Shares of JD.com(NASDAQ: JD), the Chinese e-commerce giant, saw a decline following a disappointing earnings report from Alibaba(NYSE: BABA), its close competitor and peer.
As of 1:19 p.m. ET, JD stock was down 4.5%, while Alibaba stock had fallen 6.4%.
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Challenges in Chinese Tech Stocks
Investors had the hope that Alibaba’s December quarter would provide relief from the rough sell-off in Chinese tech stocks, but the reality proved otherwise. Alibaba’s earnings report showcased the persisting weakness in the Chinese e-commerce sector.
Revenue in the quarter grew just 5% to $36.7 billion, meeting estimates. However, at Alibaba’s core commerce group, Taobao and Tmall, revenue only rose by 2% to $18.2 billion. This trend suggests a bleak outlook for JD’s upcoming fourth-quarter earnings report, scheduled for March. Alibaba touted a successful 11.11 Shopping Festival, with substantial order volume growth in the latter half of the quarter attributed to its price-competitive strategy.
On the bottom line, Alibaba reported adjusted earnings per share of $2.67, down 2% and falling short of the consensus at $2.69.
Implications for JD.com
The deceleration in revenue growth at both Alibaba and JD is a result of the economic challenges in China and heightened price competition in the e-commerce industry. Alibaba’s report signals that the price war with rivals like Pinduoduo has not abated, which is likely to exert downward pressure on JD’s performance as well. JD managed just 1.7% revenue growth in its third quarter, foreseeing a difficult road ahead.
More insights will surface when JD releases its third-quarter earnings report in March. Analysts anticipate a 1.5% revenue drop to $42.1 billion, with earnings per share slipping from $0.70 to $0.63. The silver lining for JD investors heading into the report might just be the fact that the bar has already been set low.
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Jeremy Bowman has positions in JD.com. The Motley Fool has positions in and recommends JD.com. The Motley Fool recommends Alibaba Group. The Motley Fool has a disclosure policy.