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JD.com’s second quarter 2019 results

JD.com's second quarter 2019 results

JD.com, Inc. (NASDAQ: JD) announced its unaudited financial results for the quarter ended June 30, 2019.

SEE ALSO : How was JD.com’s June 18 Anniversary Sale?

Second Quarter 2019 Highlights

  • Net revenues for the second quarter of 2019 were RMB150.3 billion (US$121.9 billion), an increase of 22.9% from the second quarter of 2018. Net service revenues for the second quarter of 2019 were RMB16.8 billion (US$2.4 billion), an increase of 42.0% from the second quarter of 2018.
  • Income from operations for the second quarter of 2019 was RMB2,266.6 million (US$330.2 million), compared to loss from operations of RMB1,033.9 million for the same period last year.

Non-GAAP2 income from operations for the second quarter of 2019 was RMB3,217.5 million (US$468.7 million) with a non-GAAP operating margin of 2.1%, as compared to RMB113.2 million in the second quarter of 2018 with a non-GAAP operating margin of 0.1%.

  • Net income attributable to ordinary shareholders for the second quarter of 2019 was RMB618.8 million (US$90.1 million), compared to net loss attributable to ordinary shareholders of RMB2,212.5 million for the same period last year.

Non-GAAP net income attributable to ordinary shareholders increased by 644% to RMB3,558.9 million (US$518.4 million) in the second quarter of 2019 from RMB478.1 million in the second quarter of 2018.

  • Diluted EPS and Non-GAAP Diluted EPS. Diluted net income per ADS for the second quarter of 2019 was RMB0.36 (US$0.05), compared to diluted net loss per ADS of RMB1.54 for the second quarter of 2018. Non-GAAP diluted net income per ADS for the second quarter of 2019 was RMB2.30 (US$0.33), compared to RMB0.33 for the same quarter last year.
  • Operating cash flow for the twelve months ended June 30, 2019 increased to RMB31.8 billion (US$4.6 billion) from RMB16.4 billion for the twelve months ended June 30, 2018. Free cash flow, which excludes the impact from JD Baitiao receivables included in the operating cash flow, for the twelve months ended June 30, 2019 increased to RMB7.4 billion (US$1.1 billion), compared to outflow of RMB5.8 billion for the twelve months ended June 30, 2018.
  • Annual active customer accounts3 increased to 321.3 million in the twelve months ended June 30, 2019 from 310.5 million in the twelve months ended March 31, 2019.

“Highlighted by our successful June 18th anniversary sales event, JD’s strong performance in the second quarter further demonstrated the resilience of our superior business model in a highly competitive industry,” said Richard Liu, Chairman and CEO of JD.com.

“JD’s commitment to bringing users the best overall shopping experience continues to win over consumer mindshare. We will remain focused on leveraging technology and innovation to enhance our offerings, increase efficiency and drive shareholder value for the long term,” he continued.

“JD.com delivered robust growth in the second quarter across our key metrics of revenue, profitability, cash flow and customer base,” said Sidney Huang, Chief Financial Officer of JD.com.

“Our economies of scale and innovative technologies are driving operating efficiency and further strengthening our business model. Looking ahead, we will continue to invest in user experience and our talented workforce to further grow the business and create value for all of our stakeholders,” he continued.

Business Highlights

  • In the second quarter, JD.com continued to attract premium international brands to its e-commerce platform. During JD’s June 18 Anniversary Sale, legendary Italian fashion house Prada Group announced a partnership under which three of its major brands Prada, Miu Miu, and Car Shoe opened first-party flagship stores on JD.com.

Twenty other fashion and luxury brands have joined the JD platform since April, including French apparel brands Sandro and Maje under the SMCP Group, iconic British brand Mulberry and Italian high-end footwear brand Giuseppe Zanotti.

  • Leveraging its capabilities in big data and consumer insights, JD.com continued to collaborate with brands and manufacturers to tailor products specifically for its consumers. As part of JD’s Consumer to Manufacturer (C2M) initiative, TCL, one of China’s leading appliance manufacturers, partnered with JD in April and launched three new customized smart appliances specifically for the Chinese consumer market.

JD also worked with top food and beverage company Nestlé on two C2M projects. Using insights from JD, the brand was able to optimize the flavor of its Purina cat food as well as its wafer bar packages to support customer needs for a larger variety of flavors.

  • In June, JD PLUS, JD.com’s premium membership program, announced an in-depth cooperation with nineteen international hotel brands including InterContinental Hotels and Resorts, AccorHotels, the Ascott and WANDA Hotels and Resorts, providing JD PLUS members even more benefits, including special discounts, room upgrades and extra loyalty points at over 15,000 hotels worldwide.

The hotel partnerships join other recent additions to JD PLUS’ lifestyle offerings, including bundled memberships with key partners including Sam’s Club, iQIYI and Tencent Video. JD.com was the first e-commerce company in China to introduce a paid membership service in 2016.

  • In the second quarter, JD.com continued to enhance its Environmental, Social and Governance (ESG) program. On World Book and Copyright Day in April, JD Logistics, JD Foundation, the China Children and Teenagers Foundation, and the Stars Youth Development Center teamed up to launch the “Book Sharing Project” enabling people from 12 major cities in China to donate children books to nearly 250 primary schools, kindergartens and community libraries in rural areas through JD’s logistics network.

From May 29 to June 8, JD, Disney China, and China Charities Aid Foundation for Children launched a used toy donation project, enabling consumers from ten cities to reserve free pickups on the JD app.

  • In April, JD Logistics introduced its new cold chain service which utilizes idle capacity in the industry to offer cold chain transport services. Combined with JD Logistics’ previously launched cold chain services, it has formed a one-stop shop F2B2C cold chain delivery system to meet the service demands of manufacturers, merchants, and consumers.

Relying on JD Logistics’ cold chain transport capacity, iconic American food and treats brand Dairy Queen recently teamed up with JD’s direct sales platform for the global debut of its ice cream tubs.

  • As of June 30, 2019, JD.com’s joint venture Dada-JD Daojia has partnered with over 300 well-known chain retailers, and continued to enrich its offerings through cooperation with other retail brands. Dada-JD Daojia teamed up with over thirty cosmetics and home retailers, including Watsons, Mannings, MINISO and NATURE REPUBLIC, launching a dedicated channel for home and fashion products on its platform.

In the second quarter, Dada cooperated with JD Logistics to provide fast intra-city delivery services for merchants and consumers, with the majority of goods delivered within 30 to 60 minutes. Dada-JD Daojia is China’s leading on-demand logistics and omnichannel e-commerce platform.

  • During the second quarter, JD expanded its leadership position in fulfillment capabilities among China’s e-commerce companies. As of June 30, 2019, JD.com operated approximately 600 warehouses. The total warehouses covered an aggregate gross floor area of over 15 million square meters, including approximately 2.5 million square meters managed under the JD Logistics Open Warehouse Platform.

Leveraging JD Logistics sophisticated warehouse systems, the JDL Open Warehouse Platform was launched in late 2017 and consolidates warehouse capacity from partners to offer merchants and retailers convenient and flexible warehouse management solutions.

  • JD.com had over 220,000 merchants on its online marketplace, and over 179,000 full-time employees as of June 30, 2019.

 

Second Quarter 2019 Financial Results

Net Revenues. For the second quarter of 2019, JD.com reported net revenues of RMB150.3 billion (US$21.9 billion), representing a 22.9% increase from the same period in 2018. Net product revenues increased by 20.8%, while net service revenues increased by 42.0% in the second quarter of 2019, as compared to the second quarter of 2018.

Cost of Revenues. Cost of revenues increased by 21.2% to RMB128.2 billion (US$18.7 billion) in the second quarter of 2019 from RMB105.8 billion in the second quarter of 2018. This increase was primarily due to the growth of the company’s online direct sales business and the logistics services provided to third parties.

Fulfillment Expenses. Fulfillment expenses, which primarily include procurement, warehousing, delivery, customer service and payment processing expenses, increased by 11.4% to RMB9.2 billion (US$1.3 billion) in the second quarter of 2019 from RMB8.2 billion in the second quarter of 2018. Fulfillment expenses as a percentage of net revenues decreased to 6.1% in the second quarter of 2019, compared to 6.7% in the same period last year, mainly due to economies of scale from enhanced logistics capacity utilization and staff productivity.

Marketing Expenses. Marketing expenses increased by 6.8% to RMB5.6 billion (US$0.8 billion) in the second quarter of 2019 from RMB5.3 billion in the second quarter of 2018.

Technology and Content Expenses. Technology and content expenses increased by 34.0% to RMB3.7 billion (US$0.5 billion) in the second quarter of 2019 from RMB2.8 billion in the second quarter of 2018 as a result of the company’s continued investment in top R&D talent and technology infrastructure.

General and Administrative Expenses. General and administrative expenses increased by 5.0% to RMB1.4 billion (US$0.2 billion) in the second quarter of 2019 from RMB1.3 billion in the second quarter of 2018.

Income/(loss) from operations and Non-GAAP income from operations. Income from operations for the second quarter of 2019 was RMB2.3 billion (US$0.3 billion), compared to loss from operations of RMB1.0 billion for the same period last year. Non-GAAP income from operations for the second quarter of 2019 was RMB3.2 billion (US$0.5 billion) with a non-GAAP operating margin of 2.1%, as compared to RMB0.1 billion in the second quarter of 2018 with a non-GAAP operating margin of 0.1%.

Non-GAAP EBITDA for the second quarter of 2019 was RMB4.4 billion (US$0.6 billion) with a non-GAAP EBITDA margin of 2.9%, as compared to RMB0.9 billion with a non-GAAP EBITDA margin of 0.8% for the second quarter of 2018.

Net income/(loss) attributable to ordinary shareholders and Non-GAAP net income attributable to ordinary shareholders. Net income attributable to ordinary shareholders for the second quarter of 2019 was RMB0.6 billion (US$0.1 billion), compared to net loss attributable to ordinary shareholders of RMB2.2 billion for the same period last year. Non-GAAP net income attributable to ordinary shareholders for the second quarter of 2019 was RMB3.6 billion (US$0.5 billion), compared to RMB0.5 billion for the same period last year.

Diluted EPS and Non-GAAP Diluted EPS. Diluted net income per ADS for the second quarter of 2019 was RMB0.36 (US$0.05), compared to diluted net loss per ADS of RMB1.54 for the second quarter of 2018. Non-GAAP diluted net income per ADS for the second quarter of 2019 was RMB2.30 (US$0.33), as compared to RMB0.33 for the second quarter of 2018.

Cash Flow and Working Capital

As of June 30, 2019, the company’s cash and cash equivalents, restricted cash and short-term investments totaled RMB60.2 billion (US$8.8 billion), compared to RMB39.5 billion as of December 31, 2018.

Net cash used in investing activities was RMB21.0 billion (US$3.1 billion) for the second quarter of 2019, consisting primarily of increase in short-term investments of RMB20.3 billion (US$3.0 billion) and equity investments of RMB3.1 billion (US$0.5 billion), partially offset by the RMB3.4 billion (US$0.5 billion) cash received from the disposals of business and equity investments.

Net cash used in financing activities was RMB0.4 billion (US$0.1 billion) for the second quarter of 2019.

Third Quarter 2019 Guidance

SEE ALSO : JD’s data insights help FMCG brands to boost sales

Net revenues for the third quarter of 2019 are expected to be between RMB126 billion and RMB130 billion, representing a growth rate between 20% and 24% compared with the third quarter of 2018. This forecast reflects JD.com’s current and preliminary expectation, which is subject to change.

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