Chinese technology companies including JD.com are facing headwinds from China’s Covid lockdowns and subsequent economic impact as well as the country’s tighter regulatory environment for technology businesses.
Qilai Shen | Bloomberg | Getty Images
JD.com beat top and bottom line expectations in the second quarter, but posted its slowest year-on-year revenue growth on record, becoming the latest victim of a Covid-induced economic slowdown in China.
But the company got a boost from better profitability in its main retail business and logistics division, helped by the annual “618” shopping festival that takes place in China in June.
Here’s how JD.com did in the second quarter, versus Refinitiv consensus estimates:
- Revenue: 267.6 billion Chinese yuan ($40 billion) vs 262.3 billion yuan expected, a 5.4% year-on-year rise.
- Net profit attributable to ordinary shareholders: 4.4 billion Chinese yuan vs. 1.36 billion yuan profit expected.
JD shares were up more than 4% in U.S. pre-market trade.
During the April to June quarter, China saw a resurgence of Covid-19 that led to lockdowns of major cities across the country, including the financial powerhouse of Shanghai, as authorities tried to contain the worst outbreak of the virus since the initial spread in 2020.
Cost cutting and profit focus
Tencent and Alibaba have been cutting spending and reducing headcount as revenue slows in order to grow earnings in the coming quarters, with similar focus shown from JD.com too.
JD.com reduced marketing and general and administrative expenses for the quarter versus the same time last year. The Beijing-headquartered firm also narrowed losses in its new business segment and saw its logistics unit swing to an operating profit in the quarter versus the second quarter of 2021.
“We were pleased to post topline growth that outpaced the industry during a challenging period, as well as healthy profitability and cash flow,” Sandy Xu, chief financial officer of JD.com, said in a press release.
“Our emphasis on financial discipline and operational efficiency has allowed us to return to shareholders in the form of share repurchases as well as a special cash dividend issued during the quarter. We will continue to focus on generating strong shareholder returns while maintaining our commitment to investing for the long term.”
Retail segment gets 618 boost
JD.com’s retail segment makes up the most of its revenue. The division brought in 241.5 billion yuan in revenue in the second quarter, a near 4% year-on-year rise. Operating profit for the retail business rose 36% year-on-year to 8.17 billion yuan.
That was helped by the 618 shopping festival in China. It takes place over a roughly two-week period in June and China’s e-commerce giants offer huge discounts across a number of goods. JD.com reported in June that total transaction volume across its platform during the promotional period totaled 379.3 billion yuan.
This does not translate directly into revenue but it does bring users to JD’s shopping app.
JD differs from Alibaba in that it owns more of its own inventory. It has also focused heavily on logistics and warehousing capabilities that allows it to get products to users on the same day or next day.
JD’s logistics division saw a 20% year-on-year revenue rise in the second quarter to 31.2 billion yuan.