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JD.com Inc ADR JD

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Morningstar’s Analysis

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Regulatory Talks Another Blow to the China Gaming and Internet Sector

Chelsey Tam Senior Equity Analyst

Analyst Note

| Chelsey Tam |

Several departments of the Chinese government have held talks with Tencent, NetEase platforms for gaming accounts rental and sales and gaming livestreaming platforms as per Caixin. To us, most notable during the discussions are new requirements around antimarket concentration, strengthening controls of in-app purchases, and game designs that induce addiction. Faced with growing regulatory uncertainty in domestic gaming, we expect Chinese gaming companies to speed up international market expansion, which is supported by the government, and could be a long-term margin driver because overseas app stores take a cut of 30% versus non-Apple app stores’ 50% in China. We maintain the fair value estimate of Tencent, NetEase and CMGE as we don’t factor in a substantial threat in the base-case scenario. This is another demonstration by the government of its ability to enforce stringent regulations on Internet companies, and our conversations with investors indicate they are unlikely to accumulate Chinese Internet stocks yet until the regulatory overhang is removed.

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Company Profile

Business Description

JD.com is China's second- largest e-commerce company after Alibaba in terms of transaction volume, offering a wide selection of authentic products at competitive prices, with speedy and reliable delivery. The company has built its own nationwide fulfilment infrastructure and last-mile delivery network, staffed by its own employees, which supports both its online direct sales, its online marketplace and omnichannel businesses. JD.com launched its online marketplace business in 2010.

Contact
No. 18 Kechuang 11 Street, 20th Floor, Building A, Yizhuang Economic and Technological Development Zone
Beijing, 101111, China, People's Republic of
T +86 4006065500
Sector Consumer Cyclical
Industry Internet Retail
Most Recent Earnings Jun 30, 2021
Fiscal Year End Dec 31, 2021
Stock Type
Employees 320,000

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