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Updated: 14-Nov-24 13:32 ET
JD.com's Q3 results not enough to squash lingering concerns over end-consumer demand in China (JD)

As the first prominent China-based e-commerce company to issue Q3 results, JD.com's (JD -4%) performance sets the stage ahead of its rivals' upcoming reports, including PDD (PDD) and Alibaba (BABA). While JD exceeded earnings estimates, a typical occurrence for the company, revenue growth, albeit in-line with consensus, was insufficient in squashing lingering concerns surrounding the health of the end consumer in China.

The region has been dealing with economic hardship as job losses mount and the real estate sector struggles, prompting major stimulus measures, including interest-rate cuts and lowering bank reserves. However, as other companies operating in China have discussed, JD mentioned that while consumer sentiment is beginning to improve, it can take time for these initiatives to trickle down to the end consumer.

  • Revenue growth remained sluggish in Q3, expanding by 5.1% yr/yr to RMB 260.39 bln, led by relatively healthy demand within JD's general merchandise category, which boasted an 8% jump in revs. The non-discretionary supermarket category primarily underpinned this growth, recording another quarter of double-digit gains. JD has been enriching its supermarket product portfolio to cover more price tiers, supporting a 20% uptick in shopping frequency in the quarter.
  • A component of China's stimulus includes subsidizing trade-ins for home appliances, electronics, and vehicles. JD has seen promising outcomes thus far, noting that the trade-in program has driven increased demand for appliances and consumer electronics, with sales climbing sequentially throughout each month in Q3. However, management added that the full potential of this policy has yet to be realized, primarily due to a lack of awareness and pockets of supply chain constraints.
  • Profitability has been a highlight for JD over the past few quarters, underscoring improving supply chain capabilities. In Q3, non-GAAP operating margins inched 50 bps higher yr/yr to 5%, driving JD's 18th consecutive earnings beat. The company remarked that it remains at the beginning of exploring its potential to drive further profitability improvements.
  • Going forward, JD will stay focused on strengthening its supply chain and fostering user growth and engagement. Thus far, its actions have led to encouraging numbers, including quarterly active customers growing at a double-digit clip yr/yr for the past four quarters, with Q3 being the highest. Additionally, JD is receiving a positive response regarding its increased coverage of free shipping service and its JD PLUS membership program.

There were several highlights in Q3, including a decent uptick in general merchandise demand and sustained solid shopping frequency growth. JD also stated that it is encouraged by the government's stimulus measures, which it anticipates will create employment in the lowest household income level, eventually boosting longer-term consumer confidence. However, JD's performance was not robust enough to alleviate fears over a longer-than-expected economic downturn in China, especially if the government does not enact further stimulus aimed more toward the end consumer.

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