JD.com vs. Alibaba: what JD’s Q2 print means for Alibaba’s August 20 earnings

JD.com reported a 2.9% decline in revenue for Q2, which doesn't necessarily spell doom for Alibaba's upcoming earnings on August 20. While the two tech giants face different challenges, JD's electronics and home appliances sector took a significant hit, falling by 11.8% due to Chinese government subsidies distorting the base. Meanwhile, general merchandise grew by 5.6% and offset some of the e-commerce weakness. The stock dropped by 7.31%, reflecting a 22% rally in the previous month that was pricier than reality.

Both companies are dealing with headwinds. China's producer price inflation slowed to 3.5% in July from 4.1% in June, suggesting weak domestic demand that could pressure Alibaba's core commerce margins. Alibaba's earnings are anticipated to fluctuate within a range of ±5.7%, with the stock beating that forecast in 5 of the past 8 quarters. Barclays recommends call spreads ($133/$145 at $2.40) to indicate institutional belief in upside potential.

JD's Q2 earnings were positive in terms of profit, up by 21%, even as the revenue declined. Alibaba could mirror that pattern, with modest revenue growth (2.7% LTM) and margin expansion thanks to its increasing focus on cloud and AI services. The main difference between the two is that JD's forward P/E of 8.2x suggests deep value or a potential value trap, while Alibaba's 18.2x forward multiple reflects some AI options at a higher valuation.

Despite the pessimistic market sentiment, JD's 41.8% fair value upside indicates that the market might be undervaluing the company, but that could stem from legitimate concerns about when China's consumer recovery will truly kick in.