12 March 2021

JD.com Q4 Crushes Expectations, But Stock Wavers

Tags

News shaping
the markets today

     

What’s happening: JD.com reported stronger-than-expected results for its fourth quarter on Thursday.

What happened: Although China has mostly emerged from covid-19 led lockdowns and most businesses have restarted their operations, there has been a secular shift in buying behaviour towards online shopping for items ranging from daily necessities to luxury goods.

Despite a phenomenal performance by JD.com, its shares came under pressure on Thursday on investor concerns around the Chinese authorities tightening their scrutiny into some of the country’s leading tech giants.

How were the results: The Chinese ecommerce giant reported robust year-over-year growth in revenues and profits for the fourth quarter, with both metrics exceeding market views.

  • Revenues grew 31.4% year-over-year to $34.4 billion, exceeding the consensus estimate of $33.78 billion.
  • Non-GAAP earnings surged more than 175% to 23 cents per share, handsomely surpassing market expectations of 19 cents per share.

Why it matters: China recorded a 3.9% decline in retail sales in 2020 with covid-19 impacting the normal functioning of businesses and households. JD.com leveraged this opportunity to ramp up its in-house delivery network, which helped in expediting deliveries to customers.

Through its shopping platform Jingxi, the company has also been looking to expand its foothold in lower tier cities, posing still competition to its closest peers, Alibaba and Pinduoduo. As a result of these efforts, JD.com added 110 million active customer accounts last year, while Alibaba raked in only 68 million.

“JD has demonstrated strong execution in balancing growth and margin expansion…We expect JD to ride the fast-growing FMCG e-commerce trend in China in view of a low online penetration rate,” analysts at Morgan Stanley said in a note.

Many tech giants in China had a volatile start to 2021, with the world's second largest economy coming down heavily on anti-competitive behaviour. The increased scrutiny by the Chinese authorities has exerted pressure on China’s leading tech companies, including Jack Ma's Alibaba and Ant Group’s Alipay.

Chinese regulators had imposed fines of 500,000 yuan each on JD.com and other top tech companies in late December for their irregular pricing practises.

How shares responded: JD.com’s US listed shares jumped more than 5% to $94.40 initially in Thursday’s session. The stock soon came under pressure, paring most of the gains and closing only 0.8% higher, at $90.01. The company’s Hong Kong listed shares had declined by 4% to HK$345.60 at 6am GMT today.

What to watch: Following the completion of its healthcare unit’s IPO of in December, JD.com is looking to list its logistics arm in Hong Kong. The move could attract significant investor attention later this year. Markets will closely monitor Beijing’s crackdown on leading tech companies, which might result in increased volatility for Chinese internet stocks.

The Markets Today

     

US stocks will be in focus today, ahead of economic data scheduled for release later in the day.

Context: Wall Street surged to fresh highs on Thursday, with the signing of the covid-19 rescue bill lifting overall market sentiment.

Details: President Joe Biden signed the massive $1.9 trillion stimulus bill into law on Thursday. The package includes the distribution of $1,400 in stimulus cheques to Americans over this weekend.

Tech and growth stocks recovered sharply on Thursday, after being under significant pressure due to rising bond yields. The 10-year Treasury yield, which hit a high of 1.6% earlier this week, remained close to 1.52% on Thursday.

Markets also cheered an upbeat reading on jobless claims. The Labor Department reported a decline in first-time filings for jobless claims to 712,000 in the week ended March 6. The reading came lower than the consensus estimate of 725,000.

The S&P 500 added 1% to reach a fresh closing high of 3,939.34 on Thursday, while the Nasdaq 100 jumped more than 300 points to 13,052.90. Tesla’s shares gained around 5% on Thursday, while shares of Facebook, Alphabet, Netflix all added around 3%.

The Dow Jones index climbed 0.6% to close at 32485.59, after adding over 300 points earlier in the session to reach a record intraday high.

What to watch: Markets await data on producer prices and consumer sentiment from the US. Producer prices for final demand are expected to rise 0.5% in February, following a 1.3% increase in January. The University of Michigan's consumer sentiment index is projected to rise to 78.5 in March, following a reading of 76.8 in February.

Rising covid-19 cases remain one of the top concerns for markets, with total infections crossing 29.2 million in the US.

Other Markets: European indices closed higher on Thursday, with the FTSE 100, German DAX 30, French 40 and STOXX 600 up by 0.17%, 0.20%, 0.72% and 0.49%, respectively.

Support & Resistances
for Today

     

market snapshot

     

Futures at 0400 (GMT)

What else to watch today

     

Germany's consumer price inflation, Turkey’s industrial production and retail sales, UK’s balance of trade, manufacturing output, construction output, industrial production, goods trade balance and gross domestic product, Spain’s retail sales and consumer price index, South Africa's SACCI business confidence index, Eurozone’s industrial production, India’s foreign exchange reserves, industrial production and retail price inflation, Brazil’s retail sales and IBC-Br index of economic activity, Mexico's industrial production, Russia's balance of trade, the US Baker Hughes crude oil rigs, China’s foreign direct investment as well as Canada’s unemployment rate, capacity utilization, wholesale sales and car registrations.

ADS Securities London Limited “ADSS” is an execution-only service provider. This material (whether or not it states any opinions) is for general information purposes only, and does not take into account your personal circumstances or investment objectives. Nothing in this material is (or should be considered to be) financial, investment or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by ADSS that any particular investment, security, transaction or investment strategy is suitable for any specific person. To the extent that any content in this material is construed as investment research, you must note and accept that the content was not prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws.  This material may contain links to third party websites, and any content, or use of your personal data by any third party websites is not the responsibility of ADSS or any member of the ADSS Group.