February 23, 2024

What Can Investors Expect From JD.com in 2024?

Last year was a disappointing one for JD.com‘s (NASDAQ: JD) investors as the company delivered a weak operating performance and its stock price fell by more than 60%. However, the e-commerce giant is working hard to reverse the situation. Here are two crucial things that investors should focus on regarding the company in 2024.Customer shops for clothes.

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JD.com must sustain (and grow) its profitability

Touted as the Amazon of China, JD.com earned most of its revenue from selling products directly to consumers. Its strategy is simple and familiar — sell a wide range of products at low prices and deliver them quickly to customers.

While operating an integrated model allows JD.com to control the whole user experience, it comes at a significant cost to the company. Not only does it have to manage the complexity from online selling to logistics and delivery, but owning all that infrastructure is extremely expensive, both from a capital and operating cost perspective.

Even a company as successful as Amazon had to operate at a loss for years before it began making real profits from its e-commerce venture. So naturally, there were plenty of observers who were skeptical about the viability of JD.com’s business model in the long run. Simply put, they were not convinced the company could ever become profitable.

JD.com delivered its first profitable year in 2019, then plunged into the red in 2021 before returning to profitability in 2022. While investors would have preferred that JD.com had sustained its profitability, the e-commerce company at least proved that its business model works in its market. In fact, its net loss in 2021 resulted from declines in the value of its investments — JD.com reported an operating profit for that year.

In the first nine months of 2023, JD.com’s net income more than tripled year over year from 6.5 billion yuan to 21.3 billion yuan ($2.9 billion), paving the way for another profitable year. And as the company enters 2024, it will be critical for it to maintain (or better still, grow) its profitability.

JD.com needs to rekindle its growth

While sustaining its hard-earned profitability will be important, JD.com has another equally critical area to focus on in 2024 — getting back into growth mode. For perspective, its revenue growth was a disappointing 2% in the third quarter, and the top line for its flagship first-party e-commerce business fell by 1%. That was a huge contrast to its historical performance. From 2017 to 2022, JD.com’s revenue grew at a compound annual rate of 24%.

The main culprit here is China’s increasingly more competitive e-commerce industry, thanks to the rise of younger players like Pinduoduo and Douying. The former is famous for its rock-bottom pricing, and the latter is rapidly expanding its live-streaming e-commerce business. In response, JD.com is working hard on a few strategies that it hopes will help keep it relevant.

For instance, it expanded its free shipping coverage by lowering the minimum order value for free shipping services from 99 yuan to 59 yuan for all users. JD.com members further enjoy unlimited free shipping for all first-party products. That reduces the overall purchase cost for customers, encouraging them to shop more frequently on the platform.

JD.com also intensified its focus on live-streaming e-commerce sales by leveraging its integrated supply chain and extensive product knowledge. The aim was to sell high-quality products at rock-bottom prices — JD.com need not pay any commission to third-party platforms — and provide an excellent live-streaming shopping experience.

Another improvement area that JD.com is focusing on is incentivizing its third-party sellers to perform to the standard of its first-party business. That will improve the overall customer experience, which, in turn, will help it develop a robust and healthy ecosystem with a mix of first and third-party sales.

In short, JD.com is working hard to regain customer mindshare, focusing on low prices, higher efficiency, and a superior customer experience. Investors should closely track its progress on these goals in 2024.

What it means for investors

Investors may have mixed feelings about JD.com. On one hand, they were likely pleased with the company’s significant improvement in profitability in 2023, boosting investors’ confidence in the viability of its business model. Yet it faces one of the most challenging periods in its history as competitive dynamics intensify, impacting its growth.

For the stock to recover, JD.com will have to prove to investors that it can sustain its profitability and grow its business over time. All eyes will be on the company’s 2024 performance.

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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Lawrence Nga has positions in PDD Holdings. The Motley Fool has positions in and recommends Amazon and JD.com. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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