China's JD.com misses on profits as logistics crops margins

China’s JD.com Inc missed earnings estimates on Tuesday, sending its stock down, as heavy spending on logistics and new business initiatives amid stiff competition cut into its bottom line.

The company’s U.S.-listed shares were down more than 3 percent in premarket trading after it reported adjusted earnings of 0.71 yuan per share for the first quarter of 2018, below an average analyst estimate of 0.81 yuan.

JD.com is investing heavily in logistics and offline retail, squaring off against Alibaba Group Holding Ltd, in a costly battle as China’s urban e-commerce market is showing signs of saturation.

The company reported a 33 percent increase in quarterly revenue, its slowest quarterly revenue growth since listing, indicating China’s second-largest e-commerce firm is feeling the heat from mounting competition as it looks to new businesses and technology investments to drive growth.

JD.com’s revenue for the three months to March, while ahead of analysts’ average forecast, marks the fifth quarter of slower growth for the retailer.

It posted 101.1 billion yuan ($15.88 billion) in revenue for the first quarter, versus analysts’ average estimate of 98.9 billion yuan.

JD.com looking to boost its business by investing in JD logistics, which it spun off in April last year. The affiliate serves JD.com as well as third-party customers and is developing drones, automation and robotics.

The investments have put pressure on the company’s margins, however, as Alibaba ramps up spending on competing projects.

“In the medium term, we expect to see the investment into JD logistics will hold back some of the margin gains,” said Morningstar analyst Chelsey Tam in a note ahead of the report.

“Management is squarely focused on gaining market share instead of profitability at this point,” she said.

Last week, Alibaba also reported slim margins due to its own spending spree in new businesses.

Alongside investments in logistics, JD.com and Alibaba are competing aggressively on offline retail, unmanned stores, luxury services and retail in Southeast Asia.
JD.com said annual active customers for the first quarter rose to 301.8 million, up 27.6 percent from a year earlier.

It expects second-quarter revenue between 120 and 124 billion yuan, up 29-33 percent, in line with analyst estimates of a 30.8 percent increase.

Sales are seasonally low for the country’s e-commerce firms in the March quarter but are expected to pick up in the June quarter around JD.com’s flagship “618” sale event, China’s second-largest online shopping event after Singles’ Day.