JD.com Profit Plunged. Why the Stock Is Rising.

JD.com has been diversifying away from its traditional e-commerce business. (GREG BAKER/AFP/Getty Images)

Key Points

• JD.com’s third-quarter adjusted profit fell to 5.8 billion yuan ($815 million) from 13.17 billion yuan year-over-year.
• Revenue for JD.com increased by 15% to 299.1 billion yuan, surpassing analyst expectations.
• JD.com’s shares rose as earnings and revenue beat forecasts, with reduced food delivery investment.

JD.com reported a sharply lower profit for its third quarter on Thursday. However, shares rose as the Chinese online retailer’s earnings and revenue were ahead of market expectations with the company signaling it will need to invest less in food delivery in the future.

JD.com reported an adjusted profit of 5.8 billion yuan ($815 million), down from 13.17 billion yuan for the same period last year. Revenue rose 15% to 299.1 billion yuan.

Analysts tracked by FactSet had expected JD.com to report a third-quarter adjusted net profit of 4.23 billion yuan on revenue of 294.81 billion yuan,

American depositary receipts of JD.com were up 0.6% in morning trading, having fallen around 10% this year so far through to Wednesday’s close.

The company and its rivals, Alibaba Group Holding and Meituan , have been locked in an e-commerce price war that has weighed on margins across the sector.

JD.com entered the food-delivery market in February, using heavy subsidies to get a foothold. However, the company indicated Thursday that it might be able to ease up on such spending.

“As JD Food Delivery continued to scale up and generate deeper synergies with JD Retail, it also achieved sequential investment reduction in Q3, thanks to its improved unit economics performance,” said JD.com CEO Sandy Xu.

That could be good news for JD.com’s rivals too. Alibaba ADRs were up 3.1%. Food delivery has been such a fierce battleground that China’s top market regulator called for the companies to engage in “rational” competition earlier this year.

“While the food delivery business is still in its early stages, the current performance signals that it is progressing toward a scale that could support gradual loss reduction over time,” wrote CFRA Research analyst Jian Xiong Lim in a research note.

Both JD.com and Alibaba have been grappling with a relatively weak Chinese economy, which has resulted in muted consumer spending. Sales for Chinese e-commerce platforms rose about 14% to 1.70 trillion yuan during this year’s Singles Day shopping festival, The Wall Street Journal reported, citing data provider Syntun. However, that was a significant slowdown from an estimated 27% growth the previous year.

JD.com said Wednesday that gross merchandise value hit a new record high during Singles Day, but didn’t provide details. The number of users placing orders increased 40%, it said.

Write to Adam Clark at adam.clark@barrons.com