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JD.com (JD), one of China’s largest online retailers, is struggling this year after rallying to an 8-month high in January. The stock price has fallen nearly -47% from January’s peak on disappointment about China’s uneven recovery from the pandemic and increased competition from other Chinese online retailers. After more than doubling in price from October’s 3-year low, JD.com fell to a 6-month low last Friday and has given up most of its Covid reopening rally.
The weaker-than-expected recovery in China and growing competition from rivals PDD Holdings (PDD) and ByteDance Ltd are significant headwinds for JD.com. Chinese domestic demand for big-ticket items is still weak, which is hurting JD.com’s revenue, as electronics and home appliances make up half of the company’s sales. Abrdn Plc said, “The stock will likely remain in the penalty box until management can prove they can continue to evidence margin expansion and better evidence their competitive moat.”
The increased competition from rival PDD Holding forced JD.com to roll out a 10 billion yuan ($1.5 billion) discount campaign in February to fend off a challenge from PDD Holding’s shopping app Pinduoduo. However, according to Edmond de Rothschild Asset Management, it will be difficult for JD.com to beat Pinduoduo on price wars and promotions.
JD.com’s stock has also been undercut by fading optimism that the reopening of China’s economy would boost JD.com’s sales. In March, JD.com warned that a robust recovery in consumption from Chinese consumers is unlikely to materialize until the second half of this year. Barclays also warned that JD.com’s recent initiative to move some products to third-party merchants is set to hit sales in coming quarters.
Analysts have been cutting their revenue and price targets for JD.com. Analysts now project JD.com’s revenue growth will slow to 5.8% this year from 10% in 2022, well below a projected gain of 28% for rival PDD Holdings. Also, analysts have cut their price targets for JD.com by more than 9% since March 24, the most among members of the Hang Seng Tech Stock Index. KGI Asia Ltd said, ”Investors who want to do some rebalancing within the Chinese tech sector would choose to be long Alibaba Group Holding (BABA) or Tencent Holdings (TCEHY), to bet on a sharper business turnaround.”
On the date of publication, Rich Asplund did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
