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Business

JD.com beats revenue expectations, boosted by robust anniversary sales

Aggressive promotions drag Chinese e-commerce company back into loss

HONG KONG -- China's second largest e-commerce company JD.com surprised investors with a revenue jump of 43.6% in the second quarter, boosted by robust sales during its mid-June anniversary event.

Revenue for the three months to June 30 expanded to 93.2 billion yuan ($13.9 billion) year-on-year, exceeding the average estimate of 89.3 billion yuan from analysts polled by Thomson Reuters. The better-than-expected revenue came in spite of the company losing revenue support from its financial arm JD Finance, which was spun off during the quarter.

Revenue growth was pushed up by the company's biggest ever sales event for its anniversary on June 18, with JD.com claiming transaction volumes for the first 18 days of the event were up more than 50% from a year earlier.

CLSA analyst Elinor Leung noted in a report that during the sales event, female customers were "key new drivers." JD.com began by mainly selling electronics, with its customer base being mainly male-dominated in the past. However, in recent years it has been targeting a wider range of customers by expanding its reach into apparel and fashion sectors in addition to fast-moving consumer goods, such as food, beverages and baby products.

Its latest expansion was the acquisition of U.K. fashion retailer Farfetch for $397 million in late June. JD.com also expanded its partnership with its U.S partner Wal-Mart last month to integrate its supply chain. This follows the company's acquisition of online supermarket Yihaodian from Wal-Mart last year.

An expansion of the company's dominance over more product categories is expected to result in margin improvements in the long run, allowing JD.com to have "stronger bargaining power against suppliers for more rebates, lower wholesales price, exclusive products and priority new product launch," said CLSA's Leung.

On the other hand, the robust sales event also came at a high cost. Nomura analyst Jialong Shi said that the company saw a sequential decline in its gross margin due to "couponing during June 18 promotion."

During the second quarter JD.com's marketing expenses shot up by 63% from a year ago to 4.1 billion yuan. Splashing cash on promotions, the company saw its net loss attributable to shareholders for the same quarter reach 287 million yuan, after logging its first-ever quarterly profits during the first three months of the year.

Chief Financial Officer Huang Xuande, also known as Sidney Huang, said during a conference call following the release of the financial results that "if we used the same intensity [on marketing costs as the previous quarter], we would probably have been profitable."

Looking ahead, the company expects to get back into the black during the quarter ending in September, setting its revenue guidance between 81.8 billion yuan and 84.2 billion yuan. This translates into a growth of 36% to 40% from the same period last year.

Meanwhile, JD.com, which is backed by China's internet conglomerate Tencent Holdings, last week surprised the market by striking a strategic partnership with its peer Baidu in areas of big data and artificial intelligence to improve its advertising and marketing technologies.

These collaborations are aimed to make JD.com "become the highest traffic entry point on mobile internet," said Chief Executive Liu Qiangdong, also known as Richard Liu, during the conference call. "We expect 100% penetration or reach to consumers in China," he added.

Although JD.com's management said they were confident in achieving that goal, they also consider the collaborations, especially with Baidu, are still at an "early stage." As it still requires a lot of work, Liu said "in the near term, you may not see a very meaningful gross merchandise volume contribution."

Following the release of the results, Nasdaq-listed JD.com's shares declined more than 5% to $43.22 during the early morning trade on Monday. The shares hit an all-time high of $48.15 on Aug. 8, and are still hovering more than 70% higher compared to the beginning of 2017.

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