JD.com (NASDAQ: JD) is in free fall on the stock market. The rape allegation against the CEO which were dropped, followed by the disappointing third-quarter revenue miss, led to the stock closing to a 52-week low last week.
JD.com earned $0.12 a share as revenue rose 21% Y/Y to $15.25 billion U.S. Q4 guidance of CNY130 to CNY135B was below consensus. The combination of U.S./China trade uncertainties and the weak guidance puts a cloud in the near-term prospects. Still, Q3 demonstrated areas of strength that may re-emerge in the quarters ahead. JD reported strong gross margin that was offset by higher R&D expenses as JD Mall. That investment should pay off. Historically, JD’s investment back in the business led to higher profit margins.
Cash flow fell as JD increased CapEx during the quarter, due to land use rights and construction of warehouses, plus IT infrastructure investments.
Looking ahead, Q4 revenue will grow more softly at 18% - 23% Y/Y. And 11.11 day, helped by promotions, will lead to growth above the industry rates in most categories. Although JD stock is falling to new lows, JD’s continued focus on retail innovation will give profits a lift in the long run. The company continues to open up its retail structure like logistics. Connecting its technology among the retail channels will sustain the firm’s revenue levels. This will ultimately reverse the stock’s year-long decline.
