Chinese e-commerce giant JD.com’s net revenue surged in the third quarter, powered by stronger e-commerce sales from lower-tier markets and easily beating analyst estimates.
Why it matters: Lower-tier cities are a key segment for Chinese e-commerce platforms as top-tier markets reach saturation. JD had a firm foothold in higher-tier cities, and is seeking growth by tapping rising consumer demand from the lower-tier regions.
- Pushing into lower-tier cities positions JD for an extended competition with rivals like Alibaba Group and Pinduoduo.
“JD’s commitment to providing consumers with the best possible online shopping experience drove another strong quarter of growth. In particular, more and more consumers in China’s fast-growing lower-tier cities are turning to JD for our superior value and service. We will continue to invest in technology and innovation to meet the growing needs of Chinese consumers and businesses for fast and reliable e-commerce and supply chain solutions.”
—Richard Liu, JD.com chairman and CEO, in a statement
Details: JD recorded net revenue of RMB 134.8 billion ($18.9 billion) in the third quarter of this year, an increase of 28.7% year on year, the highest growth rate in the last five quarters. It surpassed by a significant margin analyst expectations of RMB 128.6 million, according to Reuters citing IBES.
- Net revenue growth was driven by consumers in lower-tier cities, or cities within the third to sixth tiers, as well as continued demand for highly competitive pricing on products, the company said. JD’s customer-to-manufacturing (C2M) program—a direct-shipping model using data to inform manufacturers of consumer preference—is a major component of its lower-tier market push.
- The cost of revenues increased 29.4% year on year to RMB 114.7 billion in Q3, primarily due to the growth of the company’s online direct sales business and the logistics services provided to third parties.
- The company’s annual active customer accounts increased to 334.4 million in Q3 from 321.3 million in Q2. Customers in lower-tier cities accounted for more than 70% of new customer growth during Q3.
Context: JD launched its re-brand of Pinduoduo lookalike app JD Pingou to Jingxi in October as part of its strategy to push further into lower-tier cities.
- Similar to Pinduoduo, Jingxi aggressively leverages Tencent WeChat’s viral marketing capabilities using the mini-program feature and favorable “first-level” positioning on WeChat’s third-party listings.