Dada’s Record ‘Single’s Day’ Performance Fails to Hide Yawning Losses

Company reported its loss widened to 543 million yuan in the third quarter, following record sales and deliveries on China’s top shopping festival earlier in November

Key Takeaways:

• Dada’s net loss widened to 543 million yuan in the third quarter from 434 million yuan a year earlier
• The company’s autonomous delivery operation system participated in China’s ‘Double Eleven’ shopping fest for first time on Nov. 11  

By James Dyson

As the U.S. heads into the original “Black Friday” on the day after Thanksgiving, short-distance delivery specialist Dada Nexus Ltd. (DADA.US) is basking in the glow of a healthy performance from China’s own version of the shopping frenzy on Nov. 11, also known as “Singles Day.” But as the company’s newly announced third-quarter results are showing, all those dizzying numbers are no match for a profit – something Dada Nexus is notably lacking. 

Amid the mind-numbing numbers around this year’s Singles Day, which saw industry leader Alibaba (BABA.US; 9988.HK) clock up $84.54 billion in gross merchandise volume (GMV) alone, it’s easy to overlook smaller companies like Dada that enable the big names like Alibaba.

Dada, which became majority controlled by Alibaba rival JD.com (JD.US; 9618.HK) earlier this year, said it posted record sales and deliveries during this year’s Singles Day, which has grown from a single day event to one lasting around two weeks. While Dada didn’t provide specific numbers, its performance points to an intriguing fourth quarter, suggesting its shares may be worth a closer look.

In the meantime, the company’s third-quarter results released on Tuesday, while pointing to sharp growth, also show a company swimming in a growing sea of red ink. Its net loss grew to 543 million yuan ($85 million) in the three months to September, versus 434 million yuan a year earlier.

While the company might like to focus on its booming revenue, thanks in part to the boost from events like Singles Day, investors seemed more clearly focused on its bottom line. The stock was down 1.4% in after-hours trade after the results were announced, and have actually sagged nearly 6% since Nov. 11.

Dada operates through two complementary but separately operated business platforms: Dada Now and JD-Daojia (JDDJ). Dada Now is a local on-demand delivery platform, while JDDJ delivers goods from local merchants like grocers and florists to buyers.

Because of its local nature, Dada is particularly good at delivering goods quickly. While Alibaba’s Cainiao logistics arm currently aims to deliver anywhere in China within 24 hours, Dada, which specializes in “last mile” intra-city services, aims for deliveries within an hour. It boasted an average delivery time of just 23 minutes on Nov. 11.

During this year’s festival Dada also offered an interesting foretaste of what’s to come, as its autonomous delivery operation system participated for the first time. That system was adopted by a number of major grocery retailers, including 7 Fresh, Yonghui and Sam’s Club, which is owned by Walmart, bringing unmanned delivery for a dozen neighborhoods.

In October, Dada and JD also jointly launched Shop Now, which lets consumers order online and get deliveries from a store within one hour when purchasing products on the JD App. The service uses JD’s location-based technology to deliver products from offline stores within 3 kilometers to 5 kilometers, with more than 100,000 offline retailers registered on the platform.

While providing a potential new growth source, the Shop Now initiative also underscores how Dada’s future prospects are closely tied to its much-larger controlling stakeholder.

Big Fourth Quarter Ahead?

Shop Now and Singles Day came too late to be included in Dada’s third quarter earnings, but give a useful indication of where revenue may be headed in the fourth quarter, which includes Singles Day. Five analysts polled by Yahoo Finance expect the company to earn about $320 million in fourth-quarter revenue, which would represent a slight gain over the $315 million a year earlier.

Here we should note that the year-on-year comparisons haven’t been very meaningful since this year’s second quarter due to a change in how Dada operates the Dada Now service. That change saw Dada go from a direct employer to drivers for the service to using a third-party to employ them starting in April.

The move to using a third-party employer has helped Dada to sharply reduce expenses. Its costs and expenses in the third quarter grew just 27%, far less than the 70% jump in this year’s first quarter before the changes.

Given JD.com’s $800 million investment to take a 51% stake in Dada earlier this year on top of $500 million invested by JD and Walmart back in 2018, Dada clearly has the backing and time to see its revenues grow. But investors are getting impatient for the company to turn a profit – something it has never done since at least 2017.

That said, the company’s stock appears to offer plenty of upside

The shares now trade at the low end of their range for the year, closing at $21.80 Tuesday before the results were announced. That’s near the bottom of their range of $17.57 to $61.27 during the past 12 months.

Its price movement this year has to large extent mirrored that of China’s top three e-commerce players, Alibaba, JD.Com and Pinduoduo (PDD.US). That trio’s shares have all sagged over the year as a result of the pandemic and – more importantly – a steady stream of actions aimed at reining in the group by Beijing regulators.

Looking farther ahead, effective operation of the unmanned delivery technology could be transformative for Dada due to its focus on intra-city deliveries. While the company no longer directly employs riders for Dada Now’s last-mile deliveries, the cost of such riders is still a major factor in the fees it pays to the third-party company that provide those riders. Thus moving to unmanned deliveries would sharply lower employment-linked delivery costs, providing savings that the third-party company could pass on to Dada.

Dada Nexus is relatively large as a China midcap, with a current market capitalization of $5.2 billion. But it’s still dwarfed by the likes of Pinduoduo at $100 billion, JD at about $150 billion and Alibaba at about $370 billion. That underscores Dada’s heavy reliance on JD and Walmart, and also the difficulty it could face as a standalone company going forward.

The company now trades at a price-to-sales (P/S) ratio of 5.34, which looks high compared to peers but not overly inflated given the fact that it’s in the massive China market and is probably too small to be targeted by regulators. Late last year, Amazon’s (AMZN.US) P/S ratio reached 5.56, but is now down to 4.12. Back in China, Alibaba’s P/S ratio is lower than Dada’s at 3.69, while JD’s is far lower at about 1. Pinduoduo remains pricey with a P/S of nearly 16.

(Additional reporting by Doug Young)

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