JD.com CEO and founder Richard Liu speaks at the NASDAQ Market site at Times Square in New York. (Photo : Reuters)
JD.com, Alibaba's biggest rival in Chinese e-commerce, is set out to deliver long-term profitability and build its business by pouring out investments in areas outside its main operations, Bloomberg reported.
The news comes as Chief Executive Officer Richard Liu asked the firm's shareholders to be understanding about this strategy.
"We want all of our shareholders to understand: JD isn't a company chasing a one-to-two, or two-to-three-year goal. What we pay attention to is our profits after 10 to 20 years," Liu emphasized in an interview.
JD.com announced on Thursday some new initiatives regarding its deal with Wal-Mart Store. These include the inclusion of Sam's Club on the e-commerce firm's website and a two-hour delivery in key cities.
Apart from this, the Alibaba rival is also spending huge amounts from its capital to invest in new ventures such as rolling out new financial services, expanding into Southeast Asia through Indonesia, and initiating cloud-computing products.
The Beijing-based company is known for ensuring good service by investing heavily in fixed assets like delivery trucks and warehouses, and for offering buy-and-sell covering almost all goods.
"The asset-heavy model will probably not generate profit for the foreseeable future. If you look at the margin difference of Alibaba versus JD, JD just does not have the profitability and cash-flow to invest in all these other new areas where as Alibaba does," Kim Eng Securities analyst Mitchell Kim remarked.
Based on the average of forecasts contributed by different analysts (as compiled by Bloomberg), JD.com would not meet its goal of adjusting net margins at around break even in fiscal year 2016. Rather, this target is more achievable in fiscal 2018.
However, Liu firmly defended their strategy, saying: "They may see our methods as being wrong but we resolutely believe we are correct."According to JP Morgan, JD.com is set out to have around 14 percent of China's e-commerce expenses for this year, in contrast with Alibaba's 78 percent.
