JD.com was spending billions to fight Alibaba and Meituan for food-delivery customers in China, and it was losing money fast.
Then Beijing stepped in and ordered the three companies to stop the price war, and JD's first-quarter results released today tell you who that helped.
JD.com brought in RMB315.7 billion, or about $43.5 billion, last quarter, which was up 4.9% from a year ago. Adjusted profit landed at 74 cents per ADS, which is the version of a foreign stock that trades on US exchanges, and that beat the 50 cents analysts expected.
The standout split: service revenue grew 20.6% while product revenue inched up just 1%. JD is leaning harder into the higher-margin parts of its business, including logistics, advertising, and seller services.
JD Retail's operating margin actually improved to 5.6% from 4.9% a year earlier, which suggests the core e-commerce business is healthier than the headline numbers show.
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The catch is that the headline beat hides a less healthy business underneath. Net profit fell to RMB5.1 billion from RMB10.9 billion a year earlier, and the overall operating margin shrank to 1.2% from 3.5%.
The food-delivery push is the reason. JD spent $2.23 billion on marketing last quarter, up about 46%, with most of it aimed at taking share from Alibaba and Meituan.
Then Beijing stepped in, with regulators telling the three companies to stop a price war that was crushing margins across the sector. JD got the lift it could not have engineered on its own.
Why it matters: Beijing's intervention is essentially a regulatory floor on margins for the three biggest names in Chinese consumer tech. That kind of action used to spook investors. In this case, it probably saved JD's bottom line.
JD's stock has been a roller coaster as investors weigh the food-delivery bet. The good news is losses there narrowed last quarter, and management has guided that food-delivery investment has now peaked.
The bad news is overall margins are still well below where they were before the bet started, and there is no guarantee Beijing will not change its mind on the price-war rules.
For US investors, JD trades as an ADR on Nasdaq, which means the stock moves on both the Q1 numbers and ongoing US-China regulatory risk. Anyone owning JD is now trading two stories at once.
When Beijing decides to cool a price war, the winner is usually whoever was bleeding the most going in.
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