Trade War Overshadows Solid Earnings From JD.com

Chinese e-commerce giant JD.com Inc. JD released its first-quarter earnings on Friday in the middle of a ramp in international trade tensions between the U.S. and China. Despite the unfortunate timing, JD's numbers were fairly impressive.

JD reported first-quarter revenue of 121.1 billion yuan ($17.77 billion), beating consensus analyst estimates of 120.11 billion yuan. JD also reported earnings per American depositary share of 4.96 yuan, up from 1.04 yuan a year ago.

Several analysts have weighed in on JD’s earnings report and how investors should approach the stock in the difficult trade environment. Here’s a sample of what they had to say.

Voices From The Street

Bank of America analyst Eddie Leung said JD is doing an impressive job of balancing growth and profitability, and margin improvements should be reassuring to shareholders.

“We expect some fluctuation in margins through different quarters as JD returns some benefits to consumers during the promotion seasons such as 2Q/ 4Q and invests in new initiatives such as new retail and consumer-to-manufacturing (C2M), but still forecast annual margins to improve YoY in 2018-21E,” Leung wrote in a note.

He said JD should continue to outpace the growth rates of its industry peers in the long-term.

UBS analyst Jerry Liu said margin improvements were the highlight of the quarter, but management’s discussion of aggressive investments is enough to make investors hesitate to buy the stock.

“Despite JD's strong 1Q nonGAAP net income of Rmb3.3bn (vs. UBSe and consensus of ~Rmb1bn), management did not update prior full year net margin guidance, which even at the high end suggests 1Q accounted for ~50% of 2019 net income vs. <30% in the prior 2 years,” Liu wrote. He said JD should continue to enjoy policy-driven tailwinds in 2019, but trade war concerns may continue to offset those policy benefits in the near-term.

KeyBanc analyst Hans Chung said the earnings beat and guidance hike was impressive, but growth pressures could weigh in margins.

“Despite stronger 1Q results and 2Q guidance, JD maintains its margin guidance for the full year as the Company views competition as still strong and expects to spend more to drive top-line growth,” Ching wrote. He also said JD's Tencent Holding TCEHY deal is a positive, but renewal likely didn’t come cheap.

Ratings And Price Targets

• Bank of America has a Buy rating and $38 target.
• UBS has a Neutral rating and $32 target.
• KeyBanc has a Sector Weight rating and no target.

JD's stock traded around $28.19 per share Monday afternoon.

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Photo courtesy of JD.com.