JD.com’s IPO Shows Strong Appetite For Chinese Tech Companies

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JD.Com Inc (ADR) (NASDAQ:JD) showed that American investors are bullish on Chinese technology companies after its initial public offering (IPO) in the United States exceeded expectations. The Chinese online retailer raised $1.78 billion from selling 93.7 million American Depository Shares (ADS) in its public offering Wednesday.

The public offering gave JD.Com Inc (ADR) (NASDAQ:JD) a market valuation of $25.7 billion, which is higher than the valuation of Twitter Inc (NYSE:TWTR) when it went public last fall.

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Based on JD.Com Inc (ADR) (NASDAQ:JD) ‘s prospectus, its plan was to offer its shares in the range of $16 to $18 each to raise $1.7 billion. The Chinese online retailer initially offered its stock for $19 per share, above its original target price. It started trading at the NASDAQ under the ticker symbol JD today.

The shares of JD.Com Inc (ADR) (NASDAQ:JD) opened at $21.75 this morning, an increase of 14.5% from the IPO price. The stock is trading at $20.93 per share at the time of this writing, around 2:44 P.M. in New York. It’s still up by 10% from its offering price.

Directional bets

Market observers believe that American investors are investing in the IPOs of Chinese technology companies such as JD.Com Inc (ADR) (NASDAQ:JD) because it gives them the opportunity to profit from China’s growth.

Rett Wallace, co-founder and CEO of Triton Research, said, “They’re basically directional bets on the Chinese consumer economy.”

On the other hand, Brendan Ahern, managing director at KraneShares, opined that JD.Com Inc (ADR) (NASDAQ:JD) is “riding the appetite for growth.” He also noted that the Chinese online retailer has a higher valuation than Amazon.com, Inc. (NASDAQ:AMZN) as it starts offering its shares to the public.

Ahern added that investors are looking for high-growth companies that demonstrate earnings potential or have smaller losses “in the aftermath of the tech wreck.” Earlier this year, there was a big selloff of the biggest gainers in the technology industry, which are also referred to as momentum stocks.

Last year, JD.Com Inc (ADR) (NASDAQ:JD) recorded an $8 million net loss and $11.5 billion in revenue. Market observers opined that investors were attracted to the Chinese online retailer’s enormous sales growth. In 2012, the company achieved 96% sale growth. Last year, its sales grew another 68%.

Good sign for Alibaba Group

Market observers believed that the bullishness of investors towards JD.Com Inc (ADR) (NASDAQ:JD) is a good sign for Alibaba Group Holding Limited’s upcoming IPO, which aims to raise $1 billion. Analysts suggested that Alibaba could raise as much as $20 billion, which would be the largest IPO in the history of the technology industry.