Brighter Times Could Beckon for JD.com after Stormy Spell

For Chinese stocks, the last few years have been fraught with gloom and doom. But some of the storm clouds could be lifting for e-commerce giant JD.com Inc. (JD.US; 9618.HK), which fared better than its peers during the dark times and may now be set to enjoy some sunnier market weather.

Chinese stocks have been plagued by an unrelenting litany of troubles in recent years: the danger of having to delist from the U.S. stock market, a Chinese regulatory crackdown on Internet companies, prolonged Covid-19 prevention measures, and an economic downturn.

As of last Friday, top five Chinese tech stocks Alibaba Group (BABA.US; 9988.HK), JD.com, Meituan (3690.HK), Tencent Holdings (700.HK) and Xiaomi Corp. (1810.HK) had suffered Hong Kong stock-price plunges ranging from about 30% to 58% over the past year. Of these, JD logged the smallest drop. What has made JD more price-resilient than the other giants?

Since last year, e-commerce leaders have been busy targeting China’s less affluent consumers.  JD has been actively expanding in the so-called “sunken market” of smaller Chinese cities and rural areas beyond the big metropolitan hubs. Alibaba has also launched its cost-effective product platform “Taobao Deals”.

However, JD has faced stiff competition with Alibaba and Pinduoduo Inc. (PDD.US) for slim margins in third- and fourth-tier Chinese cities. Even with its annual revenues growing nearly 28%, JD still posted a loss of 10.6 billion yuan ($149 million) for its new businesses, pushing overall accounts for the last financial year from profit to a net loss of 3.56 billion yuan.

Fortunately for investors, JD returned to the black in the first half of this year as new business improved and losses narrowed, posting a net profit of 1.39 billion yuan for the period.

Lawsuit settled out of court

JD has in fact been making progress in penetrating the previously untapped markets. The e-commerce company had 570 million active users last year, nearly 100 million more than a year earlier, of which 70% came from the “sunken” markets. The strategy has translated into rising revenues. By the end of June, JD’s first-half revenues had reached 507 billion yuan, surpassing the nearly 410 billion yuan of Alibaba, its archrival.

Another cloud of uncertainty for the company was lifted when a civil suit against JD founder Richard Liu ended in an out-of-court settlement.

The lawsuit had been scheduled to go to trial in Minnesota on Oct. 3, but on the evening of Oct. 1 the parties released a statement saying that a misunderstanding arising from an accident between Richard Liu and Liu Jingyao in Minnesota in 2018 had taken up a lot of social resources and caused deep distress to their families. The statement said both parties decided to clear up the misunderstanding and reach a settlement to avoid further litigation damage.

Liu resigned as CEO and named Xu Lei as his successor at the beginning of April this year, only to be reappointed as chairman to focus on long-term strategy. Although JD has moved to a team management model and will be less affected by individual personnel change, the resolution of the case helps clear some of the negativity that was hovering over the share price.