Margin Forecasts at Risk In Light of Our Reservations on JD.com’s Low-Price Strategy

According to 36kr, wide-moat JD.com JD will launch the CNY 10 billion subsidy channel on its JD.com app on March 8. We think JD.com’s strategic shift toward focusing on a low price will lead to higher gross merchandise volume, or GMV, and revenue in the first-party business, and higher GMV but mixed impact on third-party business revenue, at the expense of a lower margin for JD.com. We expect to see conflicts between quality and low price. As a result of the launch of this CNY 10 billion subsidy program, we see the risk of JD.com giving a disappointing guidance compared with the Refinitiv consensus of 14.6% revenue growth (versus our 17% estimate) and 26% non-GAAP profit growth (versus our 23% estimate) for 2023 as of Feb. 22, 2023. We maintain our forecasts and fair value estimate until JD.com announces its fourth-quarter earnings. While we assume subsidies will be applied only to selected brands and stock-keeping units, or SKUs, and there is 10% to 20% salary reduction for JD.com’s senior management starting 2023 as a cushion for profitability, we think the strategy increases the risk of lower-than-previously-expected margins over the long term.