Editor's note: This article is from WeChat public number "IPO morning know" (ID: ipozaozhidao), the author Aspirin,.
Jingdong's shares were trading at $31.30 on the trading day before Liu Qiangdong's sexual assault broke out in late August 2018, and then plummeted to $26.30 in one day on the first trading day after the scandal broke out, before falling all the way down to a low of $19.27 over the past year, a loss of nearly 40% in market capitalization.
But just this week, Jingdong's shares held above $31.30 for multiple days for the first time since the scandal broke. During that time, shares of Jingdong's main U.S. rivals Ali and Pinduoduo maintained modest gains, with Alibaba up 2.91 TP3T and Pinduoduo up 15.81 TP3T.
By now, the negative impact of Liu's sexual assault has been pretty much digested at the capital market level.
In April of this year, Jingdong's stock price had a pullback in the process of rising to around $30. What will happen after Jingdong's stock price rises to over $30 again?
We hope to next output a set of reports on Jingdong's future moves in the capital markets through a series of studies. This piece will focus on its emerging business: the cloud.
Source: Yahoo Finance
We will use a two-stage DCF model, which, as the name suggests, takes into account two growth stages. The first stage is usually a period of higher growth, and in the second stage a period of steady growth that reaches terminal value.
The cash flow figures used in the analysts are derived in part from JPMorgan Chase analysts' estimates and in part from extrapolating values from past estimates or reports.
In assumes that firms with shrinking free cash flow (FCF) will slow their rate of contraction, while firms with growing FCF will slow their rate of growth. The purpose of this assumption is to reflect the fact that growth will be somewhat slower in the first few years than thereafter.
Organized and produced by Aspirin.
These are the projections of free cash flow of BOE for the next 10 years, next the Termianl Value (TV) is calculated. For a number of reasons, the analysts used a very conservative growth rate i.e. not exceeding the growth rate of the country's GDP. A cost of equity of 11.7% is used to discount the future cash flows to today's value.
Terminal Value(TV) = FCF2029 × (1 + g) ÷ (r - g) = CN¥55b × (1 + 2.7%) ÷ (11.7% - 2.7%) = CN¥625b
Present Value ofTerminal Value (PVTV) = TV / (1 + r)10= CN¥CN¥625b ÷ ( 1 + 11.7%)10= CN¥205.79b
The total value, however, is the sum of cash flows over the next ten years plus the discounted terminal value, or total equity value, which is calculated to be RMB 372.58 billion. That's a launch intrinsic value of $38.19 per share in U.S. dollars, which makes Jingdong's shares undervalued compared to the current share price of $32.2. But keep in mind that this is an approximate valuation for reference only.
Key assumptions
The above calculations rely heavily on two assumptions. The first is the Discounted rate (DCF) and the other is the cash flow. We must emphasize that the DCF approach does not take into account the possibility of cyclicality in an industry, as well as the company's future capital requirements, and therefore does not fully reflect the potential performance of the company.
Given that BOE is treated as a shareholder here, the cost of equity is used as the discount rate, rather than the cost of equity for debt, or the WACC.In this calculation, we use the figure of 11.7%, which is based on a levered beta of 1.513, which is a measure of stock volatility. From the industry average beta of comparable companies globally, a range of 0.8-2.0 is a reasonable range for stability.
The DCF calculation is certainly an important one, but it is not the only one and it is not perfect. If a company grows at a rate that does not make sense, or if its cost of equity or risk-free rate changes dramatically, this can lead to very different results in terms of output. If you are looking for a prudent result, we suggest that you try it through other valuation tools.
Key Variables for the Future of Jingdong
Cloud computing services are Jingdong's latest strategic business and a key variable in its future competition with Chinese Internet companies.
The history of Jingdong's fortunes is like a history of war, often making its despised enemies pay the price.
In 2004, by virtue of the idea of selling only genuine products, Jingdong is like a flood to expel a large number of rampant piracy merchants, and became the largest optical magnetic seller in China, and the offline stores are doing a booming business, however, Liu Qiangdong has not been stuck in the old ways, and decided to transform the e-commerce business.
In 2007, Jingdong sales broke the billion, crowned China's first large 3C e-commerce platform crown. However, in the opposition of many investors and executives, Liu Qiangdong resolutely insisted on opening the whole category strategy and insisted on doing self-managed logistics.
In 2010, a stirring book war toppled Dangdang, Jingdong turnover exceeded 10 billion.
In 2013, Jingdong's transaction volume exceeded 100 billion, officially sitting in the second chair of China's B2C retail.
In 2017, Jingdong Logistics operated independently, and Jingdong Mall bucked Suning to become the largest home appliance retailer in China.
Last week, Jingdong Cloud held the "Blockchain + Jingdong Cloud Great Opportunities" strategic cooperation media communication meeting. At the meeting, Jingdong Cloud and Jingdong Digital Technology announced in-depth cooperation in the field of blockchain technology services, released the Zhizhen Chain "cloud" construction plan, and synchronously put on line two "Jingdong self-owned" Jingdong Cloud Market SaaSa. "In addition, Jingdong Cloud also launched two "Jingdong self-owned" SaaS applications for the Jingdong Cloud Market. In addition, Jingdong Cloud also launched the first domestic blockchain data online analysis service product - BDS service.
Let's review Jingdong's technology investments.
During 2016-2018, Jingdong invested 4.453 billion yuan, 6.652 billion yuan, and 12.144 billion yuan in technology research and development.
In September 2017, Shen Yuanqing assumed the position of president of the Jingdong Cloud Division, with overall responsibility for Jingdong Cloud and other related businesses. He was previously un Chief Operating Officer of the Asia Pacific Research and Development Group at Microsoft Corporation.
On December 31, 2018, Jingdong spent a huge amount of money to hire 16,000 R&D professionals to take care of designing, developing, and operating the technology platform.
On July 15 this year, Jingdong even dropped 20 billion to establish a new technology research and development center in Dongguan - Zhigu Boundless City.
market analysis
After Amazon launched its Elastic Compute Cloud (EC2) service in March 2006, the concept of cloud computing spread widely and eventually became the name that defined the current wave of information technology change. Today, Amazon, Google, Microsoft, Rackspace and other cloud services have 100,000 enterprise users.
Domestically, Ali Cloud started in 2008, the official website was officially launched in July 2011, began to provide services to the public on a large scale, Tencent open platform since February 2010 to access the first batch of applications.
Jingdong until April 2016 to start commercial cloud services, compared to the cloud computing "ancestor" Amazon, a full decade late.
According to the Cloud Computing Exhibition White Paper (2019) recently released by the China Academy of Information and Communications Research, China's cloud computing market will remain in a rapid growth phase from 2019 to 2022, reaching a size of $173.1 billion by 2022.Gartner data shows that the cloud computing market, including IaaS, PaaS, SaaS, process services, and advertisements and marketing, is expected to reach $411.4 billion by 2020 is expected to reach an overall size of $411.4 billion, with a CAGR of 17% from 2016 to 2020.
According to the global cloud computing market data released by the authoritative organization Gartner, Aliyun has come to the third position in 2018, which is already far ahead of the domestic market.
Source: Gartner
According to data statistics, the global cloud computing market in 2018 showed a trend of concentration towards the head, with 3A (Amazon AWS, Microsoft Azure, and AliCloud) occupying 70% of the market share.
Source: Gartner
Although it joined the cloud computing market this track late, in 2016 Jingdong cloud only began to officially commercialize. With Ali, Tencent, Huawei and other large manufacturers of cloud computing services is different, Jingdong did not choose to rely entirely on self-built at the beginning, but chose to structure the "cloud matrix" strategy, has invested in the Paas vendor BoCloud, open source cloud computing provider EasyStack, cloud database vendor PingCap, and so on. And so on.
Today, the simple cloud can no longer meet the digital needs of Jingdong, cloud computing to cover every aspect of business operations, so that its financial, supply chain, logistics can be seamlessly integrated with its IaaS and PaaS layer, is what Jingdong wants to do at the moment.
Therefore, not long ago, Jingdong Cloud and Jingdong AI Division announced to join hands to promote the new strategy of "AI+Cloud Computing" of Jingdong Cloud, which is a new industrial empowerment strategy for the whole value chain of cloud intelligence. In this way, Jingdong Cloud has been able to provide one-stop services including IaaS, PaaS, SaaS, full-band services from IDC business, cloud computing business to comprehensive business, as well as full-scenario services such as public cloud, private cloud, proprietary cloud and hybrid cloud.
In terms of scale in the field of cloud computing services, Amazon, Ali, etc. has formed a climate, while the Jingdong Cloud is still in shape as a newborn, how to compete with the big manufacturers, and how to survive in the market profitability?
During the development period, with regard to the competitive relationship between Ali Cloud and Tencent Cloud, Jingdong said, "The service gene of cloud computing is similar to the service gene of e-commerce. Jingdong has a service gene in its business model. Secondly, cloud computing requires strong technology and deep pockets. Cloud computing is a very capital-intensive business, Jingdong after more than a decade of development to obtain a stable profit, while comparing Amazon's AWS after 8 years, only began to reach 25% profit, in the determination to invest in cloud computing, Jingdong cloud and Amazon are similar."
First of all, from the recruitment of talent, in addition to Shen Yuanqing to join the Jingdong cloud, Zheng Yu, Zhou Bowen, Bo Leifeng, Mei Tao and He Xiaodong and other talents have joined.
In terms of products, Shen Yuanqing said that their richness will take a qualitative leap this year. Last year, Jingdong Cloud completely reorganized the modules of Open Stack, and at the same time introduced self-researched 3-layer network, strong isolation of native containers, CDN, Auto Scaling, and RDS. And this year, Jingdong Cloud will continue to launch new products.
Among them, in the IaaS and PaaS layer, JD stack in the first half of the year will be able to go on line to support the demand for government cloud, the second half of the year plans to achieve the support of enterprise private cloud demand; SaaS, Jingdong cloud will release the e-commerce cloud B2B standard 2.0 and EC-PaaS customization and development platform, to support B2B bulk, distribution, wholesale and other e-commerce models and ISVs involved in the customization. Data Cloud will also continue to enhance platform capabilities and formally serve commercial customers.
From the market opportunity, Shen Yuanqing has also analyzed the Jingdong cloud still have space, the current Chinese cloud computing market share mainly stays in the IaaS layer dimension, PaaS layer and SaaS layer in the future is very opportunity.
Jingdong began to apply blockchain technology to the traceability of commodities in 2016. After more than three years of exploration and practical verification, its Jingdong blockchain anti-counterfeiting traceability platform has 1 billion levels of traceability data down the chain, more than 700 cooperative brands, more than 60,000 commodities stationed, and more than 6 million after-sales user visits to query.
Profits from the cloud
First of all, the business models of both e-commerce and cloud services are wholesale to retail, buying in large quantities and selling in smaller quantities, piece by piece. Second, the infrastructure of both is virtualized design, whether virtual machines or "containers". In addition, from a user experience perspective, both are multi-tenant usage models.
In this way, e-commerce and cloud service providers are inherently genetically similar.
As cloud computing moves from shallow water to deep water, users are no longer buying computing, containers, bandwidth, and are slowly entering into scenario-based service needs, and more are needed for vertical industry technical services. In the face of these, Jingdong Cloud has a natural advantage. "Super e-commerce achievement super cloud
