The Chinese e-commerce giant unveiled its annual results on Thursday, which were well above analysts’ expectations, thanks in particular to a significant performance in the fourth quarter, accompanied by a turnover that exceeded forecasts.
The Chinese company unveiled revenue of $114.3 billion, an increase of 29.3% on the full year 2019. Annual net profit was $7.6 billion, jumping from $1.87 billion in 2019.
During the year, the annual number of active customers increased by 30% to 471.9 million. The results demonstrate JD.com’s efforts to expand its offering of luxury brands to appeal to Tier 1 and Tier 2 shoppers. For example, Hermès Group shoe brand John Lobb du groupe Hermès,fashion brand JW Anderson and Italian luxury brand Stefano Ricci, among others, have launched flagship shops on the site.
JD posted fourth-quarter 2020 net income of $3.7 billion, or 23 cents per share, compared with 8.3 cents per share in 2019. The FactSet consensus expected 18 cents. Revenue rose 31% to $34.4bn, compared with expectations of $33.7bn.
The strong results mean JD has a “solid foundation to invest in a range of growth opportunities,” CFO Sandy Ran Xu told analysts on Thursday. She declined to forecast near-term margins.
The company took the opportunity the same day to announce that its infrastructure management subsidiary was raising $700 million in a preferred stock offering co-led by Hillhouse Capital and Warburg Pincus, with JD’s market value more than doubling since the start of 2020.
This is especially true since the company also recently announced its intention to spin off its logistics unit in an IPO that could raise around $5 billion.
However, investors fear that the company’s margins will come under pressure as it has spent heavily on maintaining and expanding its delivery network. According to Bocom analysts Brandy Sun and Connie Gu in a research note, net margin in the first quarter will fall by one percentage point, partly due to infrastructure investments.
JD’s internal logistics network, during the pandemic, significantly supported the company’s operations when the closures caused e-commerce to surge. The e-commerce surge, which in 2020 affected players ranging from Alibaba Group Holding Ltd. to Pinduoduo Inc. has put a strain on delivery networks, and questions remain about their ability to sustain growth this year.
According to Bloomberg intelligence, JD.com’s profitability has real potential, especially through economies of scale and operational efficiencies. The company’s growing penetration of users in smaller cities could help fund continued market share gains over offline retailers, even in the face of intense e-commerce competition.
The company operates its own fulfillment network and logistics infrastructure, and owns the inventory for a significant portion of its sales. These strategies appeal to retailers and consumers who demand high-quality products.
A future IPO of JD Logistics would be a major step for its parent company, which has spent billions of dollars building one of China’s largest courier services and hundreds of warehouses across the country to ensure on-time delivery and maintain control of its shipping network.
However, the likely withdrawal of another financial services subsidiary from the financial markets could be an obstacle. JD Digits Technology Holding Co. applied for an IPO on the Shanghai Star market, but is expected to drop out due to tightening rules on micro-loans.
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