The stock had dropped 7.3% over the past week
US-listed shares of China-based e-commerce juggernaut JD.com finished on an upbeat note on Monday, rising 1.3% to US$85.13.
Its stock had dropped 7.3% over the past week. Last Friday’s 6.7% day-on-day tumble after a news report that the Beijing-based firm was looking to buy a US$1.5 billion stake in a brokerage. It also came after JD.com’s indicated to investors that it may sustain spending on logistics and new initiatives.
Out of 53 analysts, 51 recommended ‘buy’ on JD.com shares and two had ‘hold’ calls. According to Bloomberg data, their target price was US$111.86 on average. That implies 31.4% upside based on Monday’s close.
JD.com is in early-stage discussions to acquire shares in Shanghai-listed brokerage Sinolink Securities, which could be worth at least US$1.5 billion, Reuters reported last Thursday.
The potential deal would see the online retailer buying part or all of the 27% interest held by Sinolink’s biggest shareholder, Yongjin Group. It will be JD.com’s biggest bet in acquisition value terms in China’s US$45 trillion financial market, Reuters noted.
The valuable brokerage licence is key for tech giants to monetise their huge online traffic and grow into bigger firms, as otherwise they have to direct such traffic to other financial institutions, Reuters reported.
JD.com reported a higher-than-expected 31.4% year-on-year (YOY) surge in revenue to US$34.50 billion for Q4 last year. Net income of US$0.37 billion surpassed Bloomberg consensus estimates by 20%.
China’s biggest e-commerce firm by revenue flagged a spending spree to further ride the online shopping boom. Given the strong results, JD.com has a ‘strong foundation for investments’ in a range of growth opportunities, chief financial officer Sandy Ran Xu said last Thursday. She declined to forecast margins in the near term.
The group’s margins could face pressure as JD.com spends to expand its delivery network. Net margin in 1Q21 might drop one percentage point, partly due to investments in infrastructure, wrote Bocom analysts.
JD.com operates its own fulfilment network and logistics infrastructure, and owns the inventory for a sizeable portion of sales. ‘These strategies attract merchants and customers who demand high-quality goods,’ Bloomberg Intelligence (BI) analysts noted.
BI foresees JD.com’s profit to keep improving as it benefits from economies of scale and operating efficiencies.
The company’s increasing penetration of users from lower-tier cities may help to fund continued market-share gains versus offline retailers, even amid intense e-commerce adoption, BI analysts said.
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