JD.com Surges After Sales Beat Allays Tech Crackdown Fears

(Bloomberg) — JD.com Inc.’s shares soared as much as 10.5% after the e-commerce giant reported revenue that beat estimates, defying a crackdown on the Chinese internet sector that has depressed growth across the industry.

The e-commerce giant’s shares gained by the most in almost a month in Hong Kong after it posted a better-than-expected 26% rise in revenue to 253.8 billion yuan ($39.1 billion) for the three months ended June. Star fund manager Cathie Wood’s Ark Investment Management, which has been dumping Chinese tech stocks this year, bought back 164,889 of JD’s American depositary receipts after the company reported Monday.

Still, JD’s revenue growth was the slowest since China first emerged from the pandemic last year, underscoring how Beijing’s crackdown is chilling growth across the country’s tech arena. Regulators this year stepped up oversight of a plethora of industries including online commerce, seeking to curtail the growing power of internet firms and share the wealth. They also imposed curbs on the use of personal information, a major source of their influence.

JD executives said Monday they don’t see major impact from curbs on data collection and usage, which tend to affect companies more reliant on advertising. In fact, the banning of merchant exclusivity arrangements — the so-called “pick one of two” practice once endemic throughout the sector — has coincided with the return to JD of brands such as Starbucks, executives said. The Beijing-based firm also called the government’s effort to curb “disorderly capital expansion” good for business, as JD — known for selling better-quality, more expensive products like electronics — will less likely get squeezed by a price war.

“JD has always paid great importance to data security and personal information, so the arrival of the new regulations are not making a big impact on us in terms of our advertising business,” Chief Executive Officer Xu Lei told analysts on a conference call.

Read more: China Takes Next Step in Taming Big Tech With Personal Data Law

Alibaba Group Holding Ltd. posted its first revenue miss in years while Tencent Holdings Ltd. reported the weakest sales growth since 2019, as Beijing widened a campaign to rein in abuses in the e-commerce arena to encompass issues such as data security, online content and most recently, excessive wealth. While JD.com hasn’t been singled out in any high-profile probe or crackdown, its shares have dropped roughly 40% from a February high, as tightening regulatory scrutiny prompted global investors to flee the Chinese internet sector.

Sales beat estimates after JD.com boosted total transaction volumes for its annual 6.18 shopping festival by 28%, helped in part by the double-digit rebound in retail spending in its home market during the June quarter. But a recent spike in coronavirus cases across parts of China may cloud that recovery, as tough pandemic restrictions hit retail sales toward the end of July.

Net income tumbled to 794.3 million yuan, down from 16.4 billion yuan a year earlier, after JD ramped up spending on marketing by 56% to sustain growth. The plunge in profit stemmed partly from a 4.1 billion yuan one-time gain that JD booked a year earlier from the IPO of investee Dada Group. On Monday, JD warned about uncertainty in the current quarter, when a resurgence of Covid and extreme weather prompted lockdowns and disrupted logistics across China. The company continues also to push its Jingxi community commerce business, an area in which Alibaba and Pinduoduo Inc. are also expanding aggressively into.

“We are faced with multiple challenges,” Xu said.

What Bloomberg Intelligence Says:

Retail margin may be set back by increased promotions and marketing in 3Q to spur user purchases amid concerns about the Covid-19 delta variant in China. We believe such spending may be needed to lift JD.com’s 3Q active customers by at least 23% year-over-year and meet the consensus for 565 million users by year-end.

— Catherine Lim and Tiffany Tam, analysts

Click here for the report

In response to the increasing scrutiny and competition, the firm is stepping up investments in areas including online groceries and social commerce as well as infrastructure. It’s been aggressively growing its Jingxi unit, as part of efforts to siphon off the lead that rival PDD has in lower-tier markets. To fund its newer businesses, the e-commerce giant has been spinning off units — its JD Logistics Inc. raised $3.2 billion in a Hong Kong initial public offering in May.

(Updates with Cathie Wood’s move from the second paragraph)

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Harry Byrne

Harry Byrne

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