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JD's winding road to profit keeps getting longer

Reuters

By Robyn Mak

HONG KONG, March 1 ( Breakingviews) - JD.com's winding road to profit keeps getting longer. The Chinese e-commerce group said on Thursday that sales rose by more than a fifth to top $20 billion in the fourth quarter. But heavy investment in new bets means JD is barely breaking even. Financial discipline would help, but may not be enough to counter cooling demand and competition from Alibaba.

The $40 billion online retailer's revenue jumped by more than expected in the three months to December, but still represents the company's slowest quarterly growth on record. China's shoppers are pulling back on big ticket items like smartphones and cars, as annual growth in the world's second largest economy sputters to a 28-year low. That will hurt JD, which relies on electronics and home appliances for more than half of its top line.

Chief Financial Officer Sidney Huang insists that operating margins and cash flow will improve this year. Yet that may not be so straightforward if Chinese consumer confidence weakens. Official February data show manufacturing activity contracted to a three-year low, adding to fears of an economic slowdown. To make matters worse, $478 billion rival Alibaba is pouring billions of dollars into a rival logistics network to lure new shoppers in lower-tier Chinese cities.

JD shares jumped more than 10 percent in pre-market trading on Thursday, extending a rally of more than 20 percent since late November. The decision by U.S. prosecutors in December to not charge Liu after the billionaire was arrested on suspicion of criminal sexual activity is one factor. Another is the $1 billion share buyback the company unveiled around the same time. As ever, though, profitability remains hidden beyond the next bend in the road.

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CONTEXT NEWS

- China'sJD.com on Feb. 28 reported revenue in the three months to December of 135 billion yuan ($19.6 billion), an increase of 22.4 percent from the same period last year.

- Net loss for the quarter was 4.8 billion yuan, compared to 900 million yuan in the previous year. Excluding stock-based compensation and other one-offs, the company reported an adjusted net profit of 750 million yuan.

- In December, U.S. prosecutors decided not to charge JD.com's chief executive officer, Richard Liu, after he was accused of rape and arrested in the state of Minnesota.

- Separately, the company also said in December that it will buy back up to $1 billion of its shares over the next 12 months.

- Shares of the U.S.-listed JD.com rose as much as 8.2 percent to $28.10 during pre-market trading on Feb. 28.

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