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Global TMT analyst with Asia ex-Japan focus.

Mitchell Kim

Equity Bottom-Up

<a href="https://www.smartkarma.com/entities/jd-com-inc-adr" target="_blank" data-smartkarma-citation="entities:446:1" rel="noopener">JD.com Inc (ADR) (JD US)</a> will likely be the first of the Chinese e-commerce platforms to report its 1Q20 operating results in the second week of May. JD's top-line growth is expected to slow to about 10% growth YoY with discretionary categories volume down sharply but dampened by the strong pick up in the grocery business as I noted in my <a href="https://www.smartkarma.com/insights/china-e-commerce-as-a-supermarket-play" target="_blank" data-smartkarma-citation="insights:38852" rel="noopener">China E-Commerce as a Supermarket Play</a> , dated 29 April 2020.  However, the weak results should not be enough to undercut the positive operating metrics trends carried over from 2H19.  The consensus is looking for a 12% revenue growth YoY. 
Investor sentiment has turned more positive on the stock since the 3Q19 results. The stock price has returned 50% in the last 12 months.  87% of the sell-side currently has a buy and just 13% with a hold, quite a turnaround from just 37% buys at the beginning of 2019.
Because 1Q20 results will be heavily impacted by COVID-19, investors are likely to waive off the quarter and look for a continuing signs of improvement.  For this reason, in this report, I highlight the key drivers for the stock as well as the possible risks to look for beyond 1Q20. 
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The key drivers for the stock are: 
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<ul>
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Annual buyer and MAU growths are trending up again. 
</li>
<li class="">
Most of the new buyers are from rural regions.  They have lower income but their spending rate is higher than urban buyers.  
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Improving business mix with general merchandise on the rise.
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The fulfillment cost to revenues ratio is declining.  
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</ul>
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JD.com Inc (ADR) (JD US) will likely be the first of the Chinese e-commerce platforms to report its 1Q20 operating results in the second week of May. JD's top-line growth is expected to slow to about 10% growth YoY with discretionary categories volume down sharply but dampened by the strong pick up in the grocery business as I noted in my China E-Commerce as a Supermarket Play , dated 29 April 2020.  However, the weak results should not be enough to undercut the positive operating metrics trends carried over from 2H19.  The consensus is looking for a 12% revenue growth YoY. 
Investor sentiment has turned more positive on the stock since the 3Q19 results. The stock price has returned 50% in the last 12 months.  87% of the sell-side currently has a buy and just 13% with a hold, quite a turnaround from just 37% buys at the beginning of 2019.
Because 1Q20 results will be heavily impacted by COVID-19, investors are likely to waive off the quarter and look for a continuing signs of improvement.  For this reason, in this report, I highlight the key drivers for the stock as well as the possible risks to look for beyond 1Q20. 

The key drivers for the stock are: 



Annual buyer and MAU growths are trending up again. 


Most of the new buyers are from rural regions.  They have lower income but their spending rate is higher than urban buyers.  


Improving business mix with general merchandise on the rise.


The fulfillment cost to revenues ratio is declining.  




JD.com Inc (ADR)

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