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Just yesterday, JD.com unveiled its Q2 earnings report, becoming the first major player to lay its cards on the table after the intense “delivery wars.”
The financial picture? A veritable clash of fire and ice.
Let’s start with the heat.
In the second quarter, JD.com’s revenue surged to RMB 356.7 billion, a significant 22.4% year-over-year jump.
The sheer muscle of JD Retail? It’s no joke.
JD Retail recorded RMB 310.1 billion in revenue in Q2, a robust 20.6% increase, accounting for almost 90% of the group’s total revenue.
The consistent growth in gross profit margin, now at 13 consecutive quarters, proves the supply chain maestro is still conducting the orchestra with precision. JD Retail alone generated a staggering RMB 13.9 billion in operating profit during the quarter, achieving its highest operating profit margin for a promotional quarter in company history – a true season MVP performance.
Specifically, Q2 benefited from the annual 618 shopping festival, coupled with government subsidies and trade-in programs. 3C (computers, communications, and consumer electronics), digital appliances, and everyday essentials all experienced a substantial boost.
While the exact contribution of JD’s delivery service to e-commerce conversion is difficult to ascertain, one metric stands out: JD’s quarterly active user count and shopping frequency both saw year-over-year increases exceeding 40%. Delivery played a significant role.
Furthermore, JD Logistics continues to be a steady hand.
With RMB 51.56 billion in revenue for Q2, it may not be the flashiest number, but it’s far from disappointing, contributing a solid RMB 1.958 billion in operating profit.
Notably, its overseas warehouse network is expanding, with operations established in 23 countries and regions. The company even launched a express delivery brand, “JoyExpress,” in Saudi Arabia, introducing Middle Eastern consumers to JD’s signature same-day and next-day delivery.
Supported by its retail arm and JD Logistics, JD.com’s core business remains fundamentally sound.
The “new businesses” segment, which includes JD Delivery, reported RMB 13.85 billion in revenue for Q2, a staggering 198.8% year-over-year increase.
Riding the wave of the 618 festival, JD Delivery’s daily order volume surpassed 25 million. As of Q2, over 1.5 million merchants have joined the platform, and the company’s full-time rider count has reached over 150,000.
This aggressive, cash-burning strategy to gain market share is undoubtedly delivering rapid results.
However, these impressive figures come at a cost for the entire group.
While the “new businesses” segment also encompasses JD Property, Jingxi, and overseas operations, the biggest driver of losses is undoubtedly JD Delivery.
Since officially announcing its entry into the food delivery market in February, JD Delivery has been making waves for the past half-year.
It began by offering a “zero commission” rate and social benefits for its riders.
JD.com founder, Richard Liu, demonstrably joined delivery riders and treated them to hot pot, generating significant positive publicity.
And let’s not forget the heavily discounted coffee and milk tea, and refunds for late deliveries.
Such promotional efforts invariably come at a price.
Let’s just say that while goodwill and market buzz were generated, JD.com burned through billions in the process.
In Q1, when the delivery business was still in its early stages, operating losses for new businesses were “only” RMB 1.327 billion.
But with the “delivery wars” in full swing in Q2, losses ballooned to RMB 14.8 billion.
The implication? Roughly RMB 164 Million disappearing daily. True “Hundred Billion Subsidy,” indeed.
A back-of-the-envelope calculation: with 25 million daily orders and a loss nearing RMB 15 billion, the subsidy averaged roughly RMB 5-6 per delivery.
The consequence of these subsidies? A more than 50% year-over-year drop in net profit attributable to ordinary shareholders.
It also dragged down the group’s overall operating profit for Q2. Whereas operating profit was RMB 10.5 Billion last year, this year saw a loss of approximately RMB 900 million – almost wiping out the profits painstakingly earned by JD Retail and JD Logistics.
However, during the earnings call, JD.com management mentioned plans to “promote delivery as a cross-selling opportunity for both instant retail and B2C e-commerce.”
Translation: Consider buying other items while ordering delivery.
The strategy makes sense, as JD Delivery simply cannot continue to rely on the retail business indefinitely. This level of massive subsidies is unsustainable, with retail profits being immediately consumed.
JD’s absence from last month’s most intense phase of the delivery war signals a shift away from aggressive subsidizing.
Although JD Delivery initiated the delivery conflict, they took a backseat while Meituan and Ele.me slugged it out. It appears JD Delivery lost some ground. However, JD.com has indeed garnered significant attention after burning billions. The next phase of JD’s plan is to capitalize on delivery services through integration with instant retail and e-commerce.
Last month, Goldman Sachs projected that Meituan, JD, and Alibaba would pour a combined RMB 25 billion into food delivery in Q2.
The analyst further predicted that, between July of this year and June of next year, Alibaba’s delivery services will lose RMB 41 billion, JD will lose RMB 26 billion, and Meituan’s EBIT will decrease by RMB 25 billion.
Combining JD’s earnings report with Goldman Sachs’ less-than-optimistic projections hints at a brutal fight. The ultimate victor might not celebrate an easy win.
Honestly, I am eagerly awaiting Meituan’s Q2 earnings results.
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Original article, Author: Tobias. If you wish to reprint this article, please indicate the source:https://aicnbc.com/7287.html
