JD.com Stock Likely Stays In Penalty Box In Near Term, Analyst Says Post Q4 Results - JD.com (NASDAQ:JD)

Benchmark analyst Fawne Jiang reiterates JD.com Inc JD with a Buy and reduces the price target to $76.
JD reported 4Q22 net revenue growth of 7.1% y/y, and a substantial margin and bottom line beat.
The company guided a stable margin outlook in FY23, which in the analyst's view, offered significant relief to the recent margin concerns since its announcement of the "RMB10B Subsidy Campaign."
However, the company disappointed the Street with a gentle 1Q guidance and no clear direction for FY23. It attributed the weakness to the adverse impact of internal adjustments on top of a gradual and slower macro recovery.
JD has decided to continue to optimize its categories via scaling back non-core and low-margin SKUs primarily in FMCG and expediting the shifts of specific long tail categories to its 3P marketplace. The adjustment is estimated to negatively affect 3-5% of its 1Q revenue.
The analyst believes JD's slower recovery is likely due to its categories mix. JD is overweighed on big-ticket items (3C and home appliances) while light in exposure in reopening categories (apparel and cosmetics).
With JD's growth reset trailing the industry, the analyst anticipates the stock stays in the penalty box in the near term.
Whether the adjustments made could translate into an improved growth trajectory remains critical.
Conversely, the analyst wanted to emphasize the solid FCF growth (20%+ last three-year CAGR) and its active capital returns to shareholders.
Consistent macro improvement and signs of rational competition could offer room for potential upside.
The analyst applauds the company's adaptation to the changing market dynamics but acknowledges that the market may doubt whether JD will win the "value-for-money" segment. Execution remains critical, which may take some time to play out.
Price Action: JD shares traded lower by 3.49% at $40.23 on the last check Friday.
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