The company reported strong earnings, but worries over potential delisting of Chinese stocks weighed on this e-commerce name.
JD reported earnings during the month and fell immediately thereafter, despite beating analyst estimates. The drop more likely had to do with general macroeconomic concerns, specifically regulatory tensions between U.S. and Chinese authorities, which some believe could cause U.S.-listed Chinese stocks like JD to be delisted.
In the fourth quarter, JD.com posted 23% revenue growth, and adjusted (non-GAAP) earnings per share of $0.35. While revenue growth marked a slight deceleration from the 25% growth in the third quarter, both figures beat expectations. Expectations may have been low, however. China’s economy is still reeling from the government’s crackdown on technology companies, as well as its bursting of the country’s property bubble. Therefore, to see JD forge ahead with more than 20% growth was quite something.
Nevertheless, the stock fell hard, probably because of other factors. The day after earnings, the Securities and Exchange Commission in the U.S. began to name companies that were out of compliance with the Holding Foreign Companies Accountable Act, or HFCAA, which had been passed in December 2020. The HFCAA stipulates that foreign companies must open their books to U.S. auditors to maintain their listings on U.S. stock exchanges within three years.
The fears over delistings, as well as China’s close relationship with Russia, has sparked geopolitical concerns that probably led some U.S. investors to sell Chinese stocks without regard for their fundamentals. That’s not to say these stocks are without risk, but JD.com was one of the better performers in the sector, and it still fell this month.
JD.com has been outdoing its peers because it may actually be a beneficiary from certain regulations, such as the forced exclusivity contracts Alibaba ( BABA -0.71% ) used to be able to force on its vendors. JD.com has made the investments to control its delivery and logistics footprint, which may become more of a differentiator between Chinese e-commerce companies.
On the other hand, JD.com’s founder and CEO, Richard Liu, just announced he will be stepping down from the lead job, although he will remain on as chairman to mentor younger employees. President Lei Xu will be taking over as CEO.
While it’s never a great sign to see founders leave the top post, Liu had been delegating more duties to members of senior leadership ever since a personal scandal back in 2018. Therefore, I wouldn’t necessarily see this as a huge negative.
Still, Chinese stocks find themselves caught between low valuations but higher geopolitical and macroeconomic risks at the moment.