JD.Com Inc(ADR) (NASDAQ:JD), the largest Chinese e-commerce company by revenue, today announced its unaudited financial results for the quarter ended June 30, 2016.
Second Quarter 2016 Highlights
- Net revenues for the second quarter of 2016 were RMB65.2 billion (US$19.8 billion), an increase of 42.0% from the second quarter of 2015. Revenues from services and others, mainly from the company’s e-commerce platform business, for the second quarter of 2016 were RMB5.5 billion (US$0.8 billion), an increase of 67% from the second quarter of 2015.
- Gross profit for the second quarter of 2016 was RMB9.8 billion (US$1.5 billion). Non-GAAP gross profit2 for the second quarter of 2016 was RMB9.5 billion (US$1.4 billion), an increase of 66% from RMB5.8 billion in the second quarter of 2015.
- Loss from operations for the second quarter of 2016 was RMB358.2 million (US$53.9 million) compared to RMB723.1 millionfor the same period last year. Non-GAAP income from operations3 for the second quarter of 2016 was RMB361.5 million(US$54.4 million) as compared to non-GAAP loss from operations of RMB246.7 million in the second quarter of 2015. Non-GAAP operating margin of JD Mall4 for the second quarter of 2016 was approximately 1.1%, compared to approximately 0.4% for the second quarter of 2015.
- Operating cash flow for the second quarter of 2016 was RMB2.2 billion (US$0.3 billion) compared to RMB1.5 billion for the same period last year. Free cash flow5, which excludes JD Finance net originations6 included in the operating cash flow, for the second quarter of 2016 was RMB8.1 billion (US$1.2 billion) compared to RMB4.7 billion for the same period last year. Free cash flow for the trailing twelve months ended June 30, 2016 totaled RMB11.0 billion (US$1.7 billion), compared toRMB6.6 billion for the trailing twelve months ended June 30, 2015.
- GMV for the second quarter of 2016 increased by 47% to RMB160.4 billion (US$24.1 billion) from the core GMV (excluding Paipai.com) of RMB108.7 billion in the second quarter of 2015. GMV excluding virtual items7 for the second quarter of 2016 totaled RMB157.1 billion (US$23.6 billion), up 52% from the second quarter of 2015.
- Annual active customer accounts increased by 65% to 188.1 million in the twelve months ended June 30, 2016 from 114.0 million in the twelve months ended June 30, 2015, excluding unique customers from Paipai.com.
- Fulfilled orders excluding virtual items in the second quarter of 2016 were 373.4 million, an increase of 56% from 240.0 million orders fulfilled for the core business excluding virtual items in the same period in 2015. Fulfilled orders placed through mobile accounted for approximately 79.3% of total orders fulfilled in the second quarter of 2016, an increase of more than 130% compared to the same period in 2015.
“We are pleased to record another strong quarter of healthy growth, with improving operating performance driving customer satisfaction,” said Richard Liu, Chief Executive Officer of JD.com. “With our reputation for high-quality online shopping and same-day delivery already cemented with Chinese consumers, we are taking steps to further extend that advantage through efforts like our new strategic alliance with Walmart and Chinese online supermarket Yihaodian. We are successfully pursuing our vision of providing a superior, all-categories e-commerce platform through partnerships with top brands and investments in cutting-edge technologies that extend our lead in fulfillment and overall user experience.”
“We are thrilled to see continued record free cash flow for the trailing twelve months, reflecting the underlying strength of our overall business,” said Sidney Huang, JD.com’s Chief Financial Officer. “We are also encouraged by the momentum in our new business initiatives, including JD Finance, which has been self-funding its growth by leveraging its technologies and track record in the first half of 2016. Looking ahead, we will maintain our focus on achieving sustainable, high-quality growth across our businesses, alongside disciplined strategic investments in key business initiatives and technologies.”
Recent Business Highlights
- In June, JD.com and Walmart announced a strategic alliance to better serve consumers across China through a powerful combination of e-commerce and retail. The two companies will collaborate on e-commerce, including further building the Yihaodian brand and business, launching a Sam’s Club flagship store on JD.com, pursuing O2O initiatives, and leveraging one another’s supply chains to increase product selection for customers across China.
- In July, JD.com and Lenovo expanded their existing relationship with the announcement of a new multi-year partnership designed to address the growing online demand for Lenovo products from consumers and businesses throughout China. As part of the agreement, JD.com will become the preferred platform for Lenovo to debut strategic products, and the two companies will leverage each other’s strengths to collaborate on precision marketing and expanding rural outreach.
- In the second quarter, JD.com announced the launch of British Mall, a new channel on the JD Worldwide platform dedicated to helping Chinese consumers purchase a wide range of high-quality products from leading UK brands. Liverpool FC and children’s fashion brand Group Zannier also launched flagship stores on JD Worldwide as part of the effort.
- In the second quarter, several major international brands launched flagship stores on JD.com, including well-known Japanese cosmetic brands Kose’s Sekkisei and Shiseido’s Anessa, popular Korean cosmetic brand Innisfree, leading fashion brand New Look, and the world’s top cognac brand, Louis XIII. JD.com continues to expand its partnerships with overseas brands to meet the fast-growing demand from Chinese consumers for high-quality, authentic imported products.
- In May, the Shanghai Stock Exchange approved an RMB2 billion asset-backed securitization project based on JD Finance’s supplier financing products, the first of its kind in China. The successful issuance of this product is a validation of JD Finance’s strong risk control capabilities and proprietary credit analysis model. In the first half of 2016, JD Finance successfully sold overRMB7.6 billion of loans without recourse through five tranches of asset-based securities.
- In July, JD.com became a Fortune Global 500 company for the first time, ranking #366 on the list of the world’s largest companies.
- During the second quarter, JD.com extended its leadership in fulfillment capabilities among China’s e-commerce companies. As of June 30, 2016, JD.com operated 234 warehouses with an aggregate gross floor area of approximately 5.2 million square meters and a total of 6,756 delivery stations and pickup stations across China, and its delivery network covered 2,639 counties and districts.
- JD.com had approximately 100,000 merchants on its online marketplace and a total of 113,679 full-time employees as of June 30, 2016.
Second Quarter 2016 Financial Results
GMV and Net Revenues. GMV from the online direct sales business was RMB94.7 billion in the second quarter of 2016, up 46% from the second quarter of 2015. GMV from the online marketplace business, excluding virtual items, totaled RMB62.5 billion in the second quarter of 2016, an increase of 62% from the second quarter of 2015. GMV from electronics and home appliance products wasRMB83.1 billion in the second quarter of 2016, an increase of 43% from the core GMV for the second quarter of 2015, while GMV from general merchandise and others excluding virtual items was RMB74.0 billion in the second quarter of 2016, an increase of 63% from the second quarter of 2015, and contributed 47% of total GMV excluding virtual items, up from 44% in the second quarter of 2015.
For the second quarter of 2016, JD.com reported net revenues of RMB65.2 billion (US$9.8 billion), representing a 42% increase from the same period in 2015. Net revenues from online direct sales increased by 40%, while net revenues from services and others increased by 67% in the second quarter of 2016, as compared to the second quarter of 2015.
Cost of Revenues. Cost of revenues increased by 39% to RMB55.5 billion (US$8.3 billion) in the second quarter of 2016 fromRMB40.0 billion in the second quarter of 2015. This increase was primarily due to the growth of the company’s online direct sales business, the increased traffic acquisition costs directly related to the online marketing services provided to merchants and suppliers, as well as interest expenses related to JD Finance.
Fulfillment Expenses. Fulfillment expenses, which primarily include procurement, warehousing, delivery and customer service expenses, increased by 57% to RMB5.1 billion (US$0.8 billion) in the second quarter of 2016 from RMB3.3 billion in the second quarter of 2015. Fulfillment expenses as a percentage of net revenues increased to 7.8% compared to 7.1% in the prior year period primarily due to the strategic expansion into the consumable product category, which has lower average order size.
Marketing Expenses. Marketing expenses increased by 31% to RMB2.6 billion (US$0.4 billion) in the second quarter of 2016 fromRMB2.0 billion in the second quarter of 2015.
Technology and Content Expenses. Technology and content expenses increased by 71% to RMB1.3 billion (US$0.2 billion) in the second quarter of 2016 from RMB0.8 billion in the second quarter of 2015.
General and Administrative Expenses. General and administrative expenses increased by 76% to RMB1.1 billion (US$0.2 billion) in the second quarter of 2016 from RMB0.6 billion in the second quarter of 2015, primarily due to the increased spending in various new business initiatives.
Loss from operations and Non-GAAP income from operations. Loss from operations for the second quarter of 2016 wasRMB358.2 million (US$53.9 million), compared to RMB723.1 million for the same period last year. Non-GAAP income from operations for the second quarter of 2016 was RMB361.5 million (US$54.4 million) with a margin of 0.6% as compared to non-GAAP loss from operations of RMB246.7 million with a margin of negative 0.5% in the second quarter of 2015.
Non-GAAP operating margin of JD Mall for the second quarter of 2016 was approximately 1.1%, compared to approximately 0.4% for the second quarter of 2015. Non-GAAP loss from operations of New Businesses, including JD Finance, O2O, technology initiatives and overseas business, for the second quarter of 2016 was approximately RMB0.3 billion. The company deconsolidated the O2O business following its merger with Dada Nexus on April 26, 2016.
Non-GAAP EBITDA8 for the second quarter of 2016 totaled RMB852.4 million (US$128.3 million) with a Non-GAAP EBITDA margin of 1.3%, compared to 0.1% for the second quarter of 2015.
Share of results of equity investees and Others, net. Share of results of equity investees for the second quarter of 2016 wasRMB1.1 billion loss (US$0.2 billion), while other income for the second quarter of 2016 was RMB1.3 billion (US$0.2 billion). The loss was primarily due to a non-cash impairment of investment in Tuniu and losses picked up from the company’s equity method investments, while the income was primarily due to a non-cash gain from the O2O transaction with Dada Nexus. Loss from equity method investment in Dada Nexus will be recorded one quarter in arrears beginning in the third quarter of 2016.
Net Loss and Non-GAAP Net Income9. Net loss for the second quarter of 2016 was RMB132.1 million (US$19.9 million), a decrease of 74% from a net loss of RMB510.4 million for the same period last year. Non-GAAP net income for the second quarter of 2016 was RMB391.4 million (US$58.9 million), as compared to non-GAAP net loss of RMB15.7 million in the second quarter of 2015.
Cash Flow and Working Capital
As of June 30, 2016, the company’s cash and cash equivalents, restricted cash and short-term investments totaled RMB43.4 billion(US$6.5 billion). For the second quarter of 2016, free cash flow of the company was as follows:
|For the three months ended|
|June 30, 2015||June 30, 2016||June 30, 2016|
|Net cash provided by operating activities||1,512,737||2,187,278||329,117|
|Add: JD Finance net originations included in operating cash flow||4,307,494||7,017,281||1,055,881|
|Less: Capital expenditures||(1,094,611||)||(1,112,078||)||(167,333||)|
|Free cash flow||4,725,620||8,092,481||1,217,665|
For the six months ended June 30, 2016, JD Finance incurred a net cash outflow of RMB13.6 billion (US$2.0 billion) in loan originations and investment activities and received a net cash inflow of RMB19.6 billion (US$2.9 billion) through financing activities. As of June 30, 2016, the ending balances of the consumer financing, business financing and supply chain financing wereRMB17.7 billion (US$2.7 billion), RMB0.4 billion (US$0.1 billion) and RMB9.4 billion (US$1.4 billion), respectively.
For working capital turnover days, see table under “Supplemental Financial Information and Business Metrics.”
Appointment of Haoyu Shen as President of JD International
Due to family reasons, JD Mall CEO Haoyu Shen will relocate to the United States later this year, and has been named President ofJD International, effective immediately. In his new role, Mr. Shen will be responsible for the company’s international and cross-border efforts, including his current leadership role in the strategic alliance with Walmart. Mr. Shen will continue to report to JD.com CEO,Richard Liu and management members previously reporting to Mr. Shen will now report directly to Mr. Liu.
Share Repurchase Program
In September 2015, JD.com’s Board of Directors authorized a share repurchase program under which the company may repurchase up to US$1.0 billion worth of its ADSs over the following 24 month. As of June 30, 2016, the company had repurchased approximately 2.4 million ADSs for approximately US$51.5 million. Additionally, in order to lower the average cost of acquiring shares in the ongoing share repurchase program, the company entered into a structured repurchase agreement involving the use of capped call options for the purchase of shares. The company paid a fixed sum of cash upon execution of the agreement. Upon expiration of the agreement, if the closing market price of the company’s common stock is at or above the pre-determined price (the “Strike Price”), the company will have its initial investment returned with a premium in either cash or shares at the company’s election. If the closing market price is below the Strike Price, the company will receive the number of shares specified in the agreement. As of June 30, 2016, the company had paid US$100 million for the capped call options, which will be settled in the third quarter of 2016.
Third Quarter 2016 Guidance
Net revenues for the third quarter of 2016 are expected to be between RMB59 billion and RMB61 billion, representing a growth rate between 34% and 38% compared with the third quarter of 2015. This forecast reflects JD.com’s current and preliminary expectation, which is subject to change. (Original Source)
Shares of JD.com are up over 9% to $24.52 in pre-market trading. JD has a 1-year high of $33.48 and a 1-year low of $19.51. The stock’s 50-day moving average is $21.55 and its 200-day moving average is $24.24.
On the ratings front, JD has been the subject of a number of recent research reports. In a report released yesterday, UBS analyst Erica Werkun reiterated a Hold rating on JD, with a price target of $28, which represents a potential upside of 25.2% from where the stock is currently trading. Separately, on the same day, Brean Murray Carret’s Fawne Jiang reiterated a Buy rating on the stock .
According to TipRanks.com, which ranks over 7,500 financial analysts and bloggers to gauge the performance of their past recommendations, Erica Werkun and Fawne Jiang have a total average return of 0.6% and 7.1% respectively. Werkun has a success rate of 50.0% and is ranked #2584 out of 4110 analysts, while Jiang has a success rate of 59.5% and is ranked #285.
Overall, one research analyst has assigned a Hold rating and 6 research analysts have given a Buy rating to the stock. When considering if perhaps the stock is under or overvalued, the average price target is $33.00 which is 47.5% above where the stock closed yesterday.
JD.com, Inc. is engaged in the sale of electronics products and general merchandise products, including audio, video products and books. It also offers online sales of home appliances, digital communications, computers, home merchandise, apparel, baby book, food, and others.