JD.Com Inc(ADR) (JD) Stock Pops on a Big, Relieving Q4 Report

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Investors were heading into Thursday’s morning’s quarterly report from JD.Com Inc (ADR) (NASDAQ:JD) with a (mostly) bullish mindset. As of Wednesday’s close, JD stock was up more than 20% just since the beginning of the year, largely putting an end to a disappointing 2015 and 2016.

JD.Com Inc(ADR) (JD) Stock Pops on a Big, Relieving Q4

Those buyers were right to be so bullish.

Solid fourth-quarter numbers sent JD.com shares up to the tune of 7% in Thursday’s premarket trading action … into new 52-week high territory. Not only does the move reward faithful JD stock holders, but with 38.7 million shares being held as short position (or roughly 6% of the entire float), Thursday morning’s good news bolsters the already-brewing possibility of a short-covering rally.

JD.com Earnings Recap

For the fourth fiscal quarter of its year ending on Dec. 31, JD turned $11.6 billion worth of revenue into an adjusted profit of 6 cents per share. Analysts were expecting JD.com to report a loss of 6 cents per share on revenue of $11.15 billion. The e-commerce player reported a loss of 7 cents per share on sales of $7.95 billion in the year-ago quarter.

The per-share figures mean little for JD.com. The organization faces exchange-rate volatility, has an ongoing buyback program of JD stock and often adds and subtracts pieces of itself — not to mention, it’s not terribly worried about profitability at this point. Instead, revenue is the key picture of health, and revenue was up a healthy 47% year-over-year. Gross merchandise volume sales, or GMV, grew 46%.

For the full year, JD.com was expected to report a full-year loss of only 1 cent per share and sales of $37.3 billion. It ended up with a top line of $37.5 billion, and turning it into a profit of 11 cents per share. The company reported a loss of 9 cents per share of JD stock, and a top line of $26.4 billion, in the prior year. GMV was up 44%, to $94.8 billion, for 2016.

Again, the per-share profit figures mean very little, a la Amazon.com, Inc. (NASDAQ:AMZN) in its early days. A more relevant figure, free cash flow, more than doubled to $2.25 billion for the company’s recently completed fiscal year.

CFO Sidney Huang commented:

“We’re delighted to report very strong top and bottom line growth for the quarter, and margins continued to benefit from the rapidly expanding scale of the JD.com platform. We remain committed to investing in technology and customer service to drive long-term sustainable growth across our established and emerging business areas.”

Shedding Dead Weight Gets JD Noticed

The company’s expansion-driven need for cash is soon to be partially met by a spinoff of its financial division, JD Finance.

The spinoff may server several purposes, not the least of which is raising cash while financial companies in China are firmly valued. Shedding JD Finance, however, will also allow the standalone unit to do things it wasn’t allowed to do when partially owned by overseas investors.

The unspoken upside of selling JD Finance is cutting loose of a subsidiary that consistently loses money. The other unspoken upside of letting go of JD Finance: The subsidiary is not being investigated by Chinese regulators for potential violation of securities laws.

All told, the deal should put 14 billion renminbi, or roughly $2 billion, in the company’s coffers, plus 40% of JD Finance’s gross profits (if any) in the future.

Also of interest is the fact that the world’s largest retailer, Wal-Mart Stores Inc (NYSE:WMT), continues to up its stake in the Chinese e-tailer. As of late January, Walmart now holds 289.1 million shares of JD stock, almost doubling its exposure to the company in just one quarter.

Walmart was once optimistic on China, spending big to enter to capitalize on the country’s new era of consumerism. It never did as well there as it had hoped to, however. Its 12% stake in the Chinese company says Walmart still thinks highly of consumerism in that country, and is looking for new ways to tap into it.

Looking Ahead for JD Stock

For the quarter currently underway, JD.com anticipates revenue growth of between 34% and 38% year-over year — guidance that’s slightly less robust that its recent growth pace, and in line with estimates.

Know, however, that the company tends to top estimates.

No guidance was offered for all of 2017, but the pros are calling for a top line of $49.58 billion and a profit of 20 cents per share of JD stock. That would be a nice swing to profitability, supported by revenue growth of 32.2%.

As of this writing, James Brumley did not hold a position in any of the aforementioned securities.


Article printed from InvestorPlace Media, https://investorplace.com/2017/03/jd-com-inc-adr-jd-stock-pops-q4-earnings/.

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