JD.com surges after sales beat estimates, allays tech crackdown fears

Hong Kong

JD.COM's shares soared as much as 10.5 per cent after the e-commerce giant reported revenue that beat estimates, defying a crackdown on the Chinese Internet sector that has depressed growth across the industry.

The shares gained by the most in almost a month in Hong Kong after the company posted a better-than-expected 26 per cent rise in revenue to 253.8 billion yuan (S$53.1 billion) for the three months ended June. But that was the slowest since China first emerged from the pandemic last year, underscoring how Beijing's crackdown is chilling growth across the country's tech arena.

China's regulators have this year stepped up oversight of a plethora of industries including online commerce, seeking to curtail the growing power of Internet firms and share the wealth. They've also imposed wide-ranging curbs on the use of personal information, a major source of their influence.

JD executives said on Aug 23 that they don't see major impact from curbs on data collection and usage, which tend to affect companies more reliant on advertising. In fact, the banning of merchant exclusivity arrangements - the so-called "pick one of two" practice once endemic throughout the sector - has coincided with the return to JD of brands such as Starbucks, executives said.

The Beijing-based firm also called the government's effort to curb "disorderly capital expansion" good for business, as JD - known for selling better quality, more expensive products like electronics - will less likely get squeezed by a price war.

"JD has always paid great importance to data security and personal information, so the arrival of the new regulations are not making a big impact on us in terms of our advertising business," chief executive officer Xu Lei told analysts on a conference call.

Alibaba Group posted its first revenue miss in years while Tencent reported the weakest sales growth since 2019, as Beijing widened a campaign to rein in abuses in the e-commerce arena to encompass issues such as data security, online content and most recently, excessive wealth.

While JD.com hasn't been singled out in any high-profile probe or crackdown, its shares have dropped roughly 40 per cent from a February high, as tightening regulatory scrutiny prompted global investors to flee the Chinese Internet sector.

Sales beat estimates after JD.com boosted total transaction volumes for its annual 6.18 shopping festival by 28 per cent, helped in part by the double-digit rebound in retail spending in its home market during the June quarter.

But, a recent spike in coronavirus cases across parts of China may cloud that recovery, as tough pandemic restrictions hit retail sales toward the end of July. Net income tumbled to 794.3 million yuan, down from 16.4 billion yuan a year earlier, after JD ramped up spending on marketing by 56 per cent to sustain growth.

The plunge in profit stemmed partly from a 4.1 billion yuan one-time gain that JD booked a year earlier from the initial public offering of investee Dada Group. On Aug 23, JD warned about uncertainty in the current quarter, when a resurgence of Covid and extreme weather prompted lockdowns and disrupted logistics across China.

The company continues also to push its Jingxi community commerce business, an area in which Alibaba and Pinduoduo are also expanding aggressively into.

"We are faced with multiple challenges," Mr Xu said. BLOOMBERG