JD.com Q2 2014 Preview: Focus On Revenue Growth, Category Expansion And Mobile Commerce

Aug.12.14 | About: JD.com (JD)


JD will report 2Q14 results on Friday with consensus expecting -$0.02 EPS on $4.36b in revenue.

Revenue growth will be a focus as JD is in the process of market share expansion.

Food and cosmetics are unique growth areas. Tencent partnership to support mobile commerce.

JD.com (NASDAQ:JD) will report its first quarterly result on 2Q14 since its IPO on Friday before market with consensus expecting -$0.02 EPS on $4.36b in revenue. The dialing detail is below:


1855-298-3404 or +1-631-5142-526

Hong Kong

800-905-927 or +852-5808-3202







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JD has outperformed the NASDAQ by 31% since its first day of trading as investors overlook the lack of near-term profitability to buy into the ecommerce site for its industry positioning as one of China's largest ecommerce sites and the largest direct sale site with a strong competitive advantage in its fulfillment capabilities and superior customer experience. JD, along with soon-to-be listed Alibaba, will likely to be the direct beneficiary of China's rising ecommerce penetration, which is set to surpass that of the US this year.

Key things to look for in this upcoming quarter: 1) revenue growth, 2) product expansion, and 3) mobile trend.

Only the topline that matters for now

Revenue growth is a function of quality products, lower price and efficient customer service. JD is keen on selling only authentic products by sourcing through brand owners and authorized channels for its direct sales business. As for its market place segment, JD deploys a stringent selection process to ensure the legitimacy of its third-party vendors. So far, JD has over 40m SKUs and looks to price them at least 5% cheaper than offline channels to attract buyers on its site. I believe that overtime JD's purchasing power will increase along with volume, which in turn lowers JD's procurement cost.

As for services, JD has 90 warehouses that covers over 1,700 counties across China (~62% of total), which account for ~95% of JD's total volume. Having a consistent logistics process is critical in ecommerce and management aims to fulfill >60% of the merchandise internally to ensure superior customer experience, which I see is a critical driver for future purchases.

Moving to cosmetics and food

JD has traditionally been an electronics online site, but the company has since expanded its product offerings to apparel, furniture, auto parts and baby products. This year, the company introduced food and cosmetics to compete against sites such as Yihaodian, which is backed by Walmart (NYSE:WMT). On the cosmetic side, the company is currently focusing on branded products since they connect with the consumers and that JD could secure larger orders at favorable price. 30% gross margin is the target that management has set for this segment and I believe that it is achievable.

Entering the food segment is a logical choice given JD's roust logistics network. I believe that food delivery is feasible in larger cities given the established infrastructure. JD is working with local convenient stores to build up its O2O model where orders are routed to the store for expedite delivery. Management will consider M&A in this area and I believe that Yihaodian is a logical choice given that it already has solid presence and expertise in food selection (mostly foreign-brands). Although I admit that JD will pay a heavy premium for this type of acquisition as Yihaodian took in $1.9b in sales last year.

Riding on the back of Wechat

Tencent (OTCPK:TCEHY) and JD formed a strategic relationship in which JD hopes to leverage Wechat's 400m user base to promote is own app and drive mobile purchases. The partnership with Tencent is important in that JD saw a 7% increase in mobile transactions after forming the partnership. The key right now is to drive GMV/order in that it is generally lower on mobile than on PC because smaller items such as food and cosmetics are top sellers on mobile. Management hopes to mitigate this issue by improving its recommendation engine to drive mobile GMV/order.

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