Please ensure Javascript is enabled for purposes of website accessibility

JD.com Inc. Earnings: Slow Smartphone Sales in China

By Anders Bylund – Nov 19, 2018 at 6:11PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The e-commerce giant hits a patch of limited top-line growth as Chinese consumers take a break from shopping for big-ticket items like smartphones and appliances.

China-based e-commerce giant JD.com (JD -2.83%) reported third-quarter results in the early hours of Monday morning. Top-line sales rose 25% year over year, despite soft consumer markets in a couple of key categories. Here's a closer look at JD's results.

JD's third-quarter results: The raw numbers

Metric

Q3 2018

Q3 2017

Year-Over-Year Growth

Revenue

$15.3 billion

$12.6 billion

21%

Net income attributable to shareholders

$419 million

$147 million

185%

GAAP earnings per American depositary share (diluted)

$0.30

$0.10

200%

Data source: JD.com.

What happened with JD this quarter?

  • Management's revenue expectations for this period had been pointing to roughly $16.1 billion, and the reported result fell at the bottom end of the stated guidance range. Chinese consumers are buying fewer home appliances and high-end smartphones at the moment, pumping the brakes on JD's revenue growth ambitions.
  • The company built 150 warehouses over the last four quarters, including approximately 30 in the third quarter alone. JD's shipping network now includes over 550 warehouse locations.
  • JD served roughly 200,000 online merchants by the end of the third quarter, up from 160,000 a year earlier.
  • The bottom line was boosted by a $500 million increase in the fair value of JD's long-term investments, driven by the public offering of British luxury retailer Farfetch (FTCH -7.30%). JD took a 14% ownership position in Farfetch in the summer of 2017, long before the high-end clothing specialist entered the public markets in a billion-dollar IPO.
JD's corporate logo in front of a selection of popular items from the company's online marketplace.

Image source: JD.com.

What management had to say

JD spent $502 million on research and development (R&D) in the third quarter, or approximately 3.3% of its incoming sales. That's up from $364 million, or 2.1% of sales in the year-ago quarter.

On the earnings call, CFO Sidney Huang celebrated this commitment to innovation but also promised to slow down on R&D expansion from now on: "We believe these investments are critical to position ourselves for the next phase of growth. With the key leaders and the various teams now in place, we expect R&D expense ratio to begin to stabilize going forward."

Looking ahead

For the fourth quarter, JD's management expects revenues to rise roughly 20% year over year in constant currencies, landing near $19.1 billion. That would work out to a 13% increase in U.S. dollars, accounting for a 5% rise in the dollar's value against the Chinese yuan. Further changes to the exchange rates could throw these dollar-based targets off kilter.

The weak consumer interest in big-ticket items such as smartphones and appliances will carry over into the fourth quarter, which is why the top-line bar was set so low. For the record, the third quarter's 21% top-line growth rate was the lowest reading in the company's history. Before this report, JD's sales growth had not dipped below 30% since the third quarter of 2016.

Anders Bylund has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends JD.com. The Motley Fool has a disclosure policy.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.