I hear you on that the business is very capital efficient (which is why you get FCF in the first place), but when your competition is well-funded and can invest serious $$$ to win market share, quite likely that when JD starts losing market share, its FCF will disappear faster as it will be forced to invest to win back market share.
So what’s a safety net today (ample FCF) could disappear when you need it the most (at times of poor business performance). That’s only a possibility.
Of course, you and I could have different definition of competition, and you may say that the businesses with $$$ (zomatoes of today and tomorrow) are not competition.
I would like to provide a feet on the street view on JD. Part of my job involves looking at startups very closely and hence I am in a reasonable position to provide an outlook for JD. What is easily noticeable in the current ecosystem is the rapid Verticalization and Uberisation of local and home services. This has led to substantial Venture Capitalist funding in companies like LocalOye (5 Mn USD), UrbanClap (10 Mn USD), Housejoy (4 Mn USD) among others. As these startups raise further rounds of funding there will be a direct collision course with JD. Infact, in VC investor lingo, these startups are following a Justdial 2.0 model which is more innovative and user-friendly than JD and hence will be disruptive to the fortunes of JD. Existing JD investors like Tiger Global are partly exiting JD and funding its future competitors like LocalOye as the investors foresee a steady unbundling of JD verticals. Even in the Justdial 1.0 model, JD’s competitor Sulekha has received around 30 Million USD from reputed investors like GIC. So, in the short-term this will lead to some pain for JD as Sulekha will be spending more VC dollars to gain customer traction and market share.
Competition is perhaps the single most important factor for internet companies and needs to be looked at extremely closely . The second-order effects of more competition is basically reduced growth rates and an uptick in the cost of acquiring customers for JD which will reduce margins. This needs to be factored in going forward.
Agree with your assessment this is how its shaped in the USA too and these start-ups are irrational on pricing since being private, they have no urge to make profits anytime soon. Most of them are burning through cash - from a SME perspective, he would rather list with zomato than with JD since customers who come through zomato are more likely to have crossed the first hurdle - that of being serious about dining out/dining in rather the carpet bombed torrrent that is likely to come through JD.
Infact, that;s why growth rates have started slowing for JD - as orkut taught us, things can take a u-turn faster than anyone can imagine in teh web world.
If you plan to base your investment research on what VC investors are doing - I would suggest you look at the track record of VC investors in India. Out of the 1000+++ investments they have done in India in the last 15 years - they have managed to exit less than 10 through IPO (JD being one of those select few). Such is the nightmarish performance of the VC industry in India
Personally, I think of the Indian VC industry as engaged in charitable growth, rather than profitable growth Three cheers for all the billions of dollars they have pumped into our country, without taking anything out in return…
As far as I understand the JD strategy going forward - it is an aggregation strategy. So, it is not going head-on against LocalOye, UrbanClap, HouseJoy, etc. etc.
I doubt that the average person will have 50+ apps on his phone - one each for housing, grocery, airline ticket, travel, taxi, movies, restaurants, security, yoga classes, apparels, computer repair, etc. etc. Some of the more tech savvy folks may have 10 apps… Some of the frequent users of taxis will have a dedicated taxi app… But that is not going to be the norm…
The average person will prefer to have 1 single app on his phone, which aggregates all these categories… So, JD’s strategy is to aggregate the services of LocalOye, UrbanClap, HouseJoy, etc. etc.
I mean - you are making a big assumption about competition - when in fact it is a complementarity story… The real competition for JD will be Google - who also is working on a aggregator of ecommerce strategy… (Google is also a competitor for JD currently - in the sense of Google Search vs. JD Local Search)…
The real risks for JD going foward are two…
(1) Execution - Can it execute well on its aggregation strategy
(2) Customer traction - Will customers get onboard the JD aggregation platform.
Taking at look at JD website today - I can see that Amazon is already hooked on to JD.
Try buying a book on JD today - it is being served by Amazon India.
Many other ecommerce platforms hooked on to JD already - Amazon, Travel Khaana, Groupon, Easy Cabs, fernsnpetals, PVR cinemas, booking.com, etc. etc.
Getting a little bit exciting now - seeing the first steps by JD towards executing its ecommerce aggregator strategy. The website platform is quite poor though - hoping to see major improvements over the next 6 months.
One question - Out of these 68 startups mentioned in that link…
How many have a business model (and not a charity/cost center model)?
How many are known to the general public?
Why will general public bother about such a fragmented list of vendors?
Why will anybody carry 68 apps on his phone?
VC investors do various things (which are not applicable to us)… Let me try to put it in perspective for you… Out of the 600 or so VC firms in Silicon Valley - only 40 manage to conserve capital + make returns… The rest 560 lose capital… The scenario in India is far far worse…
What are VCs? Large funds (pension funds, endowment funds, foundations, etc.) earmark about 0.2% of their fund for VC investing, and hand it over to VC firms… The assumption being that this money is lost forever - unless you hit a lucky jackpot…
We don’t have the same luxury with our personal money, is it? So, if you intend to invest your personal money - don’t bother about what the VCs are doing…
If you want to take VCs as a benchmark, then you may use VCs as a benchmark for 0.2% of your net worth… For the other 99.8%, better to stay away from the logic of VC firms… That is a totally different game - and best ignored…
Wonderful debate going on; I think this is what makes this forum off beat.
I regularly follow this thread as I have long been invested in JD, but the new breed of VC fund charity companies, my belief in JD was little shaken. To test if JD still works like it used to, I tried searching for couple of services like ‘laptop repair’, ‘plumber’ & ‘sofa repair’ in JD + the start ups. My take is that most of the start ups are still far behind the JD, in that they don’t even have a business model to survive. They may just make hay till the sun shines but JD has a deep foundation, not to be easily shaken. With couple of recent searches, I tend to concur with @PP1 that JD’s competition is Google not these start ups. In fact, JD’s new webpage even looks like google’s
There may be some near term blips but in the long run, I think JD will win the race; Still we have to watch this space carefully if one of these start ups begin to close in on JD.
Disclaimer: Invested, began to trim down but thinking to increase now. Views may be biased.
The strategic advantages are with JD. Hope the management doesn’t screw up with poor execution. The website etc have a long way to improve, before it becomes close to the latest websites of newer startups… Speed is also essential - if JD is slow, higher chances of the competition catching up…
Totally agree that this is an investment which requires constant monitoring… It drains a lot of my time - and that is my biggest discomfort with this stock (and in general with tech space investing…)
Craigslist is being mentioned a lot here… But then it is a C-2-C website… Something in the mould of Quickr/Olx… Ecommerce play of JD is entirely B-2-C… So, should be careful about deriving any conclusions from Craigslist - totally different type of business alltogether…
I have been covering JustDial for last one year. As much as I liked the core product, I am skeptical about JustDial’s ability in delivering a differentiated experience in SearchPlus. I poked major categories in SearchPlus and found major holes in service delivery.
I posted a few write-ups along with my valuation estimate on my blog bravostocks.wordpress.com. By no means I am trying to promote my blog here. I have 3-4 articles along with some multimedia content which would be hard to paste here.
JD Search Plus is right now in pilot testing phase… So, what you are seeing is not the final product… Expect the execution to evolve over the next 3 years at the least, before it consolidates…
No revenues from Search Plus for exactly same reason - they aren’t monetizing it right now… They haven’t even solidified when they will start monetizing it…
At this stage, the discussion is about strategy… To judge the execution, we will have to wait at least 6 - 12 months… I agree current execution leaves a lot to be desired, as you have pointed out… But then it is like the bug-filled pre-trial version of a software… It will take them a while to fix the many glitches…
Interesting take on Justdial. I have also been tracking Justdial for a long time now as it is one of the very few avenues to reap benefit from the Internet story in India. But even I have my doubts about JD’s core business. I do not want to speculate on the new initiatives undertaken by the company like Search+Service and E-commerce. They may or may not work. As an investor, I would like to value solely on existing business and I do not derive too much comfort there.
Unfortunately, there are not too many listed internet companies in India and if an investor is keen on high quality internet stocks there is not too much choice. It is either JD or InfoEdge. I am keen to know your thoughts on InfoEdge. Infoedge has multiple digital properties like naukri and 99acres (which it owns 100%) and has significant stake in Zomato and Mydala. All these 4 companies are market leaders and due to the inherent winner-take-all effects present in internet, I feel these companies have good potential.
I am currently invested in Infoedge and am considering a position on JustDial but not able to gather the courage.
I agree that with time JustDial would iron out bugs and operational challenges.
On conference call they mentioned that they do not want to follow discounting model. I find it hard to believe that a customer would care deeply for a bundled app compared to deep discounts and easy returns.
In non e-commerece spaces, I got highly focused apps with more options and a highly differentiated experience. I would be willing to do a 180 on my views on JustDial, if I can see a unique user experience from them. In most categories they are already too late. For example, Practo already has reached out to a significant majority of doctors in India or online grocery guys have achieved scale to neagotiate better discounts from brands.
I looked at InfoEdge a year ago and have not tracked them much. I do not have any variant view on them compared to what sell side says. I will post my thoughts on my blog or here if anything changes.
The search Plus service was supposed to have launched in Q1. Dont know why this delay is happening. I saw one post where i saw they were rolling it out for 24 services. This delay in roll-out is affecting new revenue streams being generated i suppose.
While I’ve been invested in this story for a few months now, I’m starting to get a bit jittery on this investments. I suppose to be fair to management, they have been delivering earnings for the past few quarters. If Search+ is not rolled out quickly, growth could stall very quickly in this fast moving space.
I’m hoping that Search+ will improve revenue and PAT visibility going forward. I would want to hear from other members as well on what JD is doing and where do you see their business prospects in this disruptive age of e-commerce
If you check out the Q4 conference call - then the management says that $100 million worth of transactions happened on JD Search Plus in Q4. This is only for those categories where the transaction can be quantified (and excludes categories where the final transaction happens outside of JD+ platform)…
Considering these numbers are from the pilot testing phase (which is mostly in Mumbai) — I would think the customer traction/demand is quite encouraging… I suspect that Amazon India would have taken far longer to reach a $100 million figure…
Search Plus official launch is delayed - but, if you have been following their website, then it is getting updated with newer capabilities / features of Search Plus almost on a weekly basis… The transaction capabilities of the website today is way ahead of what it was one quarter ago… But the official launch + rollout across metros + Advertising shouldn’t get delayed beyond mid-Aug… Otherwise, it starts looking like they have an execution problem…
Well, would you be able to pin down why customers have done $100 million worth of transactions on JD Search Plus in Q4? Quite substantial isnt it - considering this happened in the pilot phase (mostly rolled out only in Mumbai), and only a few of the categories were up and running…
The assumption is probably that deep discounting is the only strategy that works in retail (both offline / online)… But that is not true - look at Zara’s strategy of fast fashion (highly profitable business)… Agreed that many retailers have succeeded on the price discounting platform (Walmart, etc)… But many others have found huge customer traction even without discounting, and following other strategies… Zara, Titan, Starbucks, Tesco, etc come to mind…
In short, customers don’t necessarily buy from the retailer with the cheapest prices…
It is another matter, whether JD can match the prices of Flipkart, Amazon… On the long term I am confident that they will - perhaps tougher on the short term (but not impossible)…
Any data on whether doctors are actually getting any business through Practo? And how much?
I know that those who do paid listing on JD, actually get substantial business through JD…
Online grocery guys - are any of them making profits? Or just burning VC money? Any data on this?
I mean, look at competition qualitatively, and not quantitatively… Practo listing 1000s of doctors is totally worthless, if these doctors aren’t getting any business through Practo… Even if doctors are getting business through Practo - it is still worthless if doctors/patients are unwilling to pay Practo more than what it costs Practo to provide all this ‘customer experience’…
When you say Practo has reached out to significant majority of doctors in India - any data on how many doctors in India vs. how many listed on Practo vs. how many listed on JD? I am quite sure there are far more doctors listed on JD, and they have been listed on JD for many years (if not decades) before Practo even came into existence…
