JD. com's operating revenue for the third quarter of 2024 increased by 5.12% year-on-year to RMB 260.387 billion, in line with consistent expectations. Non GAAP net profit attributable to shareholders increased significantly, reaching RMB 13.17 billion, a year-on-year increase of 23.90%, exceeding expectations by 7.50%.
The driving factors for the company's performance mainly come from two aspects. Firstly, thanks to the "continue to upgrade" initiative, the sales revenue of electrified products has recovered and increased; Secondly, JD Logistics has released better than expected operating profits, and the economies of scale continue to play a role.
It should be noted that there is a controversial change in core data in the financial report. In the second quarter of 2024, with almost stagnant retail business growth, JD's retail operating profit margin increased from 3.22% last year to 3.93%. Against the backdrop of billions of subsidies and low prices across the entire network, JD's retail operating profit margin has grown against the trend. The market attributes this to JD's strong supply chain integration capabilities and expects that its profit margin still has room for improvement.
In the third quarter of this year, JD's retail business resumed growth, but its operating profit margin decreased by 0.03 percentage points to 5.16%. Although the decline was not significant, it inevitably made people rethink their previous judgment on the second quarter data.
Caizhongshe believes that the advantage of JD's supply chain integration capability still exists, and JD's retail operating profit margin data cannot reflect the true situation of e-commerce business. It is necessary to clarify this controversial issue and analyze it from multiple perspectives, including revenue, gross profit margin, expense, and JD's third quarter marketing strategy.
Specifically, in March 2024, the State Council officially issued the Action Plan for Promoting Large scale Equipment Renewal and Consumer Goods Trade in, marking the implementation of a new round of trade in policies. With the gradual implementation of policies, in the third quarter of 2024, the sales revenue growth rate of JD's electrified products increased from -4.65% in the previous quarter to 2.72%, with a revenue of 122.56 billion yuan.
In addition, according to data from OvCloud, the year-on-year growth rates of home appliance sales from July to September this year were -9.20%, 3.70%, and 28.60%, respectively. The effect of the 'trade in' policy continues to be released. Moreover, on November 8, at the press conference of the 12th meeting of the Standing Committee of the National People's Congress, the Ministry of Finance said that it would expand the variety and scale of consumer goods in 2025. From a policy perspective, JD's sales of electrified products can maintain sustained growth in the future.
In terms of daily products, in the third quarter of 2024, its revenue was 82.053 billion yuan, a year-on-year increase of 7.98%, which was roughly the same as the previous quarter, and maintained a year-on-year growth rate of about 8% for three consecutive quarters. The performance of this data means that the impact of platform transformation on JD's self operated daily products has been eliminated.
With the increase in the number of third-party merchants, JD's advertising revenue growth has also accelerated. During the reporting period, the company's platform and advertising service revenue was 20.763 billion yuan, a year-on-year increase of 6.32%, higher than the previous quarter's 4.07%. Third party merchants have begun to contribute revenue growth to JD.
From the above data, it can be seen that JD's retail business has maintained growth in various revenue segments, and the revenue structure has tended to be stable, which is not enough to lead to a slight decrease in its operating profit margin.
So, what about the gross profit margin?
In the third quarter of 2024, JD's gross profit margin increased from 15.64% in the same period last year to 17.30%, with a growth rate of 1.65 percentage points. JD's gross profit margin is mainly affected by logistics and retail business. During the same period, the gross profit margin of logistics business increased from 7.92% to 11.71%, with a growth rate of 3.79 percentage points.
It should be pointed out that JD Logistics' third quarter revenue was 44.396 billion yuan, accounting for only 19.73% of JD's retail revenue. From the perspective of revenue proportion, the growth of JD Logistics' gross profit margin is not enough to increase JD's overall gross profit margin by 1.65 percentage points. This means that JD's retail gross profit margin also increased in the third quarter, and JD's strong supply chain integration capability is still playing a role.
Therefore, the main reason for the decline in JD Retail's operating profit margin should be in terms of expenses. In the third quarter of 2024, JD's marketing expenses were 10 billion yuan, a year-on-year increase of 25.71%, higher than the growth rate of current operating income.
Knowing the reason behind it is even more important to understand what JD.com has done, which has led to a significant increase in sales expenses and a decrease in the operating profit margin of its retail business.
According to the JD Blackboard News, in August, JD.com announced an additional 1 billion yuan to fully expand its clothing category. JD's billion yuan subsidy will also strengthen its subsidy efforts for clothing categories, with an additional 30% discount coupon issued daily at the top clothing billion yuan subsidy venue;
In August, JD.com announced an increase in subsidies for the beauty category, including self operated beauty products and products from third-party merchants. Consumers can enjoy at least 10% additional discounts when purchasing beauty products.
In September, JD Group will increase its resource allocation to brands that cooperate with JD Supermarket. JD Supermarket's overall share of content marketing resources within the JD domain will exceed 30%, and its marketing investment outside the JD domain will also increase by 30%.
Besides the increase in sales expenses, can the above subsidy policy adjustments bring tangible performance growth to JD.com?
Caizhongshe believes that this will take time to verify, but logically it makes sense. The core is still the old saying of "standard products", and JD.com is trying to replicate the successful experience of electrified products to other categories. Brand clothing, beauty, and daily necessities covered by JD Supermarket are all price transparent and easy to compare standard products.
The series of actions taken during the Double Eleven period also demonstrate JD's determination in expanding its product line. For example, on the same day, the "JD Supermarket Procurement and Sales Live Room" officially announced that all products sold by Li Jiaqi were also available in its live room, and an additional 10% discount was given on the selling price of Li Jiaqi.
If retail business has growth potential, logistics is a tangible contribution to profits. In the third quarter of 2024, JD Logistics' operating revenue was 44.396 billion yuan, a year-on-year increase of 6.65%, and its operating profit was 2.086 billion yuan, a year-on-year increase of 624.31%. The operating profit margin also increased from 0.69% in the same period last year to 4.70%.
The significant increase in JD Logistics' operating profit compared to its revenue is essentially due to the effect of economies of scale. In the third quarter of 2024, the company's main costs, including warehouse management, sorting, and packaging, as well as employee compensation and benefits expenses, amounted to 14.6 billion yuan, with a year-on-year growth rate of only 4.80%, lower than the current revenue growth rate. This resulted in JD Logistics' gross profit margin increasing from 7.92% in the same period last year to 11.71%.
Moreover, during the reporting period, outsourcing costs, rental costs, and other costs remained largely unchanged from the same period last year. From this perspective, there is still room for improvement in JD Logistics' gross profit margin.