In a world of ever-evolving e-commerce platforms, JD.com Inc. (JD, Financial) stands out not just as a behemoth of online shopping, but as a master of supply chain efficiency.
Imagine a system so optimized that it not only slashes operational costs, but also ensures that the customer enjoys unbeatable prices and receives products without a hitch.
From strategic focus on PCs and home appliances to a record-setting surge of third-party merchants, JD.com's strategy is clear: deliver value and consistency every single time.
Supply chain mastery: Driving value, discounts and dynamic growth
One of the cornerstones of JD.com's value growth is its robust supply chain. The efficiency of the company's supply chain results in lower operational costs. These savings can be passed on to customers through competitive pricing. Its supply chain ensures a consistent and reliable product supply, reducing the risk of stockouts or delivery delays.
JD.com has strategically focused on specific core categories, such as PCs and home appliances, where it has leveraged its supply chain capabilities to excel. The company's supply chain capabilities allow it to provide additional services and value to customers. For example, its discount program offers customers lower prices and extra benefits, resonating strongly with its user base.
Additionally, JD.com's long-term strategy includes the growth and nurturing of its third-party marketplace. The number of third-party merchants more than doubled year over year, setting a record. Improved tools and an effective traffic allocation mechanism have facilitated this surge in 3P merchants. JD.com's approach to its platform ecosystem is to ensure the favorable coexistence of both its first-party (1P) and third-party (3P) businesses.
With an improving operating environment and an influx of 3P merchants, JD.com witnessed consecutive quarters of accelerated gross merchandise value growth. The company experienced double-digit 3P revenue growth for two consecutive quarters. A substantial portion of this growth was fueled by advertising revenues as more 3P merchants allocated ad budgets to its platform.
JD.com has continually enriched the value of the discount program with a wide selection of 3P merchandise, which has resonated with customers. Notably, 3P GMV contribution to this program exceeded 50% in July. Importantly, the company managed to maintain a healthy bottom-line performance in its latest quarter despite the program, demonstrating its adeptness at leveraging its supply chain for user benefits.
Skyrocketing user engagement meets business expansion triumphs
Regarding user engagement, key metrics, including higher purchase frequency, average revenue per user on its app and the number of repeat customers, have all exhibited positive growth trends. The number of JD Plus members, a premium membership program, reached 36 million recently.
The company has diversified its operations into various areas beyond its core e-commerce business. These include logistics, services and new business ventures. This diversification has contributed to revenue growth and profitability. JD Logistics, for instance, achieved impressive revenue growth of 31% year over year in the second quarter. External customer revenue accounted for 69% of its revenue, indicating its resilience and appeal to external clients.
New business ventures
JD.com's investment in new business segments has also paid off. Importantly, these new business ventures turned profitable, recording an operating profit of 1.1 billion yuan ($150.84 million). This turnaround is attributed to gains from JD's third core fund closing and narrowing losses from the Jingxi and international businesses.
Source: Earnings presentation
Unraveling the undervaluation enigma amidst industry titans
Regarding the bottom line, JD.com's forward price-earnings ratio is lower than the sector median, indicating relative undervaluation compared to industry peers. Similarly, the enterprise value/Ebitda ratio is 18% lower than the sector median, indicating relative undervaluation. Lastly, JD.com's forward price-book ratio of 1.57 is around the sector median, indicating a fair valuation regarding book value.
Comparatively, the price-earnings multiples of Pinduoduo (PDD, Financial) and Alibaba (BABA, Financial) are 18.8 and 24.6, respectively. However, due to unresolved delisting concerns in the U.S. market, all three e-commerce behemoths are trading at a discount. The slow post-pandemic recovery in China is also scaring off the bulls.
Finally, given JD.com's already vast revenue, an 8% CAGR in revenue from 2022 to 2025 is a healthy growth rate. The forecasted 51% CAGR in earnings per share over the same period is even more impressive and suggests aggressive optimization and potential margin improvements, possibly through streamlining operations and reducing costs, implying an undervaluation.
Takeaway
In summary, JD.com's journey in the e-commerce realm is a testament to strategic foresight, innovation and unyielding dedication to customer value. Through its masterful grip on supply chain intricacies, expansive third-party collaborations and relentless drive to diversify and innovate, the comopany has firmly etched its name among the leaders of the e-commerce space.
The metrics speak volumes—robust user engagement, surging revenue and compelling undervaluation compared to industry benchmarks. As the digital marketplace continues to evolve, JD.com's trajectory indicates growth and a revolution in e-commerce standards. Investors and customers should watch this space for the company seems poised to redefine e-commerce paradigms ahead.
