JD.com IPO on the NASDAQ - Good News for Tech IPO's
- Jun 10, 2014
- Marc Fogarty
JD.com, also known as Jingdong Mall, is a China-based company that sells inventory to consumers much like the U.S. company Amazon.com. Many people didn’t even know who JD.com was before the IPO was announced and yet, in its NASDAQ stock market debut, it raised $1.8 billion.
Why are Chinese companies coming to the U.S. stock market? Because Americans want to tap into the Chinese market place, as the country is rumored to have only 50% of its population currently online and internet shopping is projected to grow approximately 27% per year. If the percent of the online population continues to grow and internet shopping does increase, JD.com will be well positioned to use its newfound NASDAQ-generated capital to better serve its customer base and grow the company.
That’s great for potential business, but is JD.com currently showing a profit? A big part of JD.com’s business model is reliance on delivery services. By putting money back into its operations, partially to deal with delivery issues, the company has reported net losses over the last five years. Despite not showing a profit, JD.com was valued at over $28 billion--which is higher than Twitter and LinkedIn, but lower than the $130 billion valuation of the Chinese company The Alibaba Group.
What I find most interesting about this IPO is that the founder, Richard Qiangdong Liu, holds about 84% of JD.com’s voting power. This is a very high percentage. Most closely held companies have founders that hold 30%. With Mr. Liu holding 84%, investors have zero say in what the company does. On the positive side, this gives a visionary CEO the ability to move quickly in a rapidly changing industry. On the negative side, the investors will never have the majority voice in how the company is managed and it’s hard to vote Mr. Liu out of power if investors feel he is making bad decisions.
In this market, it is possible for a company to have their cake and eat it too. The JD.com IPO is a great example of a public company that is not giving up control of its business.
Despite JD.com’s lack of profit and the possible negative consequences of the CEO’s high percentage stake, this IPO was highly successful. Despite many people’s lack of knowledge of who JD.com was until the IPO was announced, it’s clear that the right marketing strategy, a niche consumer base and a high business valuation can shape a successful IPO.
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Marc Fogarty, Audit Partner and National Biotech Sector Leader, within Technology and Life Sciences Group, and member of the firm's Public Companies, Cleantech and International Services Groups. Marc is experienced in public accounting, serving public and private organizations and has presented on IFRS to professional groups.
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