As of the close on October 13th, JD Group's Hong Kong stock market fell 11.47% to HKD 104.2 per share. After the opening of the US stock market, its stock price fell by 5% at one point, and as of press release, it had fallen by nearly 3%.
On the news, JD has been overshadowed by international giants, and it is expected that JD's business and strategic adjustments will affect revenue growth and profit performance in the third quarter amidst weak consumer sentiment.
In the case of heavyweight stocks leading the decline, it also dragged down the performance of the Hang Seng Index. The Hang Seng Index fell below 18000 points to close at 17813.45 points, a decrease of 2.33%, while the Hang Seng Technology Index fell 3.46% to close at 3879.84 points.
JD Hong Kong stocks plummeted
JD Group led the decline in major indices today, dropping more than 10% to HKD 104.2 as of the close, a decrease of 11.47%, with a total market value of HKD 331.3 billion and a total trading volume of HKD 4.3 billion for the day. Since the release of the second quarter financial report on August 16th, JD Group has experienced a cumulative decline of 26.72%.
It is worth mentioning that JD.com has been criticized by international giants. What are the reasons for weak business growth? The views of institutions are focused on two aspects: firstly, low prices are becoming a trend; Secondly, the consumption of large items such as 3C is slowing down.
Morgan Stanley analysts stated in their report that in the current economic environment, if JD cannot successfully implement a low price strategy, its structural position in the Chinese e-commerce market will be impacted; Citigroup analysts believe that although the peak season for e-commerce on the Double 11 is approaching, cautious consumer sentiment and competitive pricing on other platforms may both affect JD's performance growth.
Nomura expects that JD's revenue in the third quarter will increase by 1% year-on-year to 246 billion yuan, which is 3% lower than the market's expected 254 billion yuan. Nomura believes that there has been no significant improvement in the retail environment of JD. As the largest home appliance retailer in mainland China, the sales of appliances have not improved significantly due to the drag of real estate companies, which will also drag down revenue growth.
However, on August 16th, JD released its 2023 midterm report, which showed that during the period, JD Group achieved year-on-year growth in revenue and profits, and some indicators exceeded market expectations. In the second quarter of 2023, JD Group's revenue was 287.9 billion yuan, a year-on-year increase of 7.6%, exceeding market expectations by 2.8%; The operating profit was 8.3 billion yuan, an increase of 4.5 billion yuan from 3.8 billion yuan in the same period last year; Non GAAP's net profit was 8.6 billion yuan (corresponding to a net profit margin of 3.0%), a year-on-year increase of 32%, exceeding market expectations by 10%.
JD Actively Upgrades Product Structure and Enriches Retail Ecology
Carefully analyze the revenue composition of JD's revenue segment, which mainly comes from four major businesses: JD Retail, JD Logistics, Dada, and New Business.
In the second quarter of 2023, JD's retail revenue was 253.28 billion yuan, a year-on-year increase of approximately 4.85%; JD Logistics has a revenue of 41 billion yuan, a year-on-year increase of about 31.21%, Dada has a revenue of 2.811 billion yuan, a year-on-year increase of about 23.24%, and new business revenue of 4.316 billion yuan, a year-on-year decrease of about 21.11%.
Data shows that JD Logistics and Dada are the main drivers of JD's total revenue growth that exceeded expectations.
In terms of profit, another important financial indicator, JD Retail's operating profit in the second quarter actually slightly decreased, from 8.173 billion yuan in the first half of 2022 to 8.143 billion yuan; The operating profit of JD Logistics has increased significantly to 510 million yuan, compared to 36 million yuan in the same period of 2022; Dada's losses have narrowed significantly, with an operating loss of 29 million yuan in the second quarter of this year, compared to 424 million yuan in the same period last year; Although the revenue of new business decreased, compared to the operating loss of 2.032 billion yuan in 2022, this figure was a profit of 1.061 billion yuan in the first half of 2023.
Based on this, in terms of operating profit margin, in the second quarter of 2023, JD Retail's decline decreased to 3.2%, JD Logistics increased to 1.2%, Dada narrowed from -18.6% to -1.0%, and New Business increased from -32.4% to 24.6%.
By comparison, the only thing that is experiencing a decrease in operating profit margin is JD Retail. This also indicates that JD Group's main battlefield, the retail sector, is significantly lagging behind in terms of growth rate.
If we take a closer look at JD.com retail, we will find that the pressure on retail mainly comes from the revenue of daily necessities. In the second quarter of 2023, the revenue of daily necessities was 81.724 billion yuan, a year-on-year decrease of 9%. JD's revenue from electronic products and household appliances reached 152.131 billion yuan, an increase of 11.3% year-on-year.
At the end of last year, Liu Qiangdong began shouting internally that "low prices are the only fundamental weapon", and all JD's actions seemed to be related to low prices. However, it is obvious that the price war has not brought much-needed growth to JD in the short term. Compared to the mid-term reports of Taobao and Pinduoduo this year, it was found that Alibaba's revenue growth rate was 13.9%, while Pinduoduo reached an astonishing 56%, both of which were better than JD's revenue growth rate of 7.6%.
According to feedback research from merchants shared by the ecological leaders of the JD platform, it was found that there are significant differences in execution among Pinduoduo, Taobao, and JD, who also emphasize low prices: Pinduoduo regards low prices as the only lever for managing merchants. Taobao values sales, and merchants often increase sales through advertising, and then obtain traffic through sales. However, JD's control and pursuit of quality cannot lower the threshold without a bottom line. On one hand, it aims to establish a brand image through service quality and quality control, while on the other hand, it pursues cost-effectiveness and emphasizes sinking, leading to JD repeatedly pulling between high quality and low price.
According to Dan Su, the newly appointed CFO of JD.com, the company is further reducing related marketing expenses to enhance the profitability of its retail business. He stated that this year's KPIs are mainly focused on GMV, profit, and cash flow.
JD will continue to promote the structural reform of upgrading its product matrix, by continuously introducing high-end luxury brands online and building offline retail physical stores to enrich its retail ecosystem.
On the online side, Italian luxury fashion brands Bottega Veneta and Missoni settled on JD this quarter. In terms of beauty, official flagship stores such as Sisley and Xiulike opened on JD. At the same time, brands such as Mason Magilla, Byredo, Farmacy, and Aesop fully settled on JD, further elevating the JD high-end beauty brand matrix. Offline, Dongguan and Kunming JD Mall have opened, while 13 JD city flagship stores in 11 cities have successively opened. In addition, JD.com's home appliance specialty stores have opened 724 new stores in the sinking market.
Overall, JD Retail, as a pillar sector of JD, is striving to achieve co frequency resonance and drive performance growth through both online and offline efforts. Looking ahead to the second half of the year, the economic recovery is expected to remain weak, and home appliance specialty stores that have sunk in the offline market are expected to benefit from the "home appliance to rural areas" policy, becoming a major driving point for the growth of retail sector performance during the special historical period.