JD Logistics, on August 16, unveiled its financial results for the first half of 2023. The company reported total revenues of 777.61 billion yuan, marking a year-over-year increase of 32.6%. However, it posted a loss of 5.29 billion yuan, a significant reduction compared to the same period last year.
While JD Logistics witnessed growth, its income from parent company JD Group declined, with its integrated supply chain seeing just a 2.1% growth in year-over-year comparisons. This slowdown has led some to speculate that the frequent leadership changes at JD Logistics could be impacting its continuous growth strategy. Additionally, with the looming challenges of a sluggish industry in the second half of the year, the question remains whether JD Logistics can turn its fortunes around.
Declining Contributions from Parent, Profitability Remains Elusive
Supported by JD Group, JD Logistics accomplished a significant part of its KPI internally. However, post-2017, the logistics enterprise began servicing external clients, and the revenue from these external sources has been on a steady rise.
According to the financial report, in the first half of 2023, external customer income for JD Logistics amounted to 538.97 billion yuan, a whopping 57.7% year-over-year growth, constituting roughly 70% of its total revenue. This is a stark contrast to 2018 when external clients contributed less than 30% to total revenues.
Yet, JD Logistics saw a decline in revenues coming from the JD Group. The report indicates that in the first half of 2023, JD Group's contribution to JD Logistics was 238.64 billion yuan, down 5.75 billion yuan from the same period last year.
Zhao Xiaomin, a logistics expert and CEO of Guanshu Capital, shared with Interface News that many e-commerce platforms, including JD Mall, are grappling with growth challenges, particularly with the rising competition from platforms like Pinduoduo and Douyin. JD Group's reported growth for the second quarter stood at a mere 7.6%. JD Mall's business flow has traditionally been JD Logistics' strength, but as this flow decreases, logistics gets impacted.
Furthermore, the distinction between external and internal clients isn't always clear. Some industry insiders suggest that much of the reported external growth might originate from third-party sellers on the JD platform. Zhao Xiaomin also hinted that due to differing statistical standards, some internal clients could be counted as external, emphasizing that JD Logistics needs to clearly understand its strengths and client targets.
Zhao highlighted another challenge: JD Logistics has undergone multiple leadership changes, making it challenging to maintain a consistent strategy. As per public records, in December 2020, Yu Rui took over from Wang Zhenhui as JD Logistics CEO. By June 2023, Hu Wei replaced Yu Rui. Within less than three years, the company has had three different CEOs. Amidst these changes, JD Logistics also went public in Hong Kong in May 2021.
The industry is closely watching how Hu Wei, formerly the chairman of China Logistics Assets and holding multiple positions in JD Group and JD Logistics, will steer the company in a time when e-commerce dividends are fading.
A crucial aspect that will test the new CEO is profitability. Zhao remains skeptical about JD Logistics' prospects to turn a profit in 2023. While the company did report profits in the second quarter, thanks to major promotional events and holidays, Zhao expressed concerns about the third quarter, traditionally a slow period for logistics.
JD Logistics' financials from the first half of 2023 reveal a loss of 5.29 billion yuan, a significant reduction from the previous year's loss of 14.33 billion yuan in the same period. The second quarter of 2023 saw a net profit of 5.08 billion yuan. However, the gross profit margin dropped from 7.4% in 2022 to 6.5% in the first half of 2023.
Integrated Supply Chain Growth Slows; Debang Acquisition Bolsters Performance
The integrated supply chain has been a focal point for JD Logistics in recent years. However, the financial data shows a slowing growth, with revenues from the integrated supply chain reaching 388.53 billion yuan in the first half of 2023, a modest 2.1% growth year-over-year. This is a noticeable decrease compared to 2022 when, despite frequent pandemic outbreaks, this business segment witnessed a 9% growth.
In contrast, revenues from services including express delivery and fast transport for other clients surged by 89.2% year-over-year in the first half of 2023, making up half of the company's total revenue. A significant contributor to this growth has been the acquisition of Debang Logistics.
Public records show that JD Logistics acquired Debang last March and started integrating its financials in the third quarter. Debang's financial statement released on August 16 revealed a total revenue of 156.93 billion yuan for the first half of 2023, a 6.8% year-over-year increase.
While the acquisition of Debang Logistics has proved fruitful for JD Logistics in terms of revenue boost, industry insiders say the move is more of a strategic play. Liu Yang, a partner at consulting firm BDA, shared, "JD Logistics and Debang were competing in many areas, and the merger was a great way to eliminate competition. However, the integration is far from over, and the full impact of the merger on both companies' operations remains to be seen."
He added that the integration of Debang into JD Logistics could offer a vital opportunity for the latter to establish a more stable external customer base and expand beyond its reliance on the JD Group.
Summing Up
JD Logistics' mid-year results indicate a mixed performance. While external revenues have shown impressive growth, the company is grappling with slowing contributions from its parent company, JD Group. The frequent leadership changes are also a point of concern, and the industry is keenly watching how the new CEO will navigate these challenging times.
Though the Debang acquisition has offered a revenue boost, the challenge lies in integrating the operations of both companies seamlessly. JD Logistics' profitability remains elusive, but with the right strategies in place, there's potential for the company to turn its fortunes around.
