NEW YORK (TheStreet) -- JD.com (JD) , one of the biggest players in China's e-commerce market, posted its second-quarter results last week --its net loss increased by more than 20 times from the same period last year. Yet, its shares climbed by 2% when the markets opened on Monday.
Why? Because JD.com's business model makes it very familiar to anyone who knows Amazon (AMZN) . JD.com sells a vast variety of products to consumers, often at lower prices than conventional brick and mortar stores. Hence JD.com's shares trade like those of Amazon, purely on growth. As long as JD.com manages to grow its revenues at a robust pace, its shares will likely continue going higher.
JD.com's shares have climbed 44% since its IPO in late-May, currently hovering around $30. For the third quarter, the company has forecast growth of between 55% and 61% from last year.
JD.com had been a seller of mainly lower-margin electronic products but has worked on expanding its product portfolio. In an email to TheStreet, Josh Gartner, the company's senior director for international communications said that JD.com aims to become a "one-stop e-commerce platform" for its customers. This can have a positive impact on the company's profit margins as it moves beyond electronics and home appliances.
In the second quarter, JD.com got nearly 45% of the value of its total merchandise sales from non-electronic items, an increase from 35% last year.
Gartner has also said that authenticity of products on JD.com is a critical factor that differentiates the company from other competitors serving the Chinese market. The company is going to expand "on the promise of authenticity" to as many products as possible.
Earlier in June, China's leading online seller of beauty products Jumei (JMEI) suffered a setback when a media investigation revealed that a seller on its Web site was offering counterfeit goods. Since then, Jumei has apologized while the Chinese government has launched an inquiry into the sale of fake and pirated goods by online retailers.
JD.com is now focusing on expanding in lower-tier Chinese cities. Meanwhile, its partnership with Tencent, owner of the popular mobile messaging services Mobile QQ and WeChat, should fuel its growth in mobile. Mobile QQ has 490 million users while WeChat has 438 million monthly active users.
In the second quarter, JD.com reported 64% increase in net revenue from the same quarter last year to $4.6 billion as the company gained market share, expanding on its position as the second biggest player in the country's e-commerce market, behind the technology behemoth Alibaba. This growth was mainly driven by 94% and 126% increases in the number of active customer accounts fulfilled orders respectively.
That said, JD.com's net loss for the quarter ballooned from just $4.6 million last year to $93.9 million in the previous quarter. This was largely due to the reduction in the value of intangible assets and an increase in investments related to the company's partnership with Tencent (TCEHY) . The latter is China's leading internet company which has purchased 17.6% stake in JD.com over the last few months.
Moreover, JD.com has been investing heavily in building its fulfillment and marketing infrastructure, which includes building warehouses and expanding the delivery network. During the quarter, JD.com's fulfillment expenditure more than doubled from last year to nearly $300 million.
Due to these investments, unlike Amazon or Alibaba, JD.com hasn't been profitable and is not expecting any profits through 2015. On the flip side, JD.com has now built the largest fulfillment infrastructure than any other company in China. This asset should give JD.com a distinct advantage over its competitors and support the company's growth in the long term.
Moreover, JD.com also boasts of a healthy balance sheet. The company's cash reserves, including restricted cash and short term investments, have more than doubled from last year to more than $5.4 billion while it has zero long-term debt. On the other hand, as per Alibaba's most recent filing with the SEC, its debt stands at $4.8 bilion while Amazon's debt stands at $3.1 billion.
At the time of publication, the author held no positions in any of the stocks mentioned, although positions may change at any time.
This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.