By John Foley
The author is a Reuters Breakingviews columnist. The opinions expressed are his own.
Being second has its advantages. JD.com, China’s number two e-commerce company, has set an indicative range for its initial public offering that values it at around $23 billion. That’s far behind the $100 billion-plus price tag attached to rival Alibaba. But it leaves room for a decent performance.
Next to Alibaba, JD.com is an also-ran. It had 6.8 percent of China’s online shopping market in 2013, while its larger rival had around 84 percent, according to figures from iResearch. Moreover, JD.com loses money because it is investing heavily in logistics to handle delivery of its products. That’s an overhead that Alibaba, which matches buyers and sellers online, doesn’t have to worry about.
The best way to value JD.com up is as a multiple of its forecast sales. Assume that transactions on JD.com grow at the same 31 percent rate as the Chinese market is forecast to expand this year, and 55 percent of that value is converted into revenue. In that case, JD.com’s top line for 2014 would be 91 billion yuan ($14.6 billion).
Amazon, another serial investor with razor-thin margins, trades at 1.5 times this year’s sales, based on Eikon estimates. On the same multiple JD.com would be worth $22 billion - at the low end of the company’s IPO range.