Categories Analysis, IPO, Retail

Can JD.com (JD) gain from separation of logistics unit?

The market is abuzz with reports of China-based e-commerce firm JD.com (NASDAQ: JD) holding talks with banks to spin off its logistics arm, most probably through an initial public offering. The stock has been garnering the market’s attention as it recovers from the recent lows. Having entered 2020 on a positive note, the company will constantly be on the radar of investors.

Related: JD.com Q3 2019 Earnings Conference Call Transcript

Of late, there has been apprehension about the retailer’s financial health as growth stagnated and expenses increased. In the current scenario, separating the capital-intensive JD Logistics might strengthen JD’s overall cash position, which in turn would enhance shareholder value. According to sources, the IPO is likely to happen in the second half of the year and it would value the company at around $30 billion.

Turnaround Hopes

It is estimated that as a stand-alone entity, JD Logistics would perform better, leveraging the ongoing technological innovation and reorganization of operations. That would expedite the unit’s turnaround process and help it emerge from the losing streak.

Also see: Alibaba posts solid Q2 results on strength of retail, cloud

JD has been generating relatively higher revenues by operating its own delivery network and fulfillment centers, unlike rivals who rely on third-party services. The fact that not all the revenue generated under the current arrangement translates into margins justifies the spin-off plan. When it comes to hitting the high-growth path, the recent de-escalation of the China-US trade dispute, which has been a major drag on JD’s growth prospects, bodes well for the company and its stakeholders.

Also Read:  Best Buy beats Q2 earnings estimates but revenues fall short

Positive Outlook

After recording double-digit revenue growth across all the key business segments in the third quarter, JD predicted a marked increase in its fourth-quarter revenues. In the most recent quarter, adjusted earnings moved up and topped the Street view. The company also registered a 10% growth in the number of annual active customers as it continued to expand into smaller cities.

Stock Gains

JD.com lost significant market value in the recent past and is currently trading sharply below the record highs seen about two years ago. However, the shares made notable gains this week as the ongoing recovery gathered momentum. The stock, which has been on an uptrend since the beginning of last year, gained 66% since then.

Follow our Google News edition to get the latest stock market, earnings and financial news at your fingertips

Most Popular

Levi Strauss (LEVI) Q1 profit beats estimates, withdraws annual outlook

Levi Strauss & Co. (NYSE: LEVI) reported a 4% increase in earnings for the first quarter of 2020 helped by lower income tax expenses despite a rise in operating expenses.

Vail Resorts (MTN) can reward investors once it gets past market crisis

The recent travel restrictions have taken a heavy toll on the tourism industry, leaving almost all destinations deserted. Vail Resorts Inc. (NYSE: MTN), a leading operator of mountain ski resorts,

The coming months will prove to be a testing time for Boeing (BA)

Shares of Boeing Co. (NYSE: BA) were up 13% in afternoon hours on Monday. The stock is down 63% from its 52-week high of $391. As the aviation industry suffers

Top