Earnings Beat of the Week: JD.com Outperforms Estimates Despite Slowdown in China

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Chinese ecommerce giant JD.com (JD) reported profit and sales that beat analysts’ estimates, as the retailer enticed customers with lower-priced offerings amid an economic downturn in China and increased competition from rival retailers.

Key Takeaways

  • JD.com, China’s biggest ecommerce retailer, posted revenue and profit above expectations as its low-cost strategy paid off amid an economic downturn in China.
  • Net income surged 50% to 6.6 billion yuan ($0.9 billion), with revenue up 7.6% to 287.9 billion yuan ($39.7 billion).
  • The company gained market share from rivals including Baidu, Alibaba, and Pinduoduo.
  • China’s economy has slowed markedly in recent quarters, and fell into deflation in July.

Net income surged 50% to 6.6 billion yuan ($0.9 billion), from 4.4 billion yuan ($0.6 billion) in the year-ago quarter. Revenue came in at 287.9 billion yuan ($39.7 billion), up 7.6% from the same quarter last year and exceeding projections of 278.85 billion yuan ($38.3 billion). Service revenue jumped 30% to 54.1 billion yuan ($7.5 billion).

JD.com, which is China’s biggest online retailer and internet company by revenue, was shielded from a broader economic slowdown in China as consumers gravitated toward its lower-priced offerings. Its low-cost strategy allowed it to more effectively compete and gain market share from rivals including Baidu (BIDU), Alibaba (BABA), and Pinduoduo (PDD). The company also attracted more vendors onto its platform, driven by reduced onboarding costs, and gained more customers thanks to its “10 billion yuan” subsidy program launched earlier this year.

“We reported a solid performance for the second quarter both financially and operationally, thanks to JD.com’s enhanced business structure and leading supply chain capabilities,” said Sandy Xu, the online retailer’s chief executive officer (CEO).

American depositary receipts (ADRs) of JD.com have lost more than 41% of their value since the start of the year, underperforming a benchmark of Chinese internet stocks (KWEB), which is down just 10% over the same period.

China’s Economic Woes

China’s economy has run into monumental challenges in recent quarters, including slowing growth, rising debt, a property bubble bust, and weak domestic demand.

Gross domestic product (GDP), a measure of the value of goods and services produced throughout an economy, rose just 3% last year, the slowest pace in decades excluding the pandemic shock in early 2020, amid stringent COVID-19 lockdowns that shut down large parts of China’s economy. Retail sales fell 8% month-over-month in July, and were up just 2.5% year-over-year.

The slowdown is also reflected in prices. China fell into deflation in July, with consumer prices down 0.3% year-over-year as domestic demand weakened. With prices falling, China is an exception to the norm among large economies at the moment, which are still grappling with inflation well above historical norms.

While deflation can provide some relief for consumers by making goods and services more affordable, falling prices tend to harm economies over the long run. In a deflationary environment, consumers anticipate lower prices in the future, which causes them to put off spending and borrowing.

The resulting slowdown directly impacts firms, which are forced to cut back on production and lay off workers. Newly unemployed consumers reduce their spending further, creating a vicious cycle of declining economic activity. Moreover, deflation is more difficult for central banks and policymakers to remedy than inflation.

Some of the worst economic crises in U.S. history, including the Great Depression, have been characterized by periods of extended deflation.

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