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JD.com Q4 FY2014 Results: Sales Acceleration Encouraging


JD.com (NASDAQ:JD) released Q4 FY2014 results which included revenue of 34.7 billion RMB (beating management’s guidance) and non-GAAP net income of 84 million RMB. Fourth-quarter results topped analyst estimates on both the top-line ($5.6 billion vs. $5.3 billion USD equivalent) and earnings ($0.01 vs. $-0.02 USD equivalent EPADS).

Seeing sales accelerate into Q4 was encouraging. JD.com delivered strong YoY revenue growth of +73% YoY (vs. +63% in Q1-Q3). The company not only grew sales, but also improved profitability, with gross margin hitting a record high 13%. Operating margins were lower, however, mostly due to increased marketing spending, driven by seasonality and promotions over the November 11 shopping holiday.

Operating metrics showed signs of continued progress. The number of active customers nearly doubled YoY, up nearly 20% QoQ. JD.com filled about 218 million orders during the quarter, which translated into an increased order size of about 394 RMB/order (+12% YoY, +4% QoQ). Mobile was strong – 36% of orders in Q4 were from mobile, driven in part by the tie-up with Tencent’s (OTCPK:TCEHY) Wexin and Mobile QQ.

The Q1 FY2015 outlook (revenues +56% YoY, flat QoQ) reflected Chinese New Year seasonality.

Recent Quarterly Performance FY2014
(Millions) RMB Q4 Q1 Q2 Q3 Q4
Revenue 20,124 22,657 28,613 29,012 34,720
Gross profit 2,041 2,261 3,155 3,544 4,410
Operating profit -263 -3,852 -788 -407 -756
Net income -110 -3,795 -583 -164 -454
Earnings per ADS (GAAP) -0.45 -6.20 -5.86 -0.12 -0.33
Comparison YoY
Revenue 60% 65% 64% 61% 73%
Gross profit 78% 53% 103% 100% 116%
Operating profit n.a. n.a. n.a. n.a. n.a.
Net income n.a. n.a. n.a. n.a. n.a.
Earnings per share n.a. n.a. n.a. n.a. n.a.
Comparison QoQ
Revenue 12% 13% 26% 1% 20%
Gross profit 15% 11% 40% 12% 24%
Operating profit n.a. n.a. n.a. n.a. n.a.
Net income n.a. n.a. n.a. n.a. n.a.
Earnings per share n.a. n.a. n.a. n.a. n.a.
Margin analysis
GPM 10% 10% 11% 12% 13%
OPM -1% -17% -3% -1% -2%
NPM -1% -17% -2% -1% -1%
EBITDA -1% n.a. n.a. 1% 0%

JD.com recorded an operating cash outflow of about 1.2 billion RMB, lower than the 1.4 billion RMB operating cash inflows in Q3 FY2014 and Q4 FY2013.

The fourth-quarter balance sheet included highly liquid cash instruments (cash and cash equivalents, short-term investments) of approximately 29 billion RMB, down from about 32 billion in Q3 due to operating cash outflows as well as capital expenditures.

Outlook

The company’s Q1 FY2015 outlook included the following:

  • Revenue: between 34.8 and 35.8 billion RMB (+54% YoY, flat QoQ)

The first quarter is seasonally slow in China, and on the quarterly conference call, management explained that the relatively light guidance for Q1 FY2015 reflected that seasonality.

When looking toward the full year, management hoped to narrow its non-GAAP net margins to the 0% to -0.5% range by the end of the year through further scale economy gains and cost controls.

Operating Metrics

Gross merchandise value increased due to an increase in the number of active customers and an increase in the number of orders the company filled.

The company announced record order flow during the November 11 “Singles’ Day” shopping event, with volume more than doubling YoY, helping to push Q4 GMV higher.

The number of active customers nearly doubled YoY, helped by the company’s November 11 promotion efforts.

On the call, management disclosed that purchase frequency was continuing to improve, a factor which helped increase the number of fulfilled orders +95% YoY.

Key Business Developments during Q4 FY2014

Mobile: According to management, mobile orders accounted for about 36% of Q4 orders. Additionally, strength in mobile helped drive customer acquisition – about 20% of first-time customers came from Tencent’s Weixin or Mobile QQ apps.

Marketplace: As of Q4 FY2014, there were about 60,000 sellers using JD.com’s marketplace platform, which contributed about 44% of total GMV for the quarter. The company continued to broaden its category offering, with general merchandise comprising the majority of sales for the first time. Management mentioned that apparel and shoes were the most popular categories by number of orders, and were also the fastest growing segments.

Financial Performance

Income Statement FY2014
(Millions) RMB Q4 Q1 Q2 Q3 Q4
Revenue
Online direct sales 19,340 21,781 27,018 27,369 32,381
Services, others 784 876 1,595 1,643 2,339
Total revenue, net 20,124 22,657 28,613 29,012 34,720
YoY 60% 65% 64% 61% 73%
Cost of revenues -18,083 -20,396 -25,458 -25,468 -30,310
Gross profit 2,041 2,261 3,155 3,544 4,410
YoY 78% 53% 103% 100% 116%
Gross profit margin 10% 10% 11% 12% 13%
Fulfillment -1,251 -1,360 -2,002 -2,119 -2,585
Marketing -523 -594 -1,066 -880 -1,471
Technology and content -276 -285 -420 -512 -619
General and administrative -254 -3,874 -455 -439 -491
Operating profit -263 -3,852 -788 -407 -756
YoY n.a. n.a. n.a. n.a. n.a.
Operating profit margin -1% -17% -3% -1% -2%
Interest income 122 98 155 198 187
Interest expense -1 -5 -8 -8 -7
Other income (expense) 29 -39 59 59 137
Pretax income (loss) -113 -3,798 -582 -158 -439
Income tax expense 3 3 0 -6 -15
Net income (loss) -110 -3,795 -583 -164 -454
YoY n.a. n.a. n.a. n.a. n.a.
Net profit margin -1% -17% -2% -1% -1%
Preferred shares redemption value accretion -275 -1,494 -6,464 0 0
Net income due common shareholders -385 -5,289 -7,046 -164 -454

 

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