JD.com (NASDAQ:JD) has been trending up for the last six months, and even as the coronavirus has added some volatility to the shares, JD stock is still more valuable now than it was at the outbreak’s beginning. It’s likely to stay that way.
In my column published on Feb. 6, I predicted that JD’s results, “shouldn’t be hurt too much by the coronavirus outbreak, as many people who stayed home as a result of the outbreak probably ordered more products than usual from eCommerce companies.”
I added that the company’s targeting of China’s second-tier cities appeared to be working and would likely continue to do so. In a subsequent column, I predicted that its logistics subsidiary would boost its performance during the coronavirus outbreak.
All of those points played important roles in the stronger than expected Q4 results and Q1 guidance that the company reported earlier this month. Given all of JD’s strengths, JD stock will likely continue to outperform going forward.
JD’s Q4 Results and Q1 Guidance Beats
JD’s Q4 earnings per share, excluding certain items, came in at 8 cents, versus analysts’ average outlook of 6 cents. Its Q4 revenue rose 26.6% year-over-year to $24.5 billion.
Its EBITDA was $282 million, and its operating income, excluding certain items, soared 125% YOY. Despite the coronavirus from China outbreak, JD still expects its Q1 revenue to rise “at least” 10% YOY in Q1, although it added that, given the uncertainties created by the virus, its outlook could change.
On JD’s Q4 earnings conference call, the company’s CEO, Richard Liu, said, “The consumer staple categories such as groceries, fresh produce, health care and household products are in greater online demand during the past five weeks.”
Further, the company’s logistics network and supply chain subsidiary enabled it to quickly resume operations after the lengthened New Year holiday and was, “in a unique position to provide broad product selection and uninterrupted timely service to our customers in most parts of the country,” according to Liu.
He noted that, in many cases, JD was the only major online platform that was able to supply Chinese consumers with the staple products they were seeking. Liu added that users’ activity on its platform had accelerated in recent weeks.
But on the downside for the company, Liu did report that its sales of more expensive products has taken a hit in the wake of the coronavirus outbreak.
Key Factors Behind the Strong Q4 Results
JD ‘s user base jumped by 28 million from September to early March, and 70% of its new customers in Q4 came from the country’s second-tier cities. Liu attributed the company’s success in second-tier cities to its”innovative marketing activities, more diverse product offerings and improved logistic services.”
Meanwhile, the CEO reported that the company’s results had been boosted by strong advertising revenue and powerful demand for its logistics services from other companies.
The Outlook of JD Stock
On Mar. 4, the number of new coronavirus cases in China reached the lowest level since the country began reporting new infections on Jan. 21, according to World Health Organization data. The data indicates that the country’s situation is normalizing.
That should be positive for JD, as orders of its discretionary products, along with its ad revenue, should steadily accelerate versus their levels during the worst days of the outbreak. As a result, its YOY revenue growth should soon come close to the 26.6% level it reached in Q4.
Meanwhile, as e-commerce and the economy continue to grow rapidly in China, JD’s customer acquisition strategy should continue to bear fruit and demand for its logistics services should accelerate.
Additionally, its profit margins should climb as its larger size enables it to obtain lower prices from suppliers and reduces the expenses of its logistics business. Finally, due to JD’s rapid growth and relatively large size, it may be able to cut its marketing spending. That’s because it will be able to rely less on ads and more on word-of-mouth and its reputation.
Given all of these points, JD’s growth and profitability should accelerate meaningfully in the medium term and long term, making JD stock very attractive at its current levels.
As of this writing, Larry Ramer did not own shares of any of the aforementioned companies. Larry Ramer has conducted research and written articles on U.S. stocks for 13 years. He has been employed by The Fly and Israel’s largest business newspaper, Globes. Larry began writing columns for InvestorPlace in 2015. Among his highly successful, contrarian picks have been GE, solar stocks, and Snap. You can reach him on StockTwits at @larryramer.