JD.com Posts Wider-Than-Expected Loss on Logistics Spending

(Bloomberg) -- JD.com Inc. reported a bigger-than-expected loss and predicted slow profit margin growth in 2018 as China's second-largest e-commerce operator bets on building logistics infrastructure, expands into retail stores and ramps up its marketing spending.

JD's net loss was 909.2 million yuan ($143 million) in the three months ended December, the Beijing-based company said in a statement Friday. That compares with the 522 million-yuan loss expected by analysts. Sales were 110.2 billion yuan, beating projections of 109 billion yuan.

JD, which is backed by Walmart Inc., is undertaking an ambitious spending campaign to become a global e-commerce power and has already built one of China's biggest delivery and warehouse networks. Founder Richard Liu wants to enter every Southeast Asian country and sell products in the U.S. and Europe, where he faces fierce competition from Alibaba Group Holding Ltd. and Amazon.com Inc.

"The revenue growth slowed in line with what the market expected but the miss in terms of profitability is a little bit more worrisome,” New Street Research analyst Kirk Boodry said.
“I think that's why the stock is trading down,”

The American depositary receipts fell 8.8 percent to $42.14 at 9:45 a.m. in New York Friday.

JD Chief Financial Officer Sidney Huang told analysts on the earnings call to expect non-GAAP net margins of 1 percent to 2 percent for the year ending December 2018 as the company continues to build out its infrastructure. Sales are expected to be 98 billion yuan to 100 billion yuan this quarter, representing growth of as much as 33 percent -- slightly above what analysts are projecting.

"We're still in the very early stage of a very long-term growth trajectory so our focus must be on growth and we have also made a very intentional effort to reinvest part of the profitability back in the business," he said.

JD's expansion is deepening its competition with larger rival Alibaba as both companies push into chains of high-end physical supermarkets and seek to woo shoppers using subsidies and discounts.

The logistics infrastructure is designed to boost the delivery service and speeds for JD's growing pool of customers. Annual active customer accounts increased by 29 percent to 292.5 million in the year ending 2017. They in turn generated 1.3 trillion yuan in gross merchandise volume (GMV), which refers to the total value of goods sold over a platform.

“JD is in the midst of a multi-layered battle for the future of retail in China, and elsewhere,” analysts at Bernstein led by Bhavtosh Vajpayee said in a research note before the results. Warehouse space in China run by JD hit 10 million square meters as of December, up from 9 million square meters in September.

JD has spun off several cash-burning units to help them raise money independently and ease the listed company's burden. JD Logistics last month raised about $2.5 billion from shareholders including Tencent Holdings Ltd. and Hillhouse Capital to help supercharge its expansion. Its financial services arm JD Finance was split out last year and the online mall's physical strategy will largely rely on franchising.

"We do want to have somewhat of a lighter model going forward," JD's Huang said.

To contact Bloomberg News staff for this story: David Ramli in Beijing at dramli1@bloomberg.net.

To contact the editors responsible for this story: Robert Fenner at rfenner@bloomberg.net, Edwin Chan

©2018 Bloomberg L.P.

With assistance from David Ramli