JD.com's Expansion and Pricing Strategy Cited as Key Drivers for Future Success: Analyst

Mizuho analyst James Lee maintained JD.com Inc JD with a Buy and raised the price target from $32 to $33.

On Wednesday, JD.com reported fourth-quarter fiscal 2023 revenue growth of 3.6% year-on-year to $43.1 billion, above the consensus of $42.2 billion. The adjusted net income per ADS of $0.75 beat the consensus of $0.63.

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JD Retail grew 3.5% YoY, improved from last quarter and above Street expectations, Lee flagged. 

At the same time, he estimate GMV grew at a high-single-digit rate, excluding the impact of SKU optimization and restructuring. 

Management indicated progress on expanding price matching from branded products while onboarding new merchants for white labels goods (nearly 1m 3P merchants).

Heading into the first quarter, Lee expects JD Retail growth to recover to 4.4% YoY, lapping the impact of inventory adjustments and benefits from easy comps as CNY GMV is pulled forward into the quarter. 

Lee said that JD continues to rebrand its platform to everyday low prices and expand its SKUs to match competitive pricing. The process involves an open bidding process from 1P and 3P merchants. 

If brands on the 1P platform offer the best price for a particular SKU, JD will drive more traffic to that merchant, per the analyst. 

If 3P gets the best price, then it gets more traffic. With that in mind, management expects GMV to be above industry growth estimates of 6%. 

Lee highlighted that JD’s retail operating margin was 2.6%, nearly 60 bps better than Street expectations, despite investing in user experience and 3P merchants. 

Despite investing in price matching and user experience, the company looks for fiscal 2024 JDR margins to be stable YoY at 3.8% and anticipates consolidated net margins to be at or above consensus of 3.1%.

With a better-than-expected margin outlook, Lee raised his fiscal 2025 EBITDA by 5% to 47 billion RMB.

He said the stock is trading at a distressed level of 2x fiscal 2025 EBITDA, reflecting economic and geopolitical concerns and JD’s ongoing changes to an EDLP strategy. Lee expects the stock to remain a “show me” story until these issues are alleviated.

Price Action: JD shares traded lower by 3.99% at $23.92 session on the last check Thursday.

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