Darkest moment: Jingdong's dilemma and broken game

2) Logistics timeliness is the core part of Jingdong's past experience advantages. We believe that the current Jingdong logistics efficiency is still excellent, but the relative advantage of the Cainiao system is gradually reduced. In contrast, Ali's user experience improvement is still in the sensitive range (from 2-3 days to times/day); The improvement of Jingdong's logistics time has entered the deepwater area where users are relatively insensitive (some areas reach the same day from the next day; When Rida has approached the express limit, the cost has soared and needs to pay), the gap between users' actual perception will continue to narrow.

3) Category of goods. The relatively short board of traffic end operation and the weakening of logistics time advantage are the factors that hinder the sustained and rapid growth of Jingdong scale at the operational level. Corresponding to front-end sales, the current electrical appliances (accounting for about 50% of GMV, cash cow and basic plate), commercial ultra-fast consumer goods (about 11%, strategic categories to increase the re-purchase rate) and clothing and home textiles (about 15%, gross profit and advertising space expansion) are the three core categories of Jingdong. From the perspective of category, the current slowdown of Jingdong's growth lies in the lack of core categories to support future growth.

Third, profit: the mall profit has not been significant, logistics expansion drag performance

Criticism of Jingdong's profit performance has been accompanied by the company's listing so far. Under GAAP, Jingdong has not yet had a complete profit year, but the improvement trend is obvious: in 2017, GAAP net loss to the mother narrowed to 150 million yuan; 1-3Q18, JD.com's GAAP net profit returned to the mother of 2.19 billion yuan, of which 1Q18/2Q18/3Q18 returned to the mother of 15.3/ -22.1/2.88 billion yuan, the net interest rate of 1.5%/-1.8%/2.7%, in the non-promotional season Jingdong has the overall profitability (1Q17/3Q17 the same GAAP profit). Under non-GAAP, Jingdong has achieved continuous profit since 2016, but the profit volatility is still large: non-GAAP net profit in 3Q18 single quarter is 1.18 billion yuan, and the net profit rate is 1.1%; As a comparison, 3Q17 single quarter non-GAAP net profit of 2.22 billion yuan, net interest rate of 2.7%.

In addition to industry competition factors, we believe that the fluctuation of Jingdong's profit side is more due to the priority pursuit of scale and the development of new business represented by logistics socialization: in 1H18, Jingdong's core mall business operating profit of 3.38 billion yuan, an increase of 41.4% and an operating profit margin of 1.6%; However, the loss of strategic new business (social logistics, etc.) expanded to 2.42 billion yuan (VS 1H17 only lost 380 million), and the investment layout and market competition made by logistics transformation and open service providers are the main drag on Jingdong's profits.

Platform service revenue is the main source of gross profit for Jingdong Mall business. The current profit model of Jingdong Mall's main business is similar to "self-drainage, platform realization", and the gross profit contribution of platform service has exceeded the gross profit of self-operated products since 2015, which has become the main driving force for the improvement of Jingdong's comprehensive gross profit margin in recent years. In 3Q18, Jingdong Mall's platform service revenue reached 10.87 billion yuan, accounting for 10.4%. From the perspective of gross profit contribution, in 3Q18, Jingdong's comprehensive gross profit margin was 17.16% (self-operated income caliber), of which self-operated gross profit margin was only 7.31%, and platform service gross profit margin was 9.85%.

The total traffic cost of Jingdong platform merchants is 4.8%, which still has room for improvement compared with Tmall. Considering the platform monetization rate (commission advertising revenue/platform GMV, that is, the total traffic cost paid by merchants to the platform), the total monetization rate of 1H18 (TTM) Jingdong platform business is 6.4%, and after excluding logistics services, the advertising commission monetization rate is 4.8%, which is still in a steady rising channel. As a comparison, Ali's domestic e-commerce platform FY18 monetization rate is about 3.66%. Considering that Taobao merchants are free of commission, and the advertising revenue is also mainly contributed by Tmall brand owners, the extreme assumption is that Taobao merchants do not advertise at all, the corresponding Tmall monetization rate is capped at 8.3% (assuming that Taobao monetization rate is 1%/2%, the corresponding Tmall FY18 monetization rate is 7.0%/5.8%), and there is still room for improvement in the monetization rate of JD platform.

Losses in the expansion period of external orders drag down performance, and the real profitability of logistics may be underestimated. In April 2017, Jingdong announced the establishment of a logistics sub-group, the business is fully open to social operation (that is, no longer only for mall business system suppliers), and began to connect with NetEase Yanxuan, Amway and other B-side customers at the end of 2017; In 2017, Jingdong Logistics outbound orders (non-self-operated orders) revenue increased by 56.4% year-on-year to 5.12 billion yuan; 1H18 revenue increased 151.2% year-on-year to 5.11 billion yuan, and the logistics socialization business increased. We believe that the current financial data underestimate the profit potential of Jingdong logistics external orders: (1) The mode of opening positions first and collecting orders leads to low facility utilization in the expansion stage, resulting in operating losses. (2) JD Logistics is still in the scale-first expansion stage.