Price cut strategy helps JD exceed second-quarter profit forecasts

Reuters

16th Aug 2024

Chinese e-commerce group JD on Thursday reported forecast beating second-quarter profits, helped by price cuts that attracted cost-conscious shoppers to its platform.

JD’s US-listed shares rose more than 4 per cent in early trading.

Major Chinese vendors like JD.com and Alibaba have increased focus on discounts and lower-priced goods as Chinese shoppers have become more cautious about spending.

Alibaba, which reported first-quarter revenue on Thursday, missed analysts’ expectations.

A stuttering post-Covid recovery in China has benefited low-cost e-commerce players such as PDD Holdings. Increased competition has triggered a price war between larger rivals as they look to attract the same pool of customers.

JD’s CEO Sandy Xu said the company remained committed to a low-price strategy.

“Low price is a result of our core capabilities,” she said. “This will continue to distinguish us in the e-commerce industry.”

The retailers rely heavily on major discounting events such as China’s mid-year e-commerce sales festival which took place in June, to boost overall growth and exposure.

The so called “618” shopping event, named after the June 18 founding date of e-commerce provider JD, but embraced by all platforms, gauges the market sentiment among household consumers.

JD said in June its turnover and order volumes reached a new high over the festival period, which ran from the end of May to June 18 this year.

The company’s second-quarter profit rose 73.7 per cent to US$1.38 per share, excluding items, compared with estimates of $0.89, according to LSEG data. General and administrative costs reduced by 9.6 per cent in the quarter.

After JD prioritised a “low price” strategy at the close of 2022, its share price has experienced a decline, plummeting from approximately $60 to the current value of around $26.

Jacob Cooke, CEO of e-commerce consultancy WPIC Marketing + Technologies, said despite economic challenges, consumers are not only motivated by price-product quality and shopping experience also contributes to driving conversions and cultivating marketplace loyalty.

“JD should lean into its strengths rather than engaging in a race to the bottom of excessive discounts,” he said.

The company’s total revenue rose 1.2 per cent to $40.71 billion in the second quarter, compared with estimates of $43.07 billion.

• Reporting by Sophie Yu in Beijing, Harshita Mary Varghese in Bengaluru. Editing by Jane Merriman, of Reuters.