Why Walmart’s investment in JD.com lost strategic value

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Seasoned investors in China’s technology sector have seen this before. Walmart’s surprise plan to sell its stake in JD.com pushed shares of the Chinese e-commerce giant down more than 10 percent in Hong Kong on Wednesday morning.

This mirrors the decline in JD.com shares when internet giant Tencent paid out most of its JD.com stake to shareholders as dividends three years ago. Walmart’s withdrawal, however, comes at a much more difficult time for China’s technology stocks.

Walmart – JD.com’s largest shareholder following Tencent’s move in 2021 – has reduced its stake in JD.com from nearly 10 percent to zero. Walmart could raise about $3.6 billion by selling its stake in the company.

Walmart’s move makes sense. The company has been active in Chinese retail since 1996 and now has more than 400 Walmart and Sam’s Club stores in the country. When Walmart entered into a strategic alliance with JD.com eight years ago, it was at a time when ties with local e-commerce groups were crucial to gaining market share. At the time, China’s largest e-commerce group Alibaba was also a serious competitor, with quarterly sales rising by more than 50 percent. Having JD.com, the country’s second-largest e-commerce group, on its side was a must for Walmart.

But since then, online shopping has evolved and offers consumers many more options. For example, livestream commerce, or selling products through live video platforms, continues to take market share away from e-commerce groups. Walmart also offers multiple e-commerce channels. Partnerships with companies like JD.com are no longer as important as they once were.

China’s e-commerce groups are also losing their luster as investments. An industry-wide slowdown in growth and margins is unlikely to turn around anytime soon amid fierce price wars. Sales on these platforms fell for the first time during China’s 618 shopping festival in June. The country’s second-biggest annual sales event has long been seen as an indicator of consumer confidence. JD.com’s shares have fallen by a fifth in the past year, down three-quarters from their 2021 peak – on a par with rival Alibaba.

Although Alibaba has spent billions on share buybacks this year, its shares trade at just 9 times forward earnings. JD.com trades at 7 times, a small fraction of global rivals – including Amazon, which trades at 35 times forward earnings. But as JD.com’s plunge on Wednesday and the 19 percent drop in shares of Chinese online retailer Vipshop Holdings this week show, investors have not yet seen the bottom of the local tech trade.

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