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JD.com sales soar 7% as Covid erodes online shopping in China

(Bloomberg) — JD.com Inc reported quarterly revenue growth of 7%, slightly below expectations, as online consumer spending in China remained volatile amid the economic downturn.

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This growth rate is down sharply from the previous year’s 23 percent. The company and larger rival Alibaba Group Holding Ltd. The world’s second-largest economy has struggled with weak consumer sentiment since it collapsed under the weight of China’s strict Covid-19 control measures. JD.com shares fell more than 3% in premarket trading in New York.

China’s second-largest online retailer reported October-December sales of 295.4 billion yuan ($42.4 billion), slightly below analysts’ average forecast of 295.5 billion yuan. JD.com announced a $1 billion dividend to shareholders on Thursday and reported net income of 3 billion yuan, compared with estimates of 2.9 billion yuan.

China’s imports and exports continued to decline in the first two months of 2023, clouding prospects for a gradual economic recovery from the Covid years and waves of infections. Economists expect consumption to be the main driver of GDP this year, but data point to slower urbanization and rising inequality in 2022, two trends that could dampen private spending. Alibaba reported quarterly sales growth of just 2.1% in the final three months of 2022, underscoring economic uncertainty that persisted even after China lifted Covid restrictions in December.

Such as Alibaba and Tencent Holdings Ltd. JD.com faces growing competition from upstarts such as Pinduoduo and ByteDance. And to balance tightening cost controls with targeted actions to strengthen its market share. JD.com is shutting down its shopping sites in Indonesia and Thailand and launching a 10 billion yuan ($1.4 billion) rebate program at home, raising concerns about a new wave of competition in Chinese e-commerce.

The company is also a logistics leader alongside Alibaba. It said Thursday it has sold Class B preferred stock in its supply chain services unit

“While 2022 has brought many challenges to JD.com and China as a whole, we have achieved solid operating performance, with annual revenue exceeding 1 trillion yuan for the first time,” CEO Xu Lei said in a statement. “Looking ahead , in the face of ever-changing opportunities and challenges, we will focus on reducing costs, improving efficiency and continuously improving user experience.

Here’s what Bloomberg Intelligence says:

JD.com’s overall retail profit growth in the fourth quarter will outpace sales growth as Covid-related weakness in mainland Chinese consumer and business sentiment prompts the company to tighten year-over-year cost controls. It should also reduce costs overseas as it takes steps to wind down operations in Indonesia and Thailand by March.

JD.com plans to offer 10 billion yuan in subsidies to buyers on its platform, which could boost average spending per active user and attract new customers this year. That could help the company meet consensus expectations for revenue growth to accelerate to 15% in 2023, up from about 10% last year.

– Analysts Catherine Lim and Trini Tan

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JD.com, founded by billionaire Liu Qiangdong, has largely avoided direct blows from Beijing’s crackdown on China’s largest internet company in 2020 and 2021. The regulatory assault has staggered Alibaba — the target of a months-long antitrust investigation — struggling to revive growth. In 2022, annual sales will exceed 1 trillion yuan for the first time.

Still, JD.com has joined a sell-off in Chinese tech stocks this year, even as officials in Beijing have repeatedly expressed support for the private sector – reflecting continued uncertainty over regulators’ goals. Hong Kong-listed JD.com shares are down about 19 percent this year.

READ MORE: Missing banker reignites fears of Xi Jinping among Chinese tech bosses

(dividend and fundraising update for second paragraph)

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JD.com Inc. posted a 7% rise in quarterly revenue, slightly below expectations, as Chinese online consumer spending remained volatile during an economic downturn.

That pace of growth is down sharply from 23% a year earlier. The company and larger rival Alibaba Group Holding Ltd. have grappled with weak consumption sentiment since the world’s No. 2 economy buckled under the weight of China’s rigid Covid control measures. JD’s shares slid more than 3% in pre-market trading in New York.

China’s second-largest online retailer reported sales of 295.4 billion yuan ($42.4 billion) for October to December, slightly below the 295.5 billion yuan average of analysts’ projections. JD, which on Thursday declared a $1 billion dividend for shareholders, posted net income of 3 billion yuan, versus a 2.9 billion yuan estimate.

China’s exports and imports continued to decline in the first two months of 2023, clouding the outlook for an economy gradually recovering from the Covid years and waves of infection. Economists expect consumption to be the main driver of GDP this year, but the data showed a slowdown in urbanization and rise in inequality in 2022, two trends which could slow private spending. Alibaba had reported a mere 2.1% rise in quarterly revenue in 2022’s final three months, underscoring the economic uncertainty that’s prevailed even after China abolished Covid restrictions in December.

Like Alibaba and Tencent Holdings Ltd., JD faces intensified competition from up-and-comers such as PDD Holdings Inc. and ByteDance Ltd., and has balanced tightened cost controls with targeted measures to shore up its market share. JD is closing its Indonesia and Thailand shopping sites while launching a 10 billion yuan ($1.4 billion) discount program back home, spurring worries of a new wave of competition in Chinese online commerce.

The company is also a leading player, along with Alibaba, in logistics. It said Thursday it sold Class B preferred shares in its supply chain services unit JD Industrials to a group of unidentified investors.

“While 2022 posed many challenges for JD.com and China as a whole, we delivered solid operational results and surpassed 1 trillion RMB in annual revenue for the first time,” Chief Executive Officer Xu Lei said in a statement. “Looking ahead, amidst ever-evolving opportunities and challenges we will stay focused on lowering costs, increasing efficiency and constantly improving user experience.

What Bloomberg Intelligence Says:

JD.com’s total retail earnings gain in 4Q would have surpassed revenue growth as Covid-led weakness in consumer and business sentiment across mainland China prompted the firm to tighten cost controls from a year earlier. It likely also cut overseas expenses as the firm took steps to cease operations in Indonesia and Thailand by March this year.

JD.com’s plan to offer 10 billion-yuan worth of subsidies to shoppers on its platforms could lift average spending per active user and attract new customers this year. This might help the firm meet consensus expectations for an acceleration in revenue growth to 15% in 2023 vs. about 10% the prior year.