E-commerce giant JD.com reported Q3 earnings that left analysts shocked and impressed. An annual revenue growth of 29 percent and non-GAAP net income growth of 161 percent made Q3 2019 the company’s best quarter to date. Even its fiercest competitors fell far short. The secret of JD’s success lies in its well-rounded strategy, which covers all bases and introduces new and unique offerings to consumers.
New Customers and Revenue
Despite slowing growth in customer activity and revenue from 2018 to Q1 2019, JD rebounded in Q3 with a 10 percent uptick in its annual active customers. About 70 percent of those new customers came from smaller cities and rural areas. The strategy to pinpoint these less-saturated markets helped JD swim against the tide of a slowing economy and fierce competition in China’s largest cities. JD also hit record-breaking growth in its mobile monthly active users with a 36 percent annual rise in September.
Ripe Demand in Lower-Tier Cities
JD’s CFO Sidney Huang reported that the company’s main source of growth stemmed from lower-tier cities. The lower cost of living in these areas has allowed residents to better weather the economic downturn, keeping demand for electronics and other products high. By offering its unique blend of authenticity, variety, and speedy delivery, JD has capitalized on these markets in a way its competitors couldn’t.
Robust Revenue Streams
In addition to its core e-commerce operations, JD’s tremendous growth can be attributed to two new endeavours. The first is its logistics department, which became its own service business. Combining speed with sustainability, JD has implemented recyclable packaging, slimmer tape, paperless statements, and other improvements to minimize waste. In years prior, the company had invested heavily in equipment such as warehouse robots, delivery vehicles, and drones. The fruits of that investment are now beginning to show, with the company’s logistics revenue doubling from 20 percent in 2017 to 40 percent in Q3 2019.
This is accompanied by a 29 percent annual growth in ad revenue. More businesses across the globe are capitalizing on the digital ad market, partnering with advertisers to connect consumers with relevant products and services and drive sales and referrals. JD’s expansion into these markets has only begun, and we can expect to see continued growth on both fronts.
State-of-the-Art AI
From delivering specific coupons to offering rewards, JD’s AI platform helps customers find deals on the items they want. The efficiency of the AI saves customers time and headaches in searching for products, making online shopping more enjoyable. Dubbed “NeuHub,” the platform is robust enough to process tens of billions of requests and provide top-notch customer service.
JD Plus for the Discerning Customer
JD PLUS members enjoy unique benefits. By partnering with organizations across multiple industries, JD is able to bring quality products and services to households that value comfort and quality. The company constantly adds new brands and products to its lineup, keeping customers engaged. By analyzing data, JD can identify what products to offer and when. As of November 2019, JD PLUS reached more than 15 million members.
Introducing E-SPACE
On November 11, JD launched E-SPACE, an immersive shopping experience that removes the boundary between online and offline shopping. Customers can interact with brand-name smart products, trying them out in-store before buying online. Likely the most immersive and interactive shopping experience to date, E-SPACE gives customers a truly unique experience. Themed areas make shopping convenient and intimate. It’s no longer a game of scrolling through search results and reading reviews, but a hands-on exploration of the world’s latest and greatest products.
A Positive Outlook
JD projects a revenue increase of 21 to 25 percent annually in Q4 2019. While these projections are a slight drop from its Q3 earnings, the e-commerce giant had also undershot its Q3 growth, forecasting only 20 to 24 percent but reaching 29 percent. JD made no predictions on its bottom line, but analysts predict a 25 percent growth in its non-GAAP earnings, as well as 18 and 41 percent increases in revenue and total earnings for 2020.
Many agree that JD’s stock has excellent growth potential, stifled only by reservations regarding the slowing Chinese economy and trade war. Investors who buy shares with a long-term outlook stand to gain substantially as the economic cycle shifts for the better.
Is JD’s Growth Sustainable?
Becoming China’s premier online retailer is no small feat. JD’s pinpoint consumer targeting and numerous other strategic endeavours have achieved record-breaking sales. Large cities like Beijing and Shanghai are no stranger to online shopping. Consumers purchase everything from electronics and clothing to furniture and groceries, with many packages arriving the next day or sooner. These markets offer little room for growth. Instead, companies like JD are focusing on smaller towns and rural areas. Consumers in these locations enjoy a lower cost of living and tend to have high disposable income. It’s the perfect location in which to provide quality products delivered fast.
JD’s competitive advantage lies in its quality, vast product selection, and ever-expanding delivery network. Being able to deliver orders the same or next day to more than one billion people is a feat unrivalled by any other online retailer. JD shows no signs of slowing down and should be able to sustain healthy growth for years to come.
