As I wrote this article, on 9th March JD.com results were announced. It was not well received by global investors and the ADR counter dropped 11%. The Hong Kong market counter 9618.HK reflected the same drop when the market opens today.
The fourth-quarter profit of 2022 stands at 70 cents a share which is better than the forecast of 51 cents a share. What turns off the investors are slower revenue growth for its revenue compared to 2021. As seen below the quarterly revenue was RMB 295.4 billion in Q4 2022 which grew at 7% year-on-year compared to RMB 275.9 billion in Q4 2021. It is growing at a slower rate.
JD Logistics sees strong growth of 41% from RMB 30.5 billion in 2021 Q4 to RMB 43 billion in 2022. Dada reports as a standalone segment at RMB 2 billion in 2022 Q4. The only bright spot is the free cash flow has grown from RMB 26.2 billion in 2021 to RMB 35.6 billion. It has a deep pocket to invest in the right area.
During the earning call, Xu Lei mentioned that post-COVID, customers are more prudent in their spending, the middle-class households are still expanding. The business is undergoing transformation, cutting losses on foreign markets. They are redirecting resources to focus on growing their competitive advantage. JD Plus reached 34 million members in Q4, this group is the high shopping frequency users with the spending power, they spend 8x more than non-plus members. Yihaodian which is positioned to serve the middle to high-end market has crossed the one million paying members milestone. This laser-sharp approach may serve them well in the long run.
Sandy Xu, the CFO shared that this quarter will disperse USD 1 billion cash dividend program. Actually, I will prefer a growth company not to issue dividends but to use the money to grow its core business. Is this a signal that JD.com does not have a venue to reinvest into business but to spend its money through this means? Then it means this slump is going to persist.
JD Retail and Shop Now continues to expand its collaboration with over 200,000 business partners in the quarter and provided more than 2,000 cities and counties with on-demand retail services with a wide range of categories. GMV growth for Shop Now reaches year-on-year 80% in this Q4.
JD.com is facing competition from Alibaba and Pinduoduo. Its results speak for themselves. This rivalry will not do JD.com any good as it is now fully China-centric. Pinduoduo will be its biggest competition to JD.com. JD.com is waging an RMB 10 billion subsidy campaign to compete against Pinduoduo. They will do a price comparison against Pinduoduo, Taobao, Kuaishou, and Douyin, if the price of JD.com is higher than other platforms, users will be given a rebate of double the price of the item. This is a price war strategy.
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