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JD.com’s share price soars after surprise Q2 results; what’s next?

Chinese e-commerce company JD.com [JD] defied analyst expectations by raising its revenue from the same period a year earlier, and posting a surprise rise in its second-quarter net income. The strong quarterly figures sent the company’s share price up by 13% to more than $30 in trading on Tuesday.

JD.com reported Q2 net revenues of 150.3 billion yuan ($21.9 billion), up 23% year-on-year, beating consensus estimates of 147.5 billion. Net profit totalled 618.8 million yuan, compared to net loss of 2.21 billion in Q2 2018, which was lower than the estimated consensus of 658.34 million yuan. 

The company said its strong performance was highlighted by the success of its anniversary sales event in June, which demonstrated “the resilience of our superior business model in a highly competitive industry,” said CEO Richard Liu.

JD.com’s “economies of scale and innovative technologies are driving operating efficiency and further strengthening our business model,” added chief financial officer Sidney Huang.

The company noted that it “continued to attract premium international brands”, with three of Prada Group’s major brands — Prada Miu Miu and Car Shoe — opening first-party flagship stores. “Twenty other fashion and luxury brands have joined the JD platform since April, including French apparel brands Sandro and Maje under the SMCP Group, iconic British brand Mulberry and Italian high-end footwear brand Giuseppe Zanotti,” it said.

“Economies of scale and innovative technologies are driving operating efficiency and further strengthening our business model” - Chief financial officer Sidney Huang

 

What next?

Based on the strength of the company’s share price on Tuesday, investors were clearly pleased to learn that JD.com managed to deliver strong results amid worries about slower Chinese economic growth, and the adverse effects of the US-China trade war. JD.com’s results demonstrate that growing disposable income in China is continuing to enable the country’s e-commerce sector to achieve solid growth.

That growth looks set to continue as the company targets "lower-tier consumers" in the current quarter according to Lei Xu, JD Retail’s chief executive. Approximately 70% of JD’s new users hail from smaller cities and villages across China.

 

Market cap$50.79bn
PE ratio (TTM)206.05
EPS (TTM)0.15
Return on Equity (TTM)7.17%

JD.com share price vitals, Yahoo finance, 14 August 2019

 

With China now seen by many to be holding the upper hand in the trade war following the Trump administration’s last-minute decision yesterday to delay new tariffs, the outlook is looking increasingly rosy for consumer spending inside the country. 

Indeed, online shopping and consumer service spending in China is expected to increase by up to 21% annually over the next three years according to Jefferies analyst Thomas Chong. 

It’s a positive outlook that’s shared by JD.com. The firm has predicted net revenue for the current quarter is set to grow by 24% compared to the same period in 2018.

Disclaimer Past performance is not a reliable indicator of future results.

CMC Markets is an execution-only service provider. The material (whether or not it states any opinions) is for general information purposes only, and does not take into account your personal circumstances or objectives. Nothing in this material is (or should be considered to be) financial, investment or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by CMC Markets or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person.

The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although we are not specifically prevented from dealing before providing this material, we do not seek to take advantage of the material prior to its dissemination.

CMC Markets does not endorse or offer opinion on the trading strategies used by the author. Their trading strategies do not guarantee any return and CMC Markets shall not be held responsible for any loss that you may incur, either directly or indirectly, arising from any investment based on any information contained herein.

*Tax treatment depends on individual circumstances and can change or may differ in a jurisdiction other than the UK.

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