption about e-commerce penetration is correct, the company could represent a percentage of the addressable retail market in China comparable to Walmart in the US.”

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