Why JD.com Stock Followed Alibaba Lower Today


Shares of JD.com (JD -4.40%), the Chinese e-commerce giant, were falling again today. This time, it was in response to a disappointing earnings report from Alibaba (BABA -5.87%), its close competitor and peer.

As of 1:19 p.m. ET, JD stock was down 4.5%, while Alibaba stock had fallen 6.4%.

A man sitting on the hood  of a car.

Image source: Getty Images.

China is still weak

Investors were hoping that Alibaba’s December quarter would give investors a reprieve from a brutal sell-off in Chinese tech stocks, but that was not the case. Instead, Alibaba disappointed the market again, showing that the Chinese e-commerce sector remains weak.

Revenue in the quarter grew just 5% to $36.7 billion, which was in line with estimates. At Alibaba’s core commerce group, Taobao and Tmall, which competes directly with JD, revenue rose just 2% to $18.2 billion, which seems to bode poorly for JD’s own fourth-quarter earnings report, which is not expected until March. Alibaba said it had a successful 11.11 Shopping Festival and that order volume grew by double digits in the second half of the quarter, which it attributed to its price-competitive strategy.

On the bottom line, Alibaba reported adjusted earnings per share of $2.67, which was down 2% and short of the consensus at $2.69.

What it means for JD.com

Revenue growth at both Alibaba and JD has slowed sharply in recent quarters because of challenges with the Chinese economy and intensifying price competition in the e-commerce sector. Alibaba’s report indicates that the price war with peers like Pinduoduo hasn’t improved, and that’s likely to weigh on JD’s results as well, which managed just 1.7% revenue growth in its third quarter.

We’ll learn more when JD releases its third-quarter earnings report, which is expected in March. Analysts see revenue falling 1.5% to $42.1 billion, and earnings per share slipping from $0.70 to $0.63. If there’s any good news for JD investors heading into the report, it may be that low expectations are already baked in.

Jeremy Bowman has positions in JD.com. The Motley Fool has positions in and recommends JD.com. The Motley Fool recommends Alibaba Group. The Motley Fool has a disclosure policy.



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