Barclays Upgrades JD On Continued Strength In China's E-Commerce Sector

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JD.Com Inc JD reported strong third-quarter results, beating the Street’s expectations for revenue, margin and user growth.

More importantly, JD.Com achieved successful execution of its expansion strategy in lower-tier cities, which should provide traction for top-line growth, according to Barclays.

The Analyst

Barclays’ Gregory Zhao upgraded JD.com from Equal-Weight to Overweight, maintaining a price target of $38.

The Thesis

In the third quarter, more than 70% of JD.Com’s new customers came from lower tier cities, with this segment achieving the highest growth rate in purchase orders and gross merchandise volume (GMV) in the past six months, Zhao said in the upgrade note.

He added that the disposal income level in lower tier cities seems to be higher than was earlier estimated, owing to lower rental expenses.

JD.Com recorded 35% growth in mobile daily average users in the third quarter, achieving the fastest growth in the last five quarter. Mobile monthly average users grew 36% year-on-year in September, representing the highest rate in the past eight months.

These results were boosted by the company’s innovative marketing activities and upgraded mobile interface, the analyst mentioned.

“And we expect the launch of JD’s team-buy franchise, Jingxi, on WeChat’s level-1 entry point to further improve the user acquisition from lower tier cities, given WeChat’s 1.1bn active user base,” Zhao wrote.

Price Action

Shares of JD.Com were trading up 1.72% at $32.52 Monday.

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Posted In: Analyst ColorUpgradesAnalyst RatingsBarclaysGregory Zhao
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