JD.com’s Growth Outlook for 2023 Less Upbeat Than We Expected

Wide-moat JD.com’s JD fourth-quarter non-GAAP net income was 26% higher than our estimate, but management’s 2023 outlook for the company appears to be less optimistic than our forecasts. The absence of the reporting of the annual active customer accounts in the quarter (which was up only 6.5% year on year in the third quarter) leads us to think user growth was weak, despite ample headroom from 588 million in the 12 months ended September versus Alibaba’s 903 million annual active consumers in China commerce retail business for the year ended March 2023. In the call, JD.com’s growth outlook for 2023 was less upbeat than we expected. Following the criticism of JD.com’s strategy and management by founder Richard Liu internally in the last quarter of last year, a strategy shift to focus on low price, and cutting certain low-margin businesses lead us to think that JD.com’s previous model wasn’t working well. We think JD.com is still testing its new strategy and there is uncertainty on how successful it is in reaccelerating high revenue year-on-year growth while maintaining a non-GAAP net margin increase yearly in the next few years. We think JD.com’s intangible asset of fast and quality logistics remains unchanged, but it will take more time to gain bargaining power against suppliers amid slower first-party business growth. We therefore reduce its non-GAAP net margin annual increase magnitude and assume it will reach 5.18% by 2031 versus 5.68% we expected previously. Our 10-year revenue CAGR is now 7% compared with 9% previously. Our fair value estimate is down 13% to USD 90 per ADS or HKD 349 per share.