JD has provided a financial report that exceeded expectations, and the capital market is also voting with its feet.
On the evening of November 15th, JD. O; 09618. HK released its performance for the third quarter of 2023. According to the financial report, JD achieved revenue of 247.7 billion yuan in the third quarter, a year-on-year increase of 1.71%. Among them, electronic products and household appliances, as core categories, continue to maintain a year-on-year growth rate of revenue higher than the industry average; The service revenue reached 52.4 billion yuan, accounting for over 20% of the overall revenue for the first time, reaching 21.2%. The logistics and other service revenue increased by 19.3% year-on-year.
In the third quarter, JD Group's operating profit was 9.3 billion yuan, an increase of 6.9% compared to 8.7 billion yuan in the same period last year. The operating profit under non US GAAP in the third quarter was 11.1 billion yuan, a year-on-year increase of 12.12%. In the third quarter, JD Group's net profit was 7.936 billion yuan, a year-on-year increase of 33.09%. Non US GAAP net profit was 10.6 billion yuan, a year-on-year increase of 6%, exceeding market expectations.
In terms of profit margin, JD's net profit margin attributable to common shareholders of listed companies under non US GAAP for this quarter was 4.3%, while the retail operating profit margin was 5.2%.
The platform ecosystem has always been a strategic direction that JD Group and JD Retail have focused on investing in, and we are also continuously improving JD's unique platform ecosystem construction. "At the performance briefing after the financial report was released, JD Group CEO Xu Ran introduced, Our core goal is to meet the diverse needs of different users through a rich supply of products, continuously improving our user experience, which will also be an important driving force for our long-term revenue and profit growth
After the financial report was released, JD.com's US stock market rose all the way, with a maximum increase of 9.09%. As of the close of the day, JD.com stocks closed at $28.59 per share, up 7.04%. On November 16th, JD Hong Kong stocks continued their upward trend in the US stock market, with pre market gains exceeding 5%. As of press release, JD Hong Kong shares rose 2.83%.
Income growth continues to slow down
Although the overall financial report exceeded expectations, in terms of revenue growth rate, JD.com continued its decline since the fourth quarter of last year.
According to the financial report, JD achieved revenue of 247.7 billion yuan in the third quarter, a year-on-year increase of only 1.71%. By comparison, the revenue growth rate in the third quarter of last year was as high as 11.35%. In fact, since the fourth quarter of last year, the growth rate of JD's quarterly revenue has continued to be sluggish, with growth rates of 7.08%, 1.38%, 7.60%, and 1.71%, respectively.
Specifically, electronic products and household appliances, as the core category of JD, achieved a revenue of 119.316 billion yuan in the third quarter, a slight increase year-on-year; Daily necessities achieved revenue of 75.988 billion yuan, a year-on-year decrease of 2.3%. The combined revenue from the two items was 195.304 billion yuan, a year-on-year decrease of 0.9%.
However, JD's service revenue performance in the third quarter was commendable. In the third quarter, JD platform and advertising service revenue was 19.529 billion yuan, a year-on-year increase of 3%, while logistics and other service revenue was 32.865 billion yuan, a year-on-year increase of 19.3%. The service revenue reached 52.394 billion yuan, a year-on-year increase of 12.7%.
JD continued its sluggish overall revenue growth and declining commodity revenue growth trend this quarter, which is related to multiple factors.
At the macro level, China's consumption is currently in the process of recovery. According to data from the National Bureau of Statistics, the total retail sales of consumer goods in the first three quarters of this year were 34.21 trillion yuan, a year-on-year increase of 6.8%. The national online retail sales were 10.82 trillion yuan, a year-on-year increase of 11.6%.
Among them, in the retail of goods, the retail sales of household appliances and audiovisual equipment in the first three quarters reached 634.5 billion yuan, a year-on-year decrease of 0.6%. The overall sluggish home appliance market directly affects the revenue performance of JD's core electrified products, which in turn drags down overall revenue growth.
At the same time, the price reduction promotion under JD's self operated model also directly affects the revenue performance of products in JD's financial reports. Since the beginning of this year, JD has launched price reduction measures such as "10 billion yuan subsidies" to continuously build its own price competitiveness, but the cost is that it has affected its revenue capacity.
In addition, since the beginning of this year, JD has vigorously promoted support policies for third-party merchants, which will directly lead to pressure on advertising fees and commission income from third-party platforms. In the third quarter of this year, JD's "Chunxiao Plan" upgraded 20 merchant support measures, and the upgraded "Chunxiao Plan" brought more fee reductions to merchants.
On the one hand, JD has cancelled the previous 90 day "0 yuan trial operation" period, and some merchants have unlimited extension of the "0 yuan trial operation" period, during which no deposit is required; On the other hand, JD has expanded its technical service fee range from zero to 98% for individual and individual businesses.
Xu Ran emphasized that platform ecology is a strategic direction that JD will focus on investing in in the future. We are constantly improving the platform's infrastructure and tools, allowing self operated and 3P merchants to have sufficient resources, fair competition, and common development on the platform, ultimately bringing a better experience to JD users
Profit growth exceeds expectations
Although revenue growth has slowed down, JD's profit performance has exceeded market expectations.
Prior to this, it was widely believed in the industry that considering the high base of JD's pre profit value and the impact of measures such as increasing investment to consolidate users' low price mentality, JD's profit growth in this quarter will be under pressure.
From a previous perspective, in the third quarter of 2022, JD achieved a net profit of 5.963 billion yuan, which is the best level of net profit in the third quarter of the past five years except for 2020, forming a high profit base. At the same time, in the third quarter of this year, JD launched measures such as lowering the threshold for free shipping for self operated products. When users purchase self operated products on JD, PLUS members enjoy unlimited free shipping throughout the year. The threshold for self operated free shipping for ordinary users has been reduced from 99 yuan to 59 yuan, and they also enjoy JD's "211 limited time delivery" and other services.
Therefore, several analysts had previously predicted that JD's adjusted net profit would decline this quarter. The impact of relevant measures can also be seen from the performance expenses of this quarter. In the third quarter of this year, JD's fulfillment expenses increased to 15.2 billion yuan, a year-on-year increase of 6.1%. The percentage of fulfillment expenses in revenue increased from 5.9% in the same period last year to 6.1%.
However, in reality, JD achieved positive profit growth this quarter and far exceeded market expectations. The financial report shows that in the third quarter, JD Group's operating profit was 9.3 billion yuan, an increase of 6.9% compared to 8.7 billion yuan in the same period last year. The operating profit under non US GAAP in the third quarter was 11.1 billion yuan, a year-on-year increase of 12.12%. In the third quarter, JD Group's net profit was 7.936 billion yuan, a year-on-year increase of 33.09%. Non US GAAP net profit was 10.6 billion yuan, a year-on-year increase of 6%.
Meanwhile, in the third quarter of this year, JD's non US GAAP operating profit margin was 4.5%, compared to 4.1% in the same period last year; In the third quarter, JD's retail operating profit margin was 5.2%, unchanged from the same period last year. This means that even with a high base and high investment, JD has maintained a healthy level of profit growth and profit margin.
This is related to JD's long-term strategy, which is not to attract users by sacrificing profits and increasing subsidies, but to continuously improve operating profit margins through supply chain cost reduction and efficiency enhancement.
We have not had a significant impact on our own profit margin due to competition, which is mainly related to the implementation methods and business models of various strategies, We believe that the core of retail is still cost, efficiency, and experience. Our goal is to continuously improve supply chain efficiency through technology and scale to reduce costs, and then bring additional profit space through efficiency improvement and share it with partners and users, using excess profits to continuously improve user experience
In fact, JD's supply chain has also achieved results in cost reduction and efficiency improvement this quarter. On the basis of the number of self operated SKUs reaching tens of millions, JD's inventory turnover days in the third quarter further decreased to 30.8 days, an increase of 0.9 days compared to the same period last year. At present, JD has achieved a procurement automation rate of over 85% and an average spot rate of over 95%.
The foundation for reducing costs and increasing efficiency in JD's supply chain is a solid supply chain infrastructure. According to the financial report, as of the end of the third quarter, JD's supply chain infrastructure assets reached 148.6 billion yuan, a year-on-year increase of 17%; JD Logistics operates over 1600 warehouses and manages a total storage area (including cloud warehouses) of over 32 million square meters.
Xu Ran emphasized that JD's user experience improvement is not based on sacrificing the company's reasonable profit margin and shareholder interests. In our view, this is a positive cycle. When the user experience is good, it will attract more users and natural traffic, resulting in more sales, gross profit, and profits, enabling enterprises to continue to improve the user experience by dedicating some of the new profits
Expected to resume normal growth rate next year
While achieving good stage performance, the next question is, how will JD's future performance go?
In this regard, Xu Ran expressed an optimistic attitude. In her opinion, with the gradual recovery of China's overall economy and consumption, as well as the continued weakening of the impact of JD's business optimization and adjustment since the beginning of this year, coupled with JD's core advantages based on the supply chain, which continue to release positive impacts, JD is expected to achieve high-quality business growth next year.
Xu Ran pointed out that "it is expected that overall consumption will continue to steadily recover next year and become one of the main driving forces driving the overall economic growth of China
From JD's own business perspective, there is also a foundation for high-quality growth. Although JD's revenue from electrified products increased slightly year-on-year this quarter, it still outperformed the overall performance of the market. In the electrified product category where JD has a relatively advantageous market share, thanks to the accumulated supply chain advantages in recent years and the continuous strengthening of users' low price mentality, we have maintained a faster growth rate than the industry in the first three quarters of this year.
In this regard, Xu Ran revealed that JD will continue to leverage its cost efficiency advantages in the 3C digital category in the future, providing users with diverse products while also improving their user experience with more advantageous prices and rich services. In terms of home appliance categories that focus on service capabilities, JD will further improve its online and offline retail and service capabilities, enhance the high cost-effectiveness of home appliance categories, and thereby leverage additional consumer demand.
In the category of supermarkets, although JD's revenue performance was poor this quarter, Xu Ran stated that adjustment strategies including category planning, warehouse network transformation, and refined operations are gradually being implemented. At present, we have seen an improvement in the growth rate of the supermarket category compared to the first half of the month, and will return to a more stable growth momentum next year. In the long run, we firmly believe that the supermarket category is the most important growth driver for JD
In addition to the basic platform for product sales, JD has also achieved good results in continuously increasing its investment in the platform ecosystem since the beginning of this year. Xu Ran pointed out that since the beginning of this year, JD has focused on simplifying the entry process for merchants, increasing support for new merchants, especially small and medium-sized merchants, formulating clearer rules, and providing richer operational tools. These measures directly drove the number of merchants and active merchants on the JD platform to reach a historical high in the third quarter.
We are pleased to see that the overall number of POP merchants continues to maintain a three-digit growth rate, especially in categories such as supermarkets, fashion, and home furnishings. The number of POP merchants is also significantly increasing year-on-year, and the number of active merchants is also accelerating.
In addition, Xu Ran revealed that thanks to the addition of a large number of new merchants, the advertising revenue of third-party merchants still maintains a double-digit growth, and the penetration rate of the number of transaction users in third-party merchants continues to increase year-on-year, resulting in a healthy growth in the corresponding order volume.
JD Group CFO Shan Su further explained that JD has made and started implementing major structural adjustments since the beginning of this year, including adjusting the health of its business, strengthening user experience, occupying users' low-priced minds, and building a platform ecosystem. The impact of business health will be fully reflected in this year's data.
We have not changed our growth goals for next year and the medium to long term, "said Dan Su, We expect JD Retail's overall business to resume normal growth rate in 2024, and we are confident in achieving a growth rate higher than social zero. Of course, because JD already has a considerable volume, our growth is highly related to the macro and retail market. Our goal is to achieve higher growth than the industry and continue to gain market share