Why did JD.com’s share price soar to a 2.5-year high despite lower earnings?

An analyst's take on why Chinese e-commerce company JD.com’s shares rallied nearly 3% post-Q1 results.

Chinese e-commerce giant JD.com reported net revenues of 146.2 billion Chinese yuan (US$20.6 billion) in the first quarter of 2020, marking an increase of 20.7% from the same period in 2019.

Following the earnings release, JD.com’s shares – listed on US stock benchmark Nasdaq 100, rallied 2.5% to a 2.5-year high price of US$51.65 per share on Friday 15 May 2020.

It also rose to become one of the top five most traded equity counters on IG’s trading platform.

JD.com’s earnings down year-on-year

Income from operations for this quarter came in at 2.3 billion yuan (US$0.3 billion), compared to 1.2 billion yuan for the same period last year. Non-GAAP income from operations was 3.3 billion yuan, versus 2.0 billion yuan a year ago.

However, non-GAAP earnings per share for this quarter at US$0.28 beat analyst consensus estimates of US$0.11 per share. However, this is down from Q1 2019’s US$0.31.

Also down from a year ago was net income attributable to ordinary shareholders at 1.1 billion yuan (US$0.2 billion), compared to 7.3 billion yuan for the same period last year. Non-GAAP net income attributable to ordinary shareholders for Q1 2020 was 3.0 billion yuan (US$0.4 billion), compared to 3.3 billion yuan in Q1 2019.

IG is a world-leading online trading and investments provider for thousands of financial markets. With CFDs (read all about CFDs here), you can buy long or sell short on JD.com stocks depending on whether you think prices will rise or fall. Start today by opening an IG account.

Lower profits not a cause for concern: analyst

According to IG analyst Reo Liao, the decline in earnings is not a cause for concern, as it is less a reflection of the company’s operating health – which in fact increased 91.7% year-on-year, than weakness in its non-operating components.

Liao pointed out that non-operating income in Q1 was significantly affected by the global financial market slump, the company’s long-term investments, and the lack of disposable assets. Moreover, net profits were also higher in the first quarter of 2019 due to a boost in non-operating income, which only accentuated the difference.

On the contrary, he said the firm’s Q1 overall performance was ‘good’, citing merchandising goods’ revenue 38.2% year-on-year surge to over 50 billion yuan in 2020.

Another key indicator - annual active customer accounts – increased by 24.8% to 387.4 million in the twelve months ended 31 March 2020, up from 310.5 million in the twelve months ended 31 March 2019. Mobile daily active users in March 2020 also increased by 46% as compared to March 2019.

Meanwhile, net service revenues for the first quarter of 2020 were 16.1 billion yuan (US$2.3 billion), an increase of 29.6% from the first quarter of 2019.

JD.com’s PE ratio on the high side

JD.com’s share price has dropped slightly since Friday’s high, but remains in bullish territory. As at 14:50 HKT on Monday 18 May 2020, stocks are trading at US$50.62 apiece, based on live IG data.

With regards to the stock’s price, Liao said that the stock’s price-to-earnings ratio is on the high side at over 43.00, over double of Alibaba’s American Depository Shares. However, he noted that if Alibaba’s upcoming earnings – to be released on Friday 22 May – turn out well, then JD.com’s share value could potentially benefit as well.

For now, JD.com forecasts that net revenues for the second quarter of 2020 to be between 180 billion yuan and 195 billion yuan, assuming that the Covid-19 pandemic does not cause ‘any significant unexpected disruption to its operations. If realised, this would represent a growth rate between 20% and 30% compared with the second quarter of 2019.

Richard Liu, Chairman and Chief Executive Officer of JD.com, remarked on the results: ‘Strong user growth during the first quarter reflects consumers’ increasing reliance on JD.com to support every aspect of their lives’.

How to trade Chinese tech stocks with IG

Are you bullish or bearish on JD.com and other Chinese tech stocks? Either way you can buy (long) or sell (short) the asset using derivatives like CFDs in a few easy steps:

  • Create a live or demo IG Trading Account or log in to your existing account
  • Enter <company name> or <ticket code> in the search bar and select it
  • Choose your position size
  • Click on ‘buy’ or ‘sell’ in the deal ticket
  • Confirm the trade

This information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer and quarterly summary.

Seize a share opportunity today

Go long or short on thousands of international stocks.

  • Increase your market exposure with leverage
  • Get spreads from just 0.1% on major global shares
  • Trade CFDs straight into order books with direct market access

See opportunity on a stock?

Don’t miss your chance. Try a risk-free trade in your demo account, and find out whether your hunch could have paid off.

  • Log in to your demo
  • Try a risk-free trade
  • See whether your hunch pays off

See opportunity on a stock?

Don’t miss your chance. Upgrade to a live account to take advantage.

  • Trade a wide range of popular global stocks
  • Analyse and deal seamlessly on fast, intuitive charts
  • See and react to breaking news in-platform, when it matters

See opportunity on a stock?

Don’t miss your chance. Log in to take advantage while conditions prevail.

Live prices on most popular markets

  • Forex
  • Shares
  • Indices
Sell
Buy
-
-
-
-
-
-
-
-
-
-
Sell
Buy
Sell
Buy
-
-
China 300
-
-

Prices above are subject to our website terms and agreements. Prices are indicative only. All shares prices are delayed by at least 15 mins.

Plan your trading week

Get the week’s market-moving news sent directly to your inbox every Sunday. The Week Ahead gives you a full calendar of upcoming economic events, as well as commentary from our expert analysts on the key markets to watch.


For more info on how we might use your data, see our privacy notice and access policy and privacy webpage.

You might be interested in…

Find out what charges your trades could incur with our transparent fee structure.

Discover why so many clients choose us, and what makes us a world-leading provider of spread betting and CFDs.

Stay on top of upcoming market-moving events with our customisable economic calendar.

Spread bets and CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 76% of retail investor accounts lose money when trading spread bets and CFDs with this provider. You should consider whether you understand how spread bets and CFDs work, and whether you can afford to take the high risk of losing your money. Spread bets and CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage.