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Why Stock Jumped in August

By John Ballard – Sep 8, 2021 at 9:22AM

Key Points

  • New regulatory threats in China have hung a dark cloud over in recent months.
  • A record quarter for customer additions drove sales up 26% year over year.
  • Management sees opportunities for margin improvement over the long term.

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Investors cheered JD's strong earnings results last month.

What happened

Shares of (JD 0.92%) rose 10.8% last month, according to data provided by S&P Global Market Intelligence. The stock had dropped in recent months, as China's regulatory authorities ramped up scrutiny of big internet platforms over antitrust issues. Under that cloud, JD delivered second-quarter results that were just what investors needed to restore confidence in its future.

Revenue for the second quarter increased by 26% year over year to $139 billion. Most encouraging was the stability in operating margin within JD Retail of 2.6%, driven by improved supply chain and operating efficiency. Management believes this margin level can improve over time, which could fuel more gains for investors over the long term.

A shopper holding a mobile phone while using a computer.

Image source: Getty Images.

So what

JD touted the 27% year-over-year increase in annual active customers, reaching 531.9 million in the quarter. This reflects a record of nearly 32 million customer additions over the previous quarter. 

Most importantly, management reported that its new users are showing improvement in retention rate and shopping frequency, which bodes well for post-pandemic growth. Average revenue per user is growing, which is also contributing to growth in the lifetime value of the customer base. 

Now what

JD is different from other big e-commerce platforms in that it serves brick-and-mortar businesses with its omnichannel focus, which could help the company navigate through the regulatory environment, but this is still a risk investors should continue to monitor. 

On that note, it was encouraging to see management mention opportunities to grow the business. Specifically, management still sees opportunities to improve the net profit margin, as it achieves greater scale and operating efficiency. JD's margin is lower than competitors', so narrowing that gap should fuel more growth in profits. All told, JD could still be a rewarding long-term investment from these highs.

John Ballard has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends The Motley Fool has a disclosure policy.

Stocks Mentioned Stock Quote
$59.18 (0.92%) $0.54

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