Friday, May 15, 2020

Investors Add JD.com to Their Cart

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What’s happening: Chinese ecommerce giant JD.com is scheduled to release its earnings results for the first quarter before the opening bell on Friday, May 15.

What happened: Investors shrugged off concerns around the impact of the coronavirus outbreak as well as fears of a second wave of infections to acquire more JD.com shares yesterday, ahead of the earnings release. This uptick came despite the stock’s upward momentum so far this year and expectations of a massive decline in earnings in the first quarter.

Investor sentiment has been positive, as China’s second-largest ecommerce company has had a good run so far. With the closure of physical stores amid the pandemic, consumers have turned to e-retailers to fulfil their needs. In fact, JD’s stock had recently spiked to new 52-week highs, outpacing archrival Alibaba's performance.

While there are many positives for JD.com, some headwinds may have impacted the e-retailer’s results in the to-be reported quarter.

Expectations for the quarter: Although the ecommerce behemoth is expected to report revenue growth for the quarter, its earnings are likely to have declined.

  • The consensus estimate for revenue stands at $19.27 billion, up 6.8% from the same quarter last year.
  • The company is expected to report a whopping 72.7% decline in earnings to 9 cents per share.

Why it matters: JD.com is well positioned in the massive Chinese market, with an enviable market share and its own logistics infrastructure, which allows the delivery of most of its orders on the same or next day. The reopening of China’s economy is expected to boost the company’s revenues.

The company’s retail division should have provided a big boost to the company’s first-quarter numbers, with rising momentum in lower-tier cities. JD’s Jingxi platform is also expected to benefit during the quarter. The integration of AI (artificial intelligence) to its warehouse system is likely to support deliveries as well.

The covid-19 virus has, however, impacted JD’s operations, resulting in higher costs. Macroeconomic issues in China are also likely to weigh on the company’s quarterly performance. Moreover, the company’s larger rival Alibaba is undertaking initiatives that provide stiff competition and impact margins.

How the shares have performed so far: Shares of JD.com have gained 39% year to date, significantly outpacing its rivals, including Alibaba, which declined by more than 5% in the same period. JD’s stock climbed 2.4% during the regular session yesterday, only to rise again by another 1.8% in after-hours trading.

What to watch: Investors will be looking out for the company to issue guidance for the current quarter and year. The company’s shares might reach new highs if the forecast comes in-line with or higher than the consensus view. A strong logistics service has helped JD beat its peers Alibaba and Pinduoduo amid the pandemic, and investors are eagerly waiting for this to contribute more significantly to the e-retailer’s margins and profits.

The Markets Today

     

US markets may be in focus today, ahead of a basket of economic reports scheduled for release later in the day.

Context: US stocks closed higher on Thursday, snapping the two-day losing streak. Gains were supported by a strong rise in banking stocks. Investor sentiment remained positive despite another disappointing unemployment report.

Details: Stocks had tumbled earlier in the day after another dismal report from the Labor Department, which showed around 2.98 million Americans filing for jobless benefits in the week ending May 9. The new jobless claims took the covid-19 outbreak total to around 36.5 million in two months.

After losing more than 450 points earlier in the session, the Dow made a strong comeback and ended the day higher by 377 points on Thursday. The upturn was led by American Express and JPMorgan & Chase.

Shares of Cisco Systems gained 4.5% after the company reported better-than-expected quarterly earnings. Applied DNA Sciences’s shares jumped more than 70% after the US FDA authorized the company’s covid-19 test.

The Dow spiked 1.6% to end at 23,625, while the S&P 500 gained 1.2% to reach 2,852. The Nasdaq 100 climbed 0.9% to end the day at 8,944. This week, the Dow and S&P 500 have each lost more than 2.6%.

In other markets, crude-oil rose following reports of production cuts, with WTI (West Texas Intermediate) crude for June delivery gaining 9% to settle at $27.56 per barrel on Thursday.

What to watch: Investors may continue to focus on daily coronavirus numbers, with the total cases exceeding 4,444,670 globally. The US has so far confirmed more than 1,417,880 cases with 85,900 deaths.

Markets await various economic reports from the US, including retail sales, NY Empire state manufacturing index, industrial production, business inventories, job openings and University of Michigan's consumer sentiment index.

Retail sales, which dipped 8.4% in March, are expected to decline another 12% in April. The New York Empire State Manufacturing Index is projected to rise to -63.5 in May, from April’s reading of -78.2. Analysts expect industrial production to decline 11.5% in April, while business inventories are projected to slide 0.2% in March. The University of Michigan's consumer sentiment index is expected to fall to 68 in May, from 71.8 in April.

Other Markets: European indices were trading higher as of 9:00am GMT, with the FTSE 100, German 30 and French 40 up by 1.2%, 1.3% and 1.2%, respectively.

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What else to watch today

     

India’s foreign exchange reserves and balance of trade, Brazil’s IBC-Br economic activity index, Canada’s foreign stock investment, Russia’s balance of trade as well as the US Baker Hughes crude oil rigs.