JD.Com Retreats Before Earnings as Chinese Stocks Drop in U.S.

JD.com Inc., the Chinese e-commerce operator that has rallied 40 percent this year, slumped the most in three months as investors moved to lock in profits before the company’s earnings report.

The American depositary receipts dropped 3.6 percent to $32.48 on Wednesday in New York. They contributed the most to a 1.5 percent decline in the Bloomberg China-US Equity Index.

JD.com touched a record high of $35.28 on April 24 amid speculation that growth in e-commerce will outpace other parts of China’s Internet industry. Analysts surveyed by Bloomberg forecast that the company, the country’s second-biggest operator, will report revenue that increased to 35.6 billion yuan ($5.7 billion) when it announces first-quarter results Friday, the highest since its U.S. debut a year ago.

“The stock had gained a lot over the last few weeks to a very high level, so some people could be selling for profit on concern JD.com may fail to meet the high expectations,” Ella Ji, a senior analyst at Oppenheimer & Co., said by phone from New York Wednesday. “The market pullback in China as well as in the U.S. also has an impact on Internet companies like JD.com after previous strong rallies.”

The Bloomberg China-US gauge sank a two-week low of 125.65. Stocks dropped 1.6 percent in Shanghai as the benchmark index capped its biggest two-day slide in three months. Mainland Chinese stocks, which reached a seven-year high last week, tumbled as concern grew that new initial public offerings will divert funds from existing shares.

Alibaba Gains

Alibaba Group Holding Ltd., China’s biggest e-commerce provider, gained 0.6 percent to $80 in New York, advancing for the first time in six days from a record low.

While JD.com has “great” growth potential and it will benefit from the long-term growth in China’s consumer sector, the risk of investing in JD.com at its current stage is higher than Alibaba, according to Simon Webber, a portfolio manager at Schroder Investment Management Ltd.

“They are unprofitable and cash-flow negative,” Webber said in an interview in New York. JD.com “has to build its own logistics network, which is much more capital intensive, whereas Alibaba uses the third-party logistics and therefore they are generating a lot more cash.”

The iShares China Large-Cap ETF, the largest Chinese exchange-traded fund in the U.S., fell 2 percent to $49.31, the lowest in a month.

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