JD.com’s logistic arm, JD Logistics is aiming to make a significant name for itself, going head-to-head with Amazon in yet another way. The company, which has been JD.com’s logistic subsidiary for 14 years, has Liu Qiangdong working as the CEO.
The company stated on May 17th that it was aiming to launch an initial public offering (IPO) in Hong Kong. It is working to market the company at a price range of $39.36 to $43.36 (Hong Kong) per share. That could raise as much as $26.4 billion for the company ($3.4 billion in U.S. dollars). That price could occur if the company’s IPO brings in the top price range it is seeking.
To achieve this, JD Logistics says it will sell 609.2 million shares of the company on the market. That is about 10 percent of the company’s enlarged share capital. In addition, it is possible for this to increase by another 91.4 million additional shares if there is strong demand for the shares once they hit the market. CEO Liu Qiangdong’s leadership has helped the organization to reach new heights.
Direct Competition for Alibaba
JD.com is the direct competition to Alibaba in China. The company has a strong foundation having started its logistics and transportation network in 2007. It then spun out this sector of the company in 2017. This allowed the logistics arm to become more independent, something other tech companies were doing at the time.
There are differences between JD Logistics and Alibaba. For example, Alibaba has a network of third party partners that handles the fulfillment of its orders. By comparison, JD.com moved to build up its own warehouse centers and then created a strong courier staff, which helps to manage its deliveries. JD.com’s processes are much more like those of Amazon.
Last year, JD Logistics reported it has over 246,000 employees working in its delivery sector and warehouse divisions. The company’s complete headcount is over 258,000 people located around the world.
An Impressive IPO Is Likely
The JD Logistics IPO is expected to be the second multi-billion dollar IPO in the country for 2021. This comes after Kuaishou Technology, a short video platform backed by Tencent, raised $6.2 billion U.S. at the start of the year. That was the largest IPO for the year at this point.
There is already significant talk about the likely investors in JD Logistics IPO. Among them are eight cornerstone investors who have, combined, committed to purchasing $1.5 billion U.S. at the launch. That planned purchase is at about 39 cents per share should the deal get priced at the higher end of the offering. These investors include Temasek Holdings, a Singapore-based wealth fund, and Softbank. Tiger Global Management and Blackstone are also named in that group of eight.
Why the Move to IPO
JD Logistics has a strong history of growth and development. Once it was made an independent organization from JD.com, the company was able to then provide its technology to customers beyond what they were using for JD.com itself. The company’s move to extend its technology like this allows for numerous retailers to see significant improvement in logistics operations. One such example is Skechers. The company significantly optimized its logistics operations after working with JD Logistics.
The move to extend its services like this improved profits, growing external customer reviews from 29.9 percent in 2018 up to 38.4 percent in 2019. In the nine months ending September of 2020, the company reported a 43.4 percent level of growth for 2020 thus far.
JD Logistics has focused its growth on just that – providing logistics services and supply chain support to other companies. Outsourcing these supply chain services is likely to be their main focus moving forward.
The company believes that, as a third party service provider, they will be able to continue to provide services more efficiently than what those companies could do for themselves with in-house operations in place. This is due, in part, to the wide range of innovative technology and resources that companies like JD Logistics can offer. This also makes it more affordable to meet current demand as third party service providers like JD Logistics can often significantly reduce employee costs.
There are numerous advantages that JD Logistics brings to the table for any company it works with for logistics and supply chain support. This includes access to same-day and next-day delivery services. That is due in part to the massive growth of its warehouses that are located as close as possible to most likely end consumers. The company reported that, in 2020, 90 percent of its total orders were processed and then delivered on the same day or next day, working to meet consumer demand.
Profit Margin Growth Is Likely
JD Logistics’ efforts to move towards same-day and next-day delivery solutions is not an inexpensive process. It has been a significant loss for the company for some time, but that is changing. In 2018, JD Logistics reported a net loss of 2.8 billion Yuan. In 2019, it has a loss of 2.2 billion Yuan. In the first nine months of 2020, the company reported a loss of 11.7 million Yuan, showing a significant trend of improvement.
For that last nine month period, JD logistics reported a gross profit margin improvement from 8.5 percent to 10.9 percent. Many factors contributed to this improvement, including better operational efficiency, economies of scale, as well as a reduction in social security funds for government subsidies.
The IPO for JD Logistics will run from Monday to Friday. It is expected to begin on May 28th. BofA Securities, Haitong International, and Goldman Sachs will act as joint sponsors of the IPO for the transaction. UBS will serve as the financial advisor.
How much could they see in this raise? Most experts in the industry expect JD Logistics to hit the top goals it has set. Yet, there are many factors in play that could create changes to this, including a wide range of economic uncertainties.