Can New Technology Initiatives Aid JD.com (JD) Q3 Earnings?

JD.com, Inc.’s (NASDAQ:JD) expanding JD Mall and New businesses segments are expected to have performed well, which will likely be reflected when the company reports third-quarter 2018 results that are scheduled to be announced on Nov 19.

The Chinese e-commerce company is well known for selling electronics, appliances and other consumer items, which make up more than half of its revenues. Over the past few years, JD.com has been investing heavily in technology, logistics and real estate, with the aim of building out its logistics footprint. This has helped to expand its presence in several fast-growing logistics and delivery market.

The increasing usage of internet and mobile devices is primarily responsible for driving JD.com’s e-commerce sales. The company’s constant focus on developing logistic services, fast delivery, inventory management and other artificial intelligence services should be a key growth driver going forward.

Let’s Delve Deeper

JD Mall segment primarily generates revenues from online direct sales, commissions and advertising.

In the first half of 2018 ended Jun 30, revenues from JD.com’s marketplace and advertising grew 37% year over year. Also, advertising revenues were up 61% year over year to RMB69.2 billion (US$10.5 billion).

The addition of premium brands to its platform should help the company to increase its user base and in turn expand top-line growth. In the second quarter, JD.com continued to strengthen its position as a trusted platform for premium brands by adding brands like Japanese lifestyle, international luxury brand, Balenciaga, among others.

In addition, JD.com has been partnering with many companies to expand e-commerce sales. A few months back, the company partnered with Google (NASDAQ:GOOGL) to explore new retail solutions, which should enable personalized shopping experiences in several regions around the world.

Moreover, the fast evolution of technology and big data, AI, IoT and a host of other areas should continue to drive JD Mall’s revenues.

The New businesses group includes logistics services provided to third parties, technology services, O2O and other business initiatives. JD.com provides logistics services and expertise to other businesses as well.

In the first half of 2018, revenues from the New businesses segment surged 151% year over year to 5.11 billion yuan (746.7 million). However, the business still recorded a loss as it is in the initial stage of investment.

JD.com has been introducing new innovative delivery options like Flash Delivery initiative, which offers delivery times ranging from several minutes to about one hour for selected merchandise in certain areas. In addition, the company has partnered with more than 200 Walmart (NYSE:WMT) stores and 500 Yonghui stores, in a bid to provide online fresh grocery with one-hour home delivery service.

Its recent efforts to introduce more differentiated products and provide dedicated solutions to customers should help its new businesses segment to carry on with its growth momentum.

Though most of the new initiatives are yet to produce meaningful financial results, yet the strong adoption of JD’s logistics, new client wins and expanded use of technology should make this segment an important revenue driver for the company.

Zacks Rank & Key Picks

Currently, JD.com carries a Zacks Rank #5 (Strong Sell). Some better-ranked stocks in the broader technology sector are boohoo group plc (OTC:BHOOY) , QuinStreet, Inc. (NASDAQ:QNST) and AMETEK, Inc. (NYSE:AME) , each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Long-term earnings growth rate for boohoo group, QuinStreet and AMETEK is currently pegged at 25%, 25% and 10.97%, respectively.

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