On the morning of March 14th, JD Group (09618. HK) opened higher than HKD 110 and then closed at HKD 106.9 at noon, up 0.56% in the morning. As of now, JD's latest stock price has rebounded more than 30% from its low point on March 5th.
Earlier, after the release of annual performance that exceeded market expectations, JD's stock price rose for a week. JD, which boosted its performance through its "low price strategy" in 2023, has recently become a popular leader in the rise of Chinese concept stocks. But the industry is also concerned that in the future, JD will face more intense price war competition?
In 2023, JD Group's revenue growth rate was only 3.7% year-on-year, and it announced a $3 billion repurchase plan and a higher dividend plan. Industry insiders believe that JD.com is gradually shifting from a growth stock in the minds of investors to a value stock. After the high-speed growth period before 2021, other Internet companies have similar situations.
"Low price strategy" brings profit growth
JD.com disclosed on March 6th that its annual revenue for 2023 was 1.984 trillion yuan, an increase of 3.7% year-on-year; The net profit for the whole year was 24.2 billion yuan, a year-on-year increase of 133%. According to non US GAAP, the company's net profit for 2023 was 35.2 billion yuan, a year-on-year increase of 24.8%.
Over the past year, JD.com has increased marketing expenses and reduced administrative expenses. The financial report shows that in 2023, the company's marketing expenses amounted to 40.1 billion yuan, an increase of 6.3% from 37.8 billion yuan in 2022. General and administrative expenses decreased by 12.2%, from 11.1 billion yuan in 2022 to 29.7 billion yuan, mainly due to a decrease in equity incentive expenses.
Upon closer examination of the reasons for profit growth, on the one hand, JD.com has shrunk some of its loss making businesses, such as overseas operations. On the other hand, JD.com has strengthened its refined operations, and its "low price strategy" has become the key to profit growth. In 2023, JD.com successively launched a series of low-priced measures such as "10 billion yuan subsidy", "9 yuan 9 free shipping" channels, and lowering the threshold for free shipping.
However, industry insiders have expressed concerns about whether the "low price strategy" can continue to serve as a "trump card".
Zhao Dan, an analyst at Puyin International, believes that in the current environment of mild macroeconomic recovery, consumers' high sensitivity to commodity prices will continue. It is expected that JD will continue to increase investment in the "low price strategy", which will put pressure on profit growth. In terms of improving user experience, the company has launched measures such as price protection, free door-to-door returns and exchanges, lowering the threshold for free shipping, and only refunds. These measures will also affect profit margin expansion in the short term.
A Hong Kong market analyst analyzed to First Financial that major e-commerce platforms have many subsidies, and compared to competitors such as Taobao and Pinduoduo, JD platform is already relatively expensive. Whether it can ensure sustained profit growth in the future after regaining some market share through price wars remains to be seen. On the other hand, considering that Ideal Automobile (02015. HK) has surged after announcing better than expected performance, and due to factors such as new products falling short of expectations and competitors sparking more intense price wars, its stock price has now partially filled the gap in February 27th's rise. The Internet industry does not rule out similar situations, and investors should be cautious.
From growth stocks to value stocks?
What is JD's growth potential with a revenue growth rate of only 3.7%?
A Hong Kong private equity fund manager told China Business News that in the past, when investing in Internet companies, they bought their growth potential, so the price earnings ratio was 40 to 50 times, or they were still in deficit, and there were still funds actively sought after; After three years of significant decline, the P/E ratio has returned to more than ten times, revenue growth has declined, profits have gradually stabilized, and the amount of repurchases and dividends has increased. These companies are gradually transitioning from growth stocks to value stocks.
On the day of the financial report release, JD Group announced simultaneously that the board of directors had approved an annual cash dividend of approximately $1.2 billion, exceeding the $1 billion in 2023. The board of directors of JD Group has also approved a new share repurchase plan to repurchase shares worth no more than $3 billion over the next 36 months ending in March 2027.
Regarding this, Lin Jiayi, the general manager of Xuanjia Fund, analyzed to First Financial that for JD.com, the core business of e-commerce has entered a relatively stable stage, and the short-term industry cycle has reached the bottom. In order to express confidence and boost stock prices, strengthening repurchase dividends is a routine operation that does not affect the continuous development of enterprises in the future, and similar situations exist in US technology stocks. For domestic Internet companies, enterprises are now entering the stage of "reinvestment and growth". With the improvement of businesses and users, e-commerce users have increased from 500 million to 600 million to 700 million or 800 million. In e-commerce and Internet business models, the realization of various scenarios will once again drive enterprises into high growth channels, such as cloud services, financial services, enterprise services, global outbound business, etc.