China-based e-commerce giant JD.com (JD -0.61%) reported third-quarter results in the early hours of Monday morning. Top-line sales rose 25% year over year, despite soft consumer markets in a couple of key categories. Here's a closer look at JD's results.
JD's third-quarter results: The raw numbers
|
Metric |
Q3 2018 |
Q3 2017 |
Year-Over-Year Growth |
|---|---|---|---|
|
Revenue |
$15.3 billion |
$12.6 billion |
21% |
|
Net income attributable to shareholders |
$419 million |
$147 million |
185% |
|
GAAP earnings per American depositary share (diluted) |
$0.30 |
$0.10 |
200% |
Data source: JD.com.
What happened with JD this quarter?
- Management's revenue expectations for this period had been pointing to roughly $16.1 billion, and the reported result fell at the bottom end of the stated guidance range. Chinese consumers are buying fewer home appliances and high-end smartphones at the moment, pumping the brakes on JD's revenue growth ambitions.
- The company built 150 warehouses over the last four quarters, including approximately 30 in the third quarter alone. JD's shipping network now includes over 550 warehouse locations.
- JD served roughly 200,000 online merchants by the end of the third quarter, up from 160,000 a year earlier.
- The bottom line was boosted by a $500 million increase in the fair value of JD's long-term investments, driven by the public offering of British luxury retailer Farfetch (FTCH 2.97%). JD took a 14% ownership position in Farfetch in the summer of 2017, long before the high-end clothing specialist entered the public markets in a billion-dollar IPO.
Image source: JD.com.
What management had to say
JD spent $502 million on research and development (R&D) in the third quarter, or approximately 3.3% of its incoming sales. That's up from $364 million, or 2.1% of sales in the year-ago quarter.
On the earnings call, CFO Sidney Huang celebrated this commitment to innovation but also promised to slow down on R&D expansion from now on: "We believe these investments are critical to position ourselves for the next phase of growth. With the key leaders and the various teams now in place, we expect R&D expense ratio to begin to stabilize going forward."
Looking ahead
For the fourth quarter, JD's management expects revenues to rise roughly 20% year over year in constant currencies, landing near $19.1 billion. That would work out to a 13% increase in U.S. dollars, accounting for a 5% rise in the dollar's value against the Chinese yuan. Further changes to the exchange rates could throw these dollar-based targets off kilter.
The weak consumer interest in big-ticket items such as smartphones and appliances will carry over into the fourth quarter, which is why the top-line bar was set so low. For the record, the third quarter's 21% top-line growth rate was the lowest reading in the company's history. Before this report, JD's sales growth had not dipped below 30% since the third quarter of 2016.
