Morgan Stanley: JD.Com May Be Worth Waiting On

By some metrics, the Chinese e-commerce industry is already bigger than the American and U.K. e-commerce markets combined. The Chinese e-commerce industry is expected to grow at a rate that is twice as fast as the U.S. and U.K. — about 20 percent annually — and one of the companies at the forefront is JD.Com Inc(ADR) (NASDAQ:JD).

The Analyst

Morgan Stanley's Grace Chen downgraded JD's stock rating from Overweight to Equal-weight with a price target slashed from $53 to $45.

The Thesis

JD has shown "strong execution" throughout 2017, as the company expanded its margins and entered into new categories like electronics and, more recently, fast-moving consumer goods, Chen said in the downgrade note. (See Chen's track record here.)

But now the company is now facing "intensified" competition in the apparel segment, as more than 100 domestic apparel brands exited JD's platform, Chen said.

The loss of momentum in the apparel segment translated to concerning metrics in the company's third quarter earnings report, the analyst said. Year-over-year growth in gross merchandise volume, or GMV, slowed from 46 to 32 percent in the third quarter over the prior quarter and 42 percent in the first quarter.

JD still offers a "unique value proposition" to merchants, but after a slowdown in GMV, investors may want to consider waiting for a "better reentry point to play the long-term margin expansion story," the analyst said. 

Price Action

Shares of JD were trading lower by more than 1 percent Tuesday morning, but are still up more than 60 percent since the start of 2017.

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Photo courtesy of JD.Com.