Can JD.COM.com electrify its share price with robust Q1 earnings?

Ecommerce giant JD.com’s [JD] first quarter 2020 earnings announcement comes amid a booming stay-at-home economy.

The increase in demand for ordering products online has spurred on share prices in the e-commerce sector. There has been an industry-wide return of 2.9% in the last 90 days, ending 13 May, according to data from Simply Wall St.

Compared to this and a broader market decline of 14.5%, JD.com’s 12% return in the same period of time shows the stock is proving resilient.

When most indices were crashing to record lows in March, the stock was on the way up. JD.com’s share price has gained 33% YTD to 12 May’s close of $47, giving the company a bloated market cap of $69bn on the Nasdaq.

Digging further into its valuation, JD.com’s PE ratio of 319.93 on Yahoo Finance suggests its overstretched ahead of it announcing its first-quarter results on Friday (15 May).

The share price is trading just 6.8% off its all-time high from of $50.50 achieved in January 2018. Can investors and traders expect it to reach a new record or will an earnings miss send it tumbling?

Retail segment in spotlight 

China is one of the world’s largest e-commerce markets. Retail e-commerce spending is estimated to have amounted to $1.9trn in 2019, according to Statista.

JD.com is one of the three leading e-commerce companies in China, which together make up 80% of the total online retail sales, and as such is in a prime position to benefit from the increase in online spending.

The company’s last quarter performance already indicated a strong uptick in customers during the first month of the epidemic. It reported an 18.6% year-over-year surge in active customers to 362 million in the fourth quarter.

The rise in customers helped it report RMB170bn in net revenues for the quarter, a 26% increase from the previous. In its earnings call the company noted its retail segment saw a 95% increase in non-GAAP operating income to RMB13.8bn for the full-year.

During the earnings call, CEO of JD Retail Lei Xu acknowledged a spike in old customers returning to its platform with some inactive users becoming more and more active as well. “We are waking them up,” he said.

Xu pointed to the “competitiveness advantage” of the company’s business model due, highlighted by the pandemic, adding that the company was working to develop more omnichannel collaboration.

Head in the clouds

JD.com has already started to expand its cloud and AI offerings. The company recently forged a deal with cloud and security platform Cloudflare [NET], which should help it compete against rivals such as Alibaba [BABA] and Pinduoduo [PDD].

The strategic partnership would see the company’s Cloud & AI segment — formed in December last year — provide the capital and infrastructure for Cloudflare to design and build its new e-commerce and logistics network.

While the deal will initially see JD.com’s margins weighed down, once the new data centres come online Cloudflare’s costs for paying to use the infrastructure will open a new revenue stream for the business, according to Leo Sun, writing in The Motley Fool.

Sun notes that IDC ranked the company tenth in China’s cloud service market in the first half of 2019, meaning it has a long way to go if it plans to take a significant foothold in the area.

JD.com share price vitals, Yahoo Finance, 13 May 2020

Although there are many uncertainties blurring the outlook for the company’s first-quarter results, it expects net revenues to improve by 10% from the same quarter in 2019.

Zacks Equity Research takes a more conservative outlook, suggesting revenue growth of 6.3% from the year-ago period, but notes that the company has an average positive earnings surprise of 123.98%.

Out of 44 analysts polled by CNN Business, the stock has a massive median price target of $354, representing a 653% increase from the last price of $47.

Without a doubt, analysts have taken a bullish outlook on the share price, with 47 analysts rating it a buy.