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CB0071
REV: September 18, 2020

SHIMIN CHEN

XIAYAN HUANG

Alibaba vs. JD.com: An Analysis of Financial

Statements and Investment Value
Shortly after Alibaba and JD.com (JD) released their respective annual financial reports in the first
half of 2019, Zhang Wei, who had been recently promoted to Investment Manager, got a call from an
institutional investor. The investor intended to purchase shares of Alibaba or JD, and hoped to assess
the two companies’ investment value from a financial perspective. Zhang Wei was glad that he had
closely studied the strategies, business models and financial statements of both Alibaba and JD after
they were listed ①.

To provide the soundest possible advice, Zhang Wei collated the financial statements from the two
companies for the previous five years (see Exhibit 1) in order to examine them in more detail. He
found that Alibaba’s net profit margin was 31.91% in fiscal year 2015 ②, 70.48% in fiscal year 2016, and
26.05% in fiscal year 2017, showing wild fluctuations; additionally, there was a huge gap between its
net profit margin and operating profit margin. For example, in fiscal year 2016, its net profit margin
was 70.48%, yet its operating profit margin was merely 28.77%.

To clearly illustrate the financial performance of the two companies, Zhang Wei calculated their
ROE and ROE*③ separately (see Exhibit 2). Alibaba’s ROE had decreased from 24.46% in 2014 to
15.21% in 2018. ④ By contrast, during the same period, JD’s ROE had risen from –21.38% to –4.34%. In
spite of this, Alibaba’s share price was on the rise, while JD’s was subject to volatility and did not show
any clear upward trend (see Exhibit 3). But why was this the case? Zhang Wei was confused. To
deduce which company had greater investment value, he would need to probe both companies’
development paths in recent years.

①
Please refer to the case Alibaba vs. JD.com: Strategies, Business Models, and Financial Statements (No. CB0069).
②
At Alibaba, an accounting year is a 12-month period that begins in April this year and ends on March next year. Alibaba
names its fiscal year after the next year—for example, “fiscal year 2015” refers to the period from April 1, 2014, to March 31,
2015. At JD, the accounting year is the same as the calendar year.
③
ROE = Net profit / Average net assets; ROE* = Operating profit / Average net assets.
④
2014 to 2018 refers to fiscal year 2015 to fiscal year 2019 for Alibaba and fiscal year 2014 to fiscal year 2018 for JD.

Professor Shimin Chen and Case Writer Dr. Xiayan Huang of China Europe International Business School prepared this case. Funding for the
development of this case was provided by China Europe International Business School. CEIBS cases are developed solely as the basis for class
discussion. Cases are not intended to serve as endorsements, sources of primary data, or illustrations of effective or ineffective management.

Copyright © 2020 China Europe International Business School. To order copies or request permission to reproduce materials, call 1-800-545-7685,
write Harvard Business School Publishing, Boston, MA 02163, or go to www.hbsp.harvard.edu. This publication may not be digitized,
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Alibaba vs. JD.com: An Analysis of Financial Statements and Investment Value CB0071

Online Retail in China

China’s e-commerce industry had a significant year in 2014. That year, Chinese e-commerce
companies like JD, Jumei, and Alibaba successively went public and China’s online retail sector
experienced explosive growth, with gross merchandise volume (GMV) totaling ¥2.8 trillion ①, up
49.7% over the previous year. 1 During this year of unprecedented growth, the Chinese online retail
sector also faced great change: by 2015, the sector had witnessed a shift away from fast-track growth,
with GMV growing by a more modest 35.7% year-on-year; B2C (business-to-consumer), by virtue of
strong product quality and service, became increasingly popular. Boasting a 51.6% share of the
market, B2C outperformed C2C (consumer-to-consumer) for the first time.

After 2015, against fiercer competition spanning the entire value chain, e-commerce platforms in
China continued to extend their offerings into new product categories, improve service and logistics,
and optimize the shopping experience. 2 Around 2017, e-commerce giants including Alibaba, JD, and
Suning put forward futuristic concepts such as “New Retail,” “boundaryless retail,” and “smart
retail,” respectively, showing a move into offline retail and the crafting of new approaches to a
higher-quality consumer experience.

Alibaba
Online Retail
Further Tapping into the Domestic Retail Market
Alibaba had followed the trend toward mobile e-commerce since being listed. In the first quarter of
2015, Alibaba’s mobile GMV accounted for over 50% of its total GMV. ② But a mobile phone screen is
smaller than a computer screen, limiting the promotional deals that can be displayed simultaneously.
Consequently, in the quarter ending March 2015, Alibaba’s mobile monetization rate ③ was only 1.73%,
much lower than the non-mobile monetization rate of 2.63%. It was not until the second quarter of
2016 that Alibaba’s mobile monetization rate finally reached 2.8%, exceeding the overall monetization
rate of 2.79%.

To prolong user lingering time and increase the conversion rate, Alibaba launched a content
strategy in 2016. Alibaba thereafter generated more traffic for its e-commerce platforms and increased
user stickiness 3 via platform-based live streaming, Taobao Headlines, and other content marketing
approaches. Furthermore, it leveraged big data analysis and other advanced technologies to improve
the effectiveness of its ad placement.

While committing itself to increasing user stickiness, Alibaba also strived to attract new customers.
As the e-commerce market seemed near saturation in first- and second-tier cities, Alibaba began to eye
the underdeveloped parts of China. It introduced a rural e-commerce growth strategy in 2014, and

①
¥ = CNY = Chinese yuan renminbi; ¥1 = approximately US$0.1634, US$0.1540, US$0.1442, US$0.1530, US$0.1457, by the end
of 2014, 2015, 2016, 2017, and 2018, respectively.
②
Source: Alibaba’s annual financial statements. All the financial data used in this case were derived from the financial
statements of either Alibaba or JD, unless otherwise specified.
③
Monetization rate = Operating revenue / GMV. Operating revenue consisted of advertising fees, commissions, and other
income that Alibaba charged its third-party merchants directly. GMV is the abbreviation of gross merchandise volume.

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Alibaba vs. JD.com: An Analysis of Financial Statements and Investment Value CB0071

launched Rural Taobao. 4 In 2019, Alibaba rejuvenated Juhuasuan, ① and kicked off the 99 Huasuan
Festival. In fiscal year 2019, Alibaba reported more than 100 million new active users (see Exhibit 4.1),
77% of whom were from underdeveloped regions in China. To appeal to young users represented by
the post-1990s and post-2000s generations, Alibaba hosted the Taobao Maker Festival and other
compelling events. In addition, Alibaba designed a rewarding activity—every month, a Taobao
Spreader who solicited one or more new mobile Taobao users via any designated webpage would
receive rewards.

Alibaba expanded its scope of business to better compete in the domestic retail arena. Besides the
well-established Taobao and Tmall, Alibaba’s business ecosystem also saw the addition of Alibaba
Health, Local Services, New Retail (see the “Online-to-Offline Commerce” section below), and other
initiatives. In 2014, Alibaba acquired a 38.1% stake and YF Capital acquired 16.2% in the Hong
Kong-listed CITIC 21CN (later renamed Alibaba Health). In July 2015, Alibaba was granted YF Capital
voting rights, thereby establishing control over Alibaba Health. As a result of the consolidation of
Alibaba Health in fiscal year 2016, Alibaba posted a gain of ¥18.6 billion (fair value) from the
revaluation of its previously held equity interest in Alibaba Health.

Globalization
In 2015, Alibaba devised a globalization strategy in an effort to apply its experience in China to
other countries in order to help build their e-commerce ecosystems. Alibaba acquired a controlling
stake of 51% 5 in Lazada, ② the largest online shopping site in Southeast Asia, in 2016, and began to
consolidate it in fiscal year 2017. In May 2018, Alibaba expanded its reach in Pakistan by buying the
online retailer Daraz. 6 Three months later, Alibaba bought a stake in Trendyol, 7 the largest mobile
e-commerce platform in the Middle East. Starting in fiscal year 2019, both Daraz and Trendyol were
consolidated into Alibaba’s financial statements. Alibaba also acquired other e-commerce platforms
such as Indonesia’s Tokopedia 8 and India’s Snapdeal. 9

Alibaba’s finance arm and logistics affiliate facilitated the implementation of its globalization
strategy. Since 2015, Ant Financial, the operator of Alipay, had made strategic investments in or
formed business partnerships with its overseas counterparts, including India’s Paytm, Thailand’s
Ascend Money, and the Philippines’s Mynt to help develop their mobile payment ecosystems. 10 In
November 2017, Alibaba’s international super logistics hub co-developed by Cainiao Network
(Cainiao) and Malaysia Airports Holdings Berhad (MAHB)—its first overseas facility in line with the
eWTP (electronic World Trade Platform) initiative—went live. 11

With the acceleration of globalization, Alibaba’s revenue from its international commerce retail
business grew at a compound annual rate of 83.58% from fiscal year 2015 to fiscal year 2019, yet still
paled in comparison with the China commerce retail business. In fiscal year 2019, revenue from
Alibaba’s international commerce retail business was ¥19.6 billion, less than one-tenth of that from its
China commerce retail business (see Exhibit 1.1).

①
Juhuasuan was an online group-buying platform that offered value-for-money products. By 2015, with the rapid
development of B2C business, Juhuasuan was of less strategic importance. In 2016, Juhuasuan was incorporated into Tmall.
②
Founded in 2012 and headquartered in Singapore, Lazada had established a presence in Singapore, Indonesia, Malaysia, the
Philippines, Thailand, and Vietnam. At the very beginning, Lazada was a direct sales business. In 2013, Lazada was
transformed into an open platform, which generated 75% to 80% of its GMV. In 2015, by virtue of a GMV of over US$1 billion,
Lazada became the largest e-commerce operator in Southeast Asia.

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Alibaba vs. JD.com: An Analysis of Financial Statements and Investment Value CB0071

Online-to-Offline Commerce
Local Services
In 2015, a local services company Koubei was established as a joint venture of Alibaba (49.6%
equity stake) and Ant Financial (49.6% equity stake), with an initial focus on the food and beverage
segments. Koubei partnered with Alipay and Amap to provide local services. A user could view the
location of a restaurant or shop on Amap and pay via Alipay to get a discount. Between fiscal year
2016 and fiscal year 2018, Alibaba’s share of loss of equity investees attributed to Koubei was ¥867
million, ¥990 million, and ¥1.3 billion (see Exhibit 5.2), respectively. Alibaba started to consolidate
Koubei in December 2018 after obtaining control over it. In fiscal year 2019, Alibaba recorded a gain of
¥22 billion (fair value) arising from the revaluation of its previously held equity interest in Koubei.

In March 2016, the on-demand food delivery platform Ele.me received a capital infusion from
Alibaba and Ant Financial. Following the acquisition of Ele.me in April 2018, Alibaba merged Koubei
with Ele.me to form Alibaba Local Services Company in December of that same year. In fiscal year
2019, revenue from local consumer services, which primarily comprised platform commissions and
income from Ele.me’s provision of food delivery services, was ¥18.1 billion, accounting for 4.79% of
total revenue (see Exhibit 1.1).

New Retail
“New Retail,” a term coined in 2016 by Alibaba Founder Jack Ma, refers to the seamless integration
of online and offline retail enabled by a digital operating system, in-store technologies, supply chain
systems, consumer insights, and mobile ecosystems. By the end of 2018, Alibaba’s New Retail business
covered a wide spectrum of industries such as garments, general merchandise, electrical appliances,
fresh food, fast-moving consumer goods, and restaurants.

Hema could be taken as an example of the fresh food industry: a Hema store was both a
supermarket and an eatery. Consumers could visit the store to hand-select their fresh food, or place an
order via the Hema App so that the store could arrange fast delivery. In sum, Hema combined
supermarket, e-commerce platform, restaurant, and delivery service provider. The most obvious
distinction between the Hema model and traditional retail models was that Hema harnessed big data,
mobile Internet, and the Internet of Things as well as advanced equipment to connect people,
products, and places in the most optimized manner, and boasted an integrated logistics system that
covered supply chains, warehousing, and delivery. Hema opened its first store in January 2016, and
had expanded its footprint to over 160 self-operated stores in 22 cities to serve 30 million consumers
across China as of March 2019. 12

Vertical Extension
Cainiao to Build Logistical Clout
In the e-commerce industry, logistics participants fell into three categories: logistics divisions
wholly owned by e-commerce operators, third-party logistics companies, and logistics network
platforms. By definition, Cainiao was a logistics network platform. It empowered a logistics ecosystem
comprising warehousing, key lines of transportation (i.e., railways, highways, and airways), and
delivery by capitalizing on big data in order to enable centralized allocation and the management of
resources, thereby maximizing logistical efficiency. 13

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In its early stage of development, Cainiao was unprofitable: despite a nearly tenfold increase in
revenue between fiscal year 2015 and fiscal year 2017, it still recorded losses of ¥183 million, ¥617
million, and ¥2.2 billion, respectively (owing to a certain percentage of ownership in Cainiao, Alibaba
posted corresponding losses of ¥90 million, ¥295 million, and ¥1.1 billion; see Exhibit 5.2). Despite
successive loss-making years, Cainiao still firmly believed that its core competitiveness—which lay in
data, algorithms, and collaborations—could become a profit generator for the company through
lowering logistical costs and improving efficiency. 14 In September 2017, Alibaba raised its stake in
Cainiao to 51%. During fiscal year 2018, owing to the consolidation of Cainiao, Alibaba reported a gain
of ¥22.4 billion (fair value) arising from the revaluation of its previously held equity interest in
Cainiao.

The Flourishing of Cloud Computing

In 2014, Alibaba Cloud overcame multiple technological challenges and entered the phase of
commercialization. To translate its technological leadership into market share, Alibaba Cloud
periodically reduced its product prices. 15 The decline in prices brought in more paid users. As of
March 2019, Alibaba Cloud’s paid users exceeded 1.4 million.13The increase in paid users contributed
to a rapid boost in revenue—revenue from the cloud-computing business soared to ¥24.7 billion in
fiscal year 2019, an approximately 20-fold increase from ¥1.27 billion in fiscal year 2015.

While enjoying revenue growth (see Exhibit 6), Alibaba suffered increasingly severe losses in this
segment, exemplified by the losses of ¥1.7 billion in fiscal year 2017, ¥3.1 billion in fiscal year 2018, and
¥5.5 billion in fiscal year 2019 (see Exhibit 5.1). Given the cutthroat competition in the
cloud-computing market, Alibaba still regarded “more market share,” rather than “more profits,” as
its top priority, and continued to invest in its cloud-computing business. 16 In terms of market share,
between 2014 and 2018, Alibaba Cloud’s global market share multiplied 12-fold. 17 In the first half of
2018, Alibaba Cloud outpaced IBM in market share, and became the world’s third-largest public cloud
service provider.

Constant Adjustments in Digital Media and Entertainment Segment

Starting in 2014, Alibaba made frequent investments in and acquisitions of businesses in such
fields as literature, music, gaming, film, video content, and sports. In 2014, Alibaba bought a
controlling stake in the Hong Kong-listed ChinaVision Media Group Limited (later renamed “Alibaba
Pictures”), and invested in Huayi Brothers, Enlight Media, New Studios Media, Bale Media, and
others. 18 Furthermore, Alibaba purchased a 16.5% stake in Youku Tudou in 2014 (Alibaba’s share of
loss of equity investees incurred by Youku Tudou was ¥99 million and ¥391 million in fiscal year 2015
and fiscal year 2016, respectively; see Exhibit 5.2), completed the privatization of Youku Tudou in
April 2016, and began to consolidate the results of Youku Tudou in fiscal year 2017. 19

Alibaba started to integrate its cultural and recreational resources in June 2016 by creating the
digital media and entertainment segment, which was comprised of eight business units, including
Youku Tudou, UCWeb, Alibaba Pictures, and Alibaba Music. 20 Since the formation of this segment
almost exclusively relied on Alibaba’s crossover investments and acquisitions, it was incredibly
difficult to integrate relevant resources. 21 Digital media and entertainment was the segment in Alibaba
that was suffering the most, as the losses from its operations reached ¥9.9 billion in fiscal year 2017,
¥14.1 billion in fiscal year 2018, and ¥20 billion in fiscal year 2019 (see Exhibit 5.1).

Alibaba adjusted its stake in Alibaba Pictures multiple times, which, from the perspective of some
in the media, was evidence of its lack of perseverance and persistence in the digital media and
entertainment business. 22 In June 2014, Alibaba bought a 59.4% stake in Alibaba Pictures. In fiscal year

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Alibaba vs. JD.com: An Analysis of Financial Statements and Investment Value CB0071

2015, Alibaba Pictures was consolidated into Alibaba’s financial statements, with a loss of ¥415
million. In June 2015, Alibaba reduced its stake in Alibaba Pictures to 49.5%, leading to the
deconsolidation of Alibaba Pictures and the generation of a paper gain of ¥24.7 billion on deemed
disposal in fiscal year 2016. In the subsequent two fiscal years, Alibaba Pictures lost ¥976 million and
¥1.1 billion, respectively. Due to losses in consecutive years, the impairment loss with respect to
Alibaba Pictures amounted to ¥18.12 billion in fiscal year 2018 (see Exhibit 5.2). Then, Alibaba
increased its shareholding in Alibaba Pictures to 50.92% in December 2018 and consolidated Alibaba
Pictures in fiscal year 2019. Being measured at fair value, there was a revaluation gain of ¥5.8 billion.

Innovation Initiatives
Alibaba’s innovation initiatives primarily encompassed businesses such as Amap, DingTalk, and
Tmall Genie. Alibaba started to consolidate Amap after acquiring it in February 2014. Boasting a
massive amount of location information and data, Amap was able to connect people, merchandise,
and venues, and thus play an important role in local services. 23 DingTalk was the largest platform in
China for the improvement of work efficiency. Tmall Genie, an AI-powered smart speaker, was
officially launched in August 2017 and gained popularity quickly—by the end of 2018, more than 10
million units had been activated. 24 Alibaba’s ambition was to move beyond specific innovative
product offerings, and build a system that could constantly accelerate Alibaba’s incubation of
innovative products. For innovation initiatives, income and loss from operations totalled ¥4.7 billion
and ¥11.8 billion, respectively, in fiscal year 2019 (see Exhibit 5.1).

Ant Financial
As a member of the Alibaba digital ecosystem, Ant Financial served as a mobile payment service
provider as well as a fintech platform. More specifically, on the one hand, Ant Financial ran Alipay,
which had dominance in the online and offline payment markets; on the other hand, it helped small
and micro enterprises gain access to loans and offered other financial services in relation to wealth
management, insurance, Zhima Credit, and other projects.

Pursuant to an agreement signed before Alibaba’s listing, Ant Financial paid Alibaba 37.5% of
pre-tax profits each year for intellectual property licensing and software service fees. In February 2018,
Alibaba invalidated the profit-sharing agreement, and acquired a 33% stake in Ant Financial. Ant
Financial, whose market value exceeded US$150 billion in 2018, 25 was undeniably a fintech giant.

In an open letter to Alibaba’s shareholders, Jack Ma said, “Our long-term visions are conceived
based on unique strategic thinking. Though the above-mentioned platform-based businesses have not
brought in substantial profits, and we still have a long way to go to attain our objectives, the outlook is
exciting. To shape such a future, we shall stay true to our aspirations.”

JD
E-Commerce
Expanding into More Lucrative Product Categories
JD had started as an online direct sales company that offered electronics and home appliance
products. Years of operations not only helped JD gain abundant experience and resources, but also
established it as a provider of authentic products in the minds of consumers. In 2010, JD launched a
product strategy in which its product range would be broadened to include garments, daily
necessities, books, and so on.

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Alibaba vs. JD.com: An Analysis of Financial Statements and Investment Value CB0071

With regard to fast-moving consumer goods, JD invested in Yonghui Superstores in 2015, and
established a close partnership with Walmart in 2016. In the garment sector, JD invested in Vipshop,
the biggest independent e-commerce platform offering branded apparel and related products. The
gross profit margin for clothes was usually above 20%, higher than for electronics (below 10%) or
home appliances (20% or below). ① In addition to the high gross profit margin, clothes enjoyed a strong
female user base and a high repurchase rate. In fiscal year 2014, general merchandise revenues
comprised 15.36% of JD’s total revenue. Four fiscal years later, the ratio climbed to 29.45% (see Exhibit
1.2).

Attracting Third-Party Merchants While Reinforcing Its Foothold in Direct Sales

JD launched its online marketplace in 2010 to attract third-party merchants, primarily providers of
non-standardized products. In recognition of JD’s strong supply chain management capability and
huge amount of online traffic, plenty of third-party merchants swarmed into its online marketplace.
Third-party merchants, however, had to pay deposits, licensing fees, commissions, and usually
logistics costs.

Because there were similarities between JD and Alibaba in terms of their online marketplace
business, JD gradually became a big competitor to Alibaba. In 2017, Alibaba challenged JD
aggressively—Alibaba forced clothing brands to sign an exclusive cooperation contract, which
stipulated that once a certain merchant decided to sell its products on Alibaba’s e-commerce
platforms, it could not carry out contracts with JD. As Alibaba gave the merchants an “either-or
choice,” mainstream Chinese clothing brands retreated from JD in succession, resulting in a further
slowdown in JD’s services revenue growth (see Exhibit 6), which by fiscal year 2018 did not exceed
10% of its total revenue (see Exhibit 1.2).

JD Logistics
JD had been operating its self-owned logistics system since 2007. Powered by data, JD’s fulfillment
process could be completed without unnecessary touch points—based on past sales data, JD was able
to make logistics order forecasts. Then, it could replenish its inventory at relevant fulfillment centers
in different cities, and put goods closest to its customers. This way, the transportation route was
optimized. In light of the foregoing, JD’s timeliness of deliveries should be largely dependent on its
warehouse distribution and sorting efficiency.

In October 2014, JD’s first “Asia No. 1” warehouse was put into operation. In June 2015, JD’s first
fully automated sorting center commenced service. In October 2017, JD Logistics built the world’s first
whole-process unmanned warehouse, which covered a combined floor area of 40,000 square meters
and had a maximum handling capacity of over 200,000 orders per day. The robots there could sort
3,600 items per hour—five to six times more than a typical human worker. 26

JD established JD Logistics as a standalone subsidiary in April 2017 in order to increase its

capability utilization. Thus, JD Logistics evolved from being the supporter and cost center of JD’s
online direct sales business to being a for-profit entity. In February 2018, JD Logistics raised US$2.5
billion in a strategic funding round. The fundraising documents revealed that JD Logistics’s revenue

①
Take Suning and Vipshop, for example. At Suning, the gross profit margins for digital & IT products, telecommunication
products, refrigerators & washing machines, and small home appliance products were 2.92%, 5.21%, 18.69%, and 18.93%,
respectively, in fiscal year 2017; in the same year, the garment-focused Vipshop reported a gross profit margin of 22.35%.
(Source: publicly available financial reports released by Suning and Vipshop.)

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Alibaba vs. JD.com: An Analysis of Financial Statements and Investment Value CB0071

in the first three quarters of 2017 amounted to ¥18.3 billion. 27 In October 2018, JD Logistics opened its
logistics network to individual consumers.

JD also invested in logistics businesses, such as Dada Group, China’s largest crowdsourcing
delivery company. Moreover, JD transposed its logistics capability abroad. Unlike Cainiao, which
relied on extensive investments and partnerships to integrate cross-border logistics resources, JD
Logistics brought its technologies and services to some overseas markets, and established overseas
warehousing & delivery systems to fulfill local orders. For instance, as in China, JD Logistics’s
operations in Indonesia were supported by a well-developed fulfillment infrastructure, which enabled
delivery service across seven islands and 483 cities. This practice won recognition in Thailand as well.
As of December 2018, JD Logistics had over 110 overseas warehouses spanning five continents,
showcasing the capability of fulfilling 100% of local orders. 28

JD–X Partnerships
In 2015, JD and Tencent jointly launched the “JD–Tencent Plan” to provide brands with accurate
user profiling, multi-dimensional scenarios, high-quality experiences, and other marketing solutions.
After that, JD forged partnerships with others to launch the “JD–Toutiao Plan,” “JD–Baidu Plan,” “JD–
Qihoo Plan,” “JD–NetEase Plan,” and more.

JD and its partners made joint efforts in the following three aspects. First, referral traffic: partners
would embed JD’s purchase links in their applications. Second, data: JD and its partners integrated
their data to gain insights on user behavior on different platforms and paint a complete user profile,
aimed at enabling more targeted marketing. Third, content e-commerce: JD’s content platform, on
which online shopping experts promoted products by means of text, pictures, live streaming, etc., was
introduced. Under the “JD–X” partnerships, JD’s content platform increased its exposure by
connecting to Toutiao’s and 360 Total Security’s content platforms and NetEase’s live streaming
platform. However, these partnerships were not very instrumental to driving new user growth. As
JD’s statistics suggested, the downward trend of active user growth continued (see Exhibit 4.2).

In 2016, JD started to invest extensively and grow its investment empire gradually. It made major
investments in Yiche.com, Yixin Financial, Yonghui Superstores, Tuniu.com, Dada Group, Vipshop,
and others. Yet investment returns varied wildly. Although Yonghui Superstores and Vipshop
delivered solid profits, Yiche.com, Tuniu.com, Dada Group, and others reported considerable losses. 29

Boundaryless Retail
In 2017, JD introduced its “boundaryless retail” strategy—in practice, people, products, and places
were restructured, communications and sales were connected, and key consumer data for different
consumption scenarios were pooled together, thus facilitating the integration of online and offline
retail.

Offline stores were an important part of JD’s boundaryless retail vision. Offline, JD’s franchised
stores and unmanned stores, as well as JD Homes, crafted a new “boundaryless retail” experience for
consumers and brands. Taking the 3C (computer, communication, and consumer electronics)
products-focused JD Homes as an example, firstly, “JD Discerning Eyes”—an in-store intelligent
interaction system—picked up consumer interest in and lingering time for different products, and
based on the analysis of consumer behavior data, carried out renewal and replacement precisely;
secondly, the store featured dynamic price tags to ensure store prices were aligned with online prices,
and provided QR codes for consumers to access product details & user reviews on the JD App; and

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Alibaba vs. JD.com: An Analysis of Financial Statements and Investment Value CB0071

finally, consumers could complete their purchases onsite and carry home in-stock products
immediately, or have items delivered to their homes by JD Logistics.

Regarding retail strategy for the future, both Alibaba and JD put emphasis on the integration of
online and offline retail. In general, Alibaba’s New Retail was driven by big data and centered on the
customer experience. It would neither establish an offline presence nor control offline channels. But
JD’s boundaryless retail was closely associated with supply chains and logistics. It blurred the
boundary between online and offline retail so that the superiority of JD’s direct sales model could be
manifested in brick-and-mortar stores. All in all, the differences in this regard were an extension of the
two companies’ differences in business models.

Now, as Zhang Wei had a basic understanding of Alibaba’s and JD’s development following their
listing, he needed to develop a research report to conduct a comprehensive analysis of the two
companies’ investment value as well as investment risk.

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Alibaba vs. JD.com: An Analysis of Financial Statements and Investment Value CB0071

Exhibit 1: Simplified Financial Statements of Alibaba and JD

Exhibit 1.1: Alibaba’s Simplified Financial Statements (¥ million)

FY2015 FY2016 FY2017 FY2018 FY2019

Income Statements
Revenue 76,204 100.00% 101,143 100.00% 158,273 100.00% 250,266 100.00% 376,844 100.00%
 Core commerce 69,536 91.25% 92,335 91.29% 133,880 84.59% 214,020 85.52% 323,400 85.82%
 China commerce
59,732 78.38% 80,033 79.13% 114,109 72.10% 176,559 70.55% 247,615 65.71%
retail
 China commerce
3,205 4.21% 4,288 4.24% 5,679 3.59% 7,164 2.86% 9,988 2.65%
wholesale
 International
1,768 2.32% 2,204 2.18% 7,336 4.64% 14,216 5.68% 19,558 5.19%
commerce retail
 International
commerce 4,718 6.19% 5,425 5.36% 6,001 3.79% 6,625 2.65% 8,167 2.17%
wholesale
 Cainiao logistics
—— —— —— —— —— —— 6,759 2.70% 14,885 3.95%
services
 Local consumer
—— —— —— —— —— —— —— —— 18,058 4.79%
services
 Other 113 0.15% 385 0.38% 755 0.48% 2,697 1.08% 5,129 1.36%
 Cloud computing 1,271 1.67% 3,019 2.98% 6,663 4.21% 13,390 5.35% 24,702 6.55%
 Digital media and
2,191 2.88% 3,972 3.93% 14,733 9.31% 19,564 7.82% 24,077 6.39%
entertainment
 Innovation
initiatives and 3,206 4.21% 1,817 1.80% 2,997 1.89% 3,292 1.32% 4,665 1.24%
others
Cost of revenue 23,834 31.28% 34,355 33.97% 59,483 37.58% 107,044 42.77% 206,929 54.91%
Product
development 10,658 13.99% 13,788 13.63% 17,060 10.78% 22,754 9.09% 37,435 9.93%
expenses
Sales and marketing
8,513 11.17% 11,307 11.18% 16,314 10.31% 27,299 10.91% 39,780 10.56%
expenses
General and
administrative 7,800 10.24% 9,205 9.10% 12,239 7.73% 16,241 6.49% 24,889 6.60%
expenses
Amortization of
2,264 2.97% 3,386 3.35% 5,122 3.24% 7,614 3.04% 10,727 2.85%
intangible assets
Operating profit 23,135 30.36% 29,102 28.77% 48,055 30.36% 69,314 27.70% 57,084 15.15%

Interest and net

9,455 12.41% 52,254 51.66% 8,559 5.41% 30,495 12.19% 44,106 11.70%
investment income
Share of results of
-1,590 -2.09% -1,730 -1.71% -5,027 -3.18% -20,792 -8.31% 566 0.15%
equity investees
Net profit 24,320 31.91% 71,289 70.48% 41,226 26.05% 61,412 24.54% 80,234 21.29%
Balance Sheets
Goodwill 41,933 16.42% 81,645 22.40% 125,420 24.75% 162,149 22.61% 264,935 27.45%
Total assets 255,434 100% 364,450 100% 506,812 100% 717,124 100% 965,076 100%
Total liabilities 97,363 38.12% 114,561 31.43% 182,691 36.05% 277,685 38.72% 349,674 36.23%

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Alibaba vs. JD.com: An Analysis of Financial Statements and Investment Value CB0071

Total equity 158,071 61.88% 249,889 68.57% 324,121 63.95% 439,439 61.28% 615,402 63.77%
Statements of Cash Flows
Net cash provided
by operating 41,217 56,836 80,326 125,171 150,975
activities

Source: Alibaba’s financial statements for fiscal years 2015 to fiscal year 2019.

Exhibit 1.2: JD’s Simplified Financial Statements (¥ million)

FY2014 FY2015 FY2016 FY2017 FY2018

Income Statements

Revenues 115,002 100% 181,287 100% 260,122 100% 362,332 100% 462,020 100.00%
 Net product
108,549 94.39% 167,721 92.52% 237,702 91.38% 331,824 91.58% 416,109 90.06%
revenues
 Electronics and
home appliance 90,890 79.03% 134,346 74.11% 179,637 69.06% 236,269 65.21% 280,059 60.62%
revenues
 General
merchandise 17,659 15.36% 33,375 18.41% 58,065 22.32% 95,555 26.37% 136,050 29.45%
revenues
 Net services
6,453 5.61% 13,566 7.48% 22,420 8.62% 30,507 8.42% 45,911 9.94%
revenues
Cost of revenues 101,631 88.37% 157,008 86.61% 220,699 84.84% 311,517 85.98% 396,066 85.72%
Fulfillment 8,067 7.01% 13,921 7.68% 20,951 8.05% 25,865 7.14% 32,010 6.93%
Marketing 4,010 3.49% 7,736 4.27% 10,573 4.06% 14,918 4.12% 19,237 4.16%
Technology and
1,836 1.60% 3,454 1.91% 5,381 2.07% 6,652 1.84% 12,144 2.63%
content
General and
5,260 4.57% 2,877 1.59% 4,663 1.79% 4,215 1.16% 5,160 1.12%
administrative
Operating profit -5,802 -5.05% -6,459 -3.56% -2,145 -0.82% -835 -0.23% -2,619 -0.57%
Share of results of
0 0.00% -3,134 -1.73% -2,785 -1.07% -1,927 -0.53% -1,113 -0.24%
equity investees
Net profit -4,996 -4.34% -9,388 -5.18% -3,414 -1.31% -19 -0.01% -2,801 -0.61%

Balance Sheets
Total assets 66,493 100% 85,166 100% 160,374 100% 184,055 100% 209,165 100%
Total liabilities 28,995 43.61% 54,488 63.98% 119,154 74.30% 131,666 71.54% 132,337 63.27%
Total shareholders’
37,498 56.39% 30,678 36.02% 41,220 25.70% 52,389 28.46% 76,828 36.73%
equity
Statements of Cash Flows
Net cash provided
by continuing 1,015 -1,812 8,767 24,821 20,881
operating activities

Source: JD’s financial statements for fiscal year 2014 to fiscal year 2018.

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Alibaba vs. JD.com: An Analysis of Financial Statements and Investment Value CB0071

Exhibit 2: ROE and ROE* of Alibaba and JD

FY2015 FY2016 FY2017 FY2018 FY2019

Alibaba’s ROE (%) 24.46 34.95 14.36 16.09 15.21
Net profit margin (%) 31.91 70.48 26.05 24.54 21.29
Alibaba’s ROE* (%) 23.26 14.27 16.74 18.16 10.82
Operating profit margin (%) 30.36 28.77 30.36 27.70 15.15
Total asset turnover 0.42 0.33 0.36 0.41 0.45
Equity multiplier 1.85 1.52 1.52 1.60 1.59
FY2014 FY2015 FY2016 FY2017 FY2018
JD’s ROE (%) -21.38 -27.54 -9.50 -0.04 -4.34
Net profit margin (%) -4.34 -5.18 -1.31 -0.01 -0.61
JD’s ROE* (%) -24.83 -18.95 -5.97 -1.78 -4.05
Operating profit margin (%) -5.05 -3.56 -0.82 -0.23 -0.57
Total asset turnover 2.49 2.39 2.12 2.10 2.35
Equity multiplier 1.98 2.22 3.42 3.68 3.04

Source: Calculated by the case authors based on the financial statements of Alibaba and JD.

Exhibit 3: Alibaba and JD Stock Performances and Stock Returns

250
(US$)

200

150

100

50

0
2014-05-22
2014-07-08
2014-08-20
2014-10-03
2014-11-17
2015-01-02
2015-02-18
2015-04-02
2015-05-18
2015-07-01
2015-08-14
2015-09-29
2015-11-11
2015-12-28
2016-02-11
2016-03-29
2016-05-11
2016-06-24
2016-08-09
2016-09-22
2016-11-04
2016-12-20
2017-02-06
2017-03-22
2017-05-05
2017-06-20
2017-08-03
2017-09-18
2017-10-31
2017-12-14
2018-01-31
2018-03-16
2018-05-01
2018-06-14
2018-07-30
2018-09-12
2018-10-25
2018-12-11
2019-01-28
2019-03-13

JD Alibaba
FY2015–FY2016 FY2017–FY2018 FY2019
Alibaba
(2014/9/19–2016/3/31) (2016/4/01–2018/3/31) (2018/4/01–2019/3/31)
Opening/closing price (US$) 68.00–79.03 79.03–183.54 183.54–182.45
Stock return rate (%) 16.22 132.24 -0.59
FY2014–FY2015 FY2016–FY2017 FY2018
JD (2014/5/22– (2016/1/01– (2018/1/01–
2015/12/31) 2017/12/31) 2018/12/31)
Opening/closing price (US$) 19.000–32.265 32.265–41.42 41.42–20.93
Stock return rate (%) 69.82 28.37 -49.47

Source: Calculated by the case authors based on publicly available information.

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Alibaba vs. JD.com: An Analysis of Financial Statements and Investment Value CB0071

Exhibit 4: Growth of Active Users at Alibaba and JD

Exhibit 4.1: Alibaba Active Users in China’s Retail Market (in millions)

700 636 654 12%

601
600 552 576 10%
515
10.39% 488
500 454 466
407 423 434 439 443 7.18% 8%
367 386
400 334 350
307 6%
279
300 231 255
4%
200

100 0.91% 2%
2.83%
0 0%

Active users Growth rate of active users

Source: Created by the case authors based on Alibaba’s financial reports.

Exhibit 4.2: JD’s Active Users (in millions)

350 314 305 305 310 25%

293 302
300
23.21% 258 266 20%
250 227 237
188 199 15%
200 169
155
150 114 127 10%
91 98
100 83
56 69
1.64% 5%
50
0%
0
-50 -2.87% -5%

Active users Growth rate of active users

Source: Created by the case authors based on JD’s financial reports.

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Alibaba vs. JD.com: An Analysis of Financial Statements and Investment Value CB0071

Exhibit 5: Alibaba’s Gain (Loss) from Operations and Equity Investments

Exhibit 5.1: Alibaba’s Income (Loss) from Operations (¥ million)

Financial Core Cloud Digital media and Innovation initiatives

period commerce computing entertainment and others
FY2017 74,180 -1,681 -9,882 -6,798
FY2018 102,743 -3,085 -14,140 -6,901
FY2019 109,312 -5,508 -20,046 -11,795

Exhibit 5.2: Alibaba’s Share of (Loss) Profit of Equity Investees (¥ million)

Major investees FY2015 FY2016 FY2017 FY2018 FY2019

Koubei(i) —— -867 -990 -1,340 ——
Youku Tudou -99 -391 —— —— ——
Cainiao Network(ii) -90 -295 -1,056 -518 ——
Others -275 62 -838 1,040 2,997
Impairment loss -438 —— -245 -18,153(iii) -493
Dilution loss —— 827 -336 -128 -185
Others -688 -1,066 -1,562 -1,693 -1,753
Total -1,590 -1,730 -5,027 -20,792 566

Note: (i) Alibaba started to consolidate Koubei in December 2018.

(ii) Alibaba started to consolidate Cainiao Network in October 2017.
(iii) The impairment loss in fiscal year 2018 includes Alibaba Pictures’ impairment loss of ¥18.12 billion.

Source: Alibaba’s financial reports.

Exhibit 6: Revenue Growth rates of Alibaba and JD (%)

Alibaba FY2015 FY2016 FY2017 FY2018 FY2019

Revenue 45.14 32.73 56.48 58.12 50.58
 Core commerce 39.12 32.79 44.99 59.86 51.11
 Cloud computing 64.42 137.53 120.70 100.96 84.48
 Digital media and entertainment 25.34 81.29 270.92 32.79 23.07
 Innovation initiatives and others —— -43.33 64.94 9.84 41.71
JD FY2014 FY2015 FY2016 FY2017 FY2018
Revenue 65.85 57.64 43.49 39.29 27.51
 Net product revenues 61.97 54.51 41.72 39.60 25.40
 Electronics and home
59.98 47.81 33.71 31.53 18.53
appliance revenues
 General merchandise revenues 73.06 89.00 73.98 64.57 42.38
 Net services revenues 177.91 110.04 65.41 36.07 50.49
Source: Calculated by the case authors based on the financial statements of Alibaba and JD.

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Alibaba vs. JD.com: An Analysis of Financial Statements and Investment Value CB0071

Endnotes

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15

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