6. Investment in equity investees

Cost method

As of December 31, 2015 and 2016, the carrying values of the Group’s cost method investments were RMB3,308,127 and RMB5,714,513, respectively. Investments were accounted for under the cost method if the Group had no significant influence over the investee or if the underlying shares the Group invested in were not considered in-substance common stock and had no readily determinable fair value. For the years ended December 31, 2015 and 2016, the Group invested RMB2,856,500 and RMB2,580,640 in multiple private companies accounted for under cost method respectively, which may have operational synergy with the Group’s core business. During the year ended December 31, 2016, investment consideration for the top two investees were RMB1,298,700 and RMB344,325, respectively.

Equity method

As of December 31, 2016, the Group’s investments accounted for under the equity method totaled RMB9,520,507 which mainly included the investment in Yonghui Superstores Co., Ltd, (“Yonghui”) amounting to RMB4,234,845, the investment in Bitauto Holdings Limited (“Bitauto”) amounting to RMB2,386,118, the investment in Dada Nexus Limited (“Dada”) amounting to RMB1,443,239, and the investment in Tuniu Corporation (“Tuniu”) amounting to RMB1,198,405. The Group applies the equity method of accounting to account for its equity investments, in common stock or in-substance common stock, over which it has significant influence but does not own a majority equity interest or otherwise control.

Investment in Yonghui

On August 11, 2016, the Group completed the investment in Yonghui through the subscription of newly issued ordinary shares representing 10% equity interest in Yonghui. Yonghui is a leading hypermarket and supermarket operator in China and is listed on the Shanghai Stock Exchange. Total consideration for the investment in Yonghui was RMB4,234,929 in cash. Investment in Yonghui is accounted for using the equity method as the Group has obtained significant influence by the right to nominate two board members out of eleven. The investment cost allocated as follows:

	As of August 11, 2016		As of December 31, 2016
	RMB		RMB

Carrying value of investment in Yonghui	4,234,929		4,234,845
Proportionate share of Yonghui’s net tangible and intangible assets	1,869,905		1,877,196

Excess of carrying value of the investment over proportionate share of Yonghui’s net tangible and intangible assets	2,365,024		2,357,649


The excess of carrying value has been primarily assigned to:
Goodwill	1,270,190		1,270,190
Amortizable intangible assets (*)	1,459,779		1,449,946
Deferred tax liabilities	(364,945	)	(362,487	)

	2,365,024		2,357,649


Cumulative losses in equity interest in Yonghui	—		(84	)

(*) Weighted average life of the intangible assets not included in Yonghui’s consolidated financial statements was 18 years.

As of December 31, 2016, the market value of the Group’s investment in Yonghui was approximately RMB4,699,097 based on the quoted closing price as of December 31, 2016.

Investment in Bitauto

On February 16, 2015, the Group completed its investment in Bitauto through the subscription of newly issued ordinary shares, representing approximately 25% of the outstanding ordinary shares of Bitauto. Bitauto is a leading provider of internet content and marketing services for China’s fast-growing automotive industry that is listed on the Nasdaq Global Select Stock Market (“Nasdaq”). Total consideration for the initial investment in Bitauto was RMB5,496,188 with a combination of RMB2,450,920 in cash and RMB3,045,268 in the form of future services, including exclusive access to the new and used car channels on the Group’s website and mobile apps and additional support from the Group’s key platforms for a period of 5 years. On June 17, 2016, the Group additionally acquired Bitauto’s newly issued ordinary shares by paying the cash consideration of RMB328,975. After the subsequent investment in June 2016, the Group held approximately 26% of Bitauto’s issued and outstanding shares. Investment in Bitauto is accounted for using the equity method with the investment cost allocated as follows:

	As of February 16, 2015		As of December 31, 2015		As of December 31, 2016
	RMB		RMB		RMB

Carrying value of investment in Bitauto (*)	5,496,188		2,881,194		2,386,118
Proportionate share of Bitauto’s net tangible and intangible assets	2,119,109		2,141,053		2,492,056

Excess of carrying value of the investment over proportionate share of Bitauto’s net tangible and intangible assets	3,377,079		740,141		(105,938	)


The excess of carrying value has been primarily assigned to:
Goodwill (*)	2,846,260		260,619		—
Amortizable intangible assets (**)	707,758		639,362		(105,938	)
Deferred tax liabilities	(176,939	)	(159,840	)	—

	3,377,079		740,141		(105,938	)


Cumulative losses in equity interest in Bitauto	—		(2,614,994	)	(3,439,045	)

(*) In the fourth quarter of 2015 and 2016, the Group conducted an impairment assessment on its investment in Bitauto considering the duration and severity of the decline of Bitauto’s stock price after the investment, as well as the financial condition, operating performance and the prospects of Bitauto, and concluded the decline in fair value of the investment was other-than-temporary. Accordingly, the Group recorded a charge of RMB2,585,641 and RMB672,886 to write down the carrying value of its investment in Bitauto to the fair value, based on quoted closing price of Bitauto’s stock as of December 31, 2015 and 2016, respectively.

(**) Weighted average life of the intangible assets not included in Bitauto’s consolidated financial statements was 5 years.

As of December 31, 2015 and 2016, the market value of the Group’s investment in Bitauto was approximately RMB2,881,194 and RMB2,386,118 based on the quoted closing price, respectively.

Investment in Dada

In April 2016, the Group signed series of agreements with Dada, China’s largest crowdsourcing delivery platform. The Group obtained a) the newly issued ordinary shares of Dada which represents approximately 81% of the issued and outstanding ordinary shares, or approximately 41% of the equity interests of Dada on a fully diluted basis, b) the newly issued preferred shares of Dada which represents approximately 7% of the equity interest in Dada on a fully diluted basis, and c) A warrant to purchase additional preferred shares of Dada at a pre-determined price for the next 2 years. Total consideration for the above investments and warrant was RMB3,508,200 with a combination of RMB1,298,700 in cash, the Group’s future services, including supply chain support for a period of 10 years, traffic and other additional support for a period of 7 years, non-compete obligation in O2O business for a period of 7 years, and the Group’s O2O business, JD Daojia. The Group holds two board seats out of five with the founder of Dada holding the casting vote after the transaction.

With the assistance of an independent appraiser, the Group estimated the fair value of the assets/investments received as follows:

		As of
		April 26, 2016
		RMB

Assets/investments received by the Group
Dada’s ordinary shares		2,164,050
Dada’s preferred shares		1,298,700
Warrant to purchase Dada’s preferred shares		45,450

		3,508,200

As the Group disposed a consolidated business (JD Daojia), a disposal gain of RMB1,227,760 was recorded in others, net in the Consolidated Statements of Operations and Comprehensive Loss, which equals to the difference between the fair value and carrying value of JD Daojia as of the disposal date of April 26, 2016.

The investment in Dada’s ordinary shares is accounted for using the equity method with the investment cost allocated as follows:

	As of		As of
	April 26, 2016		December 31, 2016
	RMB		RMB

Carrying value of investment in Dada’s ordinary shares	2,164,050		1,443,239
Proportionate share of Dada’s net tangible assets, liabilities and intangible assets	424,140		(290,365	)

Excess of carrying value of the investment over proportionate share of Dada’s net tangible and intangible assets	1,739,910		1,733,604


The excess of carrying value has been primarily assigned to:
Goodwill	1,605,891		1,605,891
Amortizable intangible assets (*)	178,692		170,284
Deferred tax liabilities	(44,673	)	(42,571	)

	1,739,910		1,733,604


Cumulative losses in equity interest in Dada	—		(720,811	)

(*) Weighted average life of the intangible assets not included in Dada’s consolidated financial statements was 9 years.

The investment in Dada’s preferred shares is accounted for under the cost method as the underlying preferred shares were not considered in-substance common stock and had no readily determinable fair value. The warrant is a freestanding financial instrument and was recorded at fair value of RMB45,450 upon initial recognition.

Investment in Tuniu

In December 2014, the Group acquired 6.5% equity interest in Tuniu with cash consideration of RMB305,930 (“Initial Investment”). Tuniu is a leading online leisure travel company in China that is listed on the Nasdaq. The Group accounted for the Initial Investment as an available-for-sale security.

On May 22, 2015, the Group additionally acquired Tuniu’s newly issued ordinary shares for total consideration of RMB2,188,490 with a combination of RMB1,528,275 in cash and RMB660,215 in the form of future services, including granting Tuniu an exclusive right, for a period of 5 years, to operate the leisure travel channels on the Group’s website and mobile apps, and Tuniu becomes the Group’s preferred partner for hotel and air ticket booking services. After the subsequent investment in May 2015, the Group held approximately 28% of Tuniu’s issued and outstanding shares and had one board seat. Hence, the Group adopted equity method of accounting to account for the investment in Tuniu. In accordance with ASC 323, accumulated unrealized gains of RMB14,395 that were previously recorded for fair value change of the Initial Investment were reversed in the second quarter of 2015, and the cost of Initial Investment balance was adjusted as if the equity method of accounting had been applied since the Initial Investment was made and reclassified from investment securities to investment in equity investees in the Consolidated Balance Sheets. In January 2016, Tuniu issued new shares to HNA Tourism Group, a third party investor, for an aggregate price of approximately US$500,000 and the Group’s interest in Tuniu was diluted to approximately 21% as of January 21, 2016. As the issuance price per share was higher than the Group’s average carrying value per share, the Group recorded a gain of RMB108,495 to reflect the deemed disposal.

Investment in Tuniu is accounted for using the equity method with the cost allocated as follows:

	As of		As of		As of
	May 22, 2015		December 31, 2015		December 31, 2016
	RMB		RMB		RMB

Carrying value of investment in Tuniu (*)	2,494,145		2,343,301		1,198,405
Proportionate share of Tuniu’s net tangible and intangible assets	1,014,296		878,668		1,006,763

Excess of carrying value of the investment over proportionate share of Tuniu’s net tangible and intangible assets	1,479,849		1,464,633		191,642


The excess of carrying value has been primarily assigned to:
Goodwill (*)	1,212,149		1,212,149		23,899
Amortizable intangible assets (**)	356,933		336,645		223,657
Deferred tax liabilities	(89,233	)	(84,161	)	(55,914	)

	1,479,849		1,464,633		191,642


Cumulative gains/(losses) in equity interest in Tuniu	—		(150,844	)	(1,295,740)

(*) In the second quarter of 2016, the Group conducted an impairment assessment on its investment in Tuniu considering the duration and severity of the decline of Tuniu’s stock price after the investment, and concluded the decline in fair value of the investment was other-than-temporary. Accordingly, the Group recorded a charge of RMB721,501 to write down the carrying value of its investment in Tuniu to its then fair value of RMB1,454,578, based on the quoted closing price of Tuniu as of June 30, 2016.

(**) Weighted average life of the intangible assets not included in Tuniu’s financial statements was 8 years.

As of December 31, 2015 and 2016, the market value of the Group’s investment in Tuniu was approximately RMB2,700,098 and RMB1,579,417 based on the quoted closing price, respectively.

The Group summarizes the condensed financial information of the Group’s equity investments as a group below in accordance with Rule 4-08 of Regulation S-X:

	For the year ended December 31,
	2015		2016
	RMB		RMB
Operating data:
Revenue	9,937,684		37,129,877
Gross profit	2,935,620		4,829,800
Loss from operations	(1,592,094	)	(3,138,278	)
Net loss	(1,572,381	)	(3,376,144	)
Net loss attributable to shareholder	(1,597,903	)	(3,736,188	)

	As of December 31,
	2015		2016
	RMB		RMB
Balance sheet data:
Current assets	13,606,870		47,159,053
Non-current assets	6,838,075		26,252,671
Current liabilities	6,518,096		27,108,229
Non-current liabilities	146,008		4,559,231
Redeemable stock	—		4,795,473
Non-controlling interests	1,714,021		4,072,998

The Group recorded its interests in Yonghui, Bitauto, Dada and Tuniu one quarter in arrears to enable the Group to provide its financial disclosure independent of the reporting schedule of these equity investees.

The Group performs impairment assessment of its investments under the cost method and equity method whenever events or changes in circumstances indicate that the carrying value of the investment may not be fully recoverable. Impairment charges in connection with the cost method investments of nil, RMB285,051 and RMB436,621 were recorded in others, net in the Consolidated Statements of Operations and Comprehensive Loss for the years ended December 31, 2014, 2015 and 2016, respectively. Impairment charges in connection with the equity method investments of nil, RMB2,585,641 and RMB1,416,801 were recorded in share of results of equity investees in the Consolidated Statements of Operations and Comprehensive Loss for the years ended December 31, 2014, 2015 and 2016, respectively.