JD.com: Expect Higher Sales and Other Cost Cuts to Help Mitigate Higher Compensation for Talent

We continue to think the impact of higher employee compensation on JD.com’s earnings to be mixed as we expect the higher costs to be mitigated by stronger sales—the latter driven by improved morale and new talent, as well as lowered costs elsewhere. We retain JD.com’s forecasts and fair value estimates at USD 43 per ADS or HKD 167 per share at this stage. The shares are undervalued but we prefer PDD Holdings in the China e-commerce space. We roughly estimate the impact of the nearly 100% and 20% salary hikes for merchandising and sales personnel and JD Retail staff, respectively, could hurt profit margins by 120 basis points in 2024. The downside risk to our fair value estimate could be about 30% to HKD 116/USD 30. This is a rough estimate on our end as JD.com’s disclosure on staff costs is limited and we await additional guidance. But we believe this can be at least partially offset through enhanced sales. We expect to see higher future livestreaming gross merchandise volume generated by the merchandising and sales team. The livestreaming sessions hosted by the team attracted 380 million users during the Double 11 festival, thanks to their strong understanding of the products they sourced. The merchandising and sales team displayed a boost in morale and celebrated the salary jump by offering goods at deeper discounts in their livestreaming sessions, which we expected to lead to better sales.