With national subsidies supporting the market, JD has finally "emerged from the pit."

On the evening of March 6, Beijing time, before the US stock market opened, $JD.com(JD.US) announced its financial report for the fourth quarter of 2024. Overall, although the company had guided the market to raise expectations before the Spring Festival, the actual performance still exceeded expectations. With the favorable national subsidies, both growth and profits showed good performance, with the detailed points as follows:

1. Self-operated retail business achieved revenue of 281 billion yuan this season, a year-on-year increase of 14%, marking the first return to double-digit growth in nearly three years since 1Q22. Although the national subsidies for electric products are particularly beneficial to JD.com, which is a market consensus, the expected growth rate has been raised to 8% by sell-side analysts. The actual performance was still better than expected.

Among them, the revenue from electric products directly benefiting from national subsidies jumped from 2.7% in the previous quarter to 15.8%, showing the strongest growth. While general merchandise did not benefit from national subsidies, the growth of general merchandise retail also slightly increased from 8% in the previous quarter to 11% due to the spillover effect from electric products.

2. Similarly benefiting from the aforementioned spillover traffic, the commission and advertising business for 3P sellers achieved revenue of 26.6 billion yuan this season, with a growth rate increasing by 4.4 percentage points to 12.7% quarter-on-quarter. However, the growth rate of commission & advertising this season is unusually lagging behind the self-operated growth rate, indicating that the traffic dividend from national subsidies did not overly benefit 3P merchants on the platform.

The logistics sector, including JD Logistics and Dada Now, also saw a slight acceleration in revenue growth to 9.5% this season, an increase of 3 percentage points quarter-on-quarter, benefiting the least among all business segments. The actual performance just barely met market expectations.

3. Summarizing the above businesses, JD.com achieved an overall revenue year-on-year growth rate of 13% this season, with a quarter-on-quarter acceleration of nearly 8 percentage points, marking the first return to over 10% since 2022, which is better than the sell-side consensus expectation that has been raised to around 9% to 10%.

Driven by the unexpectedly strong growth, JD.com also had good performance in profits this season. The group's overall operating profit was 8.5 billion yuan, which was generally in line with market expectations. However, after excluding intangible asset part-time, equity incentives, and proceeds from asset sales, the Non-GAAP operating profit was 10.5 billion yuan, significantly higher than the market expectation of 9.3 billion yuan.

From the perspective of business segments: JD Mall's operating profit was 10 billion yuan, a year-on-year increase of 44%. Achieving a profit of 10 billion yuan in the profit off-season of 4Q is a historical first and is about 1.3 billion yuan higher than market expectations. It is the main contributor to the group's profit exceeding expectations.

JD Logistics also performed well in terms of profit, although there was a slight quarter-on-quarter decline, but from a year-on-year perspective, the profit margin increased by 0.7 percentage points, with operating profit reaching 1.82 billion yuan vs. the expected 1.66 billion yuan. JD Logistics is still in the profit release phase However, the other business segments including Dada still lost 890 million this quarter, and while revenue shrank quarter-on-quarter, losses actually expanded. It is evident that in the fourth quarter of last year, JD.com had already shown signs of increasing investment in new businesses.

4. From the perspective of costs and expenses, what are the favorable and detrimental factors behind JD.com's impressive profit performance this time?

In terms of gross profit, the group's overall gross profit margin this quarter was 15.3%, an increase of about 1.1 percentage points year-on-year, but the increase was narrower compared to the 1.4 percentage points and 1.7 percentage points in the previous two quarters. This is mainly influenced by changes in revenue structure, with the relatively low-margin self-operated retail, especially in the electrical product category, experiencing strong growth and an increased share, while high-margin advertising commissions saw lower growth rates.

However, the essential driving factor remains the unexpectedly strong revenue growth, therefore the gross profit amount is still quite good, increasing by 15% year-on-year to 53.1 billion, which is about 3.5 billion higher than expected.

On the expense side, marketing expenses increased significantly from last year's 13 billion to this quarter's 16.8 billion, about 1.9 billion higher than market expectations. It is evident that strong revenue growth is still accompanied by significantly expanding marketing expenses, and the competitive incentive environment in the e-commerce industry to spend money for growth has not shown significant improvement since last year's fourth quarter.

Similarly, the unexpectedly strong revenue growth corresponded to a 16% year-on-year increase in fulfillment costs, slightly higher than expectations and corresponding sales growth. However, management and R&D expenses remain quite "stingy," with only a year-on-year increase of 1% to 3%. This indicates that the company is "spending where necessary and saving where possible," being generous with marketing and fulfillment needed for growth, but not loosening control over internal expenses.

Overall, due to the expansion of marketing expenses, the gross profit exceeded expectations by about 3.5 billion, and after being eroded on the expense side, the Non-GAAP profit exceeded expectations by a narrowed margin of 1.3 billion.

In terms of shareholder returns, JD.com announced a total of $1.5 billion in dividends + a repurchase amount of $5 billion over the next two and a half years. Assuming the repurchase amount is evenly distributed, the total amount for repurchase + dividends per year is about $3.5 billion, corresponding to a return rate of about 5.5% based on the pre-market valuation. As JD.com's market value rises, the return rate is no longer as exaggerated, but it should still be considered above average among Chinese concept stocks.

Dolphin Research's View:

With the generous and precisely targeted subsidies from the government for home appliances and electronic products like mobile phones, JD.com's performance this time is evidently quite good. Revenue growth has returned to double-digit growth for the first time in nearly three years, marking a milestone achievement. At the same time, although the significantly increased marketing expenses indicate that the competitive environment in the e-commerce industry is challenging, at least maintaining double-digit profit growth shows that it is not just about increasing revenue without increasing profit. It is not an exaggeration to say that as a mature giant enterprise, being able to deliver over 10% revenue growth + high double-digit profit growth this quarter is considered quite good in the entire Chinese concept stock sector, even without considering the expectation gap, the absolute performance is commendable Looking ahead to JD's subsequent performance trends, the positive aspect is that in early January this year, the government increased subsidies for electronic products, including mobile phones, tablets, and wearable electronic devices, thus JD, which has advantages in the aforementioned sectors, will have support for growth in at least the next 1-2 quarters compared to its peers.

However, a potential issue is that the company previously announced its entry into the ride-hailing and food delivery businesses with great fanfare, simultaneously entering two new sectors that are already dominated by absolute leaders, adding unpredictable uncertainty factors to JD's future performance. On one hand, the new businesses are expected to bring incremental revenue, but this will not be reflected in the short term, and whether JD can succeed in these areas is also uncertain. On the other hand, if the company invests heavily in these new businesses, it could drag down the overall profit of the group in the short term, which is a potential factor that could lead to immediate negative impacts.

From a valuation perspective, according to calculations by Dolphin Research, JD's performance corresponds to a market value of approximately 450 billion, roughly reflecting a 10x P/E under GAAP standards for 2025. We believe that in the absence of a clear turning point for comprehensive growth in the e-commerce industry and fundamental improvements in competition, this represents a relatively neutral valuation level (though it is still relatively cheap in absolute terms).

Looking ahead, JD has little relationship with AI in its main business (i.e., it has no cloud business and no publicly promoted AI large models), so it has not benefited from the current AI trend in China and cannot rely solely on the "AI story" to boost its valuation. It still needs to rely on the "hard-earned money" from its e-commerce business and actual performance to drive its stock price. Therefore, whether the subsequent government subsidies can continue to bring unexpected revenue and profit growth, or whether the company is too aggressive and overextends in its new businesses, leading to rapid erosion of profits due to large investments, is the key issue for whether the stock price will continue to rise or fall.

Detailed Interpretation of This Quarter's Financial Report:

1. The Biggest Beneficiary of Government Subsidies, Returning to Double-Digit Growth

The self-operated retail business, which has the largest proportion, achieved revenue of 281 billion this season, a year-on-year increase of 14%, significantly improving compared to the previous quarter, and marking the first return to double-digit growth in nearly three years since 1Q22. Although it has long been a market consensus that government subsidies for electronic products are particularly beneficial for JD, the consensus among sell-side analysts has raised the expected growth rate to 8%. However, the actual performance still significantly exceeded expectations.

Specifically, the revenue from electronic products jumped from 2.7% in the previous quarter to 15.8%, clearly showing the impact of government subsidies. According to overall retail data released by the NBS, the year-on-year growth rate for home appliance sales approached 40% in both October and December, indicating that the market slightly underestimated the positive impact of government subsidies on JD.

The growth of general merchandise retail has slightly increased from 8% last quarter to 11%. Although it is not directly benefited by national subsidies, the acceleration is not as significant as that of electric products, but it still reflects the spillover benefits of subsidies and traffic attraction from electric products, positively impacting sales across the entire JD platform.

2. Platform service revenue: The commission and advertising revenue from 3P sellers this quarter is 26.6 billion yuan, with a year-on-year growth rate also increasing by 4.4 percentage points to 12.7%. This should also be attributed to the spillover effect of national subsidies for electric products. However, we also note that the growth rate of commission and advertising this quarter has lagged behind self-operated retail, indicating that this round of national subsidies has not allowed JD's 3P ecosystem to capture a significant amount of traffic dividends.

3. Logistics and other services: Including JD Logistics and Dada Express, the logistics segment's revenue growth this quarter has also slightly accelerated to 9.5%, an increase of 3 percentage points, benefiting the least among all business segments. The actual performance is just about meeting market expectations.

II. Mall profits continue to be released, new business losses increase, is another investment period coming?

Summarizing the above businesses, JD's overall revenue growth rate this quarter has increased to 13% year-on-year, accelerating nearly 8 percentage points quarter-on-quarter, marking the first return to over 10% since 2022, which is better than the previously adjusted consensus expectation of around 9% to 10%.

Classified by business segment:

The most critical JD Mall's revenue this quarter grew by 14.7% year-on-year, reaching 307.1 billion, better than the expected 292.5 billion.

JD Logistics (JDL) revenue this quarter grew by 10.4% year-on-year, reaching 52.1 billion, slightly above the expected 50.8 billion.

Including Dada and other innovative businesses, this quarter revenue decreased by about 6% quarter-on-quarter to 4.7 billion, far below the market expectation of 5.4 billion. It appears that as of the fourth quarter, JD's new businesses are still in a state of contraction. **However, with this,recently JD.com has boldly announced its entry into several new businesses such as ride-hailing and food delivery, and the subsequent investments, growth, and losses are likely to expand again.

Driven by unexpectedly strong growth, JD.com's profits this quarter also performed better than expected. The group's overall operating profit was 8.5 billion, which is generally in line with market expectations. However, after excluding intangible asset impairment, equity incentives, and proceeds from asset sales, the Non-GAAP operating profit was 10.5 billion, still significantly higher than the market expectation of 9.3 billion.

Looking at the business segments:

1) JD Mall's operating profit was 10 billion, a year-on-year increase of 44%. Achieving a profit of 10 billion in the profit off-season of Q4 is a historical first and is about 1.3 billion higher than market expectations. It is the main contributor to the group's profit exceeding expectations. The significant benefits from national subsidies have led to increased revenue and profit, clearly outperforming the previous quarter's profit, which was nearly flat year-on-year.

JD Logistics also performed well in terms of profit, although there was a slight decline quarter-on-quarter (due to Q4 being a promotional season), but from a year-on-year perspective, the profit margin still increased by 0.7 percentage points, with operating profit reaching 1.82 billion, better than the expected 1.66 billion. Overall, JD Logistics is still in a profit release phase.

As for the other business segments including Dada, it still incurred a loss of 890 million this quarter, and while revenue shrank quarter-on-quarter, the losses actually expanded. It can be seen that in the fourth quarter of last year, JD.com had already shown signs of increasing investment in new businesses.

Three, the expansion of marketing expenses remains a solution to difficulties, still needing to "spend money to gain growth"

From the perspective of costs and expenses, what are the favorable and dragging factors behind JD.com's impressive profit performance this time?

First, in terms of gross profit, the group's overall gross profit margin reached 15.3% this quarter, an increase of about 1.1 percentage points year-on-year, which is a narrowing of the increase compared to the previous two quarters of 1.4 percentage points and 1.7 percentage points. We believe this is mainly due to changes in the revenue structure. This quarter, the relatively low gross profit margin of self-operated retail, especially in the electrical category, grew strongly and increased in proportion, while the high-margin advertising commissions had a lower growth rate and decreased in proportion However, the decline in gross margin is essentially due to stronger-than-expected revenue growth, resulting in an overall gross profit amount that increased by 15% year-on-year to 53.1 billion, which is about 3.5 billion higher than expected.

On the expense side, marketing expenses increased significantly from last year's 13 billion to this quarter's 16.8 billion, which is also about 1.9 billion higher than market expectations. This indicates that strong revenue growth is still accompanied by significantly expanded marketing expenses, and the competitive incentive environment in the e-commerce industry for spending to achieve growth has not shown significant improvement since last year's Q4.

Similarly, due to the stronger-than-expected sales, the corresponding fulfillment costs also increased by 16% year-on-year, slightly higher than expectations and the corresponding sales growth .

As for management and R&D expenses, they remain quite "stingy," with only a year-on-year increase of 1% to 3%. It can be seen that the company is "saving where it can and spending where it should," being generous with marketing and fulfillment expenses necessary for growth. However, it has not relaxed its control over internal expenses.

Overall, due to significantly expanded marketing expenses, the gross profit level exceeded expectations by about 3.5 billion, and after being eroded by expenses, the operating profit under Non-GAAP narrowed its beat to 1.3 billion. This led to JD.com performing better than expected in both revenue and profit, but the magnitude of the profit beat was not as strong.