Why JD.com Has Soared 30% Higher This Week
What happened
Shares of JD.com (NASDAQ: JD) are up by 29.1% from where they closed last Friday, according to data from S&P Global Market Intelligence, after Beijing signaled that it would relax its crackdown on tech companies and shift to policies that are supportive of the Chinese stock market.
That, coupled with renewed support for Chinese companies that are listed on U.S. exchanges, has the entire Chinese tech sector flying high.
Image source: Getty Images.
So what
Ostensibly designed to root out corruption in certain businesses, Beijing in recent years has launched a broad, systemic investigation into numerous tech-oriented companies and their leaders, most notably Alibaba (NYSE: BABA) and its founder Jack Ma.
After Ma publicly criticized Chinese regulators for stifling innovation, those regulators began probing all of his holdings. Plans for an initial public offering to spin off Alibaba's Ant Financial arm were scuttled, and Ma himself went into hiding for a period of time.
Meanwhile, U.S. regulators have recently been warning that various Chinese companies risk being delisted from U.S. stock markets for failures to meet the auditing requirements imposed on them by the Holding Foreign Companies Accountable Act, which was signed into law in 2020.
This week's announcement from the government in Beijing also suggests that Chinese and U.S. regulators are working toward an agreement that will ensure that Chinese companies will be able to meet both nations' regulatory requirements, removing the delisting threat. That should help businesses like JD.com get back to focusing on their operations.
Now what
JD.com has always maintained its business had nothing to fear from regulatory scrutiny, saying that it scrupulously toes the line in complying with the law. An economic slowdown in China has hurt its profits, though, even as its revenues continued to rise, albeit at their slowest rates in over a year. JD.com recorded a loss of around $820 million in the final quarter of 2021 versus a profit of approximately $3.8 billion in the year-ago period.
Still, its active customers hit 552.2 million last year, up 25% from 2020, and they grew another 21% year over year in the latest quarter to 570 million, when it also added new retailers and other global brands to its platform.
According to Bloomberg, one cause for softness in JD.com's stock price was the decision by Tencent (OTC: TCEHY), an early backer of the e-commerce stock, to distribute the shares of JD.com that it owned to its investors.
With the regulatory clouds lifting, the market expects JD.com to return to form.
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Rich Duprey has no position in any of the stocks mentioned. The Motley Fool owns and recommends JD.com and Tencent Holdings. The Motley Fool has a disclosure policy.
