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JD.com to focus on high-growth business initiatives

Chinese e-commerce company sees loss widen to 9.4 billion yuan because of higher operating costs

PUBLISHED : Tuesday, 01 March, 2016, 9:03pm
UPDATED : Wednesday, 02 March, 2016, 6:36pm

JD.com, China’s second-largest business-to-consumer e-commerce services company, aims to focus on investment in high-growth business areas this year and improve its profitability after posting mixed results for last year.

“We will remain focused on earning the trust of China’s consumers, while building partnerships with top brands,” chief executive Richard Liu Qiangdong said on Tuesday, ahead of the opening of the Nasdaq stock market in the United States.

Beijing-based JD.com reported a 58 per cent increase in total revenue last year to 181.28 billion yuan (HK$215.04 billion), up from 115 billion yuan in 2014, primarily due to increases in active customer accounts and the number of fulfilled orders.

“We now have 155 million annual active customers across our core businesses,” Liu said.

We will continue to invest in high-growth initiatives while improving the profitability of our core business
Sidney Huang Xuande, JD.com

The company directly sells products from its own inventory, like Amazon, and operates online marketplaces where major brands and retailers sell their merchandise.

Its total fulfilled orders last year jumped 94 per cent to 1.26 billion, compared with 651.9 million in 2014.

Core gross merchandise volume – the total value of all goods sold across the e-commerce service during the 12 months to December – climbed to 446.5 billion yuan, up 84 per cent year on year.

That estimate excluded goods sold on the now discontinued Paipai.com consumer-to-consumer online marketplace, which was closed by JD.com at the end of December due to rampant counterfeiting problems.

JD.com, however, saw its total loss widen to 9.4 billion yuan last year , from 5 billion yuan in 2014, because of higher operating costs.

Fulfilment expenses, which primarily include procurement, warehousing, delivery and customer service expenses, increased 73 per cent year on year to 13.9 billion yuan. Marketing costs rose 93 per cent to 7.7 billion yuan, while technology and content spending grew 88 per cent to 3.5 billion yuan.

“In the quarters ahead, we will continue to invest in high-growth initiatives while improving the profitability of our core business,” JD.com chief financial officer Sidney Huang Xuande said.

Daiwa Capital Markets analyst John Choi said in a report that JD.com would boost spending on manpower, with its staff set to reach more than 150,000 this year from 110,000 at the end of December.

Choi also expected JD.com to start building “a nationwide cold chain fulfilment network”, which would support its online-to-offline partnerships with supermarkets and convenience stores under the JD Home service, and its investment in Fruit Day, a premium fresh fruit retailer in mainland China.

HSBC analyst Tsang Chi said in a report that JD.com was “highly geared” towards partnerships because of “its fast and reliable delivery capabilities”. The firm runs seven large fulfilment centres and a total of 213 warehouses in 50 cities across the mainland.

JD.com projected first-quarter revenue to be between 53 billion yuan and 55 billion yuan, representing year-on-year growth of between 45 per cent and 50 per cent.