JD.com Earnings: Non-GAAP Net Profit Beats on Lower First-Party Business Sourcing Cost

JD.com’s third-quarter non-GAAP net profit beat Refinitiv consensus as of Nov. 15 by 18% and our estimate by 19%. The beat primarily comes from lower first-party business sourcing costs as a result of its scale in the business. As merchandise currently needs lower order value to qualify for free shipping, this should continue to drive first-party business scale and reduce sourcing costs in the long run, partially offset by higher fulfillment expenses. Management is committed to striking a balance between profitability and growth, which leads us to think that it will not engage in a long-term value-destructive subsidy. We don’t think the 24% revenue CAGR seen from 2017 to 2022 will repeat itself, but we believe the negative impact on revenue growth from business restructuring will be largely behind us, starting from the first quarter of 2024. We forecast a 10-year revenue CAGR of only 4% as consumers increasingly demand value-for-money products, which is not one of JD.com's strengths. We are cautiously optimistic on JD.com.