Revenue at China's biggest direct online seller rose 33.8% to $28.5 billion, ahead of expectations at $27.5 billion, while adjusted earnings per share jumped from $0.33 to $0.50, topping Wall Street views at $0.38.
JD's strong growth on the top and bottom lines and its investment in an array of emerging businesses have made it one of the most attractive and reasonably priced e-commerce stocks on the market. Based on 2021 EPS estimates, the stock is trading at a P/E ratio of just 33, only slightly more expensive than the average stock in the S&P 500, and the company has a number of promising growth avenues in front of it. Let's take a look at three big numbers from JD's second-quarter earnings report.
General merchandise sales jumped 45.4% in the quarter to $9.1 billion, accelerating from the first quarter and driven by strong growth in grocery and pharmacy. Historically, JD's biggest retail sales category has been electronics and appliances, but the company is increasingly becoming an Amazon-like "everything store," and the runway for growth is much longer in categories like groceries and pharmacy.
JD Super, its grocery division, has already become the largest supermarket in China -- either online or offline -- and groceries, including fresh produce, are now the company's single biggest product segment, showing that consumer behavior is shifting during the pandemic. Those changes are likely to remain even after the crisis, as shopping for groceries online will become habit-forming for a certain percentage of customers.
With an eye toward growth, the company plans to invest in supply chain capabilities and improve cold storage logistics in order to increase efficiency and reduce fulfillment costs.
JD Health has also emerged as a promising growth business for JD -- services like pharmacy delivery have become essential during the pandemic, and the division just received a $830 million investment from Hillhouse Capital.
Telehealth has also become a major growth opportunity for JD, as it saw 400% volume growth in its online medical consulting service. It's also experiencing fast growth in lower-tier cities, where 80% of its new customers came from, showing the service is successfully penetrating smaller markets in China. Lower-tier cities represent a large opportunity for JD, both in its e-commerce business and in areas like logistics and healthcare.
In June the company opened its Traditional Chinese Medicine Consultation Center and Intelligent Otorhinolaryngology (Ear, Nose, and Throat) Services Center, adding to the range of services it provides through telehealth. JD became China's leading pharmacy by sales in the first quarter, and its strength in telehealth will complement its online pharmacy business. Like online grocery, telehealth has experienced surging growth during the pandemic, accelerating its long-term growth trajectory.
Operating income in the quarter jumped 122% to $713.9 million as the company drove strong sales gains while holding overhead costs in control. Spending on fulfillment costs and marketing rose by 30% and 21%, respectively, while research and development and general and administrative expense were essentially flat from a year ago, showing the company was able to grow revenue by a third while holding spending on salaried employees about flat.
CFO Sandy Xu noted, "Our scale advantages and cost efficiency enabled us to provide attractive prices during our June 18 sales promotions, benefiting consumers and society as China's economy emerges from the difficult pandemic period, and helped drive solid top and bottom line results for the second quarter."
The company saw a similar ramp-up in the first quarter of the year, meaning that the business may be reaching a scale where profits start to grow much faster than revenue. In its new businesses, which include third-party logistics, businesses outside of China, and certain tech initiatives, its operating loss was nearly cut in half, showing progress in those investments.
That means that the $2 per share analysts are expecting from the company next year may be prove to be a lowball estimate, especially as the Chinese economy rebounds from the pandemic. With strong growth across the board, the breakout growth of businesses like grocery and JD Health, and a much lower valuation than e-commerce peers, there are a lot of reasons to like JD.com stock for the long term here.