Goldman Sachs Weighs In On JD.com And Wal-Mart's Strategic Alliance

JD.Com Inc (ADR) JD has inked a strategic alliance with Wal-Mart Stores, Inc. WMT, covering business initiatives in both online and offline retail. Goldman Sachs’ David Jin maintained a Buy rating for JD.com, with a price target of $31. The analyst commented that the revenue and profit impact is likely to be minimal for JD, particularly in the near term.

According to the terms of the alliance:

1. JD.com will issue 145mn new Class A ordinary shares to Wal-Mart, representing ~5 percent of the enlarged share base
2. JD.com will be taking ownership of Yihaodian’s marketplace platform assets, while Wal-Mart would continue to operate Yihaodian’s direct sales
3. Sam’s Club China would be opening a flagship store, using JD.com’s logistics capabilities
4. Wal-Mart and JD.com would leverage their supply chains together
5. JD.com’s crowd-sourced platform, O2O JV Dada, would be leveraged by Wal-Mart for 2- hour home delivery of fresh goods and other items from Wal-Mart stores

Analysis Of Alliance

While JD.com has indicated that Yihaodian’s GMV growth would likely be modest in 2016, this compares with Goldman Sachs’ estimate of 45 percent net GMV growth for JD.com, analyst David Jin mentioned. He expects the accretion to JD.com’s net GMV to be in the low single digit percent range from 3Q16.

Marketplace contributes about a third of Yihaodian’s total GMV, and JD.com will take ownership of this, along with Yihaodian’s brand, website, and app. This the revenue and profit impact is likely to be modest for JD.com, especially in the near term, Jin added.

JD.com management projected synergies from Yihaodian mainly on the back of a strong FMCG focus and strong position in Eastern and Southern China. “Food and beverage is a trillion-Rmb market in China based on GSe, with low single digit online penetration, and has also been one of the fastest-growing GMV categories for JD over the past few quarters,” the analyst wrote.

Wal-Mart managed 432 stores in China, as of January 31, 2016. Among these 12 are Sam’s Clubs. “According to oeeee.com, Sam’s Clubs has 1.6mn members in China, who purchase ~Rmb50k/year; they charge Rmb260/yr for membership and offer members discounted prices,” Jin said.