With net revenues climbing 33.8 percent to $28.5 billion for the second quarter, adjusted net earnings for the Chinese commerce giant reached 50 cents per American depositary share (ADS)—which are individual shares offered by foreign companies on a U.S. stock exchange.
The earnings outperformed expectations for Wall Street analysts, who had anticipated 38 cents per share in earnings on $27.45 billion in revenue.
In a Nutshell: JD.com company ended the second quarter with 417.4 million annual active customers, up nearly 30 percent from the year-ago period. Mobile daily active users grew 40 percent.
Total inventories for the company in the quarter were 54.5 billion yuan ($7.7 billion) as of June 30, 2020, a 5.9 percent decrease from the 57.9 billion yuan ($8.35 billion) at the close of the six-month period ended Dec. 31, 2019.
In the second quarter, JD Logistics launched a new warehouse in China’s Langfang, Hebei province, near Beijing, equipped with an automated storage and retrieval system for bulky items. During the company’s June 18 Anniversary Sale, JD Logistics maintained its quick delivery standards, ensuring 91 percent of packages from its direct sales platforms arrived at consumers’ doorsteps throughout China on the same day or next day. JD.com also launched a one-hour delivery service, called “Instant Delivery” from some JD stores and third-party retail partners in April.
The company announced last week that JD Logistics would acquire a 3 billion yuan ($432.7 million) controlling interest stake in courier services provider Kuayue Express. This year, JD.com has been active in acquiring companies aside from building its own fleets, having bought a $100 million stake in Li & Fung.
JD.com added roughly 20 warehouses to its network during the quarter. As of June 30, 2020, JD Logistics operated over 750 warehouses, which covered an aggregate gross floor area of approximately 18 million square meters, including warehouse space managed under the JD Logistics Open Warehouse Platform.
Fulfillment expenses, which primarily include procurement, warehousing, delivery, customer service and payment processing expenses, increased by 30.6 percent to 12 billion yuan ($1.7 billion) for the quarter from 9.2 billion yuan ($1.3 billion). Fulfillment expenses as a percentage of net revenues was 5.9 percent for the second quarter of 2020, compared to 6.1 percent for the same period last year, mainly due to the nationwide relief for social security contributions.
JD.com continued to attract premium global brands to its platform, with brands including Prada’s high-end footwear brand Church’s, London-based innovative luxury fashion label Christopher Kane, Italian luxury shoe brand Sergio Rossi and Korean high-street apparel brand SJYP all launching flagship stores on the website in the second quarter.
The company’s retail division also continued its work to facilitate online purchases. Following the launch of its AR-based virtual shoe “try-on” service, JD Retail launched its AI-powered skin evaluation service in June, allowing users to upload images from their mobile phone for analysis and receive customized shopping guidance on suitable skincare and cosmetics products.
Marketing expenses for JD increased by 21 percent to 6.8 billion yuan (approximately $1 billion) for the second quarter of 2020 from 5.6 billion yuan for the second quarter of 2019, while research and development expenses totaled 3.6 billion yuan (approximately $500 million), a slight decrease from the 3.7 billion yuan spent in the second quarter of 2019.
As of June 30, 2020, the company’s cash and cash equivalents totaled 126 billion yuan ($17.8 billion), compared to 64.5 billion yuan ($9.3 billion) as of Dec. 31, 2019.
JD.com dually listed its shares on the Hong Kong Stock Exchange on June 18, raising 34.6 billion Hong Kong dollars ($4.46 billion), which the company plans to use to invest in key supply chain technologies.
Net Sales: Net revenues for the second quarter of 2020 were 201.1 billion yuan ($28.5 billion), an increase of 33.8 percent from the second quarter of 2019. Net revenues from the sales of general merchandise products, which don’t include JD.com’s electronic and home appliance offerings, for the second quarter of 2020 were 64.0 billion yuan ($9.1 billion), an increase of 45.4 percent from the second quarter of 2019.
Net service revenues for the quarter jumped 36.4 percent to 22.9 billion yuan ($3.2 billion), while cost of revenue increased by 34.5 percent to 172.4 billion yuan ($24.4 billion) from the year-ago quarter. Logistics revenues are included in net service, which jumped 54 percent from 10 billion yuan to 15.4 billion yuan ($2.2 billion).
Net Earnings: Net income attributable to ordinary shareholders for the second quarter of 2020 was 16.4 billion yuan ($2.3 billion), compared to 600 million yuan ($86.5 million) for the same period last year. The quarter’s non-GAAP (adjusted) net income attributable to ordinary shareholders was 5.9 billion yuan ($800 million), compared to 3.6 billion yuan ($520 million) for the same period last year.
Income from operations for the second quarter was 5 billion yuan ($700 million), compared to 2.3 billion yuan ($330 million) for the same period last year.
Diluted net income per ADS for the second quarter was 10.47 yuan per share ($1.48 per share), compared to 0.36 yuan per share in the year-ago quarter. Non-GAAP diluted net income per ADS for the second quarter of 2020 was 3.51 yuan per share (50 cents per share), compared to 2.30 yuan for last year’s quarter.
Second-quarter non-GAAP (adjusted) earnings before interest, taxes, depreciation and amortization (EBITDA) for the second quarter of 2020 was 6.9 billion yuan ($1 billion) with a non-GAAP EBITDA margin of 3.4 percent, compared to 4.4 billion yuan ($630 million) with a non-GAAP EBITDA margin of 2.9 percent for the second quarter of 2019.
CEO’s Take: “Since the COVID-19 outbreak, JD has steadfastly leveraged our distinctive supply chain and technology capabilities to contribute to society and ensure the steady supply and undisrupted delivery of daily necessities to consumers, while helping to create jobs within our ecosystem and support business partners amidst the dynamic economic environment,” said Richard Liu, chairman and CEO of JD.com. “I’m grateful for the efforts of JD’s employees and business partners in driving another solid quarter of accelerated revenue growth, as our extensive product offerings and superior services continue to attract large numbers of new users.”