Source: Beast Finance Author: Beast Finance
Strong financial performance for the third quarter of 2022 On
November 18, 2022, JD.com (JD) announced its financial results for the third quarter of 2022, with net income of 243.5 billion yuan, an increase of 11.4%. Net service revenue was RMB 46.5 billion, a year-on-year increase of 42.2%. Operating income was 8.7 billion yuan, a year-on-year increase of 235%. Non-GAAP operating income was RMB 9.9 billion, compared to RMB 4.6 billion in the same period last year. Operating margin was 5.2%, an improvement of 120 basis points.
For the 12 months ended September 30, 2022, JD.com's operating cash flow was RMB 45.8 billion, an increase of 12%. Free cash flow was 25.8 billion yuan, a decrease of 9%. Annual active customer accounts rose 6.5% to 588.3 million. Although the epidemic had an impact on JD.com in October last year, the management stated in the third-quarter financial report meeting that the worst period has passed.
JD.com's asset-heavy model and competitive advantage in logistics network
In order to change the Chinese retail industry, JD.com has been providing authentic products at competitive prices and focusing on instant delivery. Unlike Alibaba (BABA), JD.com adopts an asset-heavy model of direct sales and self-built logistics. Boldbeast Finance expects JD.com's growing scale to give it bargaining power over suppliers and volume-based discounts. Margins are expected to improve further as JD.com shifts to higher-margin third-party platform businesses and gains efficiency from scale. In addition, JD management is currently investing heavily in supply chain management, integrated warehouse and distribution services to penetrate into less developed regions. JD.com's self-built logistics service provides it with a huge competitive advantage in China's e-commerce market.
JD Logistics' expansion into high-frequency FMCG categories drives revenue growth.
In the third quarter of 2022, JD Logistics (02618) provided integrated supply chain solutions and cooperated with FMCG, home appliances, furniture, clothing and fresh agricultural products. Industry-leading companies have continued to maintain revenue growth. The company's upstream and downstream industry partnerships also enable them to support enterprise clients by reducing risk and optimizing costs and efficiencies. Therefore, Boldbeast Finance believes that JD Logistics' potential to maintain growth through partnerships and supply chain solutions may have a positive impact on its future financial performance.
Jingdong CEO Xu Lei also confirmed this at the financial report meeting:
[Despite the challenging environment, Jingdong Logistics continues to provide reliable integrated supply chain solutions for upstream and downstream industries, supporting corporate customers to reduce risks, quickly respond to external challenges, and optimize costs and efficiency. In the third quarter, JD Logistics also expanded the depth and breadth of cooperation with leading companies in industries such as fast-moving consumer goods, home appliances, furniture, clothing, 3C, automobiles, and fresh food. As a result, JD Logistics maintained strong revenue growth in the quarter. 】
The company's expansion into high-frequency FMCG categories has proven to be a successful strategy, and JD.com has become China's largest supermarket. These categories also allow JD.com to attract new customers from less developed regions, creating opportunities to drive sales in other categories as well.
Valuation
Through calculations by Boldbeast Finance, it is expected that JD.com's revenue will continue to grow at a high rate of around 20% (until 2027), after which we expect it to slow down to high single digits. This growth is attributable to JD.com's omni-channel strategy. We believe JD's asset-heavy business model, JD's direct sales and marketplace will expand its margins. Also, the company's asset-heavy investments in the logistics sector may have a medium-term impact on its margin growth, but in the longer term, we expect JD.com's gross margin to be around 11%.
Risks and Uncertainties
Although JD.com has increased its share of online retail sales in China, Boldbeast Finance expects competition from rivals such as Alibaba and Pinduoduo (PDD) to intensify. JD.com's margins may be negatively impacted by new opportunities such as community group buying and new retail, which may require expensive logistics infrastructure to operate. The cost of operating that infrastructure may also become a bigger issue as the company expands into second- and third-tier cities with lower disposable income and population density. In addition, increasing competition in the e-commerce industry could be a drag on JD.com's growth and profitability. The company needs to navigate these potential challenges carefully to maintain its leading position in China's retail market.
Conclusion
JD.com has become one of the largest B2C online retailers in China. With a wide range of authentic products and efficient delivery services, JD.com is a formidable competitor to other e-commerce giants. JD.com's competitive advantage lies in its extensive nationwide logistics network and advanced fulfillment capabilities, which pose a challenge to rivals. As JD.com's core business continues to grow and scale, its cost advantage will lead to lower procurement costs and higher profit margins. Overall, JD.com's strong logistics network, combined with its focus on high-frequency categories, will allow the company to continue to grow and succeed in the e-commerce industry. Bold Beast Finance calculates that JD.com's stock price has a 73% upside potential from the current level.