- Benchmark analyst Fawne Jiang reiterates JD.com Inc JD with a Buy and reduces the price target to $76.
- JD reported 4Q22 net revenue growth of 7.1% y/y, and a substantial margin and bottom line beat.
- The company guided a stable margin outlook in FY23, which in the analyst's view, offered significant relief to the recent margin concerns since its announcement of the "RMB10B Subsidy Campaign."
- However, the company disappointed the Street with a gentle 1Q guidance and no clear direction for FY23. It attributed the weakness to the adverse impact of internal adjustments on top of a gradual and slower macro recovery.
- JD has decided to continue to optimize its categories via scaling back non-core and low-margin SKUs primarily in FMCG and expediting the shifts of specific long tail categories to its 3P marketplace. The adjustment is estimated to negatively affect 3-5% of its 1Q revenue.
- The analyst believes JD's slower recovery is likely due to its categories mix. JD is overweighed on big-ticket items (3C and home appliances) while light in exposure in reopening categories (apparel and cosmetics).
- With JD's growth reset trailing the industry, the analyst anticipates the stock stays in the penalty box in the near term.
- Whether the adjustments made could translate into an improved growth trajectory remains critical.
- Conversely, the analyst wanted to emphasize the solid FCF growth (20%+ last three-year CAGR) and its active capital returns to shareholders.
- Consistent macro improvement and signs of rational competition could offer room for potential upside.
- The analyst applauds the company's adaptation to the changing market dynamics but acknowledges that the market may doubt whether JD will win the "value-for-money" segment. Execution remains critical, which may take some time to play out.
- Price Action: JD shares traded lower by 3.49% at $40.23 on the last check Friday.
- Photo Via Company
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