JD.com Shares Drop on cautious Outlook for Consumer Recovery
(Bloomberg) -- JD.com Inc. shares fell after the company reported a sharp drop in year-end revenue growth as Chinese shoppers reined in spending, and cautioned a recovery will take time.
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Its wariness comes despite signs of a rapid rebound in consumer spending in China in recent weeks, underlining the uncertainty that hangs over the world’s biggest manufacturing nation.
China’s second-largest online retailer said Thursday revenue rose 7% from October to December, down from 23% growth a year earlier. It and larger rival Alibaba Group Holding Ltd. have grappled with weak consumption sentiment since the world’s No. 2 economy buckled under the weight of China’s rigid Covid control measures.
Total revenue may fall by 1% on year in the three months to March, according to Jefferies analyst Thomas Chong, who said the recovery in overall domestic consumption this quarter may be sluggish. JD’s shares fell as much as 12% in Hong Kong on Friday to their lowest level since November.
China’s exports and imports continued to decline in the first two months of 2023, clouding the outlook for an economy gradually recovering from the Covid years and waves of infection. Economists expect consumption to be the main driver of GDP this year, but the data showed a slowdown in urbanization and a rise in inequality in 2022, two trends which could slow private spending. Alibaba had reported a mere 2.1% rise in quarterly revenue in 2022’s final three months, underscoring the economic uncertainty that’s prevailed even after China abolished Covid restrictions in December.
Like Alibaba and Tencent Holdings Ltd., JD faces intensified competition from up-and-comers such as PDD Holdings Inc. and ByteDance Ltd., and has balanced tightened cost controls with targeted measures to shore up its market share. JD is closing its Indonesia and Thailand shopping sites while launching a 10 billion yuan ($1.4 billion) discount program back home, spurring worries of a new wave of competition in Chinese online commerce.
Read more: JD.com Falls as Lockdowns Hit Electronics Sales: Street Wrap
While voicing “cautious optimism” regarding China’s consumption rebound, JD Chief Executive Officer Xu Lei told analysts on a conference call the pace of recovery ahead hinges on consumer confidence. Demand would likely pick up pace in the second half of the year, the company said.
The company expects to control its overall marketing costs, in part by roping in merchants to help control the expense from discounts.
“What we hope to do is to transform our marketing strategy from focusing on big sales to creating an environment of everyday low prices, gradually shifting people’s shopping behavior,” Lei said. “These programs will have a limited impact on our margins.”
JD reported sales of 295.4 billion yuan in the period, slightly below the 295.5 billion yuan average of analysts’ projections. JD, which on Thursday declared a $1 billion dividend for shareholders, posted net income of 3 billion yuan, versus a 2.9 billion yuan estimate.
Executives on Thursday affirmed that the company was pulling out of Southeast Asian e-commerce for now, because building a regional operation would require too much investment over a long period. It remains a leading domestic player, along with Alibaba, in logistics. JD said Thursday it sold Class B preferred shares in its supply chain services unit JD Industrials to a group of unidentified investors.
JD will stay focused on lowering costs, increasing efficiency and improving user experience, Xu said.
Read more: China Tech Giants Tumble Amid Growing Fears of Price Wars
What Bloomberg Intelligence Says:
The narrowing of JD.com’s retail profit gain in 2023 could be steeper than consensus’ expectation if the company fails to lift sales this year by more than 9% year over year, we calculate. JD.com appears on track to meet consensus for a 5% retail revenue gain in 1Q as sales of select categories during the Women’s Day bazaar on its platform surpassed expectations with the support of 1 billion yuan of subsidies and marketing spending. But a stronger sales gain will be needed to spur savings from economies of scale and fully offset cost increases from the 10 billion yuan price subsidy program this year, we calculate.
JD.com cited improving consumer confidence in China year to date but similar to Alibaba and Vishop appeared cautious on the outlook.
- Catherine Lim and Trini Tan, analysts
Click here for the research.
Founded by billionaire Richard Liu, JD largely avoided a direct hit from Beijing’s 2020 and 2021 crackdown on the country’s biggest internet companies. That regulatory assault left Alibaba — the target of a months-long antitrust investigation — reeling and struggling to revive growth. Its annual revenue surpassed 1 trillion yuan for the first time in 2022.
Still, JD has joined a selloff in Chinese tech shares this year despite Beijing officials repeatedly expressing support for the private sector — reflecting lingering uncertainty about regulators’ objectives. JD’s Hong Kong-listed shares are down about 28% this year.
Read more: Missing Banker Reignites Fear of Xi Among China’s Tech Bosses
China’s Consumer Spending Is Showing Signs of Strong Rebound
--With assistance from Ville Heiskanen.
(Updates with share reaction in Hong Kong and CEO comment from fourth paragraph)
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