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Experienced investors in China’s tech sector have seen this before. Walmart’s surprise plan to sell its stake in JD.com pushed shares of the Chinese ecommerce giant down more than 10 per cent in Hong Kong on Wednesday morning.
That mirrors the decline in JD.com shares when internet group Tencent handed over most of its JD.com stake as a dividend to its shareholders three years ago. But Walmart’s withdrawal comes at a significantly more difficult time for China’s tech stocks.
Walmart — which after Tencent’s 2001 move was JD.com’s biggest shareholder — has cut its nearly 10 per cent holding in JD.com to zero. Walmart could raise about $3.6bn by selling its stake in the company.
Walmart’s move makes sense. It has been active in China’s retail sector since 1996 and now has more than 400 Walmart and Sam’s Club outlets in the country. When it entered into a strategic alliance with JD.com eight years ago, that was during a time when ties to local ecommerce groups were crucial to expanding market share. Back then, China’s biggest ecommerce group Alibaba was also a formidable competitor, with quarterly sales growing by more than 50 per cent. Having JD.com, the country’s second-largest ecommerce group, on its side was a must for Walmart.
But since then online shopping has evolved, with many more diversified options for consumers. For example, livestream commerce, or selling products through live video platforms, continues to take market share away from ecommerce groups. Walmart also provides several ecommerce channels. Partnerships with the likes of JD.com are not as important as they once were.
China’s ecommerce groups are also losing their lustre as an investment. An industry-wide slowdown in growth and margins is unlikely to change course anytime soon amid fierce price wars. Sales on these platforms fell for the first time ever during China’s 618 shopping festival in June. The country’s second-biggest annual sales event had long been seen as an indicator of consumer confidence. Shares of JD.com are down a fifth in the past year, bringing declines to three-quarters from its 2021 peak — on par with peer Alibaba.
Despite spending billions on share buybacks this year, Alibaba shares trade at just 9 times forward earnings. JD.com trades at an even lower 7 times, a small fraction of global peers — including Amazon which trades at 35 times forward earnings. Yet, as JD.com’s plunge on Wednesday and a 19 per cent fall in shares of Chinese online retailer Vipshop Holdings this week shows, investors have yet to see the bottom in the local tech trade.
