Image source: JD.com.
Shares of JD.com (JD 0.04%) moved higher after posting blowout quarterly results. JD.com -- China's largest e-commerce company by revenue -- saw its stock soar 13% on the week. It's off to a good start this week, padding its gains by another 3% in yesterday's trading.
Net revenue for JD.com's second quarter clocked in at $9.8 billion, 42% ahead of the prior year's showing. Margins improved with its adjusted gross profit soaring 66% and its adjusted operating profit checking in at $54.4 million -- reversing a year-ago deficit. JD.com posted a profit on an adjusted basis, surprising analysts who were holding out for more red ink. It's the first time in more than a year that JD.com hasn't disappointed on the bottom line, and investors ate that up.
The biggest name in China that you just don't know
JD.com may not be a household name for stateside shoppers, but it's a juggernaut that represents roughly 100,000 different merchants throughout China. A whopping $24.1 billion in gross merchandise volume was transacted through its platform during the three-month period. There are now 188.1 million active customer accounts, defined as folks who have placed an order through JD.com over the past 12 months. That is 65% ahead of where it was at the midpoint of last year. JD.com fulfilled 373.4 million orders during the quarter, 56% ahead of where it was a year earlier.
Orders and active customer counts growing faster than revenue and gross merchandise volume isn't typically ideal. It would be great to see the average customer spending more -- not less -- over time. However, as JD.com reaches out to a wider audience, it's going to win over smaller shoppers.
JD.com's strong report was encouraging to SunTrust analyst Robert Peck. He kept his bullish buy rating intact, pointing out that the e-commerce giant's core profitability continues to improve. He is concerned about some challenges in the current quarter, where JD.com is targeting a sequential deceleration in year-over-year revenue growth, but he's still backing the stock.
Taking stock in China
JD.com's stock has been all over the map this year. Bears won the first half of the year, with the stock heading lower in five of the first six months of 2016. It went on to inch higher in July, only to be on a bullish tear so far in August. Even if it merely marches in place through the second half of August, it will be the stock's biggest gain since April of last year.
The reborn dot-com darling sees top-line growth slowing to between 34% and 38% for the current quarter, but it's not as bad as it seems. JD.com booted 22,000 smaller merchants off its platform in April in a move to shore up its offering. It has added enough new merchants to offset the contracts in discontinued, though it will take a few months before those suppliers ramp up to speed.
Not every Wall Street pro saw last week's blowout coming. T.H. Capital downgraded the stock from buy to hold earlier this month, just ahead of the stellar quarter that sent the stock on a double-digit percentage rally. You can't win 'em all, but it's hard to bet against JD.com if margins keep improving and its audience continues to expand.
