I still believe JD is frightfully expensive. The market does not seem to understand the structural challenges facing the business. Most analysts predict a growth revival in H2 FY17. I think that’s unlikely and things will only get worse from here.
JD has largely been a story stock for the last two years. Despite the core business weakening every quarter, analysts kept hoping for Search Plus to change the fortunes based on mgmt commentary. Now that Search Plus has been a failure, analysts are now talking about JD Omni as a saviour - again based on management commentary. Based on consumer surveys, JD Omni has already failed. JD is now selling Omni for free along with its listing package. The initial users who bought it for 30k+ are pissed that in just a few months its available for free and asking for refunds leading to poor word of mouth. Moreover, a large number of the users who paid for Omni in Q4 have still not been delivered the product. A good way to evaluate Omni’s potential is to try to find even 10 users who are actively using Omni and happy with it. If large number of happy users don’t exist, how can a product succeed?
I think the next cpl of quarters results should make things more clear. Key points to focus on in result and mgmt commentary in concall -
- For 20% growth to return in H2, customer advances should start growing strongly now itself. I believe advances trend will worsen (they were flat on YoY basis in Q4 end).
- JD Omni ARPU trend - For Omni to be meaningful, ARPU needs to be reasonably high. If most Omni sales are free, this is unlikely to be the case.
Overall, my view is that the company is in a structural decline and will probably start reporting EBIT losses in FY18.