Can regulatory relief boost the JD.com share price at earnings?

China’s ecommerce giant JD.com is expected to see a growth in revenue and earnings when it reports fourth-quarter figures this week, helped by ongoing retail expansion and the easing of regulatory pressure. 

JD.com [9618.HK] is expected to report a 25.1% increase in year-over-year revenues and a 17.4% hike in earnings per share when it reports its fourth-quarter 2021 results on 10 March.

According to analysts at Zacks Investment Research, JD.com is likely to report sales of $43.01bn and earnings per share of $0.27.

Its performance is set to be driven by JD Retail as consumers stocked up on items during the pandemic amid China’s strict zero-Covid policy. Zacks analysts said its strengthening omnichannel offerings will also have boosted Q4 figures.

“JD has built a unique business model, enabling us to have better control across the entire business process,” said Lei Xu, president of JD.com, at its third-quarter results announcement in November.

However, rising expenses such as warehousing, deliveries, customer service and payment processing, as well as increased marketing and R&D costs, are likely to have hit its margin expansion.

Headwinds for JD.com stock

The JD.com share price has struggled, dropping 31% over the past 12 months. It has been impacted by the slowing Chinese economy, including concerns over whether property giant Evergrande [3333.HK] would collapse, and regulatory concerns as the government cracked down on a number of business and education sectors.

In December, Tencent [700.HK], which came under the scanner of the Chinese government, cut its stake in JD.com from 17% to 2.3%, in part to show the country’s authorities that it was not “empire building” and open to competition. The move blasted JD.com shares.

However, JD.com is benefitting as China cuts interest rates to stimulate consumer demand, the potential easing of the country’s zero-Covid policy further boosts shopper confidence, and even as the Russia-Ukraine conflict perhaps turns Russian consumers and their cash eastwards.

Expansion moves

JD.com recently announced that it is investing $546m in online grocer Dada Nexus [DADA], taking its stake to a controlling 52%. JD Logistics [2618.HK] has also recently snapped up rival courier Deppon Express as the market continues to consolidate.

In addition, JD.com and Shopify [SHOP] entered a strategic partnership for cross-border ecommerce. This would give independent brands in the US an easier way to access consumers in China, while enabling Shopify merchants worldwide to access JD's supplier network.

JD’s Q3 performance

In the third quarter, JD.com reported revenues of $33.9bn, up 25.5% on the same quarter in 2020 and beating forecasts of $33.15bn. Net product revenues increased by 22.9%, while net service revenues increased by 43.3%.

It was helped by JD.com opening its first ‘JD Mall’ offline store in Xi’an, China, offering consumers an omnichannel shopping experience, and JD Health and Allianz JD, JD.com’s joint venture with Allianz [ALV], together launching an online clinical insurance service offering healthcare, medicine purchasing and insurance services.

“Our growing consumer mindshare helped drive the strong results for the quarter with more new and existing users purchasing high-frequency products such as supermarket categories on JD,” said Sandy Xu, CFO of JD.com. “We were also pleased to see our key strategic initiatives including the third-party marketplace and omnichannel strategies begin to generate positive results.”

Analysts’ views

Analysts will be keen to find out whether JD.com will be looking at further acquisitions in the months ahead, as regulatory fears potentially fade. Consumer trends as China continues its zero-Covid policies will also be of interest. If these do ease, could this lead to less demand for ecommerce or will consumers continue to shop in high numbers online as they remain wary of the virus? Does the group intend to open more JD Malls and further expand its omnichannel offering?

According to CNN, 41 analysts offering 12-month price forecasts for JD.com have a median target of $100.87, with a high estimate of $129.99 and a low estimate of $84.91. There is a consensus ‘buy’ rating.

There is caution, however, with Stifel analyst Scott Devitt lowering his price target to $95 from $110 as he does not “expect significant growth acceleration in the first quarter of 2022 as macroeconomic uncertainty remains”, reported The Fly.

Analysts and investors will also look carefully at the Global X Emerging Markets Internet and Ecommerce ETF [EWEB], where JD.com has a 10.59% weighting.