JD.com stock underperforms amid competition from Pinduoduo, ByteDance and weak consumer demand

After dropping 37 per cent this year, JD.com’s stock trails that of peers as it faces mounting challenges to its e-commerce business and plans to compete in AI

The company has struggled to grapple with slumping demand for big-ticket items like electronics and appliances, which make up half of its sales

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Published: 11:51am, 24 Apr 2023Updated: 12:25pm, 24 Apr 2023

China’s post-Covid spending spree was supposed to reinvigorate JD.com. But things haven’t gone according to plan.

After dropping 37 per cent since the start of the year, JD.com trails all its peers in the benchmark Hang Seng Tech Index, as well as a gauge of Chinese shares traded in Hong Kong. A slow and uneven recovery from the Covid slump, in addition to growing competition from rivals PDD Holdings and ByteDance has led the likes of Goldman Sachs and UBS to cut their estimates.

JD.com’s struggles are emblematic of the challenges faced by China’s online retailers. Demand for big-ticket items is still weak – bad news for a company which counts on electronics and home appliances for half its sales. The stock’s 77 per cent gain from an October low to a January peak has all but vanished.

“Investors dislike uncertainty and here we have uncertainty from a number of angles,” said Adam Montanaro, investment director of global emerging-markets equities at abrdn Plc. “The stock will likely remain in the penalty box until management can prove they can continue to evidence margin expansion and better evidence their competitive moat.”

Signs of cracks in the shares’ rally started to appear in February amid reports that JD.com was rolling out a 10 billion yuan (US$1.5 billion) discount campaign to fend off a challenge from PDD’s budget shopping app Pinduoduo, which has years of experience in offering mass-scale subsidies.

While JD.com has consistently excelled in value-added services such as delivery and after-sales support, it’s difficult for the company to beat Pinduoduo on price wars and promotions, according to Xiadong Bao, fund manager at Edmond de Rothschild Asset Management. “Visibility is low and investors prefer to wait before the company delivers on earnings.”

Grounds for optimism receded further in March when the company warned that a robust recovery in consumption is unlikely to materialise until the second half. China’s latest economic data reflect the uncertainties: while retail sales soared last month, industrial output growth is still below pre-pandemic rates and the nationwide urban jobless rate remains elevated.