In US stock pre-market yesterday, $JD.com(JD)$ released their first-quarter earnings report, greatly exceeding market expectations, but the stock price reaction was flat.
Revenue and Profits
Specifically, JD.com revenue was RMB260 billion in Q1, a 7% year-on-year increase. That's a significant acceleration compared to the previous two quarters, and it even exceeded analysts' predictions of RMB258.3 billion.
But if the revenue is just a slight over-performance, their profits are stellar! Operating profit hit RMB7.7 billion, a whopping 19.8% increase year-on-year. Adjusted net income was RMB8.9 billion, far surpassing the 7.4 billion analysts expected.
So how did they pull it off? It's all about the industry's cost-cutting and efficiency-boosting efforts. In the first quarter, JD.com's gross margin hit 15.29%, notably higher than the 14.82% from the same period last year.
Expenses
In terms of expenses, they kept it steady.
General and Administrative Expenses dropped by 21% to RMB1.976 billion;
R&D Expenses fell 3.6% to RMB4 billion;
Sales and Marketing Expenses increased 15.6% to RMB9.25 billion. Overall, the expense ratio stood at 6%, the same as last year.
4. Fulfillment Expenses increased 9.3% to RMB16.8 billion, mainly due to JD.com lowering their free shipping threshold, which of course comes with a price.
So, what's the secret behind the improved operating margin? It's the gross margin hike!
Over the past year, JD.com has undergone some major changes. They rolled out billion-yuan subsidies, lowered the free shipping threshold, introduced lower-priced products, and enhanced customer service.
These changes paid off, as revenue growth from lower-tier cities outpaced that of first-tier cities, and their GMV and other metrics saw double-digit growth.
In conclusion, JD.com's reforms are working.
Segments
Looking at their first-quarter business segments, the core Retail revenue hit RMB226.8 billion, a 6.8% year-on-year increase, the fastest growth in five quarters!
Logistics revenue came in at RMB42.1 billion, a 14.7% increase, and they even turned a profit. But new businesses struggled, with revenue down 19.2%.
Overall, JD.com's first-quarter results are clearly on an upward trajectory, outperforming $Alibaba(BABA)$ $Alibaba(09988)$ . But the stock price reaction is flat, or related to the previous stock price increase and high price-earnings ratio.
Currently, JD.com's PE ratio stands at 16 times, which is a bit pricey considering their single-digit revenue growth.
But hey, after a little rest, JD.com's stock could be ready for its second take-off! Who knows, it might even surprise us again!
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