JD.Com's Strong Q2 Execution Overshadowed By Macro Uncertainties: This Analyst Lowers Price Target

Susquehanna analyst Shyam Patil reiterated a Neutral rating on JD.Com, Inc. JD, lowering the price target to $38 from $40.

Earlier this month, the company reported second-quarter FY23 revenue growth of 7.6% year-on-year to $39.7 billion, beating the consensus of $38.7 billion. 

Non-GAAP net income per ADS of $0.74 beat the consensus of $0.66.

The analyst thinks that EPADS was less mixed, coming in 13% above his estimate and 9% above consensus, as cost controls continue to prove effective. 

JD leaned into marketing in the quarter, partially in support of the 6.18 shopping festival.

Patil is overall encouraged by solid execution in the quarter, contributing to HSD y/y revenue growth. However, this was off relatively easy comps. 

The analyst continues to view JD as solidly positioned in the large Chinese e-commerce market, sees potential for the longer term, driven by scaling of its advertising and logistics initiative, and believes its hybrid 1P/3P model is attractive.

Following the Q2 results, Patil raised the 2023 revenue estimate by 1% and EBITDA by 2%, leaving the EPADS broadly unchanged. 

The analyst increased the 2024 revenue estimate by 1%, EBITDA by 6%, and EPADS by 3%. 

On the negative side, macro uncertainty will likely persist in the near term, weighing on the business, Patil cautions.

He adds JD once again did not provide quantitative guidance for Q3 and beyond, though management did provide color on the macro environment and the company’s strategy.

While 2022 saw a strong Q3 off a relatively weak 2Q, the company noted that 2023 is seeing essentially the opposite, with the expectation for a relatively soft Q3, notes the analyst.

Taking a fairly conservative approach, Q3 group-level revenue could range from flat y/y to up in the mid-single digits, the analyst adds. 

GMV is expected to continue to outpace revenue due to JD’s 3P business growth. 

Continued cost management is expected to contribute to significant profitability improvement, according to Patil. 

Price Action: JD shares are trading lower by 2.49% to $33.13 on the last check Thursday.