JD delivers Q1 loss ahead of its IPO

An advertisement for e-commerce retailer JD.com Inc in Shanghai. Yan Daming / For China Daily

E-commerce retailer JD.com Inc reported a first-quarter loss ahead of its imminent initial public offering in the United States, suggesting the vendor's profit outlook may be weaker than meets the eye.

In an update to its IPO prospectus on Monday, China's second-largest business-to-customer site reported a net loss of 3.795 billion yuan ($608.4 million) from January to March, in contrast to a year-earlier profit of 13 million yuan.

Revenue expanded 65.1 percent to 22.7 billion yuan, it said.

The company attributed the lion's share of the losses to a share incentive plan for its founder Richard Liu.

JD is among a string of high-flying Chinese technology companies poised to float in the US. Its longtime competitor, Alibaba Group Holding Ltd, began preparations in March for a US offering.

JD's financial results are a far cry from those of Alibaba, which has achieved robust profitability for years. JD posted an operating loss of $96 million in 2013 on revenues of $11.5 billion.

Operating in the shadow of Alibaba, which dominates the Chinese digital shopping landscape, JD has appealed to investors by emphasizing its flexible business model, its mobile strength and its liquidity.

JD sells goods directly to customers and runs an independent logistics network of couriers and warehouses, a situation it claims will ensure smooth delivery, said Li Zhi, principal analyst of research firm Analysys International.

In comparison, Alibaba, which operates a market similar to that of US-based eBay Inc, depends on participating merchants for logistics.

Tencent Holdings Ltd, an Internet conglomerate that challenges Alibaba on almost every front, recently acquired a 15 percent stake in JD. That deal will help JD gain access to hundreds of millions of users via Tencent's mobile messaging apps WeChat and QQ, an area that's Alibaba's Achilles' heel.

But both companies have similar corporate governance, with certain rules helping a small group maintain a tight grip on company controls, said Hong Bo, founder of IT portal IT5G. "In the case of JD, founder Liu is able to maintain veto power while holding a minority stake," he said.

According to an arrangement detailed in the prospectus, the board of directors can't vote on anything unless Liu is present.

At Alibaba, a group of founders and senior executives retain the right to nominate board members, despite owning a smaller percentage of company shares, he noted.

Hong said that either arrangement is unlikely to have a negative impact on the companies' market valuations, since Nasdaq accepts dual-class shareholding structures. In addition, the appetite for Chinese technology stocks has recovered after a series of accounting scandals.

But The Wall Street Journal cited a recent survey of 54 global investors, two-thirds of whom said they would apply a discount to Alibaba's shares to account for the insiders' nomination rights, with an average discount of 19 percent.

JD said it expected to raise about $1.5 billion via the IPO, with pricing due on Wednesday.