Jingdong'S "Sinking" Logistics Becomes Booster

The sinking market opened up a new prospect for Jingdong. On the evening of November 15th, Jingdong group released its third quarter earnings in 2019. This quarter, Jingdong has achieved growth in key indicators such as revenue, cash flow and user numbers. At this stage, the logistics infrastructure and home appliances, electronics and other advantages of the Jingdong has become a dilator for the sinking market. Jingxi, who has just been on the line for less than a month, has yet to show significant results, but Jingdong is considering that some of its commodities and businesses will be exposed at Jingdong's main station to suit users' habits. In the short term, because Jingdong will build a more complete logistics network for the sinking market, the optimization rate of the performance fee rate will slow down. How to increase the diluted cost by single volume becomes particularly critical.

Sink by investment

The core financial data show the speed of Jingdong's growth trajectory. Financial reports show that in the third quarter of 2019, Jingdong group's revenue reached 134 billion 800 million yuan, an increase of 28.7% over the previous year, representing 7.8 and 5.8 percentage points higher than the 22.9% quarter growth in the first quarter of 20.9% and two quarter respectively. Over the past year, the growth of advertising revenue driven by Jingdong's external revenue and artificial intelligence has reached a net income of 16 billion yuan, maintaining a 47% growth. The proportion of total net income rose from 11.2% in the previous quarter to 11.9%.

In terms of profitability, the relevant data fluctuated. Net profit attributable to common shareholders under non US general accounting standards (Non-GAAP) was 3 billion 100 million yuan, up 160.6% from 1 billion 180 million yuan a year earlier. Net profit attributable to ordinary shareholders is 610 million yuan, which has shrunk compared to 3 billion 600 thousand yuan in the same period last year.

It is worth noting that the number of Jingdong active users in the current quarter has maintained a rebound trend in the first few quarters, and the growth rate is the largest in nearly 7 quarters. As of September 30, 2019, the number of active users in the past 12 months was 334 million 400 thousand, an increase of 13 million over the same period in the two quarter. In the third quarter of 2019, more than 70% of Jingdong's new customers came from low tier cities.

CFO Huang Xuande of Jingdong group attributed the financial data to the layout of the lower market. Huang Xuande emphasized that revenue growth of 28.7% over the same period was mainly due to the company's layout and efficiency improvement in the low tier cities, and the sales of electronic and electrical products in the low tier cities were doubled than those in the second tier cities. "Orders for low level cities in the quarter and GMV have also reached the highest level in the past six quarters, and the daily usage of small programs and the utilization rate of clients have also reached the highest level."

In addition, Huang Xuande also stressed that Jingdong will invest more funds in the layout of the sinking market. "1 billion 800 million the new investment of 40% of non cash flow will be invested, especially the strategy of promoting low level cities. In Huang Xuande's view, investing in a low line market is more effective than a competitor's subsidy.

Magnify the superiority of household appliances

The upgrading of the sinking market has a supporting role as the logistics of the infrastructure and electronics, home appliances and other advantages. Huang Xuande explained in a conference call that in the low tier cities, the growth of electronic and electrical appliances sales in the quarter reached 22%, the fastest growth rate in the past few quarters, and higher than the growth rate of 8% in the industry.

"The average absolute income of consumers is relatively low, and disposable income is basically the same as that of a second tier city. At present, the average passenger price in low line cities is around 200 yuan, which is a relatively stable consumption level for Jingdong. Huang Xuande further said.

In fact, domestic appliances occupy an absolute advantage in the three or four tier cities. The home appliance brands with price advantage have a huge market. In addition, compared with the second tier cities, the consumers of low level cities are in the stage of building brand recognition, and some consumers have formed the brand concept, which is a new opportunity for Jingdong in the household appliances market.

Jingdong retail CEO Xu Lei also stressed that large scale refrigerators, television and other buying behavior mostly come from the low line market. In the first quarter of 2019, the retail share of home appliance brands in China's three and four tier cities reached 71% and 77% respectively.

Whether it's small appliances or electricity, you want to extend to the low line market, you need to rely on the logistics system that can achieve terminal delivery, which is just another trump card of Jingdong. In Huang Xuande's interpretation of financial reports, he stressed that Jingdong products can reach users with low purchasing power in low-level cities, and users can get low-cost and high logistics services.

Logistics as an infrastructure, its extension and network density affect the business layout of the electricity supplier. However, the penetration rate of electricity providers in the low line market has reached a certain maturity. When users begin to get used to online shopping, the convenience, distribution time and service quality of logistics will affect the frequency and conversion rate of APP users.

In addition to household appliances and logistics services, Jingdong is amplifying the role of Jingxi independent from the main station. At this stage, Jingxi mainly targets users in the sinking market, and is more sensitive to price, so there is a big difference between the source of goods and Jingdong's APP. Jingdong main station APP sinks, mainly for low income urban high income groups, Jingxi is for low-income groups.

At present, Beijing Xi is playing the role of sinking the main station of Jingdong. According to Huang Xuande, through Jingxi, Jingdong can better understand the consumption needs of low-income groups, thereby promoting its main station APP and core categories. Xu Lei revealed that Jingxi and Jingdong will be in a certain degree of intersection, "Jingdong will consider the Beijing hi some high quality products and businesses on the Jingdong main station to expose, mainly to meet the needs of users in low level cities relying on Jingdong main station."

Logistics cost is yet to be optimized.

Logistics, as a supporting facility for Jingdong to compete for the sinking market, will undoubtedly bear the corresponding cost pressure in the short term. Jingdong logistics CEO Wang Zhenhui said in a conference call that in the short term, the layout of the sinking market will have a certain impact on the performance fee rate, but in the long run, there is still room for optimization. But this does not mean that Jingdong will "withdraw" from the sinking market. Wang Zhenhui stressed: "next year, logistics strategy will continue to focus on deploying low level cities to sink, and the logistics network will cover the low level market."

Overall, Jingdong's performance fee rate still releases objective signals. In the current quarter, the percentage of logistics expenses in net income fell from 7.4% in the same period last year to 6.5%, but the ratio rose by 0.4 percentage points. The year-on-year decline in performance cost is mainly due to the scale economy brought about by the utilization of logistics capability and the increase of staff productivity.

Logistics network to more remote areas, and improve the distribution time, will lead to corresponding costs rise. Jingdong reported that Jingdong logistics has further increased its 24 hour delivery service in the low tier cities this quarter. To ensure that the days of the day and the next day, Jingdong logistics in part of the sinking market or to achieve multi time distribution, terminal delivery costs will be increased. Based on this, increasing the order density can gradually dilute the cost. The Jingxi and Jingdong master stations cooperate with each other in the more precise layout of the sinking market, or will gradually increase the single volume.

At this stage, Jingdong logistics is still in its investment stage. According to the financial data, the delivery cost (mainly including procurement, warehousing, distribution, customer service and payment processing) expenses in the current quarter (including procurement, warehousing, delivery, customer service and payment processing) increased from 7 billion 800 million yuan in the third quarter of 2018 to 8 billion 800 million yuan, an increase of 12.8% over the same period. The figure is 0.4 or 1.4 percentage points higher than the first quarter and second quarter growth in 2019.

It is worth noting that external resources have made Jingdong logistics more than two years after independence. During the quarter, the external revenue of Jingdong logistics accounted for 40% of the total revenue of logistics group, and the proportion of third party logistics services accounted for 300% of the total logistics services of Jingdong. In response to the analyst's question, Wang Zhenhui said that the proportion will further improve next year and profits will steadily increase.

Today, logistics is becoming a new engine for the growth of Jingdong group. In the quarter, Jingdong's net service income reached 16 billion, up 47% from the same period last year, which is higher than the total revenue growth of 28.7%. Among them, the growth rate of logistics business has reached 92%, which has outperformed the growth of revenue growth and net service revenue. Liu Qiangdong, chairman and chief executive officer of Jingdong group, stressed that in the next 5 years, the growth rate of logistics revenue will be higher than that of revenue and net profit.