Can JD.com Rebound From Its Multiyear Lows?
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Shares of JD.com (NASDAQ: JD) recently tumbled 8% to a multiyear low after the company posted mixed third-quarter results. Its revenue rose 25% annually to 104.8 billion RMB ($15.3 billion), which narrowly missed estimates. On a U.S. dollar basis, its revenue rose 21%.
JD's non-GAAP net income fell 45% to 1.2 billion RMB ($0.2 billion), or $0.12 per ADS, but still beat expectations by two cents. On a GAAP basis, which includes its gains from Farfetch's IPO, JD's net income tripled to 3.0 billion RMB ($0.4 million), or $0.30 per ADS.
Image source: JD.com.
For the fourth quarter, JD expects its revenue to rise 18% to 22.5% annually in RMB terms, which missed the consensus forecast for 23.4% growth. JD didn't offer any earnings guidance, but analysts expect a 25% decline on a non-GAAP basis. For the full year, analysts expect JD's revenue to rise 29%, but for its earnings to fall 38%.
Those numbers look disappointing, but JD is still the second-largest e-commerce company in China by GMV (gross merchandise volume) and its largest retailer by annual revenue, so it won't become obsolete anytime soon. Its stock also trades at less than 0.5 times this year's sales. But can JD stabilize its business, start growing again, and win back investors? Let's dig deeper into its third-quarter report to find out.
The key growth figures
JD's annual growth in GMV, customers, and revenue clearly decelerated over the past year, and its guidance suggests that slowdown won't end anytime soon.
| Metric | Q4 2017 | Q1 2018 | Q2 2018 | Q3 2018 |
|---|---|---|---|---|
| GMV* | 33.1% | 30.4% | 30.5% | 30.5% |
| Active customers | 29.1% | 27.6% | 21.5% | 14.6% |
| Revenue* | 38.7% | 33.1% | 31.2% | 25.1% |
Percents are year-over-year growth. *RMB terms. Source: JD quarterly reports.
During the conference call, CFO Sidney Huang attributed the slowdown to slower sales of "large ticket electronics and appliances," which was partly offset by its "strong momentum" in general merchandise sales. Huang also attributed the stabilization of its GMV growth to "improving marketplace operations."
JD's margins dipped across the board. Its non-GAAP gross margin dropped 10 basis points annually to 15.2%, while its operating margin (before unallocated items) at its core JD Mall business fell 10 basis points to 2.2%. Its non-GAAP operating margin came in at just 0.6%, compared to 1.8% a year earlier, due to its rising expenses:
| Metric | YOY change | % of total revenues |
|---|---|---|
| Cost of revenues | 25% | 85% |
| Fulfillment | 22% | 7% |
| Marketing | 25% | 4% |
| Technology and Content | 96% | 3% |
| General and Administrative | 33% | 1% |
JD.com Q3 operating expenses. Source: JD Q3 report.