On May 10, JD.com (NASDAQ:JD) reported first-quarter service revenue up 44% Y/Y, net product revenue up 14% and a renewed deal with Tencent. Online retail penetration continues to improve, driving JD.com’s online retail market size.
JD.com’s online retail penetration grew from 15% in 2017 to 18.4% in 2018. It expects its online retail market size to grow 20% CAGR (2018-2020E) to RMB 10.8 trillion ($1.6 billion U.S.). In the first quarter, active customer accounts topped 310.5 million. Net revenue grew 50% Y/Y, in-line with its 2012-2018 CAGR of 50%. Importantly, as the company scales, non-GAAP gross profits are up to RMB 18 billion. JD.com benefited from shifting to higher gross margin categories.
The company has a healthy, diversified revenue stream. Electronics and home appliance was 65% of revenue, while general merchandise revenues was 35% of the total.
Free Cash Flow Now Positive
Markets may now look past the 2018 negative cash flow, caused by RMB 21.4 billion for capital expenditures. In its first quarter, FCF was RMB 2.1 billion.
In the quarter, JD.com benefited from its AI and data-driven advertising. The platform will only strengthen the company’s moat. And the nationwide logistics network gives the company nearly full geographic reach across China. It also enables the company to complete shipments in one to two days which is something its competitors cannot do.
Takeaway
JD.com is still a solid growth play. Investors looking for a high-flying growth play in China should consider this stock.
