If JD.com Falls After Q4 Print, KeyBanc Says Buy The Dip

JD.Com Inc(ADR) JD is scheduled to report fourth-quarter results before Thursday's market open, and investors should be buyers of any weakness if the print disappoints, according to KeyBanc.

The Analyst

KeyBanc Capital Markets' Hans Chung maintains an Overweight rating on JD.com's stock with an unchanged $56 price target.

The Thesis

Beijing-based JD is likely to report a revenue beat in Q4, but there are some margin concerns, Chung said in a research report. Alibaba Group Holding Ltd BABA's increase in marketing expenses and increase in non-monetized ad inventory, coupled with a sequential decline in Vipshop Holdings Ltd - ADR VIP's active customers and strong e-commerce advertising at Baidu Inc (ADR) BIDU could signal lower margins for JD in the quarter, the analyst said. 

Heightened promotional activity at JD could lead to higher gross merchandise volume growth, similar to what Alibaba reported in its recent quarter, Chung said. Over the longer term, JD's margin expansion story remains unchanged due to the following factors, the analyst said:

• 1P's gross margin is "well below" rivals but its revenue scale is larger or at least similar to top retailers.
• The company will see a mix shift from 1P to general merchandise, and apparel 3P should see a recovery in the bottom half of 2018.
• JD could see fulfillment leverage from growing scale and logistics monetization.

The e-commerce retailer's path of margin expansion will likely be "more moderate" in the near- and mid-term, and any weakness following the upcoming earnings report should be taken advantage of by investors, Chung said. 

Price Action

Shares of JD.Com were trading lower by more than 3 percent at $47.32 at the time of publication Tuesday afternoon. 

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