JD.com (NYSE: JD) reported Q4 earnings which topped expectations on the top and bottom-line, resulting in shares gapping up 3%. However, shares fell over 10% in the following two trading sessions on the company's forecast of higher costs in 2021.
JD.com is the second largest ecommerce company in China and the largest direct retailer. The company started as a physical retailer of electronics in shopping malls. It added online sales due to the SARS crisis which eventually became bigger than its original business. In addition to e-commerce, the company has business units for fresh food, cloud computing, AI, and logistics & fulfillment.
Inside the Numbers
In Q4, JD reported adjusted earnings of $0.23 cents per share an 18% increase from last year and above analysts' expectations of $0.18 per share. Revenue increased by 31% to $34.4 billion, beating estimates of $33.7 billion. Annual active customer accounts increased by 30% to 471.9 million.
For 2021, JD forecasts $140.5 billion in revenue. JD has an impressive streak of double-digit revenue growth for eight years, and it's remained to be profitable unlike most Internet companies, and this seems likely to continue next year.
Stock Price Outlook
Comparing the Chinese Internet to the U.S. is interesting. In terms of consumer behavior, China is ahead of the U.S. but in terms of business adoption, China lags. This is an opportunity for JD. It's rapidly grown in the past few years along with consumers' increasing use of online services. And, it's used these proceeds to invest in new markets where it's established a leading position. Based on U.S. markets, these segments will expand exponentially. Some of these include fintech, telehealth, cloud computing, machine learning, and AI.
JD is starting to gain traction in these higher-margin segments which is apparent from its services group which generated $4.9 billion in revenue, 53% higher from last year. This is only 15% of its total revenue but makes up the bulk of its revenue growth.
In many ways, JD seems to be following the same playbook as Amazon (Nasdaq: AMZN). JD is also staying on the good side of Chinese regulators who have expressed concern about "market power" held by a few firms. As a result, JD has been spinning off units and retaining an ownership stake. It completed a listing of JD Health which is now valued at $50 billion due to big gains during the pandemic as telehealth use soared. It's also listing JD Logistics, JDProperty, and JD Digits, its fintech unit, in the coming months.