The Curious Case of DADA Nexus and the Arbitrage Opportunities Coming with It
Source: TradingView
What Is DADA Nexus?
Source: DADA Investor Presentation
DADA is an e-commerce company in China, majority of which is owned by JD.com. DADA consists of two businesses:
- JD Now: On-demand Online to Offline (O2O) marketplace (40% of total revenue)
- DADA Now: Crowd-sourced last-mile delivery platform (60% of total revenue)
JD Now deals with non-food supermarket goods, as well as consumer electronics, home appliances, pharmaceutical products, and cosmetics. It provides an opportunity for offline merchants to expand sales online, while fulfilling orders within an hour - much faster than traditional e-commerce players. JD Now is the second largest player in this market, just after Meituan’s Instashopping.
DADA Now fulfills the orders from JDDJ, but they can also fulfill last-mile orders from the sister company JD Logistics, as well as third parties such as Douyin.
In January 2025, DADA announced that JD.com plans to take it private by buying the remaining outstanding shares for $2.00 per ADS. At that moment, JD.com owns 63.2% of DADA implying that DADA is technically controlled by JD and the deal has a very high chance to go through. Extraordinary general meeting of shareholders will be held on June 10, 2025 to vote and potentially authorize the acquisition.
Is $2.00 a Lowball Offer?
At the time of the merger announcement in January, the price was just $1.40 and it jumped around 30% on the same trading day, which is a great premium. However, if we look in the bigger time frame, $2.00 per ADS is quite low.
Source: TradingView
The company IPO-ed at $16 in 2020 and in November the same year it reached its all-time high at $56. In 2022, JD took the majority of the control of DADA by paying approximately $20 for ADS. But what is the fundamental value then?
With $2.00/ADS and 258.25 million shares outstanding, the market capitalization of DADA is just $512.50 million. DADA also has $411.44 million in cash, which makes the total enterprise value to be just $101.06 million.
In 2024, the total revenue of the company was $1,323.93 million, 2.6x bigger than the market cap and 13.1x bigger than the total enterprise value.
It is true that currently the company is still not breakeven with $300 million net loss, however the industry is pretty lucrative. The total GMV is 770 billion RMB with expected CAGR of 25-30% and JD NOW controls around 30% of the market. Considering the high potential growth and the fact that this kind of business model relies on economies of scale, we can predict that there is a big runaway for DADA’s profitability.
Another bull point for DADA is its partnership with JD. JD is among the top three e-commerce companies in China and JD NOW is already well integrated within the main JD app. JD NOW user count is far from mature, as the current number of users of JD NOW is just a mid-single digit % of total monthly JD’s users, implying a very early stage of penetration.
With 0.4 P/S ratio and 0.1 EV/S ratio, DADA real value is way higher than $2.00/ADS, and should be somewhere around $9.00 and $37.00/ADS.
Source: TradingKey
Strategies
This peculiar situation gives an opportunity for investors to undertake three trading strategies:
Strategy 1: Buy the Stock and Wait for a Miracle
Currently, the chance the acquisition to be completed is quite high. However, as we have seen from our valuation, this deal is obviously not very good from a corporate governance perspective, as this goes strictly against the interest of minority investors. Some investors are already looking for legal solutions, thus there might be a slim chance for SEC to consider the deal as invalid. If that happens, DADA stock price may skyrocket.
This creates an asymmetrical opportunity where the downside is limited (in our case, no downside) but the upside potential is quite high (we assume $9.00 per ADS for our upside scenario):
E(R) = w1*r1+(1-w1)*r2
Source: TradingKey
There are certain considerations when it comes to DADA’s stock. First of all, it is the stock short interest. Currently, the short interest of the stock is approximately 6.9 million shares, which is less than 3% of the total shares outstanding – a moderate number. The average trading volume for the past three months has been 2.83 million shares, implying the stock is not illiquid.
Strategy 2: Sell the sisters
JD has a majority ownership in two other listed companies in Hong Kong. JD Health and JD Logistics with respective ownership of 67% and 68%. Considering that the DADA deal is not very minority investor-friendly, a successful deal with DADA would shake the confidence of JD Health and JD Logistics minority investors with the concern that JD.com may lowball them the same way how JD.com is lowballing DADA minority investors, which will lead to selling pressure towards the Hong Kong-listed entities.
It is also useful to know that JD Health and JD Logistics have both dropped significantly in the last four years, similar to what we see with DADA.
Source: TradingView
Strategy 3: Play the volatility
As of 26th of May, the stock price of DADA is $2.15 and the deal is expected to close in Q3. During this period volatility may push or pull the price away from the range of $2.00 and this will give investors a chance to be bullish on the stock if it drops too much or goes too much above the agreed acquisition price.
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