The answer to how e-commerce platforms balance growth and profitability, and whether they will continue to implement low price strategies in the future, can be found in the second quarter report after betting on low prices and increasing investment in coupon services. On August 15th, JD.com released its second quarter and interim results. According to the financial report, JD's revenue in the second quarter was 291.4 billion yuan, a year-on-year increase of 1.2%. Among them, JD Retail reached 257 billion yuan, a year-on-year increase of 1.4%. This is due to a year-on-year decrease of 4.6% in revenue from 3C home appliances.
JD's profit growth rate this quarter far exceeded its revenue growth rate. JD Group's net profit attributable to ordinary shareholders of the listed company under non US GAAP reached RMB 14.5 billion, a year-on-year increase of 69.0%, and the net profit margin reached 5.0% for the first time. JD Group's operating profit was 10.5 billion yuan, compared to 8.3 billion yuan in the same period last year. This is thanks to the drive of JD Logistics. Its operating profit increased from 500 million in the same period last year to 2.183 billion, a year-on-year increase of 336%.
Alibaba has recently adjusted its direction to place more emphasis on GMV and no longer pursue absolute low prices. The outside world is paying attention to JD's attitude towards low price strategies. JD.com CEO Xu Ran said at the financial report conference, "We will continue to implement the low price strategy this year, hoping to strengthen the market share of JD.com 618 and Everyday Low Price through the Super 18 event, and enhance the user shopping experience with low-priced products
Gross profit margin improves year-on-year for nine consecutive quarters
Under the low price strategy, JD.com has improved its competitiveness by lowering the threshold for free shipping and offering free home pickup and refund services, which has affected its revenue growth. According to the financial report, in the second quarter, JD's retail revenue was 257.07 billion yuan, a year-on-year increase of 1.5%. JD Logistics' revenue was 442.07, a year-on-year increase of 7.7%. The new business revenue was 4.636 billion yuan, a year-on-year decrease of 35%.
Looking at it separately, due to the high base of the same period last year, the revenue of 3C home appliances decreased by 4.6% year-on-year to 145.061 billion, which affected the overall growth rate. Daily necessities revenue grew strongly, with a year-on-year growth rate of 8.7%. Net service revenue increased by 6.3% year-on-year to 57.489 billion.
The profit performance exceeded expectations, mainly due to the improved profitability of JD Retail and JD Logistics. JD Retail's operating profit in the second quarter was 10.1 billion yuan, a year-on-year increase of 24.6%. The operating profit margin increased from 3.2% in the same period last year to 3.9%; JD Logistics' operating profit increased by 336% to 2.183 billion yuan. In terms of net profit, the net profit margin reached 5.0% for the first time.
During the earnings conference call, JD executives stated that the improvement in supply chain scale efficiency has led to a significant improvement in gross profit margin. JD's gross profit margin reached a historic high of 15.8% in the second quarter. JD's gross profit margin has improved year-on-year for nine consecutive quarters since the second quarter of 2022, reflecting JD's balance between growth and profit.
Since the low price of e-commerce vouchers, there has been continuous discussion about low prices from the outside world. In the price war, Alibaba actively adjusted its strategy, no longer pursuing absolute low prices, but instead focusing on GMV. How will JD.com promote its low price strategy? Xu Ran said, "JD.com will firmly implement a low price strategy this year to further enhance its price competitiveness. We hope to strengthen the market share of low-priced users in the JD.com 618 promotion and Tian Tian Tian Tian through the 'JD Super 18' event
She also talked about her understanding of low prices, using JD's economies of scale and supply chain innovation to reduce costs and enhance price competitiveness without sacrificing product and service quality, rather than relying on short-term subsidies to achieve unsustainable low prices.
Advertising revenue grows faster than GMV
In JD's net service revenue for the second quarter, platform and advertising service revenue increased by 4.1% year-on-year. JD executives stated that commission income has decreased slightly, while advertising revenue has grown faster than GMV. It is worth noting that JD Retail's advertising revenue rebounded to double-digit year-on-year growth in the second quarter. In addition, since last year, the impact of merchant support measures such as reducing commissions and canceling platform usage fees has gradually weakened, and it is expected that commission income will recover and increase in the second half of the year.
Advertising service revenue is related to the construction of third-party ecosystems. JD executives stated that in the second quarter, the number of 3P trading users and order volume both accelerated, and the GMV growth of 3P business (third-party business) exceeded the total GMV growth. JD.com maintained steady growth in user numbers, shopping frequency, and the number of new merchants, with a 46% increase in the number of new third-party merchants in the second quarter compared to the first quarter. Among them, the number of newly added businesses in the categories of toys and musical instruments, automotive supplies, food and beverage, home decoration and building materials, sports and outdoor activities is particularly prominent.
However, Alibaba has also taken many new actions this quarter to increase customer management revenue and overall monetization rate. Analysts are paying attention to the competition situation in the e-commerce industry in the second half of the year. Xu Ran believes that the e-commerce industry is broad and dynamic, with various participants having different models, characteristics, and competitive advantages. The essence of retail is to enhance user experience and achieve a win-win situation with partners. JD.com will be committed to continuously optimizing cost efficiency and user experience to achieve long-term goals.
In addition, she also mentioned that in the second quarter, while JD's user base achieved double-digit growth, the frequency of user shopping maintained double-digit growth, showing confidence in the Chinese e-commerce market.
According to the financial report, in the second quarter of this year, JD.com repurchased a total of 137 million common shares (equivalent to 68.4 million ADS), totaling $2.1 billion. In the first half of the year, JD.com repurchased a total of 224 million common shares (equivalent to 112 million ADS), totaling 3.3 billion US dollars.
JD executives also mentioned that a $1.2 billion annual dividend payment plan has been completed in the second quarter, and a total of approximately $4.5 billion has been returned to shareholders through dividends and returns in the first half of the year. In the future, JD.com will continue to implement its repurchase plan, with the goal of gradually reducing the total number of outstanding shares in the long term and maintaining profit based dividend payments to ensure that shareholders benefit from the company's value creation.