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China's JD.com swings to third-quarter profit, lifting shares

A sign of China's e-commerce company JD.com is seen during the third annual World Internet Conference in Wuzhen town of Jiaxing, Zhejiang province, China November 16, 2016. REUTERS/Aly Song

By Cate Cadell

BEIJING (Reuters) - China's second biggest e-commerce company, JD.com, reported an unexpected profit in the third quarter, though it lost about 100 merchants to fierce competition in the run-up to this month's Singles' Day shopping extravaganza.

JD (JD.O) posted net earnings of 1 billion yuan ($151 million), its highest ever quarterly profit, in the three months to Sept. 30, far above an analyst consensus forecast of a 213 million yuan loss.

The unexpected profit and a 39 percent rise in revenue boosted the company's shares, which were 5 percent higher at 1554 GMT. The company reported a net loss of 807.9 million yuan in the third quarter last year.

More recently, JD said it had lost roughly 100 merchants to competition during the promotion period for "Singles' Day", China's biggest online sales event which ended on Saturday.

Chief Financial Officer Sidney Huang said the brands that left the platform were all major Chinese clothing brands, and that the company expected apparel growth to remain stagnant for the next two quarters before recovering.

JD accused its main competitor, Alibaba, of engaging in "coercive" tactics, saying its rival obliged merchants to choose between online platforms.

"Based on the feedback we received from these merchants, the move was mainly due to the coercive tactics from our competitor," Huang said on a call with analysts.

Alibaba said JD's allegations were false, and that merchants were free to choose which platforms they use.

"Merchants make their own choices. Alibaba's scale and technological advantages make it the preferred partner for the world's top brands," an Alibaba spokeswoman told Reuters.

JD.com booked $19 billion in total sales over the Singles' Day festival, which will be reflected in fourth-quarter earnings. Alibaba recorded over $25 billion in revenue during the event's peak on Saturday.

Once a celebration for China's lonely hearts, Singles' Day has become an annual 24-hour buying frenzy that exceeds the combined sales for Black Friday and Cyber Monday in the United States, and acts as a barometer for China's consumers.

Competition between JD and Alibaba Group Holdings Ltd (BABA.N) has become increasingly heated as the companies invest heavily in overlapping markets.

While JD traditionally leads in online retail sales, backed by extensive infrastructure, Alibaba has sought to win over merchants to its own growing retail platform, underpinned by new investments in logistics this year.

JD's revenue for the third quarter was 83.8 billion yuan, just above analysts' mean estimate of 83.6 billion, according to Thomson Reuters I/B/E/S.

Despite strong bottom-line results, gross merchandise volume (GMV) growth still dropped to its lowest rate in a year, reflecting a seasonal lull in sales before Singles' Day.

Chinese e-commerce giants increasingly experience competitive peaks around bonanza sales events in June and November, interspersed with sluggish interim periods.

"[Sales of appliances and mobile phones] both were dragged by weaker growth in September ... mainly due to competition and slow seasonality," said TH Data Capital analyst Tian Hou in a research note ahead of the earnings.

JD expects revenue for the quarter ending in December to be 107-110 billion yuan, a rise of 35-39 percent, roughly in line with analyst expectations. However, marketing costs related to the November sales, which ran for over a month, are expected to cut into its bottom line.

This year, JD is investing in logistics infrastructure in Southeast Asia, expanding from existing commitments in Indonesia. At home, JD is hoping to tap big spenders with new "white glove" platforms which feature imported food, fashion and electronics.

Last week during a visit to China by U.S. President Donald Trump, JD said it would buy $2 billion in U.S. goods, including $1.2 billion in beef, over the next three years.

($1 = 6.6395 Chinese yuan renminbi)

(Reporting by Cate Cadell in Beijing and Munsif Vengattil in Bengaluru; Editing by Bernard Orr, Mark Potter and Adrian Croft)