Dada Nexus Faces More Headwinds as Management Tries to Find New Strategies to Reignite Growth

We believe Dada Nexus should see steady growth in the medium term on the back of its relationships with Walmart and JD.com, which should eventually provide it a pipeline of steady orders and allow the firm to maintain stability in a competitive industry. Dada competes in a very saturated industry that doesn’t have much differentiation among competitors, which means that consumers are likely to base their preferences on cost. Currently, it still incurs operating losses, but we believe that its relationships with Walmart and JD.com should provide Dada with steady growth and a positive operating margin, given the larger merchants’ reach across China. Sales and marketing expenses and incentives remain about 40% of sales, which highlights Dada’s high operating leverage and underscores how the firm should eventually expand its operating margin as it scales. Dada Nexus is optimistic that it can reach its long-term forecast target of 10%-15% operating margin as orders grow. However, the main concern is that growth could be an issue, given the abundance of other options if not for its partners. It trails its larger competitors in volume and revenue terms, which suggests that Dada’s laggard position within the industry is unlikely to change in the short term for its delivery business. This is unless it incurs heavy spending on incentives to get consumers to use its delivery business.