JD:Profit Growth Outpace Revenue Acceleration; Maintain BUY and $45 PT

We are maintaining our BUY rating and $45 PT after JD reported in-line 3Q revenue with profits substantially above estimates.

$JD.com(JD)$ total revenue grew 5% y/y in 3Q (accelerating 4pts from 2Q), with JDR revenue up 6% y/y (vs. +1% y/y in 2Q). Moreover, 3Q gross profit grew 16% y/y, accelerating 5pt from 2Q, and was 11pts faster than revenue growth, with gross margin up 165bps y/y (vs. +137bps in 2Q), due to supply chain efficiency improvement and revenue mix shift to higher margin business lines. 3P growth continued to outpace 1P, with order volume growth accelerating from 2Q, driving double-digit advertising revenue up.

Electronics and home appliance revenues grew 3% y/y in 3Q, vs. -5% in 2Q, partially due to government’s trade-in incentives. General merchandise revenue grew 8% y/y, with supermarket category’s revenue grew double-digit y/y for three consecutive quarters, and JD believes the momentum will likely continue. Marketplace and marketing service revenue grew 6% y/y (vs. +4% in 2Q).

In 3Q, JD repurchased 31M ordinary shares (15.5M ADSs) for US$390M, accounting for 1.1% of its outstanding shares as of June 30. In the first 9M, JD repurchased 8.1% of outstanding shares as of the end of 2023. The company has announced a new share repurchase program that allows JD to repurchase up to US$5.0B worth of its shares (including ADSs) over the next 36 months through the end of August 2027.

3Q revenue in line with Tiger/Street. Specifically, electronics and home appliances grew 3% y/y, accelerating 8pt from 2Q. General merchandise grew 8% y/y, decelerating 1pt from 2Q. Total net product revenue grew 5% y/y (vs. flat in 2Q), and was 1%/1% above Tiger/Street estimates. Marketplace and marketing services revenues +6% y/y, vs. +4% in 2Q. Net service revenue grew 6% y/y (vs. +6% in 2Q), 2%/1% below Tiger/Street.

Adjusted EBIT 22%/6% above Tiger/Street. Gross profit was 9%/8% above Tiger/Street, with gross margin 135bps/130bps above Tiger/Street. Total Opex was 3% above Tiger. By segment, JD Retail operating margin was 5.2%, largely flat y/y, and JDL margin was up 4pts y/y to 4.7%.

2024 outlook. 2024 outlook is unchanged: GMV outperforms NBS retail sales growth, group level non-GAAP net income to grow double-digit y/y, and JDR non-GAAP operating income up y/y.

Estimate revisions. 4Q revenue estimate unchanged but increasing gross profit estimate by 7% on 99bps higher gross margin, and increasing non-GAAP net income by 4%. '25 revenue estimate is largely unchanged, but increasing gross profit by 4%, and non-GAAP net income by 6%.