Napkin Math Valuation- JD.Com ($JD)

Hey everyone, today I'll be doing napkin math valuation to value JD.com. My valuation will be quite different from many company analysis usually seen on this subreddit as personally, I can't be bothered to read what a company actually does. I'm more interested in its financial statements. If they pass my napkin math hurdle rate of return, then maybe I'll actually read their investor presentation. To start off, let's look at JD.com.

Financial statement summary:

This information was taken off of tikr. I was a little confused by their currency translation as going from RMB to USD, the revenue growth numbers were different. As a result, I just took their RMB information and multiplied it by 0.14, the current exchange rate.

The current market cap for JD is 53.64B. As we can see, JD has an astonishing 30.8B in cash with a net debt of 26.5B. After subtracting out their cash, we get a market cap of 27B.

To reiterate, their EBITDA was 3.6B. This gives us an EV/EBITDA multiple of 7.5 which is obviously crazy low. Using statista.com, we can see that the EV/EBITDA for the sp500 consumer discretionary sector is 14.44, about 92% higher.

What could JD look like in 5 years? Let's put in some assumptions: Given that retail is not known for its high growth rates and profit margins are razor thin and our goal is not to lose money, we should be pretty conservative. We'll assume a 4% revenue CAGR and a 1.5% EBITDA margin, 10% less than their 5 yr avg. We'll also assume an exit multiple of 13x, 10% less than the 2022 sp500 avg and no share dilution. In exchange for us putting our money into this stock, we'll expect a return of 15% annually. Here's the numbers:

Given our assumptions, JD isn't that great of an investment and we should wait for it to drop lower before buying.

What about if we're more bullish on the stock? We'll upgrade our multiple to 14.4x and increase our revenue growth assumptions to 10% and our EBITDA margin to 2.25%.

Unfortunately, JD would still be considered not a buy as it would need to drop 6% as of today's closing price of $34 to be considered a buy.

In conclusion, while JD seems extraordinarily cheap, it would need to have incredible growth over the next five years to justify buying it at its current share price. Factor in geopolitical tensions and general distrust of chinese stocks, JD is unfortunately not a buy with simple napkin math.

Let me know if you enjoyed this post and if so, leave a ticker! Criticism is always appreciated, thank you!