DADA - Qudian Unveils Last-Mile Delivery Transformation Plan

2023-09-08 05:20:00 ET

Summary

• Qudian announced it will become a last-mile delivery specialist, with an initial focus on the Australian, New Zealand and U.S. markets.
• The former Chinese online consumer lender revealed it began trialing a new last-mile delivery service in Australia and New Zealand at the end of last year.
• The company has officially ended its original online consumer lending business, and is in the process of winding down a short-lived prepared food service.

And the answer is … last-mile delivery service.

That’s the response to a question that’s been on investors’ minds since the start of this year, namely, what’s next for Qudian Inc. ( QD ) , a former pioneer in China’s consumer lending space. Qudian has experimented in a number of new areas since deciding to ditch its original fintech business a couple of years ago, though each of those ended in disappointment.

The company has plenty of cash to spend on its latest foray into last-mile delivery, with 5 billion yuan ($683 million) in its coffers at the end of June, according to its latest quarterly report released on Thursday. Much of that money has come from the wind-down of its original consumer lending business, which was hugely successful back when Beijing initially allowed private startups into a Chinese financial services sector that was previously dominated by big state-run institutions.

But Beijing later changed its mind, fearing many new players like Qudian were inexperienced and could ultimately pose a big risk to the country’s financial system. Most companies have folded since the subsequent crackdown began, though a few like Qifu Technology ( QFIN ) and FinVolution ( FINV ) remain, mostly facilitating loans between lenders on one side, and consumers and small businesses on the other.

Truth be told, this latest plan by Qudian looks far more interesting than its previous diversification efforts, one into education and another more recently into prepared foods. Last-mile delivery is a relative greenfield compared to the other two areas, and could hold huge potential with the arrival of new technologies like drones and autonomous ground vehicles. Grand View Research estimated the global last-mile delivery market was worth $132 billion last year, and said it’s expected to grow by 8.8% annually between 2023 and 2030.

That said, the space is already becoming crowded with other startups that also see the big potential, as well as e-commerce giants like Amazon ( AMZN ) and China’s own JD.com ( JD ) , which have both showcased efforts with drone technology. In that regard, Qudian’s decision to initially focus on the smaller Australian and New Zealand markets looks like a relatively smart decision to avoid the big boys, at least initially.

Qudian’s announcement didn’t go over too well with investors, at least not at first blush, with the stock tumbling 17% on Thursday. But here we need to take a step back to get the bigger picture. Its stock has actually more than doubled since mid-May on investor anticipation about the company’s next business model. And even after the Thursday selloff, the stock is still more than 60% ahead of its mid-May levels, and is roughly double from where it began the year.

Even after the latest selloff, the company still has a market value of $440 million. Of course, that’s a fraction of the roughly $3.5 billion it was worth shortly after its 2017 IPO in its heyday. But it’s still not chump change, and probably reflects a combination of the company’s large cash holdings plus some guarded expectations for the new business.

Big potential

All that said, we’ll continue with a brief look at Qudian’s latest quarterly financials, before taking a quick look at the limited information on its new last-mile delivery gambit.

The company’s latest financials aren’t really all that significant, since they mostly reflect businesses that are being discontinued. Qudian reported revenue of just 11.1 million yuan for the second quarter, down from 105.4 million yuan a year earlier. The company said revenue from its former bread-and-butter lending business fell to nil as it officially wrapped up that business.

Instead, the revenue came from some lingering orders from its QD Food prepared food business, which is now winding down and should also soon fall to nil. Qudian said it also recorded some revenue from its new last-mile delivery business that it began piloting last December. As it launched that business, its general and administrative costs rose 88% year-on-year in the second quarter, though they were still quite manageable at 65.4 million yuan.

The company posted a 76.9 million yuan net loss for the latest three-month period, widening from a 61.3 million yuan loss in the year-ago period. Again, such losses look relatively inconsequential due to the company’s large cash reserves. As we previously mentioned, those reserves stood at about 5 billion yuan at the end of June, which was unchanged from three months earlier but up sharply from 3.5 billion yuan at the end of last year.

The company didn’t hold an analyst call, probably because no analysts follow it anymore. So, the only information we have on its new plan comes from some brief prepared comments in its results announcement.

“Our new last-mile delivery business has made steady progress since we launched it on a trial basis in December 2022 and started to achieve initial shape and scale in the second quarter of 2023 in Australia under the name of ‘Fast Horse,’” Chairman Luo Min said. “We believe such a new strategic business initiative will bring value to our shareholders, and we expect to expand its footprint across Australia, North America, and New Zealand and will provide more details on the development of this business as we continue to build it.”

China’s leading last-mile delivery specialist, Dada Nexus ( DADA ) trades at a current price-to-sales (P/S) ratio of 1, while U.S. delivery giant UPS ( UPS ) trades at 1.5. That means Qudian would need to quickly ramp up to about $500 million in annual sales from the new last-mile delivery business to justify its current stock price, which seems ambitious but doable.

At the end of the day, Qudian’s latest directional shift comes with quite a bit of risk, since the company has little or no experience in the delivery business or operating outside China. But founder Luo Min has also proven himself quite the entrepreneur, which includes decisions to quickly end his education and prepared food forays after realizing they wouldn’t succeed. Accordingly, we’d give this latest move a cautious thumbs-up for its creativity, though we’ll also be watching closely to see if it ultimately gains traction or ends up as just another failed effort.

Disclosure: None

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Editor's Note: The summary bullets for this article were chosen by Seeking Alpha editors.

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