JD.com 2022Q4: Is the 10 billion subsidy the antidote to retail growth?

Source | Dongge interprets e-commerce

Author | Jin Shan

After the worst moment of consumption, the market expects JD.com to return to growth more than profits.

JD.com released its Q4 2022 and full-year results announcement before the U.S. stock market. Q4 achieved revenue of 295.4 billion yuan, a year-on-year increase of 7.1%; Non-GAAP net income attributable to common shareholders was $7.7 billion, an increase of 1.1 times year-over-year. Revenue was stable and profit far exceeded expectations.

Unlike the performance, JD.com was "coldly received" in the capital market, and the US stock market closed at $41.68 after the earnings report, down more than 11% year-on-year. Excluding the regulatory impact on Chinese concept stocks in the United States, the market is more concerned about the results themselves. E-commerce revenue rose slightly and profits exceeded expectations can no longer satisfy the appetite of the market.

Previously, the market also reacted to Ali's earnings report, and Munger, an investment master who has been heavily invested in Alibaba, also said, "Investing in Alibaba is one of the biggest mistakes I have ever made, attracted by its position in the Chinese market, but it has always been a retailer, retail is a competitive business on the Internet, Ali is a competitor to everyone on the Internet, this is not something that can be easily done." "E-commerce has passed the dividend period, and eventually it must return to the essence of retail. Munger's concern about Ali has also affected the judgment and sentiment of the entire US stock market on e-commerce.

At present, Jingdong Q4 is affected by the epidemic, retail sales have only increased slightly, and it has taken the lead in provoking a "tens of billions of subsidies" price war, and e-commerce competition has become more intense. When consumption will recover, whether revenue can return to high-quality growth, how JD.com will fight a price war, perhaps this is the hidden worry of the market behind the decline in stock prices.

JD Logistics supported the increment and released profits significantly

JD Logistics undertook the increase in Q4 revenue, mainly brought about by the acquisition of Deppon Logistics, and the overall retail is still weak.

Q4 JD.com's revenue was 295.4 billion yuan, a year-on-year increase of 7.1%. In terms of sub-sectors, JD.com's retail revenue was 258.9 billion yuan, a year-on-year increase of 3.6%, and the operating profit margin was 3%, the growth rate slowed down significantly, and the profit was significantly improved compared with the previous two years of promotion. JD.com's logistics revenue was 43 billion yuan, a year-on-year increase of 41.1%. This includes revenue of 8.57 billion yuan brought by the acquisition of Deppon, a year-on-year increase of 13% after excluding; The operating margin was 2.1%, essentially unchanged from the same period last year. New business revenue was RMB4.8 billion, a year-on-year contraction of 42%; The operating loss ratio of 24.2% shifted from earnings to loss sequentially, with an operating margin of 5.5% in the previous quarter. Dada's revenue was 2.7 billion yuan, which was not consolidated last year, and the operating loss ratio was 7.7%, which improved significantly from the previous month.

Q4 cost was 253.9 billion yuan, a year-on-year increase of 6.3%, and the carry-over gross margin was 14.1%, compared with a gross margin of less than 13.4% in the same period last year. Q4 expenses were less than 36.7 billion yuan, down 2% year-on-year. Among them, the performance cost was 16.9 billion yuan, a year-on-year increase of 3.3%; marketing expenses were 12 billion yuan, down 10.3% year-on-year; R&D expenses were RMB4.4 billion, a year-on-year increase of 6.4%; General and administrative expenses decreased by 2.5% year-on-year to MOP3.6 billion. Non-GAAP net income attributable to common shareholders was RMB7.7 billion, an increase of 1.1 times year-on-year.

Revenue for the full year of 2022 reached RMB1,046.2 billion, a year-on-year increase of 9.9%; Non-GAAP net income attributable to common shareholders was $28.2 billion, up 64% year-over-year.

Back to the low price, who robbed JD.com of its mind?

Behind the Q4 earnings report is the slowdown in the growth of JD.com's retail business. From the perspective of categories, the revenue of electronic products and household appliances was 141.68 billion yuan, a year-on-year increase of only 1%; The revenue of daily necessities was 95.92 billion yuan, a year-on-year increase of only 2%. Combined with the impact of the epidemic in Q4, logistics has basically stopped, and slowing growth has become the norm.

Since last year, Liu Qiangdong has pointed out that JD.com should return to the advantage of low price, "Low price is the most important weapon for JD.com's success in the past, and it will be the only basic weapon in the future." At the internal conference of JD Retail at the end of last year, he also pointed out that "the decline of JD.com's position in the brand side and retail industry today is essentially due to the rapid growth of other channels." ”

Pinduoduo, Jitter and other live streaming e-commerce companies may have snatched some orders with their low-price mentality, but they have never completely shaken the status of JD.com, which has an advantage in fulfillment and service, the most critical genuine product guarantee and return and exchange. Jingdong's self-operation in the past year still relied on this scale effect and bargaining power, which can still be reflected in the growth rate and has always outperformed the market. The same is true from JD.com's current share of the entire channel. During the period, whether it was the outbreak of live streaming e-commerce in 2019, or the 2020 Pinduoduo United States launched the "Super Brand Day", as the home of 3C, JD.com's market share is steadily rising. The user's mind under high quality does not affect too much.

Data description: from the National Bureau of Statistics Only the sales of home appliances and audio-visual and communication equipment are compared with the 3C category of Jingdong

The slowdown in JD.com's retail sales, especially the slowdown in the 3C category, is fundamentally due to the decline in the overall sales of the industry. This is related to the past slump in the real estate industry, which has affected the sales of home appliances. Returning to low prices is more like laying out the sinking market and looking for increments. Before the return of consumer confidence and real estate, the layout of the sinking market.

Xu Lei, CEO of JD.com, said, "We observe that the consumption structure and consumption power are polarized: on the one hand, the number of middle-class and family users who attach importance to the quality and function of goods continues to expand; On the other hand, consumers have become better at calculating wisely, and their consumption needs and consumption scenarios have become more diversified. ”

In the past, the high-quality image established by Jingdong can be said to target the first type of users, but the second category naturally cannot be given up in this stock competition environment, and the significance of tens of billions of subsidies is here. The low price led by tens of billions of subsidies is ranked first among JD.com's four must-win battles, followed by supply chain middle platform construction, open ecological construction and intra-city business.

But it is a difficult problem for high quality and low price to coexist at the same time. How to balance the price system of POP and self-operated and branded, and increase the supply of low-price prices are all key issues. After all, in the past, Pinduoduo mainly relied on white-label products and brands to inventory demand, and the impact on the brand's price system was not too serious.

Among the tens of billions of subsidies currently online, POP's goods have become the main force, and there are very few self-operated flagship stores. In Liu Qiangdong's view, considering the cost of logistics and other costs, it is impossible for Jingdong to achieve the same price as competitors, and the bottom line is "not too expensive", but POP (third-party buyers on the Jingdong platform) merchants must achieve the same low price as competitors, and finally the entire Jingdong ecology achieves the lowest price. JD.com procurement sources said that the goal of the 10 billion subsidy is to keep about 90% of the commodity prices on par with Pinduoduo's "10 billion subsidy" products, of which 10% of the products that can seize the user's mind are cheaper than Pinduoduo.

This is also reflected in JD.com's investment, JD.com CEO Xu Lei said, "Tens of billions of subsidies are only one of the items of the price strategy." The current overall investment in the first month is about 1 billion. We have invested marketing resources with brands, including platforms and merchants, and the impact on profit margins is very low. "Compared with 2019, when Pinduoduo first opened the 10 billion subsidy, the marketing expenses in Q4 have reached 9.3 billion yuan, and JD.com's investment is relatively cautious. At present, the channel has also changed from the homepage banner to a smaller entrance.

For Jingdong, tens of billions of subsidies are more of a grab for the sinking market after Jingxi. Attract price-sensitive users to place orders, meet low-price demand, and complement JD.com's ecology. Relying only on tens of billions of subsidies, JD.com is difficult to shake Pinduoduo. Whether the low-price strategy can drive JD retail depends on the subsequent layout, which needs to be verified by time.