JD.com Earnings: Sales and Non-GAAP Net Profit Beat but JD Retail Operating Margin Missed

JD.com beat Refinitiv consensus as of Aug. 16 and our estimate for revenue and non-GAAP net income in the second quarter. However, JD.com’s Nasdaq traded shares dropped 3% on the day of earnings. We think it is because of the quarter's zero year-on-year growth in operating profit for main segment JD Retail, a sharp decline from double-digit growth in every quarter previously since the second quarter of 2022. This underperforms Alibaba’s Taobao and Tmall Group’s 9% year-on-year growth in adjusted EBITA in the June quarter. JD Retail's operating margin before unallocated items for the quarter was 3.2%, lower than 3.4% for the second quarter of 2022, and weaker than our 3.4% expectation. We estimate JD Retail’s weak operating profit is due to higher marketing spending, which was up 17% year on year for the group in the quarter, and completely offset the benefit from faster growth in the higher-margin third-party business. As a comparison, Alibaba’s Taobao and Tmall Group adjusted EBITA margin also declined by 120 basis points to 42.9% in the quarter on a year-on-year basis due to a higher mix of lower-margin first-party business and investment back into the business.