Author: Fu Xiaoling, edit: Reno, Zhou Xiao, data support: Insight Data Institute

“If there are four seasons in life, before the age of forty, my life will be spring,” said Ye Wen in “The Great Master”. After Jingdong’s performance in the last two quarters came out, it was similar.

After the Q1 financial report was released, we reported in “JD.com’s first quarterly report that far exceeded expectations. Why didn’t the market buy it?” “In the article, I described that the performance of the first quarter was beautiful, far exceeding market expectations, but encountered various unforeseen circumstances in the market, and even experienced a drop in the intraday;

But this quarter, the situation has a similar plot and a different fate:

In the second quarter, Jingdong achieved revenue of 2011 billion yuan, a year-on-year increase of 33.8%; recorded operating net profit of 4.266 billion yuan, the highest in history, and once again far exceeded expectations. On the day the earnings report was released, the stock price rose 7.93%, and the next day it rose 4.99%.

Compared with Q1, the performance was bright and the market was in a cold state, JD’s Q2 this time was recognized by investors.

It is also profitable, and it is also exceeding expectations. Jingdong Q1 and Q2 have two kinds of market reactions: outcasts and darlings.

Generally speaking, the response of the investment market driven by rationality reflects the expected value space of the enterprise.

So, what is the logic behind JD’s different performance this time? We will be divided into three levels, through the analysis of the driving factors and long-term strategies of Jingdong Q2 performance:

1. Increased profit and operating efficiency: adjustment of revenue structure, unchanged core logic of cost

2. Business data is eye-catching: the new pull efficiency is high, Jingxi sinks the market, and live broadcast releases growth dividends

3. JD.com, which slashed research and development expenses, may be cutting its future

1. Profits and operating efficiency have improved, and the business logic of earning “hard money” has changed

In the 2Q20 financial report of JD.com, the key change that deserves attention is the substantial increase in profits and operating efficiency.

According to the financial report, BeijingIn the second quarter of 2020, East realized an operating profit of 5.044 billion, a year-on-year increase of 123%; realized an operating net profit of 4.266 billion, a year-on-year increase of 101%.

As can be seen from the yellow curve in the above figure, since 2019Q4, JD’s operating efficiency and operating net profit have been steadily increasing. Below, we will analyze in detail the reasons for the continued increase in profits from two aspects of revenue and costs.

Income level: category adjustment, the proportion of high-profit products increases

According to our observation, the general direction of JD.com’s sales category adjustment is as follows: products with high profits are sold more, and the proportion of products with low profits is reduced.

After May 2020, the PRADA Group’s footwear brand Church’s, French boutique children’s clothing and skin care brands Bonpoint, Stone Island and other luxury flagship stores have launched on JD.com. Statistics show that Jingdong has more than 200 official flagship stores of luxury brands.

In recent years, the luxury consumption field has increasingly shown a trend of “people are willing to pay for their own preferences regardless of the cost”, which gives luxury goods a very high premium. For the platform, more premium space for luxury goods means a higher commission rate and more money per order. The actual effect is analogous to Ali’s jewelry and accessories category.

On the other hand, JD’sThe core category of 3C digital business experienced a significant decline in Q2 (refer to the figure below), making room for the growth of fast-moving categories.

Because in contrast, although 3C has a higher unit price per customer, these products are too standardized and the prices are relatively transparent; for JD.com, the premium space of the product itself is small, so it is diligent to move Bricks and hard-earned self-employed “price differences” are even less.

Since fast-moving consumer goods are not “standard products”, consumption depends more on subjective wishes. In fact, part of the established price is paid for “creativity.” Therefore, the premium space of these categories will be larger, and the price difference that the platform can make is also more. At the same time, FMCG has a higher repurchase rate, and it is easier to realize the agglomeration effect of profit scale.

Of course, the change in the proportion of this category is inseparable from the continuation effect of the epidemic.

Q1, when the epidemic spread, large-scale suspension of e-commerce and express delivery services nationwide. Relying on the advantages of self-built warehousing and self-operated logistics, JD.com has surpassed Taobao and Pinduoduo, and it is rare to open a “fast-moving channel” with more room for premium.

According to the prospectus for JD.com’s application for Hong Kong stocks listing, JD.com’s revenue as a percentage of total revenue has gradually increased from 26.4% in 2017 to 31.5% in 2019. Catalyzed by the 2020Q1 epidemic, this proportion rose rapidly to 35.8%, an increase of 4.3%.

In the second quarter, with the improvement of public health incidents, the fast-moving channel has returned to the main battlefield of Taobao and Pinduoduo. Out of the special period, there is no threat of “life-saving”, and “saving money” has become the first choice of consumers. The more expensive JD.com advantage in fast-moving channels may be fading. The latest quarterly reports and conference calls did not disclose relevant information. In the previous quarterly report, even the revenue ratio and other information were disclosed in detail.

But the positive effect is still there. On the one hand, it has contributed to the substantial changes in the proportion of the above-mentioned JD.com category. On the other hand, JD’s frequent “face-washing” in the fastSome consumers have formed a consumption habit and recognized that JD.com also makes fast-moving consumer goods, and they have received a wave of free publicity.

Cost level: continuation of the core logic of scale

In the article “Finding out the trump card of JD.com’s second listing in Hong Kong”, we have made a detailed analysis of the formation of JD.com’s scale effect, and believe that with the expansion of sales, JD.com’s scale effect has achieved initial results.

The most direct result is that JD.com’s sustained net profit for three consecutive quarters from 2019Q1 was positive; Q4 was affected by the year-end promotion, and it suffered a slight loss; 2020Q1 continued to highlight its scale, coupled with the benefit of the epidemic, sustained net profit Profit increased to 2.009 billion yuan.

Behind the continued profitability is the reduction in the cost of each product, the reduction in the performance cost of each express delivery, and the improvement in the management efficiency of each employee. This is critical to the “self-operated” nature of Jingdong important.

2020Q2, this large-scale core logic continues and is strengthened. The scale of product revenue reached 1.78 billion, a year-on-year growth rate of 33%, the highest growth rate in 10 quarters.

Note: Jingdong will no longer disclose GMV after 2019Q4, and use product revenue scale (ie, self-operated e-commerce revenue) instead of GMV scale

With the expansion of the scale again, JD’s performance costs as a percentage of revenue have dropped significantly.

As can be seen from the above figure, in 2019Q2, Jingdong will have to pay 6.1 yuan for express storage costs for every 100 yuan of income, while this figure has dropped to 5.9 yuan in 2020Q2.

This is the data level of finance. From the perspective of business operations, we can also find operational data to support this result.

Operational data show that JD’s inventory turnover days are significantly decreasing. The time difference between buying a product in JD’s warehouse and selling it to consumers has dropped from 39.1 days in 2018Q2/Q3 to 34.8 days.

The storage time in the warehouse becomes shorter, and the storage cost naturally decreases. And JD’s performance costs consist of distribution and warehousing.

Obviously, JD.com has seen a substantial improvement in its revenue structure and operating efficiency. This is also the biggest surprise for investors after this quarter’s earnings report.

Second, the business data is bright, but the advantages are easily dispelled

In the excellent transcript submitted by JD.com this time, the business data is even more unexpected.

After Taobao and Pinduoduo regained their strong FMCG channels, JD’s Q2 subscribers grew by 30 million more than Q1, and the chain growth rate reached 7.9%, even exceeding the peak at the end of 2019.

Is it a loss to earn money to make new purchases so quickly?

In fact, this is not the case. Jingdong’s sales expenses as a percentage of revenue still remain at a low level.

Let’s take a look at the customer acquisition cost:

The cost of acquiring new users in 2020Q1 is 175.9 yuan, and Q2 is 226.8 yuan. (Q1 is the benefit during the epidemic, it is impossible to replicate it in Q2)

In contrast, Q2 customer acquisition cost rebound is still in trend.

As a result, JD.com has achieved good user growth in a relatively economical situation and seems to be regaining adolescence.

We can’t help asking, how did this growth happen this quarter?

At present, the biggest possibility comes from two aspects: Jingxi aims at the sinking market-the return of dividends in the early stage of growth and the rapid growth of new business of live broadcast.

Sinking market returns to growth bonus

Jingxi, established in September 2019, benchmarked Pinduoduohe