JD surged by 40 billion overnight.

Author | Liu Baodan

Editor | Zhou Zhiyu

In the past three years, JD, once valued at over a trillion, has plummeted by 80%. The rise of PDD and others has stripped JD of its position as the second-largest e-commerce player. After four years, JD.com has made a strong move to rescue its weak stock price.

On March 6, JD announced in its 2023 earnings report that it will repurchase shares worth up to $3 billion in the next three years, accounting for about 10% of JD's market value before the announcement. This marks JD's return to share buybacks after four years. At the same time, JD has increased its cash dividends.

By the end of March 6, Eastern Time, JD's stock price surged by 16.18%, reaching a new high since March 2022. Its market value increased by nearly 40 billion RMB, and its Hong Kong stock price has also risen by over 6% in the past two days.

JD's strong move at this time shows investors its determination to change. However, while boosting investor confidence through increased dividends and buybacks, JD's performance for now only slightly exceeds market expectations and is far from a turnaround moment.

The pressure on JD continues to grow, especially with Byte further intensifying its low-price strategy, and BABA-SWR and PDD also gearing up. The competition in the e-commerce market in 2024 will become more intense.

For JD, the rise in stock price is a recognition of its performance over the past year. However, facing fierce e-commerce rivals, JD.com is far from being able to relax.

Stability

Looking at the performance of the past four quarters, JD's performance has improved compared to the trough period. But there is still a distance to go before a turnaround.

In the fourth quarter of 2023, JD's revenue reached 306.1 billion RMB, a year-on-year increase of 3.6%, lower than the growth rate in the second quarter, with the effects of the peak sales season not fully reflected. The annual revenue was 1.0847 trillion RMB, a year-on-year increase of 3.7%, marking a new low in recent years.

While revenue is under pressure, JD's profitability is better than expected. However, this is more a result of CEO Xu Ran's cost reduction and efficiency improvement measures since taking office, rather than purely driven by performance growth.

In terms of net profit, JD's operating profit in the fourth quarter was only 2 billion RMB, a 58% decrease year-on-year, mainly due to impairment of goodwill and long-term assets related to Dada, as well as asset impairment related to JD Logistics. Excluding impairment factors, JD's non-GAAP net profit in the fourth quarter was 8.4 billion RMB, reaching 35.2 billion RMB for the whole year, both exceeding market expectations.

In its core business, JD's self-operated revenue growth in the fourth quarter reached 3.7%, hitting a new high in nearly a year. At the same time, the growth rate of core categories such as electronics and home appliances reached 6.1%, also at a high level for the year.

However, the contribution of third-party merchants to revenue is relatively limited. In the fourth quarter, platform and advertising service revenue growth was -4%, the lowest in the past four quarters.

Management emphasized during the conference call that JD is in the early stages of building a unique platform ecosystem, and rapid monetization is not the top priority in the short term. "The focus in 2024 is to continue attracting more merchants, especially small and medium-sized businesses in industrial belts, to enrich product supply."

In other words, JD's low-price strategy has been reflected in its performance, mainly strengthening the performance of its core self-operated business, while the contribution from third-party merchants to JD is still relatively weak.

At the same time, cost advantage is also an important factor for JD to achieve profitability. It can be said that JD has been cutting costs wherever possible in the past year. In 2023, JD's operating costs and fulfillment expenses increased by 2.9% and 2.5% respectively, both lower than the revenue growth rate of 3.7% during the same period.

Even more remarkable is the reduction in research and development, as well as general and administrative expenses by JD in the past year, decreasing by 3% and 12.2% respectively, totaling a reduction of 1.9 billion RMB compared to the previous year. This is also the reason why JD.com promoted Xu Ran to be the CEO of JD and Retail, demonstrating the significant efforts to reduce costs and increase efficiency.

In addition, JD Logistics has also contributed significantly to JD's profit growth. In 2023, JD Logistics' adjusted net profit reached 2.76 billion RMB, an increase of 218.8% year-on-year, reaching a new high.

From the signals released during the performance conference call, JD's management is firm in its low-price strategy and will continue to maintain its determination in offering competitive prices in the future.

The management stated that in 2024, they will continue to focus on user experience, price competitiveness, and platform ecosystem development. The company will steadfastly execute strategies in these key areas and is confident in expanding market share.

As for the overseas business where the e-commerce "Four Little Dragons" are fiercely competing, JD has set its sights on this opportunity.

JD CEO Xu Ran mentioned during the conference call that JD has been paying attention to international opportunities and steadily advancing global business in a pilot manner. She stated that the supply chain infrastructure is the cornerstone of JD's international business development, and the company will continue to leverage this advantage to expand its influence in the global market.

Various signs indicate that JD's low-price strategy is beginning to show results. However, as JD intensifies efforts in various business segments to drive revenue growth, it implies that JD's expenses will continue to grow rapidly. Under the pressure of the e-commerce price war, JD's profit growth trend is facing challenges.

Currently, whether JD's performance turnaround is sustainable or just a flash in the pan still needs time to verify.

Breaking Through

In the past few years, the strong rise of new platforms such as Pinduoduo, Douyin, and Kuaishou has disrupted the traditional e-commerce landscape, leading JD into an unprecedented downturn.

It wasn't until last year that JD quietly made a comeback, reigniting its fighting spirit and launching a series of counterattacks.

In March last year, JD launched a billion-yuan subsidy program, officially starting its low-price strategy to directly compete with Pinduoduo. Subsequently, JD introduced the "9.9 Free Shipping" channel, lowered the free shipping threshold to 59 RMB, and initiated the "free door-to-door return and exchange" service for self-operated products, among other actions.

Strategically, JD has focused on introducing third-party merchants, increasing the supply of low-priced goods through methods such as lowering the threshold for merchant entry and providing traffic support, continuously strengthening JD's platform ecosystem.

Currently, these measures have been preliminarily reflected in JD's recent financial reports. However, as JD further strengthens its low-price strategy, the visible pressure on the company is also increasing. From an internal perspective, JD's platform ecosystem construction mainly relies on third-party merchants. Currently, JD is still in the stage of attracting attention, and the short-term contribution of third-party merchants to performance is limited.

As of now, the number of effective merchants on the JD platform has approached 1 million. With the competition for merchants, how to coordinate self-operated and third-party merchants in terms of traffic, resources, and other aspects is also a challenge that JD faces.

Zhuang Shuai, a retail e-commerce industry expert and founder of Bailian Consulting, believes that JD still needs to further expand its user base and allocate traffic more reasonably and fairly to enable a more benign competition between self-operated and third-party merchants.

JD's anxiety about traffic is becoming more and more apparent. From the sales promotion during Double 11, to the live broadcast of the New Year's Eve party, and then to the CCTV Spring Festival Gala, JD seizes every marketing opportunity to increase its presence and attract traffic to the JD app through methods like giving gifts and red envelopes.

While JD is launching a series of counterattacks, its competitors are also gearing up.

At the beginning of the year, Douyin e-commerce set "price competitiveness" as the highest priority task of the year, strengthening the low-price strategy in content. BABA-SWR returned to Taobao last year and continues to intensify its low-price strategy. PDD has a built-in low-price mindset and is still growing rapidly.

After more than three years in the doldrums, JD's stock price has finally risen, which is undoubtedly good news. However, the burden on JD has not lightened because of this. JD.com, which vows never to lie down, will still face shallow waters and hidden reefs.

As the e-commerce battle escalates, everyone is eagerly awaiting what big moves JD will make in 2024.