Shares of JD.com (NASDAQ:JD) recently jumped to an all-time high after the Chinese e-commerce company posted its first-quarter numbers. Its revenue rose 21% annually to 146.2 billion yuan ($20.6 billion), beating estimates by $1.4 billion.

Its adjusted net profit fell 10% to 3.0 billion yuan ($420 million), or $0.28 per ADS, but still beat expectations by $0.19. During the conference call, CFO Sidney Huang said that JD "navigated through all the operational difficulties and the disruptions" from the COVID-19 crisis and "delivered a solid set of financials."

JD's resilience during the crisis was impressive, and it easily surpassed its prior forecast for "at least" 10% revenue growth in the first quarter. But does JD's stock still have room to run after soaring over 40% this year?

JD's autonomous delivery robot.

Image source: JD.com

Its growth in shoppers outpaces its growth in revenue

JD's revenue growth decelerated in the first quarter as customers bought more essential items instead of pricier discretionary goods. Nonetheless, JD's sales of electronics and home appliances still rose nearly 10% against a nationwide decline of 21% during the quarter.

JD's annual active customers grew 25% annually to 387.4 million, marking a significant acceleration from its recent quarters. Daiwa analysts expect that figure to top 400 million by 2021.

Growth (YOY)

Q1 2019

Q2 2019

Q3 2019

Q4 2019

Q1 2020

Annual Active Customers

2.9%

2.4%

9.6%

18.6%

24.8%

Revenue*

20.9%

22.9%

28.7%

26.6%

20.7%

YOY = Year-over-year. *RMB terms. Source: JD quarterly reports.

More than 70% of JD's new customers came from lower-tier cities across China, which generated over 50% of its GMV (gross merchandise volume) in the first quarter. That expansion, which was buoyed by its new discount marketplace Jingxi, shored up JD's defenses against Pinduoduo (NASDAQ:PDD), the discount marketplace that surpassed JD in total shoppers (but not revenue) last year.

Yet JD's growth in lower-tier cities is a doubled-edged sword: It gains more shoppers, but reduces its average revenue per customer and boosts its fulfillment cost since lower-income shoppers generally have less spending power.

JD's Prime-like "JD Plus" membership platform surpassed 10 million subscribers last September, but it's still relying on loss-leading strategies -- including exclusive discounts, free shipping coupons, free streaming content from partners like iQiyi (NASDAQ:IQ), and VIP customer service -- to gain more members. It also expanded its lower-margin online grocery business to counter Alibaba's (NYSE:BABA) Hema unit.

Stable margins and an expanding ecosystem

JD's fulfilled gross margin dipped 10 basis points annually to 8.3% during the quarter; the scale of its marketplace, the expansion of JD Logistics (its first-party logistics network, which it also offers as a service to other companies), and reduced subsidies only partly offset the lower margins of its grocery business.

JD's E-Space retail showcase.

Image source: JD.com

Meanwhile, tighter cost controls at JD Retail, its core commerce business, boosted the unit's operating margin from 2.7% to 3.2%. That margin expansion indicates JD is leveraging the scale of its retail and logistics unit to offset the costs of its expanding digital ecosystem -- which includes its growing cloud, AI, and digital health platforms.

In short, JD didn't face any meaningful margin headwinds during the quarter. Instead, its adjusted net income only declined by 10% due to tough comparisons to one-time gains in the prior-year quarter.

Rosy guidance for the second quarter

JD expects its revenue to rise 20%-30% annually in the second quarter, assuming that the waning COVID-19 crisis doesn't cause an "unexpected disruption" to its operations. It didn't provide any earnings guidance, but Huang suggested the "margin dynamics" of the first quarter, which bore the brunt of the lockdown measures in February, would be similar if the COVID-19 headwinds unexpectedly accelerated again.

Wall Street expects JD's revenue and adjusted earnings to rise 18% and 15%, respectively, this year. JD's stock isn't cheap at nearly 40 times forward earnings, but its scale, stable margins, and expanding ecosystem all justify that premium. JD is also significantly more profitable than Pinduoduo, and its first-party seller model prevents it from being swamped by low-quality third-party goods like Ailbaba's Taobao.

Those strengths all make JD a top tech and e-commerce investment in China. Long-term investors shouldn't be afraid to chase JD at its all-time high since it could still have plenty of room to run over the next few decades.