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Earnings preview: Is there a rebounding opportunity for JD.com?

JD.com

JD.com (9618. HK, JD Nasdaq) will report its first-quarter earnings after the Hong Kong markets close on 11 May. It is the second largest Chinese e-commerce giant, following Alibaba, and a US and Hong Kong dual-listed company. Despite China’s reopening and Beijing’s relaxation on Chinese tech crackdowns, the company’s shares have fallen about 40% year-to-date, at its lowest since October 2022 and March 2020, due to weak guidance for the current quarter.

China’s economic uncertainties and intensifying US-China geopolitical tensions have pressed on US-listed Chinese shares in general. As the company reported fairly strong fourth quarter earnings, there might be opportunities for its shares to bottom out if the upcoming earnings beat market expectations. Below are the numbers and aspects that may steer its near-term price actions in its first quarter earnings results.

Further growth decline in revenue is expected

JD.com reported fourth-quarter revenue at 295.4 billion yuan (US$42.8 billion), a 7.1% growth annually, and the 2022 full-year revenue topped 1 trillion yuan (US$151.7 billion). However, the annual revenue growth slowed to 9.9% in 2022 from a 27.6% increase in 2021. At the same time, its net income rose to 3.0 billion yuan in the final quarter of 2022 from a net loss of 5.2 billion yuan from the same period a year ago, suggesting the company was recovering from the hard government crackdown and COVID restrictions in 2021. The overall performance in 2022 was fairly strong, but investors were not buying it as the company launched a 10 billion yuan subsidy program amid fierce competition from rival Pinduoduo in February, which sparked concerns over its profit margin. CEO Xu Lei also indicated that China’s recovery in the battered retail sector might stay weak due to a lack of consumer confidence in the first quarter. China’s March consumer price index (CPI) remained deflated, and imports declined more than expected in April, reflecting unevenness in the country’s economic recovery. According to Bloomberg, JD.com’s first-quarter revenue is expected to be at 240.7 billion yuan or a 0.4% growth year over year. The expected net income is 5.3 billion yuan, and an earnings per share of 0.86 yuan, compared to a net loss per ADS of 1.92 yuan from a year ago.

User growth losses momentum

The company didn’t disclose the total annual active customer accounts in its fourth-quarter earnings report, and only showed that the number of the company’s paid members - JD PLUS – reached 34 million. According to its first three quarterly reports, JD.com’s annual active customer accounts increased by 16.2%, 9.2%, and 6.5% to 588.3 million by the end of September 2022, indicating its user growth decelerated last year.

The logistics business remains strong

Notably, JD.com’s second-largest revenue contributor, JD Logistics, remained strong, with a 41% growth in the fourth quarter of 2022, compared with a 27% increase during the same quarter in 2021. The company stated that it continued the “uninterrupted delivery services” during the Chinese New Year holiday and “JD Airlines further expanded its all-cargo routes”.

Technical analysis: JD.com ADR shares

Source: CMC Markets as at 9 May 2023

JD.com’s shares downtrend is intact but shows signs of bottoming at the recent low as RSI reverses up from oversold territory. The pivotal support may be at the recent low of 33, and near-term potential resistance remains around the 50-day moving average of 41. A bullish breakup of this level may take its share price to further test the resistance of 46, confluence with 38.2% Fibonacci retracement.  


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