JD.com sees sales surge in the last quarter before the Covid-19 epidemic
JD said it thinks its direct-to-consumer sales model will prove more resilient during the coronavirus than models from ecommerce competitors like Alibaba
JD.com Inc. surged to its highest since June 2018 after its forecast for at least 10% revenue growth this quarter suggested online retail in China was proving more resilient to the coronavirus epidemic than anticipated.
Its shares rose more than 12.4% in New York, their biggest gain since August, after the company reported fourth-quarter revenue of 170.7 billion yuan (US$24.5 billion), surpassing the highest analyst’s estimate thanks to a strong performance during November’s Singles’ Day shopping event and robust user growth.
China’s No. 2 online retailer stressed that the sales forecast was a preliminary estimate while it gauges the extent to which the nationwide spread of Covid-19 will dent the world’s No. 2 economy. At its lowest point of 10%, the company’s outlook is less than half the 21% revenue rise that analysts on average anticipated for the March quarter. But JD was more upbeat about the industry impact than larger rival Alibaba Group Holding Ltd., which expects the outbreak to hurt revenue growth and said business on its retail marketplaces will decline because of widespread logistics disruptions. And on Friday, Baidu Inc. predicted its sales may slide as much as 13% this quarter.
For now, JD foresees business bouncing back. Demand remained strong during the epidemic for consumer goods and fresh produce, popular among the millions of Chinese confined to home. The company is in fact growing daily active users and orders at a faster pace, outgoing Chief Financial Officer Sidney Huang said. On Monday, the company announced Senior Vice President Sandy Xu will take over from September, replacing the retiring Huang.
JD may fare better than its peers because it employs a direct-to-consumer sales and in-house logistics model that may prove more resilient to short-term disruptions than platforms that connect merchants with buyers, some analysts say. Away from the outbreak, JD continues to win more consumers from smaller Chinese cities and towns, while demand for the electronics it depends on should rebound after the outbreak subsides.
“JD’s in-house logistics is a clear advantage over the other players during the virus outbreak,” said Shawn Yang, a Shenzhen-based analyst with Blue Lotus Capital. “The buy side will be happy about the 10% guidance compared with Alibaba’s.”
Longer term, the company will continue to go head to head with upstart Pinduoduo Inc., which now rivals JD in market value. In September, the latter company rolled out a group-buying platform called Jingxi, which, like Pinduoduo, entices purchases with incentives, rebates and other promotions. It’s also available to the billion-plus users on Tencent Holdings Ltd.’s all-in-one app WeChat.
“The coronavirus situation in March is still unknown. We have tried to take into consideration the potential downside, but so far we’ve been doing relatively well,” JD’s Huang told analysts on a conference call. “We do hope once the coronavirus situation stabilizes, we will resume our increasing margin trends.”