Introduction: JD.com did something that is now considered correct but was once mocked by Jack Ma: building its own logistics and warehouses. In China's e-commerce industry, few platforms dare to build their own logistics because everyone knows the cost is enormous. Liu Qiangdong did it, and although the company has been in a state of loss, it never seems short of cash. This is mainly because investors are optimistic about JD.com's future development.

To say JD.com is not making money at all is not accurate; it's just that the investment in some business segments is too large, leading to overall losses.

  1. JD Finance is actually profitable; JD's losses are mainly in warehouse construction and logistics, and now the warehouses are basically completed.
  2. The losses of a company like JD.com actually indicate the correctness of its development strategy. The current losses are laying the groundwork for future development. When JD.com starts to make a profit, that will be the peak of its profitability!
  3. Why does Amazon, which lost money for many years, still have a high market value? Why do real estate developers owe banks more than their own liquid cash? If you can't even balance, don't think about being a big company.
  4. JD.com's advertising expenses have already exceeded its break-even point. Now JD.com has become a money-making tool for the four major portals, while it itself keeps losing money.
  5. JD.com is now focused on expansion. As long as the business model is sound, profitability is certain. So even though it appears to be losing money, people still invest for this reason.

So the question is: JD.com keeps losing money, but why doesn't it lack cash? Compare it with Suning and Gome, and you'll understand!

  1. Do you know how important cash flow is to a business?
  2. Gome and Suning's sellers don't make much money, or only earn a hard-earned small profit. Why do they still open so many stores and have big discounts?
  3. The saying "It's okay not to make money now, or make less; once we defeat our competitors, we can make big money later" is pure nonsense. Why?

The three companies have different business models, but their goal is to obtain cash flow. Gome and Suning use cash settlement flows for capital operations to make money.

For example: Suppose I give you 10,000 yuan every day, note that it's every day, and ask you to return 10,000 yuan to me after 3 months, note that it's also every day. Your annual cash flow would be 3.65 million yuan. Did you make money?

With daily inflows and outflows, what they earn is the initial 900,000 yuan, the 3.65 million yuan cash flow, and the bank interest.

The principle is simple. Suppose Gome and Suning have annual revenue of 10 billion yuan. If they delay payment by three months, they have 2.5 billion yuan in cash flow! If they delay by six months, they have 5 billion! Suppose they frantically open stores to expand cash flow, with annual revenue of 20 billion yuan. Delaying payment by three months gives them 5 billion, and by six months, 10 billion!

  1. Do Gome and Suning deposit this money in the bank? No! Before 2007, during China's economic boom and high inflation, and when real estate prices were skyrocketing, with so much money, how could they not invest in real estate or engage in capital operations? They wouldn't just leave it in the bank. Take a piece of land, build a building, and a few years later the property price multiplies. How much profit do you think that makes? Moreover, when Gome and Suning made money through real estate and capital operations, banks would even beg them to borrow money. With cheap bank funds, they could make even more money!

So, the home appliance chain is just a means for Gome and Suning to obtain cash flow! Selling home appliances only earns a small profit, and even if they lose a bit, it doesn't matter, because they can make much more profit elsewhere! But the prerequisite is: cash flow must be sufficient!

  1. This is the fundamental reason why Gome and Suning frantically open new stores!

Therefore, when analyzing Suning's stock (and any company with huge cash flow), you absolutely cannot just look at the home appliance business itself! Some institutions still analyze Suning's sales volume, gross profit, etc., and are confident based on that. Retail investors also dream of Suning's growth, which is laughable to those in the know!

  1. So how are Gome and Suning doing now?

We still have to start with cash flow: Gree has long required payment before delivery, so Suning can't get any advantage, and thus Suning is unwilling to sell Gree. Due to price issues, Gome also fell out with Gree. But after 2000, especially after 2005, more and more home appliance manufacturers like Haier, Hisense, and Skyworth required payment before delivery, or at most a week or half a month's credit. So Gome and Suning's cash flow decreased significantly.

For example, Suning and Gome's sales in 2011 were both 110 billion yuan. If it were still the loose environment of a decade ago, they could occupy manufacturers' funds for three months or even half a year, giving them 27.5 billion or 55 billion yuan in hand. But now they can only occupy half a month's worth, and their cash immediately drops to 4.6 billion!

How many shady projects, how many loss-making projects in urgent need of cash, will be exposed when cash flow decreases significantly?

So when I heard that Suning was going to borrow 8 billion after a 4.7 billion rights issue, I gasped. Suning's continuous financing is not, as some pretentious people say, for "e-commerce and logistics expansion." And Gome recently sold its Gome Commercial building to HNA Group at a 50% discount, getting 5 billion yuan, far below the 10 billion yuan in 2009. Clearly, Gome is also short of cash and had to do this.

In 2007, China's economy was still relatively good. Gome and Suning had years of accumulation, so they could rely on their savings and bank loans to continue. But in recent years, China's economy has not improved, and banks have tightened controls, so Gome and Suning are increasingly short of cash. Now you know how severe their situation is, right?

Alright, let's analyze the current operating environment of Gome and Suning and see their prospects.

Gome and Suning can no longer adopt the past business model of frantically occupying cash, frantically opening stores to expand cash flow, and then using that cash flow for large-scale capital operations.

First, payment methods have led to a significant reduction in cash flow.

Second, they already have enough stores, and e-commerce has developed. JD.com is impacting not only Gome and Suning's profits but also their cash flow!

Third, with limited cash flow, they won't have as many good projects as before, because China's economy is slowing down and the commercial real estate situation is severe. So how much profit will Gome and Suning have?

Fourth, chain stores used to earn a small profit, but now under the impact of e-commerce, they are definitely losing money, and the losses are increasing. But it's hard to let go of a hot potato; closing a store is like cutting off a piece of flesh, and you have to pay in every aspect!

In short: cash flow is much tighter, profits are greatly reduced or even turning into losses—this is the current situation for Gome and Suning. Rely on e-commerce? It can only provide temporary cash flow, and it's impossible to make a profit in the short to medium term!

  1. Theoretically, as long as there is cash flow, losses don't matter!

For example, if a company has an annual cash flow of 10 billion and loses 10 million a year, it can operate for hundreds of years without problems, because it only loses 100 million in 10 years and 1 billion in 100 years. As long as cash keeps flowing, and payments are delayed by a few days or months, who knows if it's making a profit or a loss? So now you know how important cash flow is, right?

A loss-making company with cash flow can patiently wait for a turnaround; a profitable company without cash flow will die immediately!

  1. Let me analyze JD.com with this theory.

As long as JD.com's cash flow continues to expand, what does it matter if it loses a little each year? It can rely on cash flow to sustain itself in the long run! So only analyzing JD's profits, thinking that JD loses hundreds of millions or billions each year and can't survive without financing, and hoping it will go bankrupt in a few years, is wrong.

I only analyze from the cash flow perspective: Suppose JD's annual revenue expands rapidly (increasing by more than 50% per year, which is currently an easy target), then the cash on hand can easily cover losses and delayed payments!

For example, suppose JD's revenue this year is 36 billion yuan, with a loss of 2 billion, and payment delays of one month. Then by the end of the year, JD would actually have 1 billion more cash! (3 billion in accounts payable, minus 2 billion loss). Suppose next year JD's revenue is 54 billion, with another loss of 2 billion, but by the end of the year, cash would only decrease by 500 million (4.5 billion in accounts payable, minus 2 billion loss, and paying off the 3 billion accounts payable left from last year).

So as long as JD's revenue keeps increasing and losses don't increase significantly, JD will have enough cash to last for many years.

So, the battle between JD.com, Suning, and Gome is superficially a battle for market share and profit, but from a financial perspective, the more urgent reason is a battle for cash flow!

Whoever's cash flow is cut off will have their pants pulled down immediately! So who is most urgent now? Obviously Suning and Gome, haha. They are selling assets at a loss and continuously financing, so their cash flow must be urgent! So Suning and Gome can only attract attention by bullying JD.com, while JD.com naturally has to fight back.

So on the surface, the e-commerce war seems like a farce. But insiders understand the logic. Liu Qiangdong knows it well, and Zhang Jindong and Huang Guangyu also know it well. But the pretentious ones don't understand, and the retail investors who still favor Suning don't understand either. They think Liu Qiangdong is bluffing and is outwardly strong but inwardly weak, but the real bluffers are Suning and Gome.

Let's look at the pioneer of e-commerce, Amazon in the US, which has been losing money for the past two decades but has maintained a high market value. This shows that losses don't mean a company has no prospects; what matters is future returns, which is essentially investment.

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