Factors Likely To Decide JD.com's (JD) Fate In Q1 Earnings

JD.com, Inc. (NASDAQ:JD) is slated to report first-quarter 2019 results on May 10.

The company surpassed estimates twice in the trailing four quarters, recording average positive earnings surprise of 60%. It reported a positive earnings surprise of 275% in the last reported quarter.

JD.com reported fourth-quarter revenues of RMB 134.8 billion ($19.6 billion), surpassing the Zacks Consensus Estimate of $19.3 billion.

The top-line growth was attributed to accelerating revenues from both product and services.

For first-quarter 2019, the company expects net revenues between RMB118 billion and RMB122 billion, indicating growth of 18-22% year over year.

Let's see how things are shaping up prior to this announcement.

E-Commerce Business: Key Catalyst

JD.com’s e-commerce unit remains a key growth driver and is likely to aid the to-be-reported quarter’s results.

The company’s deepening focus on bolstering e-commerce footprints in international markets is a major positive. Its ongoing investments in emerging markets have been aiding e-commerce business growth and the trend is expected to continue in the quarter to be reported as well.

Increasing demand for home appliances, food and beverage, cosmetics, home furnishing, as well as baby products should drive online direct sales in the to-be-reported quarter.

Additionally, growing number of flagship stores of international brands on JD.com’s platform should help it enhance product offerings.

The well-performing JD mall and expanding loyal user base, coupled with the above-mentioned factors are anticipated to drive the top line in the to-be-reported quarter.

Partnerships to Aid Growth

During the first quarter, JD.com continued to gain popularity with a number of international brands. Recently, the company partnered with Farfetch Limited, the leading global technology platform, to bring a ‘Premier Luxury Gateway to China’ for luxury brands. The deal will give JD.com’s customers an access to more than 3,000 brands.

We expect these moves to contribute to revenue expansion in the to-be-reported quarter.

Other Factors to Consider

The company’s growing logistics initiatives remain positives. New network of JD Logistics, which is offering parcel delivery service to users in Beijing, Shanghai and Guangzhou, is aiding the company to deliver enhanced user experience. Further, strengthening supply chain management system bodes well for the company’s logistics unit.

However, sluggishness in the third party logistics services unit remains a concern.

Additionally, weakening consumption rate is continuously affecting its electronics and appliances sale. This is a serious concern. The company expects soft retail sales in some durable product categories.

These factors do not bode well for JD.com’s retail performance in the to-be-reported quarter.

Further, macroeconomic headwinds in China and the company’s mounting investment costs remain risks.

What Our Model Suggests

According to the Zacks model, a company with a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) has a good chance of beating estimates if it also has a positive Earnings ESP. Zacks Rank #4 (Sell) or 5 (Strong Sell) stocks are best avoided, especially if these have a negative Earnings ESP. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

JD.com currently has a Zacks Rank #3 and an Earnings ESP of 0.00%, a combination that does not suggest that the company is likely to beat estimates this time around.

Stocks to Consider

We see a likely earnings beat for each of the following companies in the to-be-reported quarter.

Agilent Technologies, Inc. (NYSE:A) has an Earnings ESP of +2.10% and a Zacks Rank #2.

MongoDB, Inc. (NASDAQ:MDB) has an Earnings ESP of +0.69% and a Zacks Rank of 1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Neon Therapeutics, Inc. (NASDAQ:NTGN) has an Earnings ESP of +17.93% and a Zacks Rank #3.

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