E-commerce in China: No profits, we promise

IT IS a rare corporate boss who vows to make no profit for years. But that is precisely the strategy embraced by Richard Liu, the chief executive of JD. A year and a half ago, he declared that his Chinese e-commerce firm would earn no gross profits on electronic goods, which make up most of its sales, for three years. He was even reported to have threatened to sack any salesman making a margin.Yet Mr Liu secured more than $2 billion in early funding from such celebrated investors as Prince Waleed Bin Talal of Saudi Arabia and Sequoia Capital, an American venture-capital outfit. He now wants foreigners to plough another $1.5 billion or so into JD (previously known as 360buy) at its forthcoming initial public offering in New York. This seems cheeky, given that the firm has been bleeding red ink. In 2012 its net losses topped 1.7 billion yuan ($283m), up from a loss of nearly 1.3 billion yuan a year earlier. In the first three quarters of last year, it did make 60m yuan of profit—but much of it from interest income. It has cash and equivalents on hand of only $1.4 billion, whereas its accounts payable exceed $1.7 billion. Given Mr Liu’s plans for further expansion, its finances are unlikely to improve soon.Would any investor want to buy into this promise of prosperity without palpable profits? Maybe. JD’s growth story is impressive. Like Amazon, the American online giant to…

Link to article: www.economist.com/news/business/21596587-jd-e-commerce-firm-billed-chinas-amazon-prepares-ipo-no-profits-we-promise?fsrc=rss|bus

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