JD.com Stock Falls to Record Lows After Flurry of Earnings Downgrades

JD.com (NYSE: JD) stock hit its all-time lows in yesterday’s Hong Kong price action as analysts get jittery over the growth outlook for the Chinese e-commerce company amid a sagging Chinese economy. Multiple brokerages slashed their earnings estimates amid a worsening economic slowdown in the world’s second-largest economy.

Morgan Stanley downgraded JD stock from overweight to equal weight while slashing the target price from $55 to $33. In a client note analyst Eddy Wang wrote “We have low conviction in a strong recovery in growth in 2024 and beyond.”

Morgan Stanley downgraded JD

Wang added, “We expect the soft consumption sentiment and JD’s business and strategy adjustments to continue to weigh on its revenue growth and margins in 3Q23; the 4Q23 outlook also remains weak.”

Furthermore, Wang lowered JD’s earnings estimates by 3%, 4%, and 7% respectively for 2023, 2024, and 2025. Wang expects a long-term slowdown in Chinese consumption which is expected to take a toll on e-commerce giants like JD.

Also, he expressed concerns about JD’s competitive position in the Chinese e-commerce market amid rising competition from PDD which also owns Temu and Douyin. While JD implemented a low-price strategy and offered subsidies to lure more buyers to its platform, Wang worries that if the plan fails it could further dampen the company’s position.

“We expect a long-term trend of consumption downgrade in China, and if JD is not able to successfully implement its low price strategy that caters to the trend, we think it could be in a structurally less favorable position in China’s e-commerce market,” said Morgan Stanley in its note.

Brokerages slash JD.com’s target price and estimates

Morgan Stanley is not the only brokerage that has cut JD’s earnings estimate and Benchmark, Jefferies, Citi, and Daiwa have also adjusted their estimates and target prices. Citi lowered JD’s Q3 and Q4 revenue estimates by 3.4% and 4.3% respectively and expects the company’s sales to rise just about 1% in the second half of the year.

While Citi maintained its buy rating on JD, it slashed the target price from $64 to $43 and blamed a “relatively muted consumption trend, high base, intense competition, and on-going impact from restructuring adjustment” for the revision.

It added, “Heading into 4Q23, despite seasonally strong 11.11 promotion, we believe cautious consumption sentiment and competitive pricing discount are likely to weigh on any meaningful rebound of growth for JD.”

Nomura is also apprehensive about the stock and believes that the company’s sales failed to pick up and it hasn’t benefited from China’s economic stimulus.

China’s economic slowdown

China’s economic slowdown has worsened as is visible in most economic indicators. The country’s property sector which used to be a strong pillar of growth driving demand for everything from metals to labor is witnessing a massive slowdown which is leading to bankruptcies. Amid the economic slowdown, Chinese consumers have dialed back on their spending which is hurting sales of companies like JD.

Along with earnings downgrades by at least seven brokerages, rumors of JD’s chairman being arrested in China also fueled the sell-off. The company has denied the rumors which arose after a businessman with the same surname as its chairman was arrested and also filed a police complaint over the perpetrators of the rumors.

Chinese tech companies are on a restructuring spree

Meanwhile, Chinese tech companies have been on a restructuring spree amid slowing growth. In June, JD set up a new unit named “Innovative Retail” to house its group buying unit Pinpin and grocery store business 7Fresh. The segment is headed by Yan Xiaobing who had retired from the company two years back.

The same month, JD replaced Xu Lei as its CEO and appointed then-CFO Sandy Ran Xu to the position.

Rival Alibaba has also made sweeping changes and in March, the Chinese tech giant announced a business restructuring and said that it would become a holding company while splitting into the following six business units – all of which can consider capital raising and separate listings.

• Cainiao Smart Logistics which holds Alibaba’s logistics business.
• Taobao Tmall Commerce Group which has Alibaba’s online shopping platforms like Tmall and Taobao.
• Global Digital Commerce Group which houses the company’s international e-commerce operations including AliExpress.
• Cloud Intelligence Group which would include the company’s lucrative cloud and AI business.
• Local Services Group which is the company’s food delivery and mapping businesses.
• Digital Media and Entertainment Group which houses the company’s streaming operations.

Alibaba’s business restructuring

In May, Alibaba said that Daniel Zhang, who is the current CEO and chairman of Alibaba Holdings – the parent company of the conglomerate – would step down in September.

The company has bifurcated the roles and Joseph C. Tsai, who’s currently Executive Vice Chairman of Alibaba Holdings would become the chairman while Eddie Yongming Wu who’s currently the Chairman of Taobao and Tmall Group would become the CEO.

Notably, when Alibaba announced the business reorganization in March, Zhang also took over as the CEO of Cloud Intelligence Group along with his position as the CEO and chairman of Alibaba Holdings.

The move highlighted the importance of the Cloud segment for BABA – which also happens to house its AI business.

JD.com stock falls to record lows

Meanwhile, amid the recent crash, the JD stock fell to its all-time lows in Hong Kong. While the stock has been listed in the US since 2014, it also went for a Hong Kong listing in 2020. Amid growing US-China tensions and fears of delisting in the US. Several Chinese companies including Alibaba, NIO, and Xpeng Motors also listed in Hong Kong – an exercise named “home coming” by many.

Meanwhile, JD.com has lost over half of its market cap in 2023 and is among the worst-performing stocks. Notably, while the S&P 500 is still up in double digits despite the recent sell-off, the Hang Seng index is in the red amid concerns over the health of the Chinese economy.