JD.com falls by over 10% on reports of Walmart stake sale

Shares of Chinese e-commerce giant JD.com plummeted 10% on Wednesday in Hong Kong after Walmart confirmed its intention to sell its stake in the company.

The US retail giant, which has been a strategic partner of JD.com since 2016, said that the decision to divest is part of a broader strategy to refocus on its core Chinese operations, including Walmart China and Sam’s Club.

A Walmart spokesperson told CNBC, “This move allows us to focus on our strong China operations for Walmart China and Sam’s Club, and deploy capital towards other priorities.”

Despite the sale, Walmart emphasized its continued commitment to a commercial relationship with JD.com, stating that JD “has been a valued partner over the past eight years.”

Following Walmart’s announcement, JD.com’s stock became the largest loser on Hong Kong’s Hang Seng Index, with shares falling 11% at the trading open on Wednesday.

The company’s US-listed shares also declined, dropping 9.5% in after-hours trading. The sell-off highlighted the ongoing challenges facing Chinese tech giants, as market volatility and economic uncertainties weigh on the sector.

Why is Walmart selling its stake in JD.com?

According to a report by Bloomberg, Walmart is looking to raise up to $3.74 billion by selling 144.5 million JD.com shares, priced between $24.85 and $25.85 per share.

This price range represents a discount of up to 11.8% compared to JD.com’s closing price in the U.S. on Tuesday.

Walmart first entered into a strategic alliance with JD.com in June 2016, acquiring a 5% stake in the Chinese e-commerce firm.

Over the years, Walmart increased its holdings, and as of March 31, 2023, the company owned 9.4% of JD.com, with just over 289 million shares.

The partnership was initially seen as a way for Walmart to tap into China’s booming e-commerce market, while JD.com benefited from Walmart’s extensive retail experience.

However, as China’s economic landscape has evolved, the alliance appears to have delivered diminishing returns.

The challenging environment for Chinese tech companies, coupled with shifts in consumer behavior, has made it increasingly difficult for JD.com to maintain its growth trajectory.

In JD.com’s earnings results for the June quarter, revenue grew by 1.2%, but the company has struggled to maintain momentum, and its market value has halved since early 2022.

JD.com share price has been on a downward trajectory, Source: TradingView

“I expect Walmart will be disappointed with the horse they backed,” Mark Tanner, managing director at marketing agency China Skinny said in the Bloomberg report. “It doesn’t feel like the original ambitions have quite panned out as planned at the time of acquisition.”

What does JD.com do?

JD.com, also known as Jingdong, is one of China’s largest e-commerce companies and a leading technology-driven retailer with a market capitalisation of 320.19 billion HKD.

It operates one of the biggest online retail platforms in China, selling a wide range of products including electronics, home appliances, clothing, and groceries.

Sam’s Club shines amid a struggling market

While Walmart is divesting its JD.com stake, the company has found success in China through its Sam’s Club franchise.

Sam’s Club has emerged as a bright spot, becoming the only hypermarket chain among China’s top five players to post sales growth last year, according to the China Chain Store & Franchise Association.

The membership-based model, offering premium goods, has proven to be popular among Chinese consumers and is now being emulated by competitors.

Despite Sam’s Club’s success, Walmart’s other hypermarkets in China have struggled, reflecting broader challenges in the retail sector.

A person familiar with the matter noted that Walmart’s mature e-commerce and delivery systems for both Sam’s Club and its hypermarkets are central to the company’s current focus.

Challenges for Chinese tech giants

The divestment comes at a time when China’s biggest internet companies, including JD.com, Alibaba, and PDD Holdings, are facing significant headwinds.

Economic uncertainty, shifting shopping habits, and regulatory pressures have all contributed to a slowdown in the sector.

Last week, Alibaba, often seen as a bellwether for the industry, reported that its main commerce business shrank in the June quarter, surprising investors.

The Walmart-JD breakup is also part of a broader trend of dissolving partnerships between online and offline retail businesses.

Earlier this year, Alibaba was reportedly considering selling its InTime department store arm, another example of ambitions to merge physical and online retail failing to materialize.

The sale of Walmart’s stake in JD.com marks the end of an era, concluding a partnership that began with high hopes but ultimately fell short of expectations.

As Walmart refocuses on its core operations in China, the move underscores the shifting dynamics in the world’s second-largest economy and the challenges facing its tech giants.

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