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JD.com’s Revenues Rise, but Profits Suffer on Higher Logistics Costs

Chinese e-commerce powerhouse JD.com was a victim of its own success in 2018, as expansion expenses brought down profits.

In a Nutshell: JD.com Inc., among China’s top technology driven e-commerce companies and retail infrastructure service providers, saw sales increased significantly in the fourth quarter and year, but its net loss grew.

Sidney Huang, chief financial officer of JD.com, said the JD Mall business continued to grow, with improving margin. Huang said the company focused on developing innovative technology and infrastructure to drive greater efficiency and economies of scale.

Annual active customer accounts increased to 305.3 million in the 12 months from 292.5 million a year earlier. JD.com had more than 210,000 merchants on its online marketplace.

During the fourth quarter, JD expanded its fulfillment capabilities, growing to operate 550 warehouses covering an aggregate gross floor area of approximately 12 million square meters in China.

Sales: Net revenue for the fourth quarter ended Dec. 31 increased 22.4 percent to $219.6 billion compared to the year-ago period. Net service revenue for the quarter rose 45.7 percent to $2.1 billion from the 2017 period.

The company reported that the cost of revenue increased 20.7 percent to $16.8 billion in the fourth quarter, citing growth of online direct sales business and costs related to the logistics services provided to merchants and other partners.

Net revenue for the full year was up 27.5 percent to $67.2 billion compared to 2017, while net service revenue jumped 50.5 percent to $6.7 billion.

Earnings: JD posted a net loss in the fourth quarter of $700 million, compared to a net loss of $134.51 million for the same period last year. On an adjusted basis, net income in the quarter rose 67 percent to $109.1 million, compared to $67.15 million for the same period last year.

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Fulfillment expenses–primarily procurement, warehousing, delivery, customer service and payment processing expenses–increased 11.3 percent to $1.3 billion. Fulfillment expenses as a percentage of net revenue was 6.6 percent in the quarter, compared to 7.2 percent in the year-ago period.

Marketing expenses rose 33.9 percent to $900 million in the quarter, while technology and content expenses were up 69.9 percent to $500 million as a result of the company’s continued investment in top R&D talent and technology infrastructure. General and administrative expenses increased 17.1 percent to $200 million in the period.

Operating income in the quarter narrowed to $136.6 million from $240 million for the same period last year.

For the year, net loss totaled $400 million, compared to a net income of $17.36 million in 2017. Net income for the full year fell 30 percent to $500 million from $750 million the prior year.

CEO’s Take: Richard Liu, chairman and CEO of JD.com, said: “Our investments in technology enhanced the customer experience and enabled greater operating efficiency. As JD.com pushes the boundaries of retail, we are committed to optimizing our resources across our business in order to deliver long term value to our shareholders.”