To The Moon

Yesterday, $JD.com(JD)$ released its Q4 report and full-year 2022 results.

After the announcement, the stock price of JD.com in the US surged by 2% in pre-market trading, but quickly fell back, dropping nearly 1% at one point.

The stock price trend provided the best interpretation of the Q4, with some surprising results and some that were not as expected.

1. Revenue slightly lower than estimate

JD.com's Q4 revenue was CNY 295.45 billion, slightly lower than the analyst estimate of CNY 295.62 billion on Bloomberg. However, the total amount difference was relatively small, and the actual result and expected growth rate were both 7.1%:

Merchandise sales revenue was CNY 237.599 billion, only a 1.2% YoY increase; service revenue was CNY 57.847 billion, a significant increase of 40.3% YoY.

Platform and advertising service revenue was CNY 24.598 billion, a YoY increase of 10.6%;

Logistics and other service revenue was CNY 33.249 billion, a significant increase of 75% YoY:

According to the Q4 report provided by JD Logistics, its revenue for the quarter was CNY 43 billion, a significant increase of 41% YoY, mainly due to the contribution of the acquisition of Deppon Logistics.

Overall, JD.com's Q4 revenue was slightly below market expectations, especially the slow growth in merchandise revenue, which may be the reason why JD.com is eager to launch ten-billion-yuan subsidies.

2. Profitability greatly exceeded expectations

Profitability greatly exceeded expectations, which was also reflected in other Chinese concept stocks' Q4 reports, such as $Baidu(BIDU)$ and $Alibaba(BABA)$ , whose profits exceeded market expectations in the previous quarter.

Considering that the entire internet industry is reducing costs and increasing efficiency, it is not difficult to understand why profits exceed expectations.

Operating profit in Q4 last year was CNY 4.828 billion, while it was a loss of CNY 300 million in the same period in 2021:

Net income for the fourth quarter was CNY 3.22 billion, compared to a loss of CNY 5.3 billion in the same period in 2021.

Although the net income has increased significantly, in fact, most of the contributions came from investment income and cost reduction. For example, in Q4 2021, investment losses alone amounted to as much as CNY 4.27 billion, while in Q4 2022, it made a profit of CNY 100 million.

The reduction of expenses contributed to profits

1) Marketing expenses were CNY 11.985 billion, a decrease of CNY 1.378 billion from the same period in 2021;

2) R&D expenses in Q4 were CNY 4.366 billion, only a 6.4% increase from the same period in 2021, lower than the 7.1% revenue growth rate.

3) General and administrative expenses decreased by nearly CNY 100 million.

4) Fulfillment expenses were relatively well-controlled, with Q4 at CNY 16.86 billion, only a 3.3% increase from the same period in 2021.

Although net income was built on cost reduction and efficiency improvement, JD.com's cash reserve is indeed quite abundant. The company announced the distribution of USD 1 billion in dividends. The increased profits may be the reason why JD.com dares to launch subsidies.

At present, analysts are optimistic about the ability of ten-billion-yuan subsidies to lead JD.com's revenue growth.

JD's current price-to-sales valuation is still at a low level:

On the earnings call, management said the subsidies have very little impact on net income.