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On August 16, 2023, JD.com released its second quarter financial report and interim results as of June 30, 2023. This is also the first report card handed over by Jingdong Group CEO Xu Ran after he was promoted from CFO to CEO.
Before looking at the report card, let's review the situation of Jingdong when Xu Ran took office. At that time, we once wrote an article "Jingdong has entered the "Xu Ran era", will the keynote be more profit than harvest? 》 , a detailed analysis of JD.com's operating conditions and Xu Ran's mission, which can be roughly summarized as follows:
In terms of Jingdong’s operating conditions:
1. Core business growth is weak, and the second growth point is far from mature
2. The main source of revenue still lies in the retail sector, but the growth of electronics and home appliances in the retail sector is weak, and the subsequent growth space of general commodities remains to be investigated; service revenue is the second growth point, and logistics services, marketing and marketing are outstanding performers The service has limited room for growth.
3. Cost reduction and efficiency increase improve profits, but cannot solve the problem of revenue growth.
4. The core position in the industrial chain is stable and the cash flow is sufficient.
The mission of Xu Ran:
Continue to scale operations, continuously improve operational efficiency, and (realize) diversification of income structure to maintain long-term healthy growth of group profits.
In other words, for Xu Ran, "long-term healthy profit growth" will be the core of his work assessment. The solutions mainly include large-scale operation, improvement of operational efficiency, and diversification of income structure.
Let's take a look at Xu Ran's report card for this quarter. The following will be comprehensively evaluated through four aspects: revenue, profit, operation, and cash flow.
Revenue (90 points): The quarter-on-quarter growth rate is gratifying, and the core business growth rate is improving. The downward trend of general commodities continues
In 2023Q2, JD.com’s total revenue was 287.9 billion yuan, a year-on-year increase of 8% and a month-on-month increase of 18.5%.
Source: Jingdong Financial Report
Among them, commodity revenue was 233.9 billion yuan, a year-on-year increase of 3%; compared with 195.6 billion yuan in the first quarter, a quarter-on-quarter increase of 19.6%.
Service revenue was 54.1 billion yuan, an increase of 30% year-on-year, and a quarter-on-quarter increase of 14% compared to 47.4 billion yuan in the first quarter.
From the perspective of revenue ratio, commodity revenue accounted for 81%; service revenue accounted for 19%. Compared with the first quarter, there is no major change.
Judging from the month-on-month growth rate of total revenue and major categories of revenue, it can be said that the performance is outstanding.
In the commodity sector, the 2023Q2 general commodity revenue was 81.7 billion yuan, a year-on-year decrease of 9%, and a quarter-on-quarter increase of 4%; the revenue of electronics and home appliances was 152.1 billion yuan, a year-on-year increase of 11%, and a quarter-on-quarter increase of 30%.
According to the data for the first quarter, the revenue of general merchandise decreased by 9% year-on-year, and the revenue of electronics and home appliances decreased by 1% year-on-year.
It can be seen that the downward trend in the revenue of general merchandise continues, while the revenue performance of electronics and home appliances has shown a significant recovery.
Among service revenues, 2023Q2 market and marketing service revenues increased by 9% year-on-year, and logistics and other service revenues increased by 51% year-on-year.
The data for the first quarter is that revenue from marketing and marketing services increased by 8% year-on-year, and revenue from logistics and other services increased by 61% year-on-year.
Basically, marketing and marketing services maintained steady growth, and logistics and other services maintained rapid growth.
Judging from the performance of the above detailed items, Xu Ran has maintained the rapid growth of logistics and other projects. At the same time, he has improved the revenue growth rate of electronics and home appliances, but has not solved the problem of declining revenue of general merchandise.
In terms of the supermarket business, JD.com still faces challenges such as adjustments to its business and commodity structure, consumption returning to offline after the epidemic, and the high base of stockpiling during the epidemic last year.
Xu Ran said that with the implementation of JD.com's strategy and the effect of organizational structure adjustments gradually reflected, JD.com's supermarket performance will return to a healthier growth momentum in the second half of the year. In the long run, the daily 100 categories of Shangchao will remain the most important growth driver for JD.com.
Figure: 2023Q2 Jingdong's performance of each sector Source: Jingdong Financial Report
From the perspective of various business segments, in the second quarter of 2023, the revenue of JD’s retail segment (JD Mall, JD Health, JD Industry) was 253.3 billion yuan, a year-on-year increase of 5% and a quarter-on-quarter increase of 19.3%.
JD Logistics’ revenue was 41 billion yuan, a year-on-year increase of 31% and a month-on-month increase of 11.7%.
Dada's revenue was 2.8 billion yuan, a year-on-year increase of 23% and a month-on-month increase of 7.7%.
New business revenue was 4.3 billion yuan, a year-on-year decrease of 31% and a month-on-month decrease of 23%.
Dada mainly refers to Dada Group, which will officially return to JD.com in August 2022. The new business segment includes Jingxi, JD Development, and JD International.
Judging from the revenue growth performance of each business segment, except for the new business segment, other segments performed well year-on-year, especially the core retail segment, which performed significantly better than the first quarter. The decline in revenue from the new business sector is not necessarily a bad thing.
According to the total score of 100, we will give 90 points for the revenue part.
Profit (70 points): JD.com’s retail profit performance was worse than that in the first quarter, and multiple sectors turned losses into profits
Judging from Xu Ran's mission when he took office, profit is the focus of his work assessment.
In 2023Q2, JD.com’s gross profit was 41.46 billion yuan, with a gross profit rate of 14.4%. In 2023Q1, the gross profit rate was 14.8%.
In 2023Q2, the non-GAAP operating profit margin was 3.0%, and the GAAP net profit margin was 2.3%, both lower than the first quarter. In the first quarter of 2023, these two values are 3.2% and 2.6% respectively.
Source: Jingdong Financial Report
That said, Xu Ran did not meet expectations in terms of margin growth. Judging from the above expense items, the marketing expenses in the second quarter increased significantly compared with the first quarter, rising from 7.651 billion yuan in the first quarter to 10.76 billion yuan in the second quarter, an increase of 40.6%. And this may be the main reason for the decline in profit margins in the second quarter.
JD.com made a profit of RMB 8.1 billion in the second quarter, a year-on-year decrease of 1% and a quarter-on-quarter decrease of 17%. The operating profit margin was 3.2%, which was also lower than the 4.6% in the first quarter.
Judging from the profitability of sectors other than the core business, compared with the first quarter, JD Logistics turned losses into profits. In the second quarter, it realized an operating profit of 500 million yuan and an operating loss of 1.1 billion yuan in the first quarter; Dada suffered a slight loss of 30 million yuan. Operating loss of 200 million yuan.
Source: Jingdong Financial Report
The most gratifying thing is that the new business has also turned losses into profits. In the second quarter, the operating profit was 1.1 billion yuan, while the operating loss in the first quarter was 200 million yuan. As we said earlier, the decline in new business revenue is not necessarily a bad thing.
Regarding this part, Xu Ran said in the financial report conference call: "At present, the scale of new business is not our focus. At this stage, our purpose is to drive greater synergy rather than higher revenue. Innovative retail business , including the integration of businesses such as "Pinpin", "Front Warehouse", and "Seven Fresh", hoping to promote their collaboration at the supply chain end. At present, these businesses are basically still in the pilot stage, and more In the exploration mode and the run-through mode, explore whether the collaboration of our several business supply chains can produce greater synergy."
Therefore, if the profit performance is deconstructed from the perspective of each business segment, apart from the unsatisfactory profit performance of the core business Jingdong retail segment, other business segments have improved significantly.
Based on the total score of 100, for the profit part, we give 70 points because the performance of the core business is not as good as expected.
Operations (70 points): There is no outstanding performance overall, and tens of billions of subsidies drive user indicators to improve
In terms of operating data, the financial report did not disclose specific data, especially GMV data. In 2022, JD.com's GMV will be 3.47 trillion, with a growth rate of only 5.6%, while the figure in 2021 will still be 26.2%.
In the earnings conference call, JD.com CFO Shan Su revealed that in the second quarter, the number of JD.com’s effective merchants achieved a year-on-year triple-digit growth, especially in the number of POP merchants in supermarkets, fashion and home categories. . JD.com's 3P business ( third-party merchant business ) revenue growth rate has also reached double digits, exceeding the revenue growth rate of 1P business ( JD.com's self-operated business ) for several consecutive quarters.
The GMV (gross merchandise transaction) of third-party merchants has also been accelerating in the past two quarters.
In the second quarter, user indicators were positive. Among them, the ARPU (average revenue per user) of core users and the proportion of user scale continue to increase.
And this part of the increase is driven by the "10 billion subsidy". It is reported that "Baibu" has a positive effect on users' purchase frequency and cross-category shopping. At the same time, it has a relatively large effect on the activation of new users, especially low-frequency users.
It is worth noting that in the financial report meeting, only 3P GMV was mentioned to be accelerating growth. At the same time, it was also stated that 1P GMV was not as good as 3P.
As for the prospect of 3P business, Shan Su, CFO of JD.com, said that overall, 1P and 3P businesses serve JD.com’s consumer-centric value proposition, that is, “more, faster, better and more economical”, and the goal is to gain more wallet share. . JD.com will balance the cost-efficiency experience, allowing consumers to choose 1P or 3P products based on product prices and services to meet the diverse needs of consumers. It is expected that within a long period of time, the final form of JD.com's 3P business will reach about 60% of GMV.
In addition, the inventory turnover days dropped from 32.4 days in the first quarter to 31.7 days in the second quarter; the accounts payable turnover days reached a new high in recent years: 52.8 days, an increase of 1.5 days from 51.3 days in the first quarter; the accounts receivable days were 5 days, an increase of 0.2 days from 4.8 days in the first quarter.
Source: Jingdong Financial Report
According to the above description and data, we don’t think the performance is particularly outstanding in the operation part, and we give 70 points.
Cash flow (100 points): Both operating cash flow and free cash flow have become positive
The net inflow of operating cash flow in 2023Q2 was 46.5 billion yuan, a year-on-year increase of 38%. Compared with the first quarter, the net inflow of operating cash flow has been realized, and the net outflow of operating cash flow in 2023Q1 is 21.6 billion yuan.
In 2023Q2, free cash flow reached 44.5 billion yuan, a year-on-year increase of 48%. The quarter-on-quarter turned positive, and the free cash flow in the first quarter was -25.4 billion.
At the end of 2023Q2, the company's cash and equivalents totaled 99.15 billion yuan, compared with 80.77 billion yuan at the end of the first quarter.
In 2023Q2, the net outflow of investment cash flow was 28.1 billion yuan, and the net outflow of financing cash flow was 1.832 billion yuan.
In 2023Q1, the net inflow of investment cash flow was 16.7 billion yuan, and the net inflow of financing cash flow was 1.255 billion yuan.
Compared with the data in the first quarter, it shows that there was a larger investment in the second quarter.
Based on the above data, we believe that in terms of cash flow, Xu Ran once again demonstrated his profound financial skills and performed well. We give 100 points for this part.
Combining the above four parts, based on the core position of the profit assessment, we give 40% weight, and the other three items all give 20% weight. Comprehensive calculation, Xu Ran's quarterly score is 80 points.
In general, Xu Ran's performance in the first quarter after taking office is still remarkable. First of all, it has greatly improved JD.com's operating cash flow and free cash flow; secondly, the turnaround of the new business segment is also very surprising; and the improvement in revenue growth rate has also exceeded expectations. The unresolved issue is the downward trend in general merchandise revenue. At the same time, the biggest shortcoming is that the overall profit performance is not as good as expected, especially the profit margin of the retail sector, which is also the focus of his work when he took office. Therefore, for Xu Ran, the core problem has not been resolved, and the future has a long way to go.
At the same time, it is worth noting that JD.com and JD.com, which announced their spin-off and listing at the end of March, have not yet launched an IPO in Hong Kong.
In addition, according to reports, Jingdong Technology, a subsidiary of JD.com, is about to launch an impact on the Science and Technology Innovation Board again. On July 13, 2023, the large model of JD Yanxi was launched at the 2023 JD Global Technology Explorer Conference and JD Cloud Summit.
1) Including the infrastructure that supports the research and development of large models - Yanxi AI development computing platform, vector database, hybrid multi-cloud operating system cloud ship, high-performance storage platform Yunhai, software and hardware integrated virtualization engine Jinggang and other core products;
2) Released two major service platforms, including the newly upgraded Uplus DaaS and Yanxi intelligent service platform, as well as industry solutions for the five major fields of retail, finance, city, health, and logistics.
Compared with the general-purpose large-scale model, the JD Yanxi large-scale model integrates 70% of general-purpose data and 30% of the original data of the digital intelligence supply chain.
It is reported that JD.com has made a clear "three-step" plan. At present, JD.com has built a general-purpose large-scale model based on internal practices; by the end of 2023, JD.com will iterate and produce solid industrial services through large-scale training in highly complex scenarios; it is expected that At the beginning of 2024, the large model capability will be opened to external serious business scenarios.
At present, Jingdong has reached the second step and has achieved practical results internally.
1) Health industry: The Jingyi Qianxun large-scale model released by JD Health is based on the general large-scale model of JD Yanxi, which can quickly complete the migration and learning of various scenarios in the medical and health field, so as to realize the comprehensiveness of products and solutions AI-based deployment can provide a solid technical foundation for telemedicine services;
2) E-commerce industry: With the help of AI, the production cost of each set of pictures can be reduced by 90%, and the production cycle is also shortened from 7 days to half a day; one-stop generation of marketing activities, in the past this The set of processes requires five types of functional personnel: product, R&D, algorithm, design, and analyst, which is now reduced to one person; the previous process required 2,000 human-computer interactions, but it has also been reduced to less than 50;
3) Financial industry: At present, JD.com’s institutional fund agency sales system has launched the Yanxi Youfang module, which provides institutional customers with more convenient fund screening and investment research and analysis functions.
For CEO Xu Ran, everything has just begun. How to promote profit growth, how to speed up investment and financing, and how to improve core business are all waiting for her to think and solve.
At this financial report meeting, JD.com stated that the most important KPIs of all JD.com’s strategies this year will return to GMV, profit and cash flow.
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Text: Qiqi / Data Ape
