(Bloomberg) — JD.com Inc. reported sales that beat analyst estimates as consumer spending improved, defying a crackdown on the Chinese internet sector that has dragged on growth across the industry.

The e-commerce giant posted sales of 253.8 billion yuan ($39.1 billion) for the three months ended June, compared with the 248.5 billion yuan average of analyst estimates. The 26% growth is the slowest since China first emerged from the pandemic last year. Net income tumbled to 794.3 million yuan, down from 16.4 billion yuan a year earlier.

Alibaba Group Holding Ltd. posted its first revenue miss in years while Tencent Holdings Ltd. reported the weakest sales growth since 2019, as Beijing widened a campaign to rein in abuses in the e-commerce arena to encompass issues such as data security, online content and most recently, excessive wealth. While JD.com hasn’t been singled out in any high-profile probe or crackdown, its shares have dropped roughly 40% from a February high, as tightening regulatory scrutiny prompted global investors to flee the Chinese internet sector.

Sales beat estimates after JD.com boosted total transaction volumes for its annual 6.18 shopping festival by 28%, helped in part by the double-digit rebound in retail spending in its home market during the June quarter. But a recent spike in coronavirus cases across parts of China may cloud that recovery, as tough pandemic restrictions hit retail sales toward the end of July.

In response to the increasing scrutiny and competition, the firm is stepping up investments in areas including online groceries and social commerce as well as infrastructure. It’s been aggressively growing its Jingxi unit, as part of efforts to siphon off the lead that rival Pinduoduo Inc. has in lower-tier markets. To fund its newer businesses, the e-commerce giant has been spinning off units — its JD Logistics Inc. raised $3.2 billion in a Hong Kong initial public offering in May.

“With e-commerce reaching almost full penetration in China, all e-commerce vendors are looking into new investments while enforcing its core business,” TH Capital analyst Tian Hou wrote in a note before the earnings. “If 2020 was a year of high growth for JD, then 2021 is the year of investment. We should expect better topline but weak bottom line.”

Story continues

What Bloomberg Intelligence Says:

The rise in JD.com’s 2Q retail operating margin vs. the same period a year earlier may have persisted as economies of scale from the company’s enlarged fulfillment capabilities helped reduce unit cost of transactions on its platforms. JD.com could have also raised the revenue contribution from commissions, marketing and logistics services from April-June vs. the same period a year earlier. The company may have incurred steeper losses from JD Logistics and new businesses, including its Jingxi platforms, in 2Q from a year earlier.

— Catherine Lim and Tiffany Tam, analysts

Click here for the report

More stories like this are available on bloomberg.com

Subscribe now to stay ahead with the most trusted business news source.

©2021 Bloomberg L.P.

(305) 707 0888