JD.com Has A Bright Future As More Than Just An E-Commerce Company
JD.com Inc (NASDAQ: JD), a Chinese e-commerce giant, delivered another solid quarterly report last week. The company has been one of many e-commerce winners during the pandemic. Its stock price more than doubled as its online grocery and pharmacy leadership has strengthened while expanding into logistics and telehealth. Q4 Key Figures Revenue rose 31.4% to $34.4 billion, exceeding the estimate of $33.8 billion.
More impressively, adjusted operating income rose 72% to $186 million. Adjusted earnings per share nearly tripled to $0.23, exceeding expectations of $0.19. A Record Quarter For Service Revenues Most of the company’s revenue comes from its e-commerce business. Still, service revenue, which includes its marketplace, advertising, logistics, and other services like healthcare, has been steadily outgrowing its core segment. In the fourth quarter, services revenue grew by 53% to $4.9 billion, its fastest growth rate in 11 quarters.
Chinese New Year Boost Singles Day. Although the segment only generates about 15% of overall revenue, it will become a high-margin business once scale is reached. In many ways, the company seems to be following the same playbook that worked so well for Amazon.com, Inc. (NASDAQ: AMZN), which went from breakeven in 2014 to generate $21 billion in profits last year by layering service businesses over its e-commerce business. Revenue at JD’s new companies, including logistics, overseas companies, and tech initiatives, has already doubled to $2.4 billion, so its margins should continue improving as these businesses gain strength.
Chinese New Year and the 6/18 holiday are significant sales drivers for all Chinese e-commerce companies like JD.com, Alibaba Group Holding Ltd (NYSE: BABA), and Pinduoduo Inc (NASDAQ: PDD). But this was a holiday season as the government ordered people not to travel. Small orders doubled during the Chinese New Year as consumers bought gifts for friends and family in other cities. Moreover, sales had normalized from a year ago when COVID-19 overtook China, and consumers started repurchasing beauty products rather than cleaning supplies and masks. On December 8th, JD.com completed the Hong Kong pharmacy e-commerce and telehealth business listing, JD Health. It raised $4 billion as a result.
JD Logistics has been operating as a stand-alone business since 2017, serving as a logistics and fulfillment center for the company and third-party customers. It’s now valued at roughly $50 billion and accounts for more than a third of the company’s market cap as the pandemic elevated demand for medicine and telehealth visits. It had 72.5 million annual active users in December, and its platform has served over 150 million users. According to Frost & Sullivan, it controls nearly 30% of China’s online pharmacy market. JD Health’s top competitors include Alibaba’s Ali Health, Tencent Holdings (OTC: TCEHY) affiliate WeDoctor, and Ping An’s (OTC: PANH.F) Good Doctor, all of which benefited from the pandemic. But JD.com is not showing any signs of stopping, as it filed last month to list JD Logistics on the Hong Kong stock exchange.
The unit is the largest of JD.com’s new businesses. It doubled in sales in the last quarter, and the company has been quickly expanding its infrastructure by adding 200 warehouses and more than 40 million square feet of space to its 800 warehouses, fulfillment centers in eight cities, and front distribution centers in 31 cities, covering almost all districts across China. Its warehouses are increasingly automated with robots, driverless vehicles, and delivery drones. The stock offering is expected to raise $5 billion, bringing its valuation to $40 billion.
