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Factors Likely to Decide JD.com's (JD) Fate in Q4 Earnings

JD.com, Inc.JD is slated to report fourth-quarter 2018 results on Feb 28.

The company surpassed estimates only once in the trailing four quarters, recording average negative earnings surprise of 19.86%.

However, the company reported a positive earnings surprise of 50% in third-quarter 2018. Non-GAAP earnings of 12 cents soared 140% on a sequential basis but declined 47.8% year over year.

JD.com reported revenues of RMB 104.8 billion ($15.26 billion), missing the Zacks Consensus Estimate of $15.61 billion but increasing 25.1% year over year. However, the figure slumped 14.3% sequentially.

The year-over-year top-line growth can be attributed to accelerating revenues from both product and services.

For the fourth quarter of 2018, the company expects net revenues in the range of RMB 130-RMB 135 billion, reflecting growth of 18-23% 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 the key growth driver and is likely to continue aiding the to-be-reported quarter results.

The company's deepening focus toward bolstering e-commerce footprints in the international markets is a major positive. Moreover, its partnership with Alphabet's GOOGL division Google remains a tailwind in this context.

Further, its continued investments in emerging markets are also aiding its e-commerce business growth.

In the third quarter, net revenues from online direct sales increased 22.8% from the prior-year quarter to RMB 93.9 billion ($13.7 billion). It accounted for 90% of the total sales in the third quarter. The upsurge was driven by demand for home appliances, food and beverage, cosmetics, home furnishing, as well as baby products.

We believe the company's strengthening ecosystem is aiding it in attracting new merchants to its platform as well as retaining the existing merchants. Also, its retail-as-a-service strategy is gaining momentum in the market on the back of useful retail infrastructure solutions.

Additionally, growing number of flagship stores of international brands on JD.com's platform are helping it enhance product offerings.

All these factors along with its well-performing JD mall and expanding loyal user base are anticipated to drive the top line 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 in delivering better user experience.

Further, strengthening supply chain management system bodes well for the company's logistics unit. Its newly launched Zu Chongzhi enables offline retailers to conduct real-time store performance analysis, public opinion monitoring, merchandise, and site selection and marketing campaigns.

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

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

These factors do not bode well for the 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 Says

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

JD.com has a Zacks Rank #4 (Sell) and an Earnings ESP of 0.00%, which shows that the company is unlikely to beat estimates in the to-be-reported quarter.

Stocks That Warrant a Look

Here are few stocks worth considering as our model shows that these have the right combination of elements to deliver anearnings beat in the upcoming releases.

NIC Inc. EGOV has an Earnings ESP of +4.08% and a Zacks Rank #2. You can see the complete list of today's Zacks #1 Rank stocks here.

Harris Corporation HRS has an Earnings ESP of +0.68% and a Zacks Rank #2.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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