Just after Jingdong handed over a good financial report, it was subjected to Wal Mart's "clearance" reduction.
On August 15th, JD.com (NASDAQ: JD, 09618. HK) just released its Q2 and interim results for 2024. In this quarter, JD Group's net profit attributable to common shareholders of the listed company under non US GAAP reached 14.5 billion yuan, a year-on-year increase of 69.0%, and the net profit margin reached 5.0% for the first time, both significantly exceeding market expectations.
However, after the US stock market on August 21, Wal Mart, the largest holding company of JD, disclosed in its latest regulatory documents submitted to the Securities and Exchange Commission (SEC) that it had reduced its holdings of all JD shares in order to raise no more than 3.74 billion dollars.
The reporter of China Business Daily noticed that after the news of Wal Mart's clearance of JD, the share price of JD's US stock market plummeted by nearly 10%, and on August 21, the share price of JD's Hong Kong stock market plummeted by 11%. The reporter found from the JD announcement that in June 2016, JD and Wal Mart began strategic cooperation. As part of the strategic cooperation, the two sides signed an eight year non competitive arrangement, which now expires.
According to the analysis of people close to the transaction, this transaction of Wal Mart reducing its stake in JD should be Wal Mart's need to ease its own financial pressure. As Wal Mart slows down its revenue growth and cash flow in the second quarter of 2024, it also needs to make a diversification strategy in response to changes in the current market environment. To release resources and optimize capital allocation, it is completely a normal capital operation to withdraw from JD's equity investment, which does not involve the strategic cooperation between the two sides.
On August 21st, JD.com announced on the Hong Kong Stock Exchange that the company spent approximately $390 million to repurchase its stocks on August 21st and has fully utilized the repurchase limit of the $3 billion stock repurchase plan approved in March 2024.
Wal Mart no longer holds shares in JD
According to public data, Wal Mart first strategically invested in JD in 2016. Through strategic cooperation, Wal Mart becomes a strategic investor of JD Group. JD will own the main assets of No.1 Mall, including the main asset brands, assets and apps of "No.1 Mall".
In 2017, Wal Mart's official flagship store, Wal Mart's official flagship store for overseas shopping, Sam's Club's official flagship store, and Sam's Club's official flagship store for global shopping all landed in JD; Offline, more and more offline stores of Wal Mart have settled in JD. In the same year, JD and Wal Mart began to implement the "three links" strategy of user connectivity, store connectivity and inventory connectivity, which promoted cooperation to a deeper integration of supply chain and background technology.
In 2018, both sides jointly invested in Dada to further deepen cooperation. With the help of the all-in-one real-time performance service of warehouse, picking and distribution provided by Dada, Wal Mart and Sam's Club have effectively solved the pain points of many and complicated SKUs, obvious weekend peaks, and high requirements for capacity flexibility, and improved the performance efficiency and average picking efficiency as a whole.
According to the latest regulatory documents submitted by Wal Mart to the Securities and Exchange Commission of the United States, Wal Mart reduced its holdings of all JD shares, with a total value of about 3.7 billion dollars. Before this reduction, Wal Mart was the third largest shareholder of JD, with a shareholding ratio of 9.4%.
JD's 2023 annual report previously disclosed also shows that Wal Mart's Class A ordinary shares of JD account for 9.4% of all outstanding shares.
Wal Mart has its own capital needs for business expansion by reducing its holdings of JD shares.
According to the second quarter performance report just released by Wal Mart, compared with the global revenue growth of 4.8%, Wal Mart China's sales still maintained a double-digit growth rate of 17.7%, of which the net sales growth from e-commerce business reached 23%, and the penetration rate of e-commerce reached 49%, an increase of 200 basis points over the second quarter of last year.
Against the backdrop of changes in the retail market, the format of hypermarkets is showing a downward trend, while the format of membership stores is showing a growth trend. Wal Mart's development in China depends on the performance of its Sam's Club. According to statistics, Sam's Club currently has 46 stores in China, and the online sales of Sam's Club China will increase by 29% year-on-year in the first half of 2024, accounting for about 50% of the total sales. Mike Lai, president and CEO of Wal Mart International, also said earlier that Wal Mart is confident in China's economic development and market, will continue to expand its business in China and actively develop omni channel retail business.
It is understood that Wal Mart is sinking Sam's Club into second and third tier cities. As of now, Sam's Club has signed up for stores including Dongguan Liaobu, Jiaxing Economic Development Zone, Shaoxing Yuecheng, Wenzhou Lucheng, and Jinjiang Chi Store.
Wal Mart said that the decision to reduce its shareholding in JD enabled us to focus on Wal Mart's strong China business in China and Sam's Club, and allocate funds to other priorities.
JD's stock price is affected
On August 15th, JD.com submitted a fairly impressive Q2 2024 financial report. In the quarter, JD Group's revenue reached 291.4 billion yuan, and the net profit attributable to common shareholders of the listed company under non US GAAP accounting standards reached 14.5 billion yuan, a year-on-year increase of 69.0%. The net profit margin reached 5.0% for the first time, both significantly exceeding market expectations.
In the three trading days after the release of the financial report, JD.com achieved good gains in the Hong Kong stock market, with a peak increase of 7.4% on August 16th and a peak increase of 14% on August 19th and 20th. The US stock market also achieved good gains on both trading days, August 16th and August 19th.
On August 21, after the US stock market was closed, after the news of Wal Mart's clearance of JD, JD's share price in the US stock market fell by nearly 10%. On August 21, JD's share price in Hong Kong stock market fell by 11%.
The decline in stock price reflects the market's doubts about JD's future development prospects, "senior industry observer Liang Zhenpeng told reporters. However, the sharp drop in stock price does not necessarily mean that the company's fundamentals have changed, and investors need to carefully evaluate various factors before making decisions.
"Wal Mart's reduction of all shares of JD, rather than partial reduction, may be due to its consideration of its overall portfolio, or out of concern about JD's future development." Pan Jun, a visiting professor at Donghua University and former director of commodity strategy advisory at a world-famous consulting company, also believes that Wal Mart's reduction of its stake in JD may put pressure on JD's share price in the short term, because investors may worry about JD's future development prospects. However, in the long run, if JD.com can continue to maintain a steady development trend, its stock price and performance may be affected, but there will not be a significant decline. As for how long the impact will last, it depends on the recovery of market confidence in JD's future development
According to people close to JD, JD and Wal Mart have achieved remarkable results in their respective set strategic goals since their eight years of cooperation. Wal Mart has completed its e-commerce layout in China, JD has also expanded its global supply chain capabilities, and the business cooperation between the two sides has always been very smooth. The change in equity investment will not affect any business cooperation between the two parties. Both parties remain important strategic partners and are willing to continue maintaining close business cooperation and expanding business in domestic and international markets