HONG KONG — China’s second-largest e-commerce company JD.com has recorded its first quarterly profit after revenue surged 41.2% from a year ago, supported by the nation’s strong appetite for online shopping. However, management remained “cautious” about the coming quarters as the company’s aggressive expansion could weigh on profitability.

Revenue surged to 76.2 billion yuan ($11.04 billion) for the three months ended in March, exceeding the average estimate of 73.5 billion yuan from analysts polled by Thomson Reuters.

In addition to China’s strong consumption, a trend of buying fast-moving consumer goods, such as beverages, food and baby products, online also supported the revenue growth. JD.com is rapidly expanding on this front through its online supermarket arm Yihaodian, which was acquired from its U.S. partner Wal-Mart last year.

The revenue growth pushed the company into the black for the first time since it went public in 2014. Net profit came in at 355.7 million yuan, compared to a net loss of 867.3 million during the same quarter a year ago.

Going forward, JD.com said it expects to see revenues of 88 billion yuan to 90.5 billion yuan in the quarter ending in June, meaning a 35% to 39% increase compared to the same period last year. Chief Financial Officer Huang Xuande, better known as Sidney Huang, in March said that the company would reach “break-even or plus 1%” levels of net income for the full year.

Commenting on the latest figures, however, Huang toned down his earlier bullishness. “I would like to caution investors,” he said in a conference call Monday, adding that the first quarter results were “not necessarily an indication” for the trend ahead. “Our quarterly earnings will likely be lower in one or more of the next few quarters.”

JD.com could face headwinds as the company is armed with “various new business initiatives in our aggressive expansion plan,” said Huang.

The e-commerce group is looking to invest in Indonesia’s popular e-commerce company Tokopedia, according to a recent Bloomberg report. Management however, brushed off a question about the deal during a conference call, saying, “we don’t comment on market rumors.”

Nonetheless, the potential deal is widely seen by the market as a sign that the company is stepping up competition with its biggest rival Alibaba Group Holding. Alibaba last year acquired e-commerce company Lazada, which has a strong presence in Southeast Asia including in the region’s most populous country Indonesia.

Nomura analyst Jialong Shi said the investment could benefit the company, with an expansion of its product offerings. While Shi sees JD.com as capable of financing the rumored deal with internal funding, “the potential challenge is whether JD can retain its service quality with increasing contribution from marketplace merchants.”

Meanwhile, Huang also pointed to the highly-competitive Chinese e-commerce market as another source of potential difficulty ahead. With competitors including Alibaba still out in front, JD.com’s fierce battle to keep up means the company is “burning very significant money,” Huang said. A potential price war and aggressive promotion costs could weigh on profitability ahead.

But Huang pledged his commitment to continued investment in the fast-moving consumer goods category, adding that “nevertheless, profitability from our other categories will be more than sufficient to support us in fighting whatever battle is required of us to win in this area.”

Jessie Guo, analyst at investment bank Jefferies, remained cautious about JD.com’s execution risk, which could lead to “large losses from Yihaodian and [its crowdsourcing arm] Dada.” Overall, Jefferies welcomed JD.com’s strong results and maintained its “buy” rating.

The market reacted positively to the results. The New York-listed shares of JD.com shot up almost 9% during the morning session to mark a fresh year high of around $39.

Rival Alibaba is expected to release earnings results for the same quarter on May 18.

By MARIKO TAI, Nikkei staff writer

Nikkei Asia News

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