JD.com (JD Quick QuoteJD - Free Report) shares have plunged 18.5% in the trailing three months, underperforming the Zacks Internet - Commerce industry’s growth of 8% and the Zacks Retail-Wholesale sector’s return of 7%. 

JD’s underperformance in its shares is driven by a mix of structural and operational challenges that continue to weigh on investor sentiment. While revenue growth remains solid, which increased 16% year over year in the first quarter of 2025, the company is grappling with thinning margins across its core and emerging businesses, raising questions about long-term profitability.

At the same time, JD faces intense competition across key segments, from traditional e-commerce rivals to newer entrants in food delivery and low-tier markets. As the company pushes aggressively into these areas, its cost pressures are mounting and returns remain uncertain. Let’s delve deeper to unpack these challenges and understand why it may be best for investors to stay away from the stock for now.

JD Underperforms Industry in 3 Months

Image Source: Zacks Investment Research

JD’s Margins Are Eroding Amid Growth Push

JD reported a non-GAAP operating margin of just 3.9% in the first quarter of 2025, highlighting its continued struggle to convert strong top-line growth into sustainable profitability. While JD Retail managed a margin of 4.9%, up from 4.1% a year ago, the overall picture remains weak. JD Logistics delivered a thin margin of 0.3% and the New Businesses segment posted a non-GAAP operating loss of RMB 1.3 billion, translating to a steep negative 23.1% margin. These figures underscore the inefficiencies in JD’s broader operations outside of its core retail business.

The pressure on margins is further intensified by rising expenses. Fulfillment costs jumped 17.4% year over year to RMB 19.7 billion, outpacing revenue growth and increasing their share of total revenues to 6.6%. Marketing and R&D expenses also climbed, limiting JD’s ability to scale profitably. Despite improvements in gross margin, these rising cost burdens raise serious concerns about the company's ability to achieve meaningful margin expansion across all segments.

JD’s Expansion Strategy Comes at a Cost

JD continues to spend aggressively on new growth avenues, but the payoff remains uncertain. In the first quarter of 2025, the company officially launched its food delivery business, onboarded more than a million merchants and ramped up investments in AI and automation. However, these initiatives are still in early stages and have yet to deliver meaningful financial contributions.

The company acknowledged that many operational systems are still under development and the focus remains on scaling rather than profitability. With heavy upfront costs and limited near-term returns, JD’s expansion strategy adds risk to an already competitive and margin-sensitive environment.

JD Operates in an Intensely Competitive Market

China’s online retail landscape is intensely competitive, with JD.com facing major pressure from domestic rivals. Alibaba (BABA Quick QuoteBABA - Free Report) dominates the space with around 80% of China’s market share, while PDD Holdings Inc. Sponsored ADR (PDD Quick QuotePDD - Free Report) continues to lure price-sensitive shoppers through steep discounts and group-buying deals. Alibaba and PDD Holdings have both lost 13.1%, respectively, in the trailing three months.

Several of JD’s competitors, including Alibaba and PDD Holdings, enjoy longer operating histories, larger user bases, better supplier networks and stronger brand recognition. To stay relevant, JD is often forced to match or undercut pricing and promotional offers, which can weaken its profit margins and brand positioning. If it fails to respond effectively, JD risks losing market share and seeing its financial performance deteriorate.

Additionally, Meituan Unsponsored ADR (MPNGY Quick QuoteMPNGY - Free Report) is a dominant force in China’s food delivery market, directly competing with JD’s newly launched service. Meituan maintains a network of more than 30,000 flash warehouses, positioning itself as a dominant player in the delivery of daily retail goods. Shares of Meituan have lost 15.1% in the trailing three months.

JD’s Earnings Estimate Revisions Show Downward Trend

The Zacks Consensus Estimate for 2025 earnings is pegged at $3.81 per share, which has been revised downward by 16.9% over the past 30 days, indicating a 10.56% year-over-year decline. 

The consensus mark for 2025 revenues is pegged at $179 billion, suggesting 11.35% year-over-year growth.

JD.com’s earnings beat the Zacks Consensus Estimate in each of the trailing four quarters, with the average surprise being 21.89%.

JD’s Stock Valuation

JD currently trades at a forward 12-month P/E ratio of 8.08X, which is well below the Zacks Internet - Commerce industry’s 24.31X. This suggests that investors may be paying a lower price relative to the company's expected earnings growth.

JD Valuation

Image Source: Zacks Investment Research

Conclusion

Despite trading at a relatively low valuation, JD.com’s recent stock performance and business fundamentals raise red flags. The company’s aggressive push into food delivery, AI and logistics is yet to generate meaningful returns, while margin pressure and rising costs persist. At the same time, intensifying competition from players like Alibaba, PDD and Meituan only adds to the challenge.

Earnings estimates have been revised downward, and growth investments continue to weigh on near-term profitability. With shares down more than 18% in the last three months and no clear catalysts for a turnaround, investors may be better off booking profits and reassessing at a later stage.

JD currently carries a Zacks Rank #4 (Sell). 

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.