Written by | Wu Xianzhi

Edited by | Wang Pan

Fueled by government subsidies, JD.com delivered an impressive financial report, recording its highest revenue growth rate in several quarters during the fourth quarter of last year.

Financial report data reveals that JD.com's fourth-quarter revenue amounted to 347 billion yuan, marking a year-on-year increase of 13.4%, significantly higher than the 3.6% growth rate recorded in the same period last year. Non-GAAP net profit stood at 11.3 billion yuan, up 34.5% year-on-year, compared to a 9.1% increase in the corresponding period last year.

While government subsidies have significantly bolstered 3C performance, JD.com is acutely aware of the transient nature of such benefits. The monsoon prevalent on the west coast of the Pacific Ocean, characterized by its cyclical pattern, will eventually subside. Consequently, from the end of last year to this year, JD.com has embarked on a multi-pronged approach to its business, aiming to sustain growth even after the subsidies cease.

This strategy encompasses two primary actions. The most crucial involves bolstering the e-commerce sector. JD Joy, led by Liu Qiangdong, leverages JD.com's unique "purchasing and sales" model to venture into the white-label market. Equally significant is the takeout business, with JD Instant Delivery intensifying its efforts over the past quarter. To date, it has invested in merchants, riders, and users, leveraging social security as a tool for asymmetric competition.

3C Capitalizes on "Government Subsidies"

Over the past two years, JD.com's 3C home appliances revenue growth rate has fluctuated, with a marked improvement only evident in the third quarter of last year following the introduction of government subsidies.

JD.com CEO Xu Ran mentioned during the third-quarter earnings call that "due to the time consumers take to understand the policy and insufficient brand capacity, the full impact of government subsidies was not realized in the third quarter." Coupled with a short time window, the full potential of these subsidies was not harnessed. As a result, the revenue growth rate for 3C home appliances in the third quarter was 2.7%.

In the fourth quarter, not only were government subsidies fully utilized but, when combined with the platform's Double 11 promotion, the subsidy rate could reach up to 20%, stimulating consumers' spending power on large home appliances and driving a substantial increase in JD.com's 3C home appliances revenue. Compared to other platforms, JD.com's deeper collaboration with local governments has significantly amplified its advantages in the 3C home appliances sector.

JD.com Retail achieved revenue of 307.055 billion yuan, up 14.7% year-on-year, with its share of total revenue increasing to 88%. This indicates an increased proportion of JD.com's revenue derived from selling goods. Notably, the 3C home appliances sector benefited the most, recording revenue of 174.15 billion yuan in the fourth quarter, up 15.8% year-on-year, dispelling the gloom of sluggish growth rates over the past two years and emerging as the primary growth driver.

Government subsidies for 3C home appliances will eventually come to an end, not to mention the inherently long replacement cycle for such products. JD.com may have anticipated this, introducing new supply, such as Xiaomi's official flagship store on JD.com prior to the launch of the SU7 Ultra. This approach allows JD.com to benefit from both automotive subsidies and Xiaomi's traffic.

Despite JD.com's efforts to strengthen its strengths, its e-commerce shortcomings remain: the lack of abundant traffic sources makes it challenging to expand the POP merchant ecosystem. This is reflected in the financial report as relatively low proportions of daily consumption revenue, platform, and advertising revenue.

As of the fourth quarter, JD.com Retail's daily consumption revenue was 106.83 billion yuan, up 11.1% year-on-year. With a lower base, the growth rate lagged behind that of 3C home appliances.

Last year, JD.com regarded "content ecology" as a critical battleground, initiating a round of personnel adjustments spanning from underlying technology to upper-level content. For instance, it recruited Song Jian, the former general manager of Baidu's content ecology, and Hu Xi, the former CTO of Ant Group. However, the results may not have been ideal, leading to continuous personnel adjustments. According to Leiphone, Bao Yongjun, the vice president responsible for JD.com Retail's intelligent platform, resigned in July last year, and Shen Weiwei, who was in charge of the ecological business center, also resigned this year.

On the business front, in mid-2024, JD.com attempted to transform its information flow, such as through short videos. Compared to other platforms, JD.com faces considerable difficulty in this transformation. Photon Planet understands that due to the existence of the purchasing and sales model, marketing planning on the content side needs to be confirmed with the purchasing and sales department in advance, and products themselves also need to be inspected by them before being placed on shelves.

While this ensures product quality, daily consumer goods often require rapid listing.

Over the past year, JD.com has not effectively addressed traffic issues, and after normalizing the subsidy program worth tens of billions of yuan, it has not created a significant gap with other platforms, resulting in no qualitative change in the POP ecosystem. A notable feature is the unsatisfactory performance of platform and advertising revenue growth.

Platform and advertising revenue serve as a barometer of JD.com's POP ecosystem. As of the last quarter of last year, JD.com's platform and advertising revenue was 26.63 billion yuan, up 12.7% year-on-year, far lower than the larger base of 3C home appliances. Rather than saying that government subsidies stimulated JD.com's 3C home appliances, it is more accurate to state that they nourished JD.com's self-operated business, while POP merchants did not benefit significantly.

White-label and Takeout Create Artificial "Winds"

Currently, as JD.com encounters obstacles in resolving the persistent traffic issue, to boost daily consumer goods and expand supply, it began to allocate resources towards JD Joy in the middle of last year, focusing on industrial belt white-label products.

A merchant joined at the end of last year and began cooperating with JD Joy in January this year. Photon Planet understands that JD Joy's model is generally similar to JD.com's self-operated buyout model. The platform first contacts merchants and screens categories. After determining the categories, the supply price is specified. The merchant stated, "Gross profit is definitely not as good as Taobao Factory and Pinduoduo, but the buyout model can quickly increase volume and recover cash."

"We directly negotiate with the purchasing and sales team, and there is no obvious price suppression. Basically, after determining the price, it can be listed after their internal review." It is worth mentioning that JD Joy does not sign any gross profit protection agreements with merchants. Due to the buyout model, there are no operating costs or warehousing costs. Merchants only need to ship the goods to the designated location for warehousing, and the products have no further relationship with the manufacturers. The above merchant told Photon Planet that as of the Spring Festival, their product volume had increased.

Another merchant is a leading player in a segment within a domestic industrial belt. According to their online operations, they have opened stores on platforms such as Tmall, JD.com, and Pinduoduo since the end of last year, with JD.com's purchasing and sales team pushing particularly hard. "They basically ask us every day how many products we have listed and whether the store is on track."

While expanding its e-commerce business horizontally, JD Instant Delivery's disruption of the local life sector has attracted more attention.

Due to the presence of some core executives from Meituan, JD.com's takeout model is very similar to Meituan's, relying heavily on the BD model. We provided a clearer discussion of its BD situation in the article "JD.com Takeout, 'Burning' to Get on the Table."

Meituan has a scale advantage, including a vast fulfillment network and a rich merchant pool, which JD.com lacks in the short term. Therefore, JD.com's takeout strategy is to use social security and subsidies to attract takeout riders, while also restraining Meituan and bearing the cost burden.

In terms of business, JD.com focuses on major areas while ignoring minor ones. It has established a BD team in Beijing, an area where JD Instant Delivery has an advantage, using the name "quality takeout" to break through SKA and CKA merchants. Interestingly, there is a certain logical inconsistency in JD.com's takeout strategy in the short term.

Quality takeout targets top merchants, but the SaaS system is not yet perfect, making it difficult to increase volume in the short term. While small and medium-sized merchants are eager for JD.com to disrupt the market, they have been unable to enter due to the high threshold for JD.com's takeout merchant recruitment.

The takeout industry has entered a stage of intensive cultivation, and maintaining the relationship between the platform and merchants is crucial. Apart from Beijing, JD.com's takeout merchant recruitment relies on service providers and the JD Instant Delivery team. However, the latter lacks motivation due to a one-time commission and often fails to further maintain the relationship with merchants after initial contact.

In addition to its home delivery business, JD.com is quietly deploying in-store group buying. If takeout relies on JD Instant Delivery, then group buying relies on e-commerce, and the merchant recruitment logic is the same as that of JD Instant Delivery - focusing on national chain merchants. Similarly, due to the imperfect SaaS system, our tests found that after grouping coupons for some merchants, they could not be independently verified and redeemed on the JD.com app, but rather on the merchants' own WeChat mini-programs.

On March 3, JD.com launched its moving service, which is already available in Beijing. Previously, it launched a ride-hailing service, although this was later denied by officials. JD.com's entry into the local life sector is imminent. Whether JD.com can succeed in home delivery, in-store services, moving, ride-hailing, and other local life businesses is not crucial. What matters is aggregating these low-frequency businesses, which can fundamentally address the issue of users opening the JD.com app too infrequently.

Conclusion

Since content and search recommendations have not sparked significant changes for the time being, relying on rigid businesses to increase user opening frequency is a viable approach.

In fact, most users utilize the JD.com app most frequently during the two major sales events in the first and second halves of the year. Facing continuous encroachment from Tmall, Pinduoduo, and Douyin, JD.com may hope to focus more on defensive strategies while launching offensive maneuvers on the side. From this perspective, entering the local life sector does help address this persistent issue to a certain extent.

In the short term, as long as the "wind" of government subsidies continues, JD.com's e-commerce business can maintain good growth. In the future, the key will be whether the two artificial winds can fill the gaps left by the "monsoon."

JD Joy's white-label strategy may provide a solution to the supply problem caused by insufficient traffic for POP merchants, but this solution still does not break free from the constraints of the purchasing and sales model. The purchasing and sales model is highly dependent on JD.com's channel capabilities. If JD.com can maintain the liquidity of goods entering and leaving the warehouse, then JD Joy's white-label strategy is worth looking forward to.

Meanwhile, JD.com's multi-faceted attack on the local life sector still faces great uncertainty. Since almost all efforts are currently concentrated in Beijing, the Beijing market can be considered a barometer and will largely influence future expansions to other cities.