E-commerce enters the price war, JD.com's self-operated and third-party merchant strategies exposed
2024-08-17
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On August 15, JD.com released its second quarter and interim results for 2024. Revenue in the second quarter reached 291.4 billion yuan.
In the second quarter, JD.com's net profit attributable to ordinary shareholders of listed companies under non-U.S. generally accepted accounting principles reached 14.5 billion yuan (about US$2 billion), and the net profit margin reached 5.0% for the first time.
In the past year, JD.com has been stepping up efforts in content ecosystem construction and price competition. Xu Ran, CEO of JD.com Group, said at the earnings conference, "Through continuous improvement in scale effect and procurement efficiency, we provide users with everyday low prices while ensuring quality. Combined with the increasingly prosperous platform ecosystem, the number of users grew steadily in the second quarter."
Xu Ran said that JD.com will continue to focus on user experience, price competitiveness and platform ecology. Today, e-commerce has gone astray in the increasingly fierce price war. Taotian Group chose to adjust its low-price strategy after 618. According to the statement of JD.com executives in the performance meeting, JD.com's low-price strategy has not changed. The price war in the e-commerce industry has escalated again. In this war without gunpowder, major platforms have tried their best to compete for market share and consumer attention. This has also brought new challenges and opportunities to the entire industry.
Net profit margin reached 5.0% for the first time, and the low-price strategy continued to increase
In the second quarter, JD.com's revenue reached 291.4 billion yuan (about 40.1 billion U.S. dollars), and in the first half of the year, it reached 551.4 billion yuan (about 75.9 billion U.S. dollars), continuing to grow. Among them, logistics and other service revenue reached 34.1 billion yuan, a year-on-year increase of 7.9%. In the second quarter, JD.com's net profit attributable to ordinary shareholders of listed companies under non-U.S. generally accepted accounting principles reached 14.5 billion yuan, a year-on-year increase of 69.0%, and the net profit margin reached 5.0% for the first time.
As of the second quarter, JD Logistics' non-GAAP operating profit has been profitable for five consecutive quarters, and the non-GAAP operating profit margin in the second quarter hit a new high since JD Logistics went public.
The financial report also revealed relevant data during JD.com's 618 event, which drove sales of over 700 brands to grow by over 100% year-on-year. After JD.com's 10 billion yuan subsidy program was launched in the second quarter for beauty products, it further stepped up efforts in August, investing over 3 billion yuan to focus on all beauty categories.
Beijing News Shell Finance reporter previously reported that JD.com has increased its 10 billion yuan subsidy twice this year, both times focusing on beauty products. In the latest increase, all JD.com beauty products participating in the 10 billion yuan subsidy are expected to be reduced by 10% to 30%.
In April this year, JD.com increased its subsidies by 10 billion yuan for the first time, and also chose the beauty category. At that time, JD.com chose to add 200 million yuan in gifts. This time, JD.com increased its subsidies by 10 billion yuan again, and still chose the beauty category. The industry generally believes that beauty brands have serious price control. Under the premise of small promotion space, the platform can only start with adding gifts to "roll" low prices, spread out the overall price received by consumers, and serve the low-price strategy of the market.
Xu Ran stated at the performance meeting that the low-price strategy is the most core, "We still have to insist on user experience first and continuously improve our user experience. This is the starting point of all our business and the most critical decision-making factor."
She also mentioned that we have promoted a series of projects and optimizations around low prices in the past period of time, including reducing self-operated procurement costs, enriching low-priced pallets, as well as 10 billion subsidies, 9.9 free shipping channels, etc. This year, we will also firmly promote the low-price strategy, and we have seen that users have "very positive feedback" on the low-price strategy.
The order volume and GMV of third-party merchants will exceed that of self-operated businesses. Dividends and repurchases totaled approximately US$4.5 billion in the first half of this year.
In addition to the low-price strategy, JD.com executives once again talked about JD.com's platform ecosystem at the performance meeting.
JD.com Chief Financial Officer Shan Su said that JD.com's platform ecology aims to achieve common prosperity for self-operated and POP (third-party) merchants.
JD.com is trying to build a platform ecosystem that attracts users and guarantees experience through self-operation, and pop merchants to meet the diverse needs of users. Shan Su also revealed the overall thinking and rhythm of JD.com's platform construction, which is to attract investment and expand the ecological scale, enrich the goods, and promote the growth and activity of merchants. The financial report shows that in the second quarter, the number of active merchants on JD.com continued to maintain a year-on-year growth trend. The number of users and orders of third-party merchants has accelerated, and the GMV growth rate of pop merchants is higher than that of the market.
He said that in the long run, as the platform ecosystem gradually improves, the order volume and GMV of third-party merchants will exceed that of self-operated businesses, and commissions and advertising revenues will also grow naturally.
Xu Ran also said that the core business indicators that JD.com has always focused on have not changed. Healthy business development requires a comprehensive view of GMV (gross merchandise volume), profit and cash flow performance, and no matter when, these three indicators need to be balanced and none of them can be missing.
The financial report also shows that as of the second quarter, JD.com's supply chain infrastructure assets reached 156 billion yuan, an increase of 11% year-on-year. JD Logistics already has nearly 100 bonded warehouses, direct mail warehouses and overseas warehouses around the world, with a total management area of nearly 1 million square meters.
Since the full transformation to technology in 2017, JD.com's R&D investment has accumulated nearly 130 billion yuan as of the second quarter. With more than 10 million SKUs (minimum inventory units) of self-operated products, JD.com's inventory turnover days in the second quarter remained below 30 days.
JD.com will also continue to promote the implementation and application of digital technologies such as cloud computing, big data, and AI in physical industry scenarios.
Xu Ran stated at the performance meeting that China has the world's largest e-commerce market and a very mature infrastructure suitable for the development of e-commerce. She believes that the scale of China's e-commerce market will continue to grow in the long run.
From the perspective of market size, China's retail, especially online retail, is very large. From the perspective of product categories, users and business innovation, there is still room for improvement in online penetration. From the perspective of categories, the online penetration rates of categories with broad market space, including supermarkets and home furnishings, are relatively low and have the opportunity to continue to increase. As for 3C and home appliances, which are generally considered to be standard products and have a relatively high online rate, Xu Ran believes that their online penetration rates are still increasing.
Talking about the competitive landscape of the e-commerce industry, Xu Ran said that China's e-commerce industry is large and full of vitality, and has been attracting different types of platforms or players. Each participant has formed their own characteristics and moats based on different models. The essence of e-commerce still needs to return to how to better improve user experience and how to achieve win-win results with partners. The financial report shows that in the second quarter, the number of JD.com users maintained double-digit growth, among which returning users and users who have been with the company for more than two years drove the growth of the market.
In terms of stock repurchases, in the second quarter, JD.com completed a total of approximately US$2.1 billion in stock repurchases in the U.S. and Hong Kong markets, repurchasing approximately 137 million common shares or 68.4 million ADSs, equivalent to 4.5% of the number of outstanding shares as of March 31, 2024.
In the first half of this year, JD.com repurchased a total of approximately US$3.3 billion, including 224 million common shares or 112 million ADSs, equivalent to 7.1% of the outstanding shares at the end of 2023. In addition, the US$1.2 billion annual dividend plan announced by JD.com in the first quarter was also paid in the second quarter. In the first half of this year, JD.com paid a total of approximately US$4.5 billion in dividends and repurchases.
Cheng Zijiao, financial reporter of Beijing News Shell
Edited by Yuan Xiuli
Proofread by Zhao Lin
