Last year was a disappointing year JD.com's (J.D. 7.68%) Investors rallied as the company's performance was poor and its stock price fell more than 60%. But the e-commerce giant is working hard to turn the situation around. There are two important things investors should note about the company in 2024.
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JD.com must remain profitable (and grow)
was advertised as Amazon JD.com in China derives most of its revenue from direct-to-consumer sales. Its strategy is simple and approachable: sell a wide range of products at low prices and deliver them quickly to customers.
Operating a unified model gives JD.com control over the entire user experience, but it comes at a significant cost to the company. Not only do you have to manage the complexity of everything from online sales to logistics and delivery, but owning all that infrastructure is very expensive from both a capital cost and operational cost perspective.
Even successful companies like Amazon had to operate at a loss for years before they started making real profits from their e-commerce business. Naturally, therefore, he had many observers skeptical about the viability of JD.com's business model in the long run. Simply put, they weren't convinced the company could make a profit.
JD.com achieved profitability for the first time in 2019, fell into the red in 2021, but returned to profitability in 2022. Investors would have hoped that JD.com would remain profitable, but the e-commerce company at least proved its business is successful. The model works in that market. In fact, the net loss in 2021 was due to a decline in the value of investments, and JD.com reported an operating profit for the year.
In the first nine months of 2023, JD.com's net profit more than tripled year-on-year, from 6.5 billion yuan to 21.3 billion yuan ($2.9 billion), paving the way for another profitable year. was held. And as the company enters his 2024, maintaining profitability (or even growth) will be critical.
JD.com needs to reignite growth
While maintaining hard-earned profitability is important, JD.com has another equally important area of focus in 2024. It's a return to growth mode. As for the outlook, revenue growth in the third quarter was disappointing at 2%, and sales from its core in-house e-commerce business fell 1%. It was in sharp contrast to its historical performance. From 2017 to 2022, JD.com's revenue grew at an average annual rate of 24%.
The main culprit here is that China's e-commerce industry is becoming increasingly competitive thanks to the rise of young players such as: pinduoduo And Douin. The former is known for its rock-bottom prices, while the latter is rapidly expanding its live streaming e-commerce business. In response, JD.com is working hard on several strategies that will help it stay relevant.
For example, the company expanded the scope of free shipping by lowering the minimum order amount from 99 yuan to 59 yuan for all users. Additionally, JD.com members enjoy unlimited free shipping on all first-party products. This reduces customers' overall purchasing costs and encourages them to shop more frequently on your platform.
JD.com also strengthened its focus on live streaming e-commerce sales, leveraging its integrated supply chain and extensive product knowledge. The aim was to sell quality products at the lowest prices, and provide a great livestreaming shopping experience without JD.com having to pay commissions to third-party platforms.
Another area of improvement that JD.com is focusing on is encouraging third-party sellers to meet its own business standards. This improves the overall customer experience and, in turn, helps develop a robust and healthy ecosystem combining first-party and third-party sales.
In short, JD.com is working hard to regain customer mindshare by focusing on lower prices, increased efficiency, and superior customer experience. Investors should closely track the company's progress against these goals in 2024.
What it means for investors
Investors may have mixed feelings about JD.com. On the other hand, it is likely satisfied that the company's profitability improved significantly in 2023, increasing investor confidence in the viability of its business model. However, the company is facing one of the most difficult periods in its history as competitive dynamics intensify and impact growth.
For the stock to recover, JD.com will need to prove to investors that it can remain profitable and grow its business over the long term. All eyes will be on the company's performance in 2024.
John Mackey, former CEO of Amazon subsidiary Whole Foods Market, is a member of the Motley Fool's board of directors. Lawrence Nga has a position in his PDD Holdings. The Motley Fool has positions in and recommends Amazon and JD.com. The Motley Fool has a disclosure policy.
