One of China’s leading e-commerce companies, JD.com, Inc. (NASDAQ: JD), also known as Jingdong and internationally as Joybuy, waited until after the bell in the Hong Kong bourse to deliver impressive market-beating bottom-line and top-line figures for the first quarter (2023Q1). The second-largest retailer in Asia didn’t disappoint after reporting earnings per share (EPS) beat by 34.88%, sending the share 7.21% higher in the US trading session.
JD.com demonstrated strong performance and resilience in the face of volatile macroeconomic conditions in China and globally. However, the market sentiment seems to be dampened by the announcement that the company’s Chief Executive Officer (CEO), Xu Lei, will depart from the top job just over a year after he started. The market jitters sent the share 1.4% lower after hours in the US session.
The daily chart shows that the e-commerce giant’s share is under bearish pressure, which has seen the share decline over 32.9% from its turn-of-the-year share price of $57.97/share. However, the share price has found buyers recently and is currently 5.35% higher for the month. The pre-market share price of $37.14/share offers a compelling discount of 37.34% from the share’s fair value of $59.27/share when using the discounted cash flow model, offering a sizeable room for the upside.
Should the bears regain control and continue to push the price lower, investors could closely watch the share price’s reaction around the $33.17/share support (black dotted line). A sustained break below the initial support level could trigger a breakout towards the next level of significance at the $27.57/share support level. However, should the bulls push the price higher, the 23.60% Fibonacci retracement level could test the bulls’ charge up, with the resistance level at $48.96/share acting as the next level of significance to the rally.
The e-commerce giant demonstrated strong financial performance in the first quarter of 2023, with net revenues of RMB243.0 billion (US$135.4 billion), representing a 1.4% year-on-year increase from the same quarter last year. The rise was driven by the significant 34.5% year-on-year growth in service revenue, reaching RMB47.4 billion (US$6.9 billion), with logistics and marketplace rise of 61% and 8%, respectively, leading to the increase. The growth in service revenue offset the 4.3% year-on-year decline in product revenue, which was primarily dragged down by the 9% and 1% decline in merchandise and electronic and home appliances revenue, respectively. The quarterly performance beat the street’s expectation of EPS of $0.514 on revenue of $35.054 billion.
The company’s profitability improved in the first quarter, with income from operations of RMB6.4 billion (US$0.9 billion) and non-GAAP income from operations of RMB7.9 billion (US$1.1 billion), compared to RMB2.4 billion and RMB4.7 billion, respectively, in the first quarter of 2022. The profitability of 2023Q1 was primarily driven by an 8% decline in the company’s marketing costs and improved economies of scale from the higher retail and logistics volume.
JD Retail, the company’s core business segment, saw its operating margin increase to 4.6% in the first quarter of 2023, compared to 3.6% in 2022Q1. The company’s net income attributable to the company’s ordinary shareholders for the first quarter of 2023 was RMB6.3 billion (US$0.9 billion), a significant improvement from a net loss of RMB3.0 billion in 2022Q1, came as a welcomed breath of fresh air to the company’s investors. Non-GAAP net income attributable to the company’s ordinary shareholders reached RMB7.6 billion (US$1.1 billion), compared to RMB4.0 billion in the same period last year.
The picture below compares JD.com’s share performance to its peers in the past decade. JD.com’s impressive share total return of 87.20% over the past ten years stands out in comparison to its peers, most of whom have faltered to a negative share return for its shareholders. Among the mentioned competitors, Alibaba Group Holding Ltd., a prominent player in the e-commerce industry, achieved a total share return of -6.39%. This indicates that JD.com has significantly outperformed Alibaba in terms of shareholder returns. Overall, the excellent performance compared to the market could highlight JD.com’s ability to deliver substantial value to its shareholders through effective business strategies and operational execution and could find favour in investors looking to invest for the long term.
While JD.com has generated a respectable total return of 87.20% over the past ten years, the S&P 500 Index has outperformed the share with a total return of 118.63%. However, the picture shows that the company’s share performance was heavily affected by the COVID pandemic, and the market could find a silver lining in that amongst its’ major competitors, JD.com was the only peer to return positive returns for their shareholders.
JD.com has successfully expanded its service offerings, with service revenues accounting for 20% of total revenues in the first quarter. The company has attracted a record number of third-party merchants to its platform, further strengthening its position in the e-commerce market. JD.com has also made strategic partnerships and collaborations in various sectors, such as healthcare, home appliances, and logistics, to enhance its ecosystem and provide a superior platform for its merchants and suppliers. Management’s remarks that the company will continue improving their business structure with the aim of driving the expansion of its user base in the Asian economy sent its investors and admirers jumping for joy.
JD.com’s strong financial performance, expanding service revenues, improving profitability, and strategic partnerships position it well for future growth. The company’s focus on enhancing its user base, providing quality products and services, and seizing growth opportunities across its businesses is expected to drive sustainable growth in the long term.
At the current share price, JD.com looks enticingly like an attractive investment opportunity for an investor seeking exposure to the Chinese e-commerce and technology sector. The share price could offer investors a potential 37.34% return as the share converges towards its fair value. However, investors could also find long opportunities to maximise their value as the share price pulls back towards the $33.17/share and $27.57/share support levels.
Sources: TradingView, Koyfin, Seeking Alpha, JD.com, CNBC.
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