JD.com narrowly beats estimates, renews Tencent deal in Q1 2019

Chinese e-commerce giant JD released on Friday stronger-than-expected earnings for the first quarter this year thanks to strong performance from its core e-commerce business and renewed strategic agreement with Tencent.

The company reported net revenues of RMB121.1 billion ($18.0 billion) in the first quarter of 2019, an increase of 20.9% from the first quarter of 2018, beating the Refinitiv’s forecast of 120.1 billion. Net service revenues for the period were RMB 12.4 billion, an increase of 44.0% from the first quarter of 2018.

The company’s core business JD Retail, formerly known as JD Mall, grew its operating margin for the reporting period by 0.6% compared with the same period last year, driven by growth in advertising revenue and economies of scale.

The company also renewed its three-year tie-up with Tencent. Under the agreement, Tencent will offer JD level one and two access points on its WeChat to provide traffic support, and cooperate on a number of areas including communications and social services, advertising, and membership services, among others.

The company’s logistics arm, which lost RMB 2.8 billion in 2018, weighed on the e-commerce giant. JD’s revenue for logistics and other services during the reporting period reached RMB 4.3 billion, up from RMB 2.2 billion year on year. Logistics represents a small portion of the overall net revenue, but it was a major driver in the increased cost of revenues, which surged 19.7% to RMB 102.9 billion in the first quarter of 2019 from RMB 86.0 billion in the first quarter of 2018.

“The core KPI of JD logistics will still center around improving user experience and efficiency by leveraging technologies. We expect gross margin from external orders to increase in the coming quarters,” says president of JD Logistics Wang Zhenhui during the earnings call on Friday.

Over the past month, JD has launched a series of efforts for commercializing its logistics arm by opening up its logistics operations to merchants and other partners. In April, it launched 30-minute delivery service within a three-mile range for Beijing, Shanghai, Guangzhou, and Changsha and expanded to one-day intra-city deliveries.

JD this year has substantially reshuffled its team amid layoff rumors, executive departures, and pay cuts for its delivery team. The company claimed 179,000 full-time employees as of March 31, 2019. Company founder Richard Liu says during the call with analysts that talent investment will form an important part of the company’s plan for this year.