Amid overall consumer spending pressures, JD.com demonstrated resilience in durable goods sales and instant retail in the second quarter. Although the e-commerce giant surpassed several financial predictions and outperformed many within the industry, fierce competition and an uncertain consumer outlook have dampened the market's confidence in its future growth trajectory.
On August 16, JD.com announced its Q2 2023 financial results just after the Hong Kong stock market closed and before U.S. trading began.
JD.com reported a Q2 revenue of RMB 2,879.3 billion, marking a 7.6% increase from RMB 2,676 billion in the same period last year. Sequentially, it was an 18.5% increase from RMB 2,430 billion in the previous quarter, exceeding market expectations of RMB 2,791.4 billion. The net profit attributable to the common shareholders of the listed company under non-U.S. GAAP was RMB 86 billion, a year-on-year increase of 31.9%. This surpassed market expectations, pushing net profit margins to a record 3.0%.
Adjusted EBITDA grew 45.0% year-over-year, reaching RMB 104 billion, slightly above the market estimate of RMB 100.7 billion. The adjusted earnings per ADS were RMB 5.39, surpassing the RMB 4.90 anticipated by the market and higher than RMB 4.06 from the same period last year.
Since March, when founder Liu Qiangdong returned and launched the "multi-billion subsidy" policy, JD.com has shifted its strategic focus towards value for money and platform scale. The new CEO Xu Ran, who took over in May, noted in the financial statement that the number of third-party merchants on JD.com more than doubled in Q2, reaching an all-time high, signaling the beginning of successful expansion of JD's open ecosystem.
Retail Struggles, Dada Turns Profit for the First Time
For this quarter, JD.com's overall expenses remained stable. Operating costs grew by 6.4% year-over-year to RMB 2,465 billion. Fulfillment expenses, which include procurement, warehousing, distribution, customer service, and payment processing, increased by 2.3% to RMB 167 billion, higher than the market's RMB 163.1 billion prediction. However, the percentage of fulfillment costs relative to income decreased from 6.1% to 5.8%. General and administrative expenses amounted to RMB 24 billion, a slight 1.5% increase from the previous year, accounting for 0.8% of the revenue, down from 0.9%.
By division, Q2 retail revenue for JD.com was RMB 2,532.8 billion, up 4.85% year-over-year and 19% sequentially. JD Logistics generated RMB 410.33 billion, a 31.2% increase year-over-year. Dada Nexus Limited reported RMB 28.11 billion, a 23.2% increase, with an adjusted net profit of RMB 8.4 million - marking its first profit since its 2020 IPO. New business revenue slid to RMB 43.16 billion from RMB 62.65 billion in the same period last year.
JD.com's profit margins for the quarter improved, with the Q2 adjusted operating profit margin at 3%, up from 2.1% the previous year but slightly below market expectations of 3.1%. The adjusted EBITDA profit margin was 3.6%, up from 2.7% in the same period last year.
However, the retail division, which serves as a main revenue driver, saw a slight dip in its operating profit margin. For Q2, JD.com retail's operating profit margin (excluding unallocated items) was 3.2%, down from 3.4% the previous year, pointing to the negative impact of subsidy competition on profits.
In terms of revenue growth, JD.com retail's 4.85% year-on-year growth rate was behind competitors like Taotian Group (12%) and the overall online physical retail growth rate (10.8%), suggesting that the intense competition among online shopping platforms has limited the effectiveness of JD.com's multi-billion subsidies in gaining market share.
Specifically, in terms of product categories, self-operated 3C digital products generated RMB 1,521 billion in revenue, a growth of 11.3% compared to RMB 1,366 billion last year, slightly surpassing expectations. However, daily consumer goods revenue was RMB 817 billion, down 8.6% from RMB 894 billion the previous year.
In addition, JD.com's revenue from logistics and other services this quarter was RMB 315 billion. However, the performance of this division mainly relied on the consolidation with Deppon Logistics. With this impact set to disappear next quarter (as the consolidation started in Q3 last year), this business growth rate could likely drop below 20%.
Interestingly, the Dada Group, which includes JD Daojia, reported a Q2 revenue of RMB 28 billion, a year-on-year increase of 23%. Of this, JD Daojia accounted for 64%, and its adjusted net profit was RMB 8.4 million, a significant improvement of over 17 percentage points, marking its first profit since its NASDAQ listing in 2020, one of the few bright spots in an otherwise subdued forecast.
"Responsible Supply Chain": 25 Million Stable Jobs in Upstream and Downstream Industries
On its 20th anniversary this year, JD.com introduced its "35711" dream for the next two decades: to have three companies with revenues over RMB 1 trillion and net profits over RMB 70 billion; five companies in the Fortune 500; seven startups with a market value of at least RMB 100 billion; to contribute RMB 100 billion in taxes to the country; and to provide more than 1 million jobs. There have been recent rumors about JD.com's plans to split JD Real Estate and JD Industry and seek a listing in Hong Kong.
According to official information from JD.com, by the end of the quarter, the total number of JD.com employees exceeded 560,000, the majority of whom are front-line staff in logistics and customer service. JD.com stated that it offers these employees competitive salaries, comprehensive benefits, and potential for career advancement.
Furthermore, JD.com has also officially launched the "JD Youth City" project with an investment of over RMB 60 billion, which in the future will provide nearly 4,000 ready-to-move-in employee apartments. In terms of employment promotion, JD.com will offer more than 8,000 jobs for recent graduates in 2024, along with nearly 7,000 internship positions, offering a total of over 15,000 positions to students, the largest scale recruitment in the industry. At the same time, through supply chain enhancements and strengthening, JD.com has facilitated stable employment for 25 million people in upstream and downstream industries.
As of this writing, JD.com's stock in pre-market U.S. trading has fallen more than 5%, after having previously risen over 2%.
