JD.com Losses Surge Alongside Soaring Spending on Expansion

(Bloomberg) -- JD.com Inc. posted a blowout loss due to increased spending and said investments in technology and logistics could affect profit forecasts for the rest of the year amid rising competition in China’s e-commerce market.

The net loss from continuing operations surged to 2.2 billion yuan ($319 million) in the quarter that ended in June, about 8 times larger than analysts expected. The Beijing-based company expects sales in the current quarter of between 104.5 billion yuan and 109 billion yuan, with the top of the range slightly below estimates.

The disappointing result comes a day after top shareholder Tencent Holdings Ltd. reported its first profit drop in 13 years, souring sentiment on Chinese tech companies. JD is facing increased competition as it pushes ahead with an ambitious expansion in foreign and domestic markets.

Its stock has fallen by about a third since reaching a record in January. The American depositary receipts slipped as much as 7.3 percent in early trading, but were down less than 1 percent at 9:53 a.m. in New York.

“June was a heavy spending quarter and it’s obvious they had to respond to promotions that just about everybody is doing,” Kim Eng Securities analyst Mitchell Kim said. “You saw that with Vipshop and most likely you’ll see that in Alibaba’s results next week as well -- these promotions eat away on gross margins.”

JD has to contend with domestic rivals Alibaba Group Holding Ltd. and Pinduoduo Inc. while it’s expansion in Southeast Asia brings it face-to-face with a similar push by Amazon.com Inc.

Chief Financial Officer Sidney Huang used the earnings call to flag 2018 as “an investment year” for the online retailer’s logistics division as it builds more warehouses and acquires new technologies.

While JD has split out a logistics asset management company it expects will generate material revenue that could eventually balance out the ramped up investments, “the monetization could happen by next year so then it will impact our overall bottom-line forecast for this year,” Huang said.

Sales for the second quarter rose 31 percent to 122.3 billion yuan. One factor that likely weighed on growth was a slowdown during JD’s June sales event. Ostensibly started to celebrate the company’s founding, it has become a smaller rival to Alibaba’s Singles’ Day promotion in November, with total transactions for this year’s event rising by 33 percent to hit 159.2 billion yuan.

But this was down compared with the 50 percent growth of last year, in part because the attention of shoppers was diverted by a public holiday and the 2018 FIFA World Cup.

Huang said JD’s third quarter revenue guidance was hurt by slower sales between the last week of June and July, thanks in part to the end of the promotion, but added that business had started picking back up in August.

©2018 Bloomberg L.P.