BEIJING, November 16 (TMTPost)— JD.com, Inc. posted stronger-than-expected earnings for another quarter as Chinese leading e-commerce company insisted its low-price strategy.
JD said its net revenue increased 1.7% year-over-year (YoY) to RMB247.7 billion (US34.0 billion) in the third quarter, better than the analysts’ estimated RMB246.59 billion. Revenue somewhat slowed down compared with the second quarter with a 7.6% YoY increase, but still stronger than the 1.4% increase in the first quarter, the lowest ever yearly growth for the company. Non-GAAP net income for the quarter ended September 30 surged 60% YoY to RMB10.6 billion, beating the Wall Street projection of RMB9.244 billion. The net margin increased 0.8 percentage points YoY to 3.2%, refreshing the quarterly record that set in the previous quarter. The bottom line was also boosted by non-operating income, consisting of gains from fair value change of long-term investments, among others.
JD Retails, the core business, brought RMB212.059 billion in the September quarter, roughly in line with a year ago. JD said the segment continued to make progress and achieved promising preliminary results in its strategies of building a differentiated platform ecosystem and improving price competitiveness. Sales of JD Logistics grew 16.5% YoY to RMB41.663 billion, and adjusted net income surged 89% to RMB840 million, the highest ever for the third quarter.
“We reported steady top-line performance for the quarter with record profitability driven by our proactive efforts on enhancing price competitiveness and platform ecosystem, as well as our supply chain advantages,” said JD CEO Sandy Xu, or Xu Lei.
The Chief Financial Officer (CFO) Ian Su Shan attributed the online retailer’s record profitability and healthy cash flow for the third quarter to “successful business environment and supply chain strengths”, suggesting ongoing increase in supply chain efficiency. Shan highlighted the appealing prices that the company is seeking to provide. “More importantly, China’s consumers are increasingly seeing JD as the place to shop for a great selection of quality products with the lowest prices and best service. Looking ahead, we will continue to manage for high-quality growth while investing in user experience and building a superior ecosystem to drive sustainable growth for our merchants and suppliers,” Shan said.
JD has doubled down its low-price strategy this year to woo cash-strapped consumers. The company launched a subsidy campaign worth of RMB10 billion (US$1.45 billion) to promote online sales in March, turning the previous promotion mode during shopping festivals into daily sales mode. The campaign was deemed as JD management’s consensus about low pricing as the top strategy for the retail business. The subsidies were directly used to lower prices, covering 3C household appliances, beauty makeup, fresh food, life services, medical and health care, and other categories.
JD has been targeting smaller merchants by allowing these "million vendors" to open stores on its platform, Wang Xiong, an executive in charge of the firm’s strategy direction, said at a press event on June 8. The move is deemed as departure from JD’s traditional business model, which is famous for tight control of the number of vendors in its online marketplace. "We want our platform to cater to more consumers and more of their needs ... and to satisfy those needs, we will have to have a bigger supply [of goods]," said Wang.
Two months later, JD started to implement the lower threshold for free shipping services for products sold by JD's self-operated stores. Orders for items totaling RMB59.00 or more sold by these stores can be delivered free of charge starting from August 23, down from RMB99.00.For books, the minimum order amount for free shipping remains at RMB49.00, while JD Plus members enjoy unlimited free deliveries without using coupons.