Introduction: The Q3 earnings reports of the three giants have brought confidence to the capital markets, and there is more potential in the future.
On November 28, Pinduoduo released its Q3 2022 earnings report, marking the completion of Q3 earnings disclosures for the three major e-commerce platforms: JD, Alibaba, and Pinduoduo. Despite a challenging global economic environment, the financial results of the three giants were positively evaluated by the market, with some metrics exceeding expectations. Overall, both revenue and profit showed positive growth. Compared to Pinduoduo's rapid growth, JD and Alibaba performed relatively steadily. Alibaba's local services and Cainiao both achieved double-digit growth. After JD acquired Deppon, its supply chain capabilities improved. In terms of operating costs, all three giants reduced some expenses to a certain extent, showing clear cost-cutting effects under the backdrop of cost reduction and efficiency enhancement. How did the three perform specifically? Are there any new highlights?
Alibaba: Revenue grows 3%, local life services and Cainiao are highlights
In terms of revenue, for the quarter ended September 30, 2022, Alibaba achieved revenue of RMB 207.176 billion, a year-over-year increase of 3%. Although revenue was slightly below market expectations, it performed quite well in the current economic environment. The net loss attributable to shareholders was RMB 20.561 billion. Alibaba explained in its earnings report that the loss was mainly due to a decline in the fair value of its investments in publicly traded companies. However, from the perspective of core operations, non-GAAP net profit was RMB 33.82 billion, an increase of 19% year-over-year, exceeding market expectations.
In terms of revenue changes, Alibaba's customer management revenue decreased by 7% year-over-year to RMB 66.497 billion. Notably, customer management revenue had already declined by 10% in the previous quarter. Customer management revenue includes advertising revenue and e-commerce commissions from Taobao and Tmall. In specific business segments, Cainiao and local life services (including "to-home" and "to-destination" services) performed well, with year-over-year growth of 21% and 36%, respectively. Among them, Amap, part of the "to-destination" services, stood out with a daily active user count of 220 million during the National Day holiday. Another impressive metric was the number of high-spending consumers. The earnings report showed that in the 12 months ended September 30, 2022, the number of users who spent more than RMB 10,000 on Taobao and Tmall remained at 124 million, with a retention rate of 98%.
Image: Screenshot from Alibaba's Q3 earnings report
Under the internet winter, how effective is Alibaba's cost reduction?
The earnings report showed that for the three months ended September 30, operating costs were RMB 131.210 billion, a year-over-year decrease of 5%. Marketing expenses were reduced from RMB 28.857 billion in the same period last year to RMB 22.359 billion. From the data, the cost reduction effect is evident.
Image: Alibaba's Q3 earnings report this year
JD: Maintains the top position, supply chain capabilities continue to improve
In terms of revenue, JD continued to hold the top position in Q3 this year. The earnings report showed that JD achieved revenue of RMB 243.545 billion, a year-over-year increase of 11.4%. Net profit attributable to shareholders was RMB 6 billion, compared to a net loss of RMB 2.8 billion in the same period last year. Non-GAAP net profit attributable to shareholders was RMB 10 billion, compared to RMB 5 billion in the same period last year. Among these, JD's net service revenue was RMB 46.5 billion, a year-over-year increase of 42.2%. JD Logistics' revenue from external customers increased by 67.8% year-over-year, accounting for nearly 70% of JD Logistics' total revenue. Additionally, JD disclosed its total employee count. The earnings report showed that as of the end of Q3, JD had a total of 500,000 employees, an increase of over 70,000 compared to last year. In the earnings report, JD stated that it continues to expand high-quality employment.
JD's supply chain, which it takes pride in, also performed well. The earnings report showed that after acquiring Deppon in Q3, JD Logistics operated over 1,500 warehouses, with a total managed warehouse area exceeding 30 million square meters, adding nearly 7 million square meters in one year. Leveraging its strong supply chain system, JD's "Running to Wealth Plan" drove over RMB 620 billion in output value in rural areas, and its intelligent supply chain helped reduce costs and improve efficiency in industrial manufacturing. In JD's version of cost reduction and efficiency enhancement, the earnings report showed that in Q3 this year, marketing expenses and general and administrative expenses were reduced to some extent. Marketing expenses decreased from RMB 7.769 billion in the same period last year to RMB 7.605 billion, a year-over-year decrease of 2%. General and administrative expenses decreased from RMB 3.05 billion in the same period last year to RMB 2.622 billion, a year-over-year decrease of 14%.
Image: Screenshot from JD's Q3 earnings report this year
Pinduoduo: Rapid growth in revenue and profit
In terms of operating revenue, Pinduoduo achieved revenue of RMB 35.5 billion in Q3 this year, a year-over-year increase of 65.1%. Although revenue is lower than JD and Alibaba, its growth rate far exceeds both, demonstrating Pinduoduo's resilience in a poor economic environment. Net profit attributable to ordinary shareholders was RMB 10.589 billion, a year-over-year increase of 546%. Both revenue and profit achieved rapid growth, exceeding market expectations. It is worth noting that this is the sixth consecutive quarter of positive profit growth for Pinduoduo. In response, Pinduoduo stated that its operating level may not be sustainable and advised not to use this quarter's book profit as a reference for future profitability.
In terms of specific business segments, Pinduoduo's online marketing services revenue increased from RMB 17.947 billion in the same period last year to RMB 28.426 billion, a year-over-year increase of 58%. Transaction services revenue increased from RMB 3.477 billion in the same period last year to RMB 7.022 billion, a year-over-year increase of 102%. Merchandise sales, however, declined from RMB 82.115 million in the same period last year to RMB 56.407 million, a year-over-year decrease of 31%.
In terms of operating expenses, unlike Alibaba and JD's "tightening their belts," Pinduoduo's total operating expenses in Q3 this year increased from RMB 12.808 billion in the same period last year to RMB 17.654 billion, a year-over-year increase of 38%. Specifically, marketing expenses increased by 40% year-over-year to RMB 14.049 billion. At the same time, Pinduoduo continued to increase investment in R&D, with a year-over-year increase of 11.4% to RMB 2.7 billion. Although some operating expenses increased in absolute terms, operating expenses as a percentage of total revenue decreased from 59.6% in the same period last year to 49.7%, indicating a clear cost reduction effect from a ratio perspective.
In conclusion, all three e-commerce giants performed well in terms of results. Although Alibaba's growth was below expectations, it is commendable in the current economic environment. Overall, the Q3 earnings reports of the three giants have brought confidence to the capital markets, and there is more potential in the future.