JD.com is making profits across the board, so why did Liu Qiangdong, the top philanthropist, cut the salaries of his “brothers”?

JD.com is making profits across the board, so why did Liu Qiangdong, the top philanthropist, cut the salaries of his “brothers”?

On the morning of November 22, Liu Qiangdong issued a letter to all JD.com employees, stating that the cash salary of JD.com Group's senior management would be reduced by 10% to 20%, and the higher the position, the greater the reduction; at the same time, the benefits of grassroots employees such as interest-free housing loans would be increased.
Liu Qiangdong, who recently topped the "2022 Hurun Charity List" and became "China's No. 1 Philanthropist", said in the letter that he would donate another 100 million yuan to expand the "Employee Children's Relief Fund."
Carrying out "one promotion and one demotion" for the "brothers", and making drastic reforms on ordinary employees, group executives, and even the couriers who once drank and chatted with each other, is a display of Liu Qiangdong's extremely high and even strict requirements for the company's performance and management execution.

This also confirms what he said in the letter: "I'm sorry to these more than 2,000 senior executives, I apologize to you! If JD's performance returns to high growth within two years, the group can restore your cash compensation at any time." JD's desire for high growth performance is also reflected in the latest financial report. On November 18, JD (Nasdaq: JD; Hong Kong Stock Exchange: 9618) released its Q3 2022 financial report. "JD has ushered in an important moment of full profitability", but this is also the first financial report after JD Logistics merged with Debang.
Overall, the financial report data is as robust as the brand image established by JD.com, and all figures have rebounded in the third quarter of this year.

Source: JD.com Group's third quarter 2022 performance chart

Let's look at some eye-catching data first. In terms of revenue, JD.com's Q3 revenue was 243.5 billion yuan, which was similar to JD.com's earlier expectations and increased by 11.4% compared with the same period last year. Among them, net service revenue hit a record high, accounting for 19.1% of net revenue, an increase of 42.2% year-on-year.

Turning losses into profits, is the worst over?

Here we need to explain the source of JD.com's net income. As the largest self-operated e-commerce platform in China, JD.com's revenue logic is different from that of Taobao and other platforms. Taobao's revenue is mainly service income, while JD.com's revenue is mostly from commodity sales, which accounted for more than 90% in the early days.

Net income mainly comes from two parts: one is platform and advertising revenue, and the other is logistics and other service revenue.

It is worth noting that JD Logistics completed the transfer of control of Deppon Holdings in the third quarter, and the organizational structure of Dada Group underwent major adjustments in August. In this financial report, the performance of Deppon and Dada was consolidated with JD.com. JD.com's breakthrough in net income this year is largely related to the contribution of "Dada + Deppon".

Source: JD.com Group’s third quarter 2022 performance announcement

Excluding these added points, JD.com's own revenue growth is actually not as high as it appears.

Just look at the self-operated revenue. JD.com achieved 197 billion yuan in Q3, a year-on-year increase of 6%. Compared with the total retail sales of consumer goods in China, it is 2.5 percentage points higher, which is relatively close to reality.

In terms of profit, JD.com has given shareholders a satisfactory answer this quarter: Non-GAAP operating profit in the third quarter of 2022 was nearly 10 billion, or 9.9 billion yuan.

This is thanks to the logistics business, which had been lagging behind before, which finally regained its momentum in this quarter and achieved a rapid growth of 73% year-on-year.

In response to this, JD.com Group CEO Xu Lei gave an optimistic speech at the performance meeting, saying that JD.com's worst moment has basically passed and there should be continuous good news or positive factors in the future.

While Xu Lei gave a passionate speech on the impressive performance and talked about the future of JD.com, JD.com founder Liu Qiangdong quietly sold his shares and bid farewell to JD.com sadly.

The man who once vowed to stand shoulder to shoulder with his "brothers" is gradually leaving JD.com. Is he planning to retire and enjoy his old age, or is he making the wise choice to retreat while the going gets tough, knowing that the road ahead is uncertain?

  It's hard to sink, and it's also hard to go up

In addition to the steady growth data, JD.com's annual active users have been sluggish in recent years. As of the third quarter of 2022, JD.com's annual active users reached 580 million. Among the three mainstream e-commerce platforms (Taobao, Pinduoduo, and JD.com), JD.com still ranks last.

JD.com has made a lot of efforts to achieve high user growth, including focusing on developing Jingxi and community group buying business Jingxi Pinpin in 2020, in an attempt to capture the sinking market and capture more potential new users. But it got up early and arrived late.

Just like before, JD.com had an excellent traffic entrance on WeChat, but was overtaken by Pinduoduo halfway.

JD.com’s road to lower-tier cities was equally bumpy, as it was always overtaken by its competitors. The same was true for its lower-tier community group buying business, which ultimately could not compete with its speed and had to “graduate” 70% of its staff from Jingxi and Jingxi Pinpin in March this year in order to save face.

In fact, judging from its tone, JD.com itself is not suitable for sinking.

Based on Liu Qiangdong's entrepreneurial philosophy, JD.com's target customer group is precisely high-net-worth users who are more concerned about product quality and logistics delivery efficiency. These users care about quality but are not very sensitive to price.

The previous consumption upgrade trend was beneficial to JD.com to some extent. However, after the epidemic became normalized, people's consumption concepts tended to be conservative and rational, emphasizing the ultimate cost-effectiveness and quality-price ratio of consumption.

Therefore, the ceiling of high-net-worth users that JD.com faces is not only facing the dilemma of reaching its peak, but also has a tendency to continue to decline.

JD.com CEO Xu Lei also revealed that since April this year, judging from the data, consumers' spending on essential consumer goods has remained or increased, while optional consumption has shrunk.

The public has become more rational about unnecessary spending and more sensitive to prices.

Of course, this is not just a problem faced by JD.com. All major e-commerce platforms are facing competition in the stock market. In order to survive better in a more severe environment, JD.com, which is struggling to make breakthroughs both up and down, can only focus on exploring new business growth points.

As a winner of Toutiao's Qingyun Plan and Baijiahao's Bai+ Plan, the 2019 Baidu Digital Author of the Year, the Baijiahao's Most Popular Author in the Technology Field, the 2019 Sogou Technology and Culture Author, and the 2021 Baijiahao Quarterly Influential Creator, he has won many awards, including the 2013 Sohu Best Industry Media Person, the 2015 China New Media Entrepreneurship Competition Beijing Third Place, the 2015 Guangmang Experience Award, the 2015 China New Media Entrepreneurship Competition Finals Third Place, and the 2018 Baidu Dynamic Annual Powerful Celebrity.

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