JD.com plans to launch a competitive food delivery business in China

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Shares of JD.com rose after a company executive said in a TV interview that the Chinese e-commerce giant may launch on-demand food delivery in China.

Giulia Marchi/Bloomberg

JD.com

plans to expand into the on-demand food delivery service, a senior executive at the Chinese e-commerce giant said in an interview with Bloomberg TV. Such a move would pit JD against two of China’s other e-commerce giants,

Alibaba Holding Group

(symbol: BABA) and

Meituan

(3690.Hong Kong).

Ali Baba

-belonging to Ele.me and

Meituan

Dianping currently dominates the online food delivery industry in China.

The news sent shares of JD (JD) up 5.2% to $65.23 on Friday. The stock is down about 6% this year.

In the Bloomberg InterviewJD Retail CEO Xin Lijun said the company had “considered and explored” a food delivery business that would build on its majority stake in the on-demand delivery operator.

Dada Nexus

(DADA). Dada shares gained 8.5% on Friday.

“Dada has strong same-city delivery capability, so other competitors are wondering if we would do this business,” Xin said. “We have thought about it well. As for when we start doing that, it depends on our ability and when we can build a team of talent.

Chinese technology news site Late shipment reported last week that JD was making a foray into food delivery, but investors did not react to the news until the Bloomberg interview. Late shipment noted that the JD team had started collaborating with restaurants in Zhengzhou, a city in China’s Henan Province.

Media representatives for Dada and JD did not immediately respond to Barrons requests for additional details.

Dada operates JD Daojia, which already facilitates local same-day grocery delivery, and Dada Now, which is open to merchants and individual shippers from different industries and product categories. Since 2016, JD has continued to invest in Dada and owned approximately 47% of the company at the end of 2021. In February, JD paid an additional $546 million to increase one’s property to a majority stake of 52%.

In a mid-May research note on JD’s first quarter results, Benchmark equity research analysts Fawne Jiang and Long Lin lowered their price target to $106, but maintained a rating. purchase for the company. JD’s net revenue in the quarter rose 18% year-over-year and beat analysts’ expectations, but Covid-19 lockdowns weighed on the outlook for the second quarter.

“Downside risks to the valuation include slower-than-expected growth [gross merchandise value] growth, investment/execution risks on logistics expansion, [and] slower growth in traffic and active users,” the analysts wrote.

The food delivery market JD is entering is quite large and could provide a new source of revenue for the company. Chinese consulting firm Zhiyan estimated the total number of users at 544 million in 2021, according to the South China Morning Post, while a report by IMARC Group valued China’s online food delivery market at $58.7 billion in 2021. IMARC predicts the market will double by 2027, reaching a value of $118.5 billion.

The market is also extremely concentrated. Zhiyan says

Meituan

controls 69% of the market, while Ele.me has 26%. Meituan made 14 billion food deliveries in 2021, according to its annual report, compared to about 10 billion in 2020.

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