JD: Earnings Power Intact as state subsidies fade

$JD.com(JD.US) released its Q1 2026 results on May 12. Here is our take.

1) Growth troughing, profits beat: Overall revenue was approx. RMB 315.7bn (+~5% YoY), improving from +1.5% last quarter and slightly ahead of Street expectations. This confirms a nascent recovery in e-commerce growth.

Adj. OP came in at RMB 5.6bn, still about half YoY but the highest quarterly profit since the food-delivery push kicked off in Q2 last year, and well above Bloomberg consensus of RMB 2.6bn.

2) State-subsidy fade manageable: The main drag — appliances/3C sales — fell 8.4% YoY, with a narrower decline. By contrast, general merchandise revenue rose nearly 15%, accelerating, and management disclosed its GMV share is now over half.

This mix shift lifted self-operated merchandise revenue growth from -3% last quarter to +1%. The recovery was mainly driven by general merchandise.

In addition, 3P merchant services and marketing revenue growth accelerated from 15% last quarter to nearly 19%. With the 3P ecosystem maturing and mix rising, this revenue line has maintained double-digit growth for over a year, outpacing the group.

Logistics and other revenue remained buoyed by food delivery, with growth at 22%. However, as food-delivery investment and orders tapered, growth eased by ~2ppt QoQ.

Overall, while appliances/3C remained in negative territory due to fading state subsidies, e-commerce growth improved versus last quarter. Supported by general merchandise and other businesses, JD's total revenue growth re-accelerated.

3) JD Logistics took over on-demand delivery: By segment, core Retail (Mall) revenue growth improved from -1.7% to +1.8%, in line with the above trends.

Notably, at end-Oct 2025, JD Logistics acquired the on-demand (即时配) delivery biz previously booked under 'Others', driving JD Logistics revenue growth to 29% this quarter, while 'New Businesses' revenue fell by ~RMB 8bn QoQ.

This is essentially an internal reallocation and has limited impact on JD Group shareholders.

4) Food-delivery loss cut as guided; Mall profit far ahead of expectations: As noted, group profit beat was driven chiefly by the Mall segment. With reduced food-delivery investments, 'Others' narrowed losses as expected, but the magnitude was not a positive surprise.

Specifically, Mall segment OP reached ~RMB 15bn. With only modest revenue growth, segment profit jumped 16.5% YoY, well above the Street at ~RMB 12.6bn.

Per management, upside drivers included strong growth and mix uplift in higher-margin 3P services, margin improvement in general merchandise (traditionally high GP but low net margin), and better procurement efficiency (we read this as procurement price pressure on suppliers).

'Others', which includes food delivery, posted a loss of ~RMB 10.4bn, down ~RMB 4.4bn QoQ, mainly as JD exited the core battleground of the food-delivery war, cutting spend with a QoQ dip in order volume. Initiatives like Jingxi and overseas JoyBuy remain in investment mode, partially offsetting food-delivery loss cuts.

5) Cost and expense lens: For the key Mall segment, the profit beat was primarily from a ~180bps GPM expansion YoY, while the expense ratio also rose ~100bps YoY. In other words, the beat stemmed from gross margin and mix, not expense cuts.

At the group level, GPM improved from 15.9% to 16.8% YoY. Total opex rose nearly 32% YoY, slower than prior quarters but still above revenue and GP growth. Profit beat aside, JD remains in an investment/expansion phase.

By line item, R&D, marketing, and G&A grew ~45–50% YoY, with only fulfillment — closely tied to order volume — growing more slowly.

6) Shareholder returns remain solid: In Q1, JD spent a total of US$631mn on buybacks, retiring ~1.6% of end-2025 shares outstanding. Annualized, the buyback alone implies a ~6.4% return.

Buyback intensity did not drop vs. last year. Among U.S.-listed China ADR peers, JD still ranks top-tier in shareholder returns.

Dolphin Research view:

1) For the quarter, JD delivered a solid print. While a rebound in e-commerce and loss cuts in food delivery were anticipated, delivering on both is still a positive.

The standout is the Mall profit beat, which shows JD can extract value upstream in the supply chain. It also suggests less reliance on appliances/3C as general merchandise and 3P scale, helping cushion the impact from fading state subsidies.

2) Outlook

On trajectory, as we have noted, e-commerce growth improved QoQ in Q1 on holiday consumption. But since Mar, social retail sales — including online — have weakened again, so we stay cautious on full-year 2026 e-commerce growth.

1) Management guides that Q2 will face a higher subsidy base last year and rising component costs (e.g., memory), pushing 3C prices higher and dampening demand. Appliance/3C sales YoY decline could widen to over -15% in Q2, likely dragging Mall revenue growth back into the red at around -5%.

That said, given JD's ability to smooth profit swings, Mall OPM is guided to at least hold QoQ in Q2 (historically JD tends to outperform its conservative guide).

2) Another swing factor is JD's stance on investment and losses in new businesses while the core site faces growth pressure this year.

Management expects food-delivery losses to narrow further QoQ in Q2, as the industry collectively repairs UE and JD's own food-delivery presence has faded. However, with the 'Jingxi' brand revived to pursue white-label and lower-tier markets, and overseas JoyBuy ramping, new-business losses are still expected to approach RMB 10bn in Q2, with limited narrowing.

On current trends, full-year new-business losses should still be at least ~RMB 35bn. This remains a key watch item.

3) Valuation: management guides Q2 Mall revenue back into negative growth, with continued pressure on appliance/3C. That said, subsidy base effects ease in 2H, and 3P plus general merchandise should provide a floor.

Assuming Mall revenue is roughly flat YoY in 2026, and lifting our Mall profit view from a slight decline to ~+10% after the beat, Mall OP would be ~RMB 56bn for 2026. New-business losses (food delivery plus Jingxi/overseas) are estimated at ~RMB 37bn in 2026, as food-delivery narrowing is offset by overseas spend.

That implies group adj. OP of ~RMB 19bn (no additional tax adjustment). Versus ~RMB 310bn market cap, the group trades at ~16x OP, indicating the market is not fully penalizing new-business losses in valuation.

On a core Mall OP basis, the multiple is ~5.5x, which screens inexpensive. Going forward, two factors should drive the stock: first, whether core e-commerce can keep Mall profit flat-to-up despite negative growth in appliances/3C via mix and procurement levers.

Second, when the heavy-loss new businesses can materially narrow losses. If that happens, more conservative capital that values JD on group profit should converge toward Mall-based valuation; at ~6x, there is room for re-rating.

Detailed read-through of this quarter's results:

I. Revenue performance

1) Self-operated retail