SHANGHAI — Chinese e-commerce giant JD.com said Wednesday it halved its second-quarter net losses to $37.96 million as revenues grew 42 percent to 65.2 billion yuan, or $9.8 billion.
This represents a slight moderation in growth compared to the first quarter, when revenue grew 47.3 percent, and the continuation of a trend for slower growth from a higher base. JD.com saw 57 percent year-on-year growth in the fourth quarter of 2015 and a 62 percent year-on-year growth rate in the first quarter of last year.
As well as confronting a broader consumption slowdown in China, JD.com has also discontinued contracts with more than 22,000 merchants on its marketplace in the first half as part of a long-term strategy to boost marketplace quality. Executives warned that this move will result in significant slowdown in sales growth in the second and third quarters.
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“These are lower quality merchants who, in the past, repeatedly violated some of our rules,” said chief financial officer Sidney Huang.
“The vast majority of these merchants do have transaction volume so by discontinuing contracts with these merchants, we did suffer some financial losses in the process,” chief executive officer Richard Liu explained, adding that JD.com has in the same period attracted a similar number of new merchants to its marketplace, though it would expect the new merchants to only achieve transaction volume after at least six months of operation.
“As a result the GMV [Gross Merchandise Volume] from our marketplace business will see a significant slowdown in the second and third quarters of this year but we believe these measures will improve our user experience and the integrity of our platform,” said Liu.
JD’s GMV for the three months ended June 30 increased 47 percent to 160.4 billion yuan, or $24.1 billion. In comparison, GMV in the first quarter of 2016 increased 55 percent on the year.
A major milestone for JD.com in the second quarter was its $1.5 billion “strategic alliance” with Wal-Mart, unveiled in June. The deal sees JD.com acquire ownership of Wal-Mart’s China-based Yihaodian online marketplace. In exchange, Wal-Mart received nearly 145 million newly issued JD.com Class A ordinary shares, representing about 5 percent of the Chinese e-tailer’s total shares.
JD.com’s management expects to see system integration with Yihaodian completed in the third quarter and anticipates an estimated 1 billion yuan, or $150.7 million at current exchange, in related operating losses in the second half of 2016 due to operational and integration costs.
The company said its overall losses from operations for the second quarter came in at 358.2 million yuan, or $53.9 million.
Huang said that the Yihaodian operational and integration-related losses would be offset in the long-term by the GMV that will be picked up from the new acquisition, particularly in the fast-moving consumer goods categories that represent Yihaodian’s core business.
Meanwhile, the company said that JD Mall ceo Haoyu Shen will relocate to the United States later this year for family reasons. He will be taking on a new role as president of JD International, effective immediately.
Shen’s new responsibilities will include overseeing the company’s international and cross-border business, including the aforementioned alliance with Wal-Mart. JD said Shen will continue to report to Liu, while management members previously reporting to Shen will now report directly to Liu.
JD.com’s ceo opened Wednesday’s earnings call by praising Shen’s record as JD Mall ceo.
“Working with me over the last five years Haoyu has made outstanding contributions to the company. His new role will draw on his international experience and we look forward to his future contribution,” Liu said.
The number of users flocking to China’s second-largest e-commerce platform continued to grow, with annual active customer accounts increasing by 65 percent to 188.1 million in the 12 months ended June 30.
Huang also pointed out during the earnings call that JD.com’s free cash flow totaled 11 billion yuan, or $1.66 billion, for the 12 months to June 30, an increase of 67 percent.
“This strong cash flow is probably the best validation for the underlying strength of JD.com,” the cfo said.
In terms of category breakdowns, food and beverage proved to be the fastest growing segment of JD.com’s second quarter, followed by cosmetics and home wares.
Apparel and footwear retained their position as the largest category on the platform overall, with Huang saying that merchants in this category saw “well over 100 percent growth” in the second quarter.
JD.com’s fiercest rival, Alibaba, releases earnings Thursday.