JD Finance, a Chinese fin-tech unicorn, is preparing for a new investment round that may have its valuation reach USD 19 billion, almost three times higher than its current worth of USD 6.7 billion, its vice-president Ma Ji confirmed recently.
The new investment round is expected to take place in the third quarter of 2018.
JD Finance had completed its first investment round in January 2016 which saw it raise USD 965 million from Sequoia Capital China, Harvest Investments, China Taiping and other investors. In June 2017, JD Finance became completely independent from JD Group and started operating separately. On July 12, JD Finance officially declared that it had signed a capital increase agreement with CICC, Bank Of China Group Investment, CSC Financial, CITIC Capital and other investors.
The total investment is expected to reach USD 1.8 billion. Vice-president Ma Ji told local media: “Our valuation logic has experienced a big change due to our strategic adjustment and the logic shift of our business.”
A master of exceptions:
Several Chinese tech unicorns such as Xiaomi or Pinduoduo that listed recently, saw their stock prices plunge. However, JD Finance and others that have not gone public still receive a high valuation. The company is also an exception among its peers in the industry. Although fin-tech seems to have entered saturation in tier I and II cities, JD Finance continues to enjoy growth.
Its valuation has attracted media attention and experts wonder if the company will be able to keep pace with growing expectations.
Revealing more about the next investment, Ma Ji said, “This investment round will be completed according to our strategic needs, our development stage and the background of each investor. This time, investors are large-scale financial institutions backed by the government, this fits our financial technology strategy.”
Asked about the USD 19 billion valuation, Ma Ji said, “The valuation is negotiated on the basis of data models. There are different factors: our competitors’ valuation and our relationship with them and our development stage. From a market approach and an embedded value approach, we are able to calculate an approximate valuation. We also take into consideration the individual value of each business line before adding them all together.”
According to the market’s current valuation logic regarding big tech companies, the final figure is usually based on a forecast of the company’s income and its profit multiplied by its PE ratio. Others like Anxin Securities (Essence Securities) also sometimes take into consideration the company’s average user market value with its PE (Price Evaluation) ratio. Different methods can sometimes lead to different results. Earlier this year, Alibaba’s Ant Financial and its valuation was subject of controversy due to the different ways to calculate it.
Another calculation method is to break up the company’s different business lines, evaluate the listed companies in their respective industries and then add up each business line’s valuation.
JD Finance began with four different business lines. It has expanded now to 11 different lines: corporate finance, consumer finance, wealth management, payments, public financing, insurance, securities, financial science and technology, rural finance, overseas business and urban computing.
According to comprehensive analysis, JD Finance’s development can be divided in two different stages. In the first stage, before 2016, it focused on consumer and supply chain finance. After 2016, the company entered a new stage in which the scientific and technological output became the core of its service.
In 2014, JD Finance launched an Internet credit product called Baitiao that allows users the option to buy now and pay later on the JD e-commerce platform. This became one of the most successful products of the company. According to data provided by JD, monthly orders on JD grew by 33% and JD users spent 58% more on the site. Since then, consumer finance is one of JD Finance’s most profitable business lines. At the end of 2015, JD evolved from a simple financial business line to an iterative 2.0 financial institution of science and technology services.
Last May, JD Finance went through a complete restructuring process, separating personal financial services from enterprise services, creating two major business groups.
At the Bo’ao Forum for Asia, JD Finance CEO Chen Shenqiang said, “Our business model is B2B2C. JD Finance is the first B (business), the bank (or maybe the government in the future) is the second B, and the end customer is C (customer), which could be consumers or small and medium enterprises”.
Ma Ji explained that JD Finance’s underlying aspiration has not changed. “When we said we wanted to get into the financial market, we had financial technology in mind, we wanted to use data and technology to support our financial services.”
Since 2016, Chen Shengqiang started to emphasize on the importance of big data. Technology is one of JD Finance’s strengths. “Our data and technology are our core strengths, although our financial report does not reflect the specific value of our technological services yet. In the future, they will become more and more important in our reports,” Ma Ji said.
“Our logic has never changed, the lion share of our income comes from digital technology. For example, although the Baitiao product looks like a normal credit service, in reality it is based on algorithms that asset the risks. This is very different from traditional banking”, he further explained.
Ma Ji expressed confidence that investors understand the company’s strength and value its strategic awareness.
As for investors, they currently have two main concerns: government regulation and whether cooperation with financial institutions can lead to a win-win relationship.