JD.com, Inc. (JD, BUY) - 3Q26 Preview: Improving Retail Trends, but Macro Uncertainty Clouds the Outlook; Maintain BUY but Lower PT to $33

JD.com, Inc. (JD, BUY) - 3Q26 Preview: Improving Retail Trends, but Macro Uncertainty Clouds the Outlook; Maintain BUY but Lower PT to $33 We reiterate our BUY rating on JD.com while lowering our price target to $33 from $35, reflecting downward revisions to our 3Q26 and 4Q26 estimates, with a more significant adjustment to 4Q amid heightened macroeconomic uncertainty. We expect JD's core retail business to return to modest growth in 3Q, supported by improving trends in electronics and home appliances and resilient general merchandise demand. Loss reduction in new businesses should also remain on track, providing support to consolidated profitability. However, higher R&D spending and fulfillment costs are likely to offset part of the gross margin improvement, while limited visibility into consumer demand warrants a more cautious outlook for 4Q. Despite these near-term uncertainties, we maintain BUY, as we believe the current valuation offers an attractive risk-reward profile. At the current share price of $26.78, JD trades at just 7.2x our revised 2027E non-GAAP EPADS. 3Q26 preview: Gradual retail recovery, but limited margin upside. We forecast 3Q26 total revenue of RMB308.3bn, up 3.1% YoY, and non-GAAP net income of RMB7.9bn, up 36.0% YoY, equivalent to non-GAAP EPADS of $0.83. We expect JD Retail revenue to grow 2.7% YoY, marking a return to positive growth following a 4.7% decline in 2Q. Electronics and home appliance revenue is expected to decline 2.5% YoY, a notable improvement from the 11.8% contraction in 2Q, with smartphones showing particularly encouraging momentum. Meanwhile, general merchandise revenue growth should accelerate to 7.5% YoY from 5.6% in 2Q, supported by relatively resilient supermarket, fashion, and home-related categories. Commission and advertising revenue should continue to outpace product sales, providing a favorable revenue mix. Nevertheless, we expect retail operating profit to decline 8.0% YoY to RMB13.7bn, implying an operating margin of 5.3%, down approximately 60bps YoY. While we forecast consolidated gross margin to improve 40bps YoY to 17.3%, higher R&D expenses, particularly AI-related investments, and a modest increase in fulfillment expenses should constrain operating leverage. We estimate 3Q R&D expenses to increase 42% YoY to RMB8.0bn. New businesses: Loss reduction remains a bright spot. We expect the improvement in new-business profitability to continue in 3Q, with segment operating losses narrowing to approximately RMB9.5bn. Food delivery should remain the primary driver of the improvement, with losses expected to decline by more than 50% YoY. Encouragingly, the reduction in losses is accompanied by continued order-volume growth and improving unit economics, suggesting that efficiency gains, rather than a retreat from business expansion, are contributing to the improvement. Jingxi should also see sequential loss reduction, while international operations are likely to record a modest sequential increase in losses as JD gradually expands Joybuy's geographic footprint. 4Q26 outlook: More conservative assumptions amid macro uncertainty. We have taken a more cautious approach to our 4Q estimates, reflecting limited visibility into China's consumer spending environment and the uncertain trajectory of discretionary consumption. While recent improvements in retail demand are encouraging, we believe it would be premature to extrapolate the recovery into a sustained acceleration. In addition, the seemingly favorable comparison against 4Q25 may be misleading, as the relatively weak reported growth last year partly reflected an elevated 4Q24 base following the initial rollout of government consumption subsidies. We now forecast 4Q26 revenue of RMB367.7bn, up 4.4% YoY, including 3.8% growth in JD Retail revenue. We expect non-GAAP net income of RMB6.5bn and non-GAAP EPADS of $0.68. We also expect retail operating margin to decline to 2.5% from 3.2% a year ago, reflecting continued investment requirements and an uncertain consumption backdrop. Valuation. We lower our price target to $33 from $35, implying approximately 8.9x our revised 2027E non-GAAP EPADS and about 23% upside from the current share price. While near-term earnings visibility has weakened, we believe JD's valuation already reflects substantial concerns surrounding domestic consumption and new-business investments. A gradual recovery in retail demand, together with sustained loss reduction in new businesses, could provide meaningful support to earnings and valuation over time. We therefore reiterate BUY, while acknowledging that a sustained improvement in retail profitability will likely require greater visibility into consumer demand and investment returns.