JD.com: Strong 2018 Ahead
JD.com (JD) is one of our favorite Chinese e-commerce growth plays. In fact, we said plainly the name could soar. We have been following the story for quite some time. Most recently we discussed an important move the company made as moved to push a blockchain accelerator. A key move indeed that you should be aware of. That said, for the longer-term, we need to keep an eye on performance. The company has just reported earnings, and JD is trading with volatility. In the present column, we discuss the results and our take going forward.
Top line
We were very pleased with the top line. Net revenues for the fourth quarter of 2017 were RMB110.2 billion (US $16.9 billion), an increase of 38.7% from the fourth quarter of 2016. Revenues from services and others for the fourth quarter of 2017 were RMB10.0 billion (US $1.5 billion), an increase of 54.7% from the fourth quarter of 2016.
Things were strong for the year as well. Net revenues for the full year of 2017 were RMB362.3 billion (US $55.7 billion), an increase of 40.3% from the full year of 2016. Revenues from services and others increased by 49.9% in 2017. This is stellar growth, but did the company turn a profit?
Profit metrics
Profit also rose versus last year, which is a very promising sign. Gross profit for the fourth quarter of 2017 was RMB14.4 billion (US $2.2 billion), compared to RMB10.8 billion in the fourth quarter of 2016.
For the year, gross profit for the full year of 2017 was RMB50.8 billion (US $7.8 billion), an increase of 43.7% from the full year of 2016. Adjusted gross profit for the full year of 2017 was RMB50.0 billion (US $7.7 billion), an increase of 44.7% from the full year of 2016.
However, there are still GAAP losses. Net loss from continuing operations in Q4 2017 was RMB909.2 million (US $139.7 million), a decrease of 27.9% from RMB1,261.4 million net loss for the same period last year. Adjusted net income from continuing operations attributable to ordinary shareholders5 for the fourth quarter of 2017 was RMB449.3 million (US$69.1 million), compared to RMB779.7 million for the same period last year.
Net income the full year of 2017 was RMB116.8 million (US $18.0 million), compared to a net loss of RMB2.0 billion for the full year of 2016. Adjusted net income from continuing operations attributable to ordinary shareholders for the full year of 2017 was RMB5.0 billion (US$0.8 billion), an increase of 140% from the full year of 2016.
Earnings per share and cash flow
Lets translate this figures to earnings per share. On a per share basis loss for the fourth quarter was RMB0.64 (US $0.10), compared to RMB0.89 for the fourth quarter of 2016. So a lower loss is good. But if we make necessary adjustments, we see that adjusted net income per share was RMB0.31 (US $0.05), compared to RMB0.54 for the same quarter last year. This decline was a surprise. For the year, adjusted net income per share was up heavily to RMB3.41 (US $0.52), as compared to RMB1.45 in the full year of 2016.
Cash flows were much improved. Operating cash flow for the year jumped to RMB27.3 billion (US $4.2 billion) from RMB10.0 billion for the twelve months ended December 31, 2016. This is a huge move.
Free cash flow for the year increased to RMB15.7 billion (US $2.4 billion) from RMB13.5 billion in 2016.
Finally, we are more than pleased to see that annual active customer accounts increased by 29.1% to 292.5 million in 2017, and we think this momentum carries over to next year.
2018 projections
This company has been difficult to predict accurately, but it is successful. It is providing one of the best shopping experiences for Chinese customers possible, and we expect revenues and earnings to ramp up in 2018.
We are first looking at revenues for the first quarter of 2018. For the present quarter, based on the present trajectory of the company and items we have seen in business development releases, we are looking for net revenue to grow 28 to 32% in the quarter. This would be roughly RMB96 billion and RMB100 billion, which is $15-$16 billion US. Assuming a similar trajectory in expenses, we predict earnings per share will grow by 50-60%, to RMB2.10-RMB2.20.
All things considered, we like the stock here.
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