JD.com shrugs off crackdown on Chinese internet firms

JD.com reported sales that beat analyst estimates as consumer spending improved, defying a crackdown on the Chinese internet sector that has dragged on growth across the industry.   

The e-commerce giant posted sales of ¥253.8bn for the three months ended June, compared with the ¥248.5bn average of analyst estimates. The 26% growth is the slowest since China first emerged from the pandemic in 2020. Net income tumbled to ¥794.3m, down from ¥16.4bn a year earlier. 

Alibaba posted its first revenue miss in years while Tencent reported the weakest sales growth since 2019, as Beijing widened a campaign to rein in abuses in the e-commerce arena to encompass issues such as data security, online content and, most recently, excessive wealth. While JD.com has not been singled out in any high-profile probe or crackdown, its shares have dropped roughly 40% from a February high, as tightening regulatory scrutiny prompted global investors to flee the Chinese internet sector.   

Sales beat estimates after JD.com boosted total transaction volumes for its annual 6.18 shopping festival 28%, helped in part by the double-digit rebound in retail spending in its home market during the June quarter. But a recent spike in coronavirus cases across parts of China may cloud that recovery, as tough pandemic restrictions hit retail sales towards the end of July.   

In response to the scrutiny and competition, the firm is stepping up investments in areas including online groceries and social commerce as well as infrastructure. It has been aggressively growing its Jingxi unit, as part of efforts to siphon off the lead that rival Pinduoduo has in lower-tier markets. To fund its newer businesses, the e-commerce giant has been spinning off units — its JD Logistics raised $3.2bn in a Hong Kong initial public offering in May. 

“With e-commerce reaching almost full penetration in China, all e-commerce vendors are looking into new investments while enforcing its core business,” TH Capital analyst Tian Hou wrote in a note before the earnings. “If 2020 was a year of high growth for JD, then 2021 is the year of investment. We should expect better top-line but weak bottom line.”

What Bloomberg Intelligence says:

The rise in JD.com’s second quarter retail operating margin against the same period a year earlier may have persisted as economies of scale from the company’s enlarged fulfilment capabilities helped reduce unit cost of transactions on its platforms. JD.com could have also raised the revenue contribution from commissions, marketing and logistics services from April-June against the same period a year earlier. The company may have incurred steeper losses from JD Logistics and new businesses, including its Jingxi platforms, in the second quarter from a year earlier. 

Bloomberg