JD.com’s shares slide as investments, competition eat into profits

BEIJING/ BENGALURU: JD.com Inc, China’s second largest e-commerce firm, saw its stock plunge in pre-market trade on Friday as quarterly profit was hit by competitive pressure and heavy investments during its top earnings season.

JD.com’s US-listed stock was down 10 percent in pre-market trading.

Despite posting better-than-expected revenue for the quarter, net income was down 17.7 percent at 449 million versus a mean analyst estimate of 666 million according to Thomson Reuters I/B/E/S.

Loss attributable to ordinary shareholders was 909 million yuan versus analyst estimates of a 463 million yuan loss.

In a call with analysts following the release of the results CFO Sidney Huang said smaller margins were linked to investments in new business lines including logistics investments, overseas expansion, artificial intelligence and cloud services.

“In the short term we’ll be loss-making but we see huge potential in the technology,” said Huang.

China’s saturated urban e-commerce market has created intense competitive pressure between JD.com and rival Alibaba Group Holding Ltd, which was exacerbated in the fourth quarter due to seasonal sales.

Marketing costs for the quarter rose 35 percent to 4.7 billion yuan, revealing the steep cost of competitive advertising during the November Singles´ Day festival.

“Although we believe JD.com will survive in the severe competition of the e-commerce space in China, backed by its alliance with Tencent, we think it will be difficult for the firm to pass market leader Alibaba,” said Chelsea Tam, analyst at Morningstar Equity Research in a note ahead of the earnings.

JD.com owns an extensive logistics network and is popular for fast delivery and retail sales, while Alibaba is light on assets and draws a large part of its sales from third party marketplace site Taobao. com.

JD.com has expanded heavily into luxury goods, apparel and offline retail over the past year in an effort to tap new consumers, initiatives that have clashed with similar efforts by Alibaba.