JD: 2021 Q2 EARNINGS – KEY POINTS TO KNOW!
- Rupam Deb
- Aug 27, 2021
- 4 min read
JD – 2021 Q2 Earnings Results
On 23 August 2021, JD.com reported its 2021 Q2 earnings. Net revenue grew 26% y/y, and active customers grew 27% to 532 million, recording the largest quarterly addition of new users (32 million) in its history. However, total operating income decreased significantly y/y from RMB 5.0 billion to RMB 0.3 billion, with JD Retail’s operating margin remaining stable at 2.6%, and JD Logistics and other new businesses turning or becoming more loss making.
Here are our key points from the earnings results and earnings call, including comments on its long term strategy and profit margins, and the recent regulatory changes!
Net revenue grew by 26% y/y, from RMB 201 billion to RMB 254 billion. Net product revenues grew at a lower 23% to RMB 220 billion, with general merchandise revenue growing faster (29%) than electronics and home appliance revenue (20%). Its third-party marketplace business continued to grow faster than its 1P business, bidding well for healthy improvement of its marketplace ecosystem. Net service revenues grew at a faster 49% to RMB 34 billion, driven by high growth for logistics and other services (72%), and marketplace and advertising services (35%). This high growth was achieved despite the deconsolidation of the Cloud and AI business from this segment.
Its annual active customer accounts in the 12 months ending June 2021 grew 27% to 532 million, with the 32 million new users added in the quarter being the largest quarterly addition in its history. The quality of new users also continues to improve on the aspects of retention rate, shopping frequency, and more, translating to higher lifetime value to the company. JD continues to win over price-sensitive users with its growing selection of value for many products and diverse services. Users from lower-tier markets not only continued to contribute nearly 80% of its new users in 2021 Q2, but they also accounted for over 70% of its total active users in the last 12 months by shipping address. Along with the healthy growth of its new users, it is also encouraged by the higher engagement from its existing users. More notably, the number of paying members in the JD Plus program grew 30% y/y, further strengthening its position as the largest paid E-commerce membership program in China.
On revenue by business segment, the 26% growth in total revenue is driven by growth in JD Retail (23% to RMB 233 billion), JD Logistics (46% to RMB 26 billion), and new businesses (60% to RMB 7 billion) which include JingXi (which had triple-digit growth), JD Property and JD Worldwide. On JingXi, the CFO said that “Jingxi business is on track to meet its long-term goals of improving the cultural supply chain and retail infrastructure efficiency in lower-tier markets, serving price-sensitive customers under the Jingxi brands, and creating value for the local economies.During our June 18th Anniversary Sale, Jingxi sold a total of 22.5 million kilograms of agricultural products with orders delivered from over 200 industrial farms. We are again in a better position to empower local SMEs, by providing supply chain support for their businesses and creating diverse revenue streams for them.”
Cost of revenue grew at 29% to RMB 222 billion, faster than the revenue growth of 26%, thus driving down gross profit margin. However, gross profit margin is becoming less meaningful as JD’s business evolves, and investors should focus on the fulfilled gross margin. For JD Retail, the fulfilled gross margin actually grew 30 basis points y/y, so it’s a positive improving trend. The improvement was driven by its technology-driven scale economy and fulfillment efficiency. The CFO said that “as we are adopting our omnichannel strategy, because we are leveraging warehouse and the inventory resources of offline business commerce, in this case, sometimes we would share some of the gross profit with them but at the same time, it helps us save the fulfillment costs. So the fulfilled gross margin improved when well, you may see a decline in the gross margin under the omnichannel strategy. So gross margin is no longer very meaningful for retail business.”
On other main costs, fulfilment expenses grew 23% y/y to RMB 15 billion. As a % of revenue, it decreased slightly from 5.9% to 5.8%. Marketing expenses grew a significant 56% to RMB 11 billion, partly due to the low spending last year due to COVID situation. Research and development expenses increased slightly by 3% to RMB 3.7 billion. General and administrative expenses grew a significant 80% to RMB 3 billion, mainly due to the increase in share-based compensation expenses.
Operating income decreased significantly, from RMB 5.0 billion a year ago to RMB 301 million in 2021 Q2, mainly due to the large increase in marketing expenses (RMB 3.8 billion) and share-based compensation expenses (RMB 1.4 billion) compared to a year ago. In terms of each business segment, the operating income before unallocated items for JD Retail grew 23% to RMB 6.0 billion. This translates to an operating margin before unallocated items of 2.6%, similar to a year ago. This is actually an improvement, considering the one-off COVID-related impact, resulting in less resources spent on marketing activities, as well as the social security benefits received by JD Retail one year ago. The improvement is due mainly to technology like overall operating efficiency improvement. The CFO said that the core retail business is set to maintain its trajectory of sustainable, healthy growth and steady margin improvement. Meanwhile, the operating income before unallocated items for JD Logistics turned negative, from a profit of RMB 2.1 billion a year ago, to a loss of RMB 0.4 billion in 2021 Q2 due to its increased investments in logistics infrastructure. The operating income before unallocated items for the other new businesses also became more negative, from negative RMB 1.2 billion a year ago to RMB 3.0 billion in 2021 Q2, due to increased investments.
For the remaining points of this earnings summary, check them out at our Multibagger Research Series (linked below).
For our free analysis of other high quality companies, check them out at our free Research Series (linked below).
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