Chinese retailer JD.com's low price strategy helps revenue beat expectations

By Akash Sriram and Casey Hall

(Reuters) -Chinese online retailer JD.com on Thursday reported first-quarter revenue that beat market estimates, as price cuts and discount coupons helped boost sales that have been hit by cautious consumers.

JD.com and traditional rival Alibaba Group have been cutting prices and offering discounts to defend e-commerce market share in the world's second largest economy, where consumers are gravitating toward low-cost, discount-focused platforms. JD.com CEO Sandy Xu said that categories including general merchandise, electronics and home goods, particularly mobile phones, as well as apparel, were among the stand-outs for its retail platform.

"As our improved price competitiveness increasingly resonates with users, the growth of our user base in lower tier cities accelerated in Q1, overtaking growth in higher tier cities," Xu said in a post earnings call with analysts.

JD.com's U.S. listed shares were flat in early trade. On Tuesday, Alibaba reported an 86% drop in quarterly profit, primarily due to valuation change from equity investments, though it beat revenue estimates.

JD.com's non-GAAP net profit rose 3.4% to 8.9 billion yuan ($1.23 billion) and revenue was up 7% to 260 billion yuan in January-March, versus the 257.72 billion yuan average of 21 analyst estimates compiled by LSEG. Analysts see full-year sales growing 6.7%.

JD.com reported net income attributable to shareholders of 7.13 billion yuan, up nearly 14% from 6.26 billion yuan a year earlier.

Prior to this week's results, analysts had voiced concern about the low-cost strategy's impact on margins and profitability, a worry that JD.com CFO Ian Shan dismissed on the call with analysts.

In the company's view, he said, increasing users and profitability in conjunction "isn't contradictory".

"We believe by constantly dedicating resources to product, price and service, this improves user experience, which drives up GMV (gross merchandising volume) and market share," Shan said. "This forms a virtuous cycle in business enhancement and profit growth."

JD.com said in March it would not buy the warehouse and store network of British electrical retailer Currys, a deal that could have helped it expand in the UK and Europe.

It has been less aggressive with international expansion than its Chinese peers, though with market watchers expecting slowing domestic growth, it may be prompted to search for new overseas revenue streams.

($1 = 7.2182 Chinese yuan renminbi)

(Reporting by Akash Sriram in Bengaluru and Casey Hall in Shanghai; Editing by Christina Fincher and Mark Potter)