JD.com Earnings: Higher Investment to Pressure Near-Term Margins; Shares Undervalued

Wide-moat JD.com’s first-quarter revenue was broadly in line with LSEG consensus as of May 14 and our estimate. While non-GAAP net profit was 14% above consensus due to better-than-expected earnings at JD Logistics, it was in line with our earnings estimate. Non-GAAP net margin in the quarter rose 30 basis points year on year to 3.4%, above our 2.7% full-year estimate. Nevertheless, we leave our estimates unchanged as we expect more promotional spending in the 6.18 and 11.11 shopping festivals, which will pressure margins for the rest of the year. We estimate non-GAAP net profit to decline 7% year on year this year, as management is investing more heavily into the business to generate higher gross merchandise volume. We keep our fair value estimates at USD 46 per ADS and HKD 179 per share. We continue to think that JD.com is undervalued and that its intangible asset moat source, backed by high-quality delivery services, will help JD.com retain and attract customers in the long run.