JD.com may further test investors’ patience
JAKARTA: The e-commerce tussle between China’s Alibaba Group Holding Ltd and JD.com Inc looks set to enter a new arena, with the latter now eyeing an investment in Indonesia.
JD.com is in talks to inject funds directly into PT Tokopedia, one of the country’s largest e-commerce operators, wrote Bloomberg’s Yoolim Lee and Selina Wang on Tuesday.
The firm, backed by Wal-Mart Stores Inc, may invest “hundreds of millions of dollars”, which could take Tokopedia’s value north of US$1 billion (RM4.34 billion). That indicates JD.com may purchase a significant minority stake in Tokopedia, and implies that its interest goes beyond a purely financial one.
By revenue, JD.com is more than double the size of Alibaba. By earnings and market capitalisation, though, Alibaba comes top. That’s because JD.com gets more than 90 per cent of its product revenue from selling its own inventory, while Alibaba mostly connects merchants with buyers. So although JD.com enjoys a better reputation for genuine and higher-quality goods, that consumer kudos has yet to translate into annual profits.
Should JD.com invest in Tokopedia, it’ll be following Alibaba’s taking control of Lazada and its own strategy of building from the ground up. But Tokopedia is a different kind of e-commerce player in that it follows the merchant model used by Alibaba rather than the direct-sales approach employed by JD.com.
This begs the question of what value JD.com can get out of the investment. It’s possible the Chinese company will seek ways to integrate operations, cutting overlap in areas ranging from customer service to logistics.
In Indonesia, with 17,000 islands, logistics remains a key challenge. Yet the size of JD.com’s footprint in Indonesia is unclear, as is whether it will stick to the well-worn Chinese playbook of keeping a tight control over sales and engaging in delivery all the way to last mile.
Combining operations might also risk JD.com’s hard-earned reputation for quality. Yet, if it keeps to its full end-to-end model in Indonesia, investors can expect several more years of slim margins as well as probable losses before any economies of scale are realised.
It’s possible a middle ground could be found, with JD.com offering only logistics to Tokopedia and its users, while keeping its own customer service and websites separate.
Such a move would help share the cost of infrastructure and allow JD.com to minimise the risk to its reputation from engaging with third-party merchants.
For JD.com shareholders, the risks are reduced, but not eliminated. They've hung on through years of losses and are finally seeing negative operating margins start to shrink. Being told to wait a little longer while JD.com tries to make a go of it in Indonesia may come as a blow. Bloomberg
China’s JD.com may purchase a significant minority stake in Tokopedia, one of Indonesia’s largest e-commerce operators, in an escalation of rivalry with Alibaba Group Holding.