JD.com Inc. shares fell after the company reported a sharp drop in revenue growth as Chinese shoppers rein in spending.
(Bloomberg) — JD.com Inc. shares fell after the company reported a sharp drop in revenue growth as Chinese shoppers rein in spending.
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. JD’s US-traded shares slid as much as 9.6% to $42.45 in New York, the lowest 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.
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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,” Chief Executive Officer Xu Lei told analysts on a conference call. “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.
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What Bloomberg Intelligence Says:
JD.com’s total retail earnings gain in 4Q would have surpassed revenue growth as Covid-led weakness in consumer and business sentiment across mainland China prompted the firm to tighten cost controls from a year earlier. It likely also cut overseas expenses as the firm took steps to cease operations in Indonesia and Thailand by March this year.
JD.com’s plan to offer 10 billion-yuan worth of subsidies to shoppers on its platforms could lift average spending per active user and attract new customers this year. This might help the firm meet consensus expectations for an acceleration in revenue growth to 15% in 2023 vs. about 10% the prior year.
– 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 19% this year.
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