JD Logistics, China’s answer to Amazon’s logistics ambitions, to raise $3.4B in IPO

After operating in the red for 14 years, JD.com’s logistics subsidiary is getting ready for an initial public offering in Hong Kong. JD Logistics will price its share between HK$39.36 and HK$43.36 apiece, which could see the firm raise up to about HK$26.4 billion or $3.4 billion, according to its new filing.

JD.com, Alibaba’s e-commerce rival in China, began building its own logistics and transportation network from the ground up in 2007 and spun out the unit in 2017, following a pattern where major segments of the tech giant became independent, such as JD.com’s health and fintech units. JD.com is currently the largest shareholder of JD Logistics with an aggregate stake of 79%.

Unlike Alibaba, which relies on a network of third-party partners to fulfill orders, JD.com takes a heavy-asset approach like Amazon, building up warehouse centers and keeping its own army of courier staff. As of 2020, JD Logistics had over 246,800 employees working in delivery, warehouse operations among other customer services. Its total headcount was 258,700 last year.

A major strategic decision JD Logistics made once it became independent was opening its technologies to external customers beyond the scope of JD.com’s own demand, helping retailers like Skechers optimize their logistics operations. As a result, the share of its revenue from external customers rose from 29.9% in 2018 to 38.4% in 2019, and to 43.4% in the nine months ended September 2020.

“Our growth strategy is partially based on the assumption that the trend toward outsourcing of supply chain services will continue,” the firm said in its prospectus.

“Third-party service providers like us are generally able to provide such services more efficiently than otherwise could be provided ‘in-house,’ primarily as a result of our expertise, technology and lower and more flexible employee cost structure.”

But retailers may switch to in-house supply chain operations themselves if they see risks in relying on third-party providers, the company added.

The main selling point of JD Logistics is its same- or next-day delivery, thanks to warehouses it keeps close to end consumers. It said about 90% of the total orders it processed were delivered on the same or next day in 2020.

Such user experience comes at a substantial cost for JD Logistics, though losses are shrinking. The firm posted a net loss of 2.8 billion yuan, 2.2 billion yuan and 11.7 million yuan in 2018, 2019 and for the nine months ended September 30, 2020, respectively.

Its gross profit margin improved from 8.5% during the nine months ended September 30, 2019 to 10.9% for the same period in 2020, primarily due to economies of scale, better operational efficiency and government subsidies for reductions in social security funds contributed by employers and waivers of toll charges during COVID-19.

JD Logistics reached into instant delivery by partnering with Dada, a Chinese last-mile delivery service, to form JDDJ, short for “JD Arrives Home” in Chinese. JDDJ has been Walmart’s on-demand delivery service provider in China since 2016.