JD.com is looking at how to better leverage its tech and services know-how, and the first focus is its logistics operation.
That was a key takeaway from comments by JD executives during Thursday morning’s conference call to Wall Street analysts after the company posted second-quarter results.
The company, which continues to make substantial investments in technological innovation and infrastructure, posted a net loss for the period ended June 30 of $334.4 million, or 23 cents a diluted share, on a revenue gain of 31.2 percent to $18.5 billion. On an adjusted basis, JD recorded net income of $72.3 million, or 5 cents a diluted share. Wall Street analysts were forecasting adjusted diluted earnings per share of 10 cents on revenues of $17.8 billion.
The company has been fighting what executives on the call — Richard Liu, chairman and chief executive officer; Sidney Huang, chief financial officer, and Jianwen Liao, chief strategy officer — referred to as an “anticompetitive practice” by competitors that began last August using traffic control to get apparel merchants to stay off platforms such as JD.com. And while that practice has impacted parts of the business, such as fashion, which in turn has hurt profitability, the company has increased its focus on other areas of the business to make up the difference, such as customer service and the expansion of product offerings in existing categories.
Huang said on the call that the company over the past two quarters has been building a logistics asset management firm, which would be the third separate business after JD Finance and JD Logistics. The firm leverages the capabilities and infrastructure of the company’s core JD Mall operations. Its purpose is to develop the warehouse facilities, sell them to investors and manage the assets post-sale.
The cfo said JD is in a “unique position” to acquire land resources in China by working with the government, and it now has “built over 2.5 million square meters on logistic properties. But we actually have a lot more than that in the pipeline.” He also told analysts the company is in a “very good position to monetize these properties,” including a sale to outside investors. Huang said there are investors for “this type of asset” in China and globally because the “logistics assets have been appreciating quite steadily and with a steady rental income.” He guided analysts to a six-to-12-month time frame, explaining that’s when the balance sheet would begin to reflect the work of the logistics asset management firm.
He noted that “growth from logistics and other service revenues accelerated to 151 percent, mainly resulting from the robust growth from supply chain management and technology service revenues.”
The company in the quarter continued to invest heavily in research and development and technology, which Huang said the company believes will drive its long-term growth. Total R&D in the quarter was 2.3 percent of revenues.
“We believe these R&D investments are critical to extending our competitive strengths and transforming ourselves for the next phase of growth, driven by retail infrastructure services,” the cfo said.
Huang added that company launched more than 80 WeChat Stores each day for its brand partners during the quarter. However, most initiatives have yet to produce meaningful financial results, although he said the company has “made good traction” and “we remain optimistic about our future growth.”
Huang said the company remains “bullish in terms of growth outlook,” noting that indicators — overall consumption growth, consumer income and also consumption as a percent of gross domestic product — are “pointing to continuous consumption growth for many years to come.”
That said, JD isn’t taking any chances. Liao discussed JD’s perspective on where “retail of the future” might be headed.
One area is the shift from centralization to decentralization. According to Liao, the boundary between retail and other industries has become blurred, and there has been an emergence of channels of commerce, whether that’s social commerce, AI commerce or Internet of Things commerce.
Another area he noted was how e-commerce is moving away from a focus on mass traffic to position targeting. He explained that retail is no longer about selection and quality, but more about providing the right products to the right customers.
A key area of JD’s focus is the supply chain, which Liao said has become “increasingly more important than a pure-platform model.” No surprise that he concluded that retail innovation and the supply chain will be key drivers of success for online and off-line retail.
With an eye toward those areas, the chief strategist emphasized that technological innovation will continue to expand possibilities in areas of cost, efficiency and customer experience in retail. “Investing in technology will drive this company for the next decade, much like logistics has given us a major advantage over the last decade. Our vision is to leverage technology to develop world-class, tech-based supply-chain platform capabilities, integrating both hardware and software solutions,” Liao said.
Liu, who didn’t make any prepared remarks, said in a statement earlier in the day, “As China’s most trusted e-commerce platform, JD continues to win over quality-focused customers with a premium shopping experience and an unrivaled level of service, no matter where they choose to shop.”
The chairman also said the company is seeing more corporate clients, both Chinese and international, utilizing JD’s retail infrastructure. “We will continue to prioritize technology innovation to empower our partners with enhanced capabilities and improve efficiency, helping us to realize our ‘Retail as a Service’ strategy, and driving our next phase of growth.”
The company uses drones to help with delivery services, and has been onboarding new brands to its site, most recently adding Balenciaga to its luxury Toplife platform. And in the quarter, Google invested $550 million in the company as part of a strategic partnership to explore the development of retail solutions.
Shares of JD.com slipped 1.2 percent to close at $31.97 in trading on the NasdaqGS.