Continuing to "reduce costs and increase efficiency" has become a top priority.

Produced by | Business Show

After significant adjustments and changes, Alibaba and JD.com, two e-commerce giants, have delivered new performance reports.

On August 15, Alibaba released its financial report for the first quarter of fiscal year 2025. The data shows that for the quarter ended June 30, 2024, Alibaba achieved revenue of 243.236 billion yuan, an increase of 4% year-on-year. Adjusted EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) was 51.161 billion yuan, a decrease of 2% year-on-year. Net profit was 24.022 billion yuan, a decrease of 27% year-on-year. Net profit attributable to ordinary shareholders was 24.269 billion yuan, a decrease of 29% year-on-year. In June 2023, Alibaba announced that Daniel Zhang would step down as Chairman and CEO of the Alibaba Group Holding Limited's board of directors in September, with the positions being taken over by Joseph Tsai and Simon Wu, respectively. Under the new leadership, Alibaba's various businesses have also entered an adjustment phase. JD.com is also changing. First, news spread that JD.com had internally introduced a "strict attendance policy," followed by Liu Qiangdong's "brotherhood" rhetoric flooding public opinion. Coupled with JD.com's adherence to its "low-price" strategy, these developments indicate that JD.com is attempting to regain its "wolf-like" competitiveness. On August 15, JD.com released its financial results for the second quarter and mid-year of 2024. The financial report shows that in the second quarter, JD.com achieved revenue of 291.4 billion yuan, an increase of 1.2% year-on-year. Net profit attributable to shareholders was 14.5 billion yuan, an increase of 69.0% year-on-year, with a net profit margin reaching 5.0% for the first time.

In the first half of this year, JD.com Group's revenue reached 551.4 billion yuan. Revenue from logistics and other services in the second quarter reached 34.1 billion yuan, an increase of 7.9% year-on-year. As of the second quarter, JD Logistics' non-GAAP operating profit has been profitable for five consecutive quarters, and its non-GAAP operating profit margin hit a new high since JD Logistics' listing in the second quarter. Richard Liu, CEO of JD.com Group, said that JD.com will continue to focus on user experience, price competitiveness, and platform ecology. After the intense low-price battle without gunsmoke in the past year, Alibaba and JD.com, two representative e-commerce giants in China, have reached a crossroads in the escalating price war. After 618, Taobao and Tmall Group chose to adjust their low-price strategy, while according to statements made by JD.com executives during the earnings call, JD.com's low-price strategy remains unchanged.

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Learn from Pinduoduo and implement a "low-price" strategy

Let's start with the core e-commerce segment. Overall, Alibaba's transaction volume increased, but revenue decreased. The financial report shows that Alibaba's Taobao and Tmall Group generated revenue of 113.373 billion yuan in this fiscal quarter, a year-on-year decrease of 1%. The group's gross merchandise volume (GMV) increased by a high single-digit percentage year-on-year, with the number of buyers and purchase frequency continuing to grow, and order volume increasing by a double-digit percentage year-on-year. Taobao and Tmall Group was also Alibaba's only business segment that experienced a decline in this fiscal quarter. JD.com's revenue in its mainstay 3C sector also declined. Fortunately, the growth in daily necessities compensated for this decline. The data shows that revenue from electronics and home appliances declined by 4.6% year-on-year to 145.1 billion yuan in the second quarter, while revenue from daily necessities increased by 8.7% to 88.85 billion yuan, resulting in overall merchandise revenue remaining flat year-on-year at 233.9 billion yuan. JD.com's retail revenue in this quarter was 257.07 billion yuan, an increase of 1.5% year-on-year.

This is related to their learning from Pinduoduo and implementing a "low-price" strategy over the past period.

In November 2023, Pinduoduo's market value surpassed Alibaba for the first time and reached four times that of JD.com. In May of this year, Pinduoduo surpassed Alibaba again, solidifying its position as the most valuable Chinese concept stock in the US market. Today, Pinduoduo's market value has exceeded $200 billion.

As is well known, one reason for Pinduoduo's rapid rise and growth is that Chinese consumers are shifting from consumption upgrading to consumption downgrading. According to iResearch's "2023 China E-commerce Market Research Report," among the many factors that Chinese online shoppers consider when choosing websites/apps, "price-price advantage" ranks first.

Although Alibaba and JD.com have their respective category advantages and service characteristics, facing Pinduoduo's strong rise and the ever-changing consumer era, more voices in the industry tend to believe that these two giants have no choice but to follow in Pinduoduo's footsteps.

Starting in 2023, Taobao and Tmall Group launched the Price Power project and introduced a five-star Price Power system. It also successively launched services such as pay after use, only refund, and 88VIP free shipping on returns; during the "Singles' Day" in 2023, Taobao and Tmall Group elevated order volume and DAU to the most important performance indicators across all departments. At the same time, Taobao and Tmall increased subsidies for merchants. Since the beginning of 2023, Taobao Factory's business has been comprehensively upgraded, launching a new product commission incentive plan for industrial belt manufacturers. In terms of operations, Taobao has successively released 10 AI management tools and announced that important business services such as Business Advisor and XiaoMii customer service robots will be provided for free.

Alibaba chose to trade lower prices for scale. As a result, Taobao and Tmall delivered double-digit GMV growth in the previous quarter, and this growth trend continued in the current quarter. However, the situation of increased volume but not revenue persisted, with revenue and customer management fees (advertising, commissions) for fiscal year 2024 increasing by only 4% and 5%, respectively. In this quarter, customer management revenue for Taobao and Tmall was 80.115 billion yuan, an increase of 1% year-on-year. In response to this issue, Alibaba executives stated that Taobao and Tmall's current priority is to enhance the user shopping experience, thereby driving an increase in purchase frequency and GMV growth.

Alibaba's net profit decline also continued, with net profit for fiscal year 2024 plummeting to 919 million yuan, a 96% decrease year-on-year; in this quarter, net profit was 24.022 billion yuan, a decrease of 27% year-on-year.

The low-price strategy encountered difficulties at Taobao and Tmall, and "stopping the decline" has become Alibaba's latest requirement for net profit. As a result, Taobao and Tmall's adjustments have been interpreted as "turning around and weakening the low-price strategy." Recently, Taobao and Tmall Group held a closed-door meeting with key merchants to clarify multiple strategic adjustments to be implemented in the second half of the year. The system of allocating search weight based on the "five-star Price Power" introduced last year has been weakened and reverted to being allocated based on GMV.

Today, in the fiercely competitive e-commerce industry, Taobao and Tmall's exploration may not have found a definitive answer yet. In contrast, JD.com seems to have not only tasted the "sweetness" of low prices but also found itself in the process.

At JD.com's internal retail conference held at the end of 2022, Liu Qiangdong stated, "Low prices are the most important weapon for JD.com's past success, and they will continue to be our only fundamental weapon in the future." Subsequently, JD.com designated "low prices" as the most critical strategy for the company over the next three years.

Since 2023, JD.com has launched sales initiatives such as "Billion Subsidy Program," "9.9 Yuan Free Shipping," and "JD.com Flash Sale." JD.com has primarily relied on self-operated quality e-commerce, but in implementing its low-price strategy, it has also embraced third-party merchants and promised to give more traffic to those with lower prices and more product options, regardless of whether they are self-operated or third-party merchants.

Of course, JD.com's low prices are not merely about the cost but also encompass the overall cost-effectiveness, including services. JD.com's logistics and services have always been its strengths, and now it has significantly opened up its services to third-party merchants. For example, in terms of free shipping, not only has JD.com popularized free shipping for orders over 59 yuan for third-party merchants but has also offered free shipping for some product categories. Regarding free door-to-door returns, JD.com has continuously opened up this service to third-party merchants, achieving a win-win-win situation for users, merchants, and JD.com itself.

The results are evident, with JD.com's daily necessities category revenue rapidly increasing, achieving year-on-year growth rates exceeding 8% for two consecutive quarters. Simultaneously, JD.com's logistics and other service revenue reached 34.1 billion yuan in the second quarter, an increase of 7.9% year-on-year, ultimately leading to JD.com's net profit margin reaching 5.0% for the first time.

Interestingly, while rival companies are weakening their low-price strategies, JD.com continues to persist. In July, JD.com launched a long-term promotional campaign called "Super 18," continuing to prioritize low prices as its core strategy. On the one hand, JD.com's 3C products are inherently price-sensitive and naturally suited for participating in low-price promotions. Regarding the decline in 3C product revenue in this quarter, JD.com CFO Su Dan explained in the financial report that it was due to the high base effect from last year. On the other hand, when JD.com wants to expand its product categories, by emphasizing services and low prices, it can quickly attract third-party merchants and daily necessities merchants to JD.com, making new users think of JD.com when choosing products beyond 3C. The industry believes that JD.com's efficient supply chain has formed a moat, giving it an advantage in the low-price war. JD.com only needs to continue to deepen its service efficiency, potentially enabling it to profit consistently through economies of scale.

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Reaching a crossroads in the price war

Beyond the broader e-commerce landscape, both JD.com and Alibaba are striving to tap into the growth of their second curves. Let's first look at Alibaba's performance in other major business segments. The International Digital Commerce Group generated revenue of 29.293 billion yuan, a significant 32% year-on-year increase, making it the fastest-growing business segment. Alibaba Cloud Intelligence Group revenue was 26.549 billion yuan, a 6% year-on-year increase. Cainiao Group revenue was 26.811 billion yuan, a 16% year-on-year increase. Local Life Services Group revenue was 16.229 billion yuan, a 12% year-on-year increase. The Digital Media and Entertainment Group revenue was 5.581 billion yuan, a 4% year-on-year increase. As Daniel Zhang said, "The entire Alibaba is rushing towards the future with a brand-new attitude." Taking Alibaba International as an example, in the first half of 2024, businesses such as Lazada underwent multiple organizational and personnel upgrades, with major brands focusing on refined operations. Alibaba International has also developed more overseas supply sources, establishing new supply cooperation networks in places like Brazil. However, the data shows that Alibaba International's second-quarter loss widened to 3.706 billion yuan, compared to a loss of 420 million yuan in the same period last year. Alibaba attributed this primarily to increased investments in user experience (thereby enhancing consumer retention and purchase frequency) and technology infrastructure. These investments have indeed led to tangible growth, with Alibaba's international retail businesses, including Lazada, AliExpress, Trendyol, and Daraz, as well as international wholesale businesses, now growing rapidly, accounting for approximately 12% of overall revenue, and Lazada has become profitable.

Next, let's look at another noteworthy business segment of Alibaba - Alibaba Cloud. Since Simon Wu took over as CEO of the Cloud Intelligence Group, he has also set the strategy for Alibaba Cloud over the next five years as "AI-driven, public cloud first," making significant adjustments to the business management team. In November 2023, Alibaba Cloud established dedicated public cloud and hybrid cloud business units. In February of this year, Alibaba Cloud introduced its largest price reduction in history, which was extended to overseas public cloud products in April.

These measures have returned Alibaba Cloud's performance to growth, with revenue increasing by 6% to 26.549 billion yuan in this quarter, including triple-digit growth in AI-related product revenue and double-digit growth in public cloud revenue. Simultaneously, Alibaba Cloud's profit surged, with adjusted EBITA profit increasing by 155% year-on-year, reaching 2.337 billion yuan in a single quarter.

In contrast, JD.com's attempts and growth in new business segments seem somewhat "strenuous." Beyond JD Retail and JD Logistics, new businesses (primarily Dada, JD Industrial Development, JD Joybuy, and overseas operations) swung from profitability to a loss, with second-quarter revenue of 4.64 billion yuan, a 35% year-on-year decrease, and a net loss of 695 million yuan, compared to a profit of 1.03 billion yuan in the same period last year. Due to the significant initial investments and slow returns in new businesses, they have overall dragged down JD.com Group's financial performance. Among them, JD Joybuy is considered an important lever for JD.com's low-price strategy, focusing on sinking markets and launching a full-service model for white-label merchants. The primary model involves merchants being responsible for production, while JD Joybuy takes over operations, logistics, after-sales, etc., earning a price difference from the products. According to 36Kr, multiple sources close to JD.com stated that at this stage, JD Joybuy's self-operated business does not prioritize maximizing GMV but rather focuses more on order volume. Meanwhile, Dada, which went public in June 2020, has been in severe losses since 2017, with cumulative losses exceeding 10 billion yuan in seven years. The objective fact is that JD.com's primary revenue source today comes from merchandise sales, which reached 233.9 billion yuan in the second quarter of this year, accounting for 80% of total revenue. JD.com's logistics services and new businesses all serve as levers for its merchandise sales revenue. To a certain extent, while JD.com has achieved a clear increase in net profit this year, in today's e-commerce landscape, its foreseeable ceiling and potential are limited.

As for Alibaba, the mid-way point of its transformation has arrived. After a year of adjustments, Alibaba's business segments, except for Taobao and Tmall, are rapidly moving towards reducing losses or even achieving profitability, which has maintained optimism among outsiders.

After vigorously promoting the price war, all attempts and adjustments by Alibaba and JD.com point in one direction: waiting for the commercial revenue of the entire e-commerce sector to return to high growth. Obviously, this will take time. It could take as little as two to three years or even longer. Notably, amid economic uncertainty, both large technology companies abroad and domestic internet companies are undergoing strategic adjustments, with "reducing costs and increasing efficiency" becoming a top priority. Especially in the e-commerce industry, whether it's Alibaba or JD.com, the core of adjusting strategies and implementing changes remains optimizing costs. According to financial report data, as of December 31, 2023, Alibaba had 219,260 employees. Media reports stated that Alibaba reduced its workforce by nearly 7,000 in the second quarter and over 21,000 in the first half of the year, representing a reduction of nearly 10% of its workforce. In contrast, by the end of the second quarter, JD.com had added over 20,000 jobs in the past year, bringing its total workforce to nearly 520,000 employees.