(Yicai) Aug. 15 -- JD.Com's shares fell after the Chinese e-commerce giant said profit halved in the second quarter, dragged down by heavy investment and losses at new businesses, especially its food delivery venture launched earlier this year.

JD.Com [HKG: 9618] closed 3.4 percent lower at HKD120.80 (USD15.45) a share in Hong Kong today. Its New York-listed stock [NASDAQ: JD] fell 2.9 percent yesterday to USD31.58.

Net profit shrank 51 percent to CNY6.2 billion (USD863.5 million) in the three months ended June 30 from a year earlier, the Beijing-based company said in an earnings report released yesterday. Revenue jumped 22 percent to CNY356.7 billion (USD49.8 billion).

Income from new businesses, including meal delivery which the firm got into this February with the start of JD Food Delivery, tripled to CNY13.9 billion (USD1.9 billion). But that steep growth entailed a CNY14.8 billion loss from operating costs of CNY14.4 billion and expenses of CNY14.5 billion. Marketing expenses surged 128 percent to CNY27 billion, mainly due to bigger outlays on new business promotions, especially for JD Food Delivery.

The new meal delivery business “made healthy progress during the quarter in metrics such as order volume growth, merchant base expansion, full-time rider recruitment, and, more importantly, synergies with retail and other existing businesses of JD.Com, having successfully achieved our initial strategic goals," Chief Executive Sandy Xu said in a statement.

Daily orders at JD Food Delivery over the mid-year 618 shopping festival exceeded 25 million, with over 1.5 million quality merchants on board. By the end of the second quarter, the platform had more than 150,000 full-time delivery riders.

Vicious Competition

JD.Com's entrance into the meal delivery business drew widespread attention, and it soon began signing up food vendors with the offer of a 12-month waiver on commission fees. The foray sparked immediate responses from industry leader Meituan and Alibaba Group Holding’s Taobao (which includes the Ele.me food delivery and local services platform), with both cranking up their investments in instant retail, leading to even fiercer competition in the food delivery market.

“Industry competition has intensified since July,” Xu said on the firm’s earnings conference call yesterday. “We believe that these excessive competitive practices have not led to business model innovation nor brought incremental value to the industry. Instead, they have to some extent disrupted the industry's pricing system and caused many problems for merchants, making them unsustainable.”

JD Food Delivery, Meitun, and Ele.me each announced on Aug. 1 that they would curb vicious and unfair competition, normalize promotional behaviors, and shift the industry toward quality- and services-driven competition to achieve mutual benefits and win-win results.

The food delivery business is deeply integrated into JD.Com's overall business ecosystem, she noted, adding that it is generating synergistic value with the company's core e-commerce business.

JD Food Delivery has brought significant traffic and user growth to JD.Com, with user activity, the number of users, and shopping frequency increasing, Xu pointed out. "The conversion rate of food delivery users purchasing JD.Com's core e-commerce categories has also continued to rise, particularly in categories such as supermarkets, where we have observed a large amount of cross-buying,” she said.

Retail, Logistics Earnings

JD Retail, which includes the e-commerce business, as well as JD Supermarket and JD Mall, reported a revenue of CNY310.1 billion in the second quarter, an increase of 21 percent from a year earlier, with income from electronics and home appliance sales climbing over 23 percent.

On July 31, JD.Com unveiled plans to acquire Germany's Ceconomy, the parent company of consumer electronics retailers MediaMarkt and Saturn, for EUR2.2 billion (USD2.5 billion).

"We believe that the brand strength, supply chain capabilities, and market position that Ceconomy has established in the European market are of great value to JD.Com," Xu said. "Our online e-commerce operations and technological capabilities can complement their strengths."

JD.Com's international business will focus more and more on supply chain capabilities, she noted, adding that it will seize the opportunities for high-quality Chinese brands to go global while adhering to localization, building local retail and e-commerce businesses, establishing local teams, procurement, and shipping, and forming long-term win-win partnerships with local market players.

JD Logistics continued to strengthen its leading position in China’s integrated supply chain markets, with its global smart supply chain network planning to ramp up its overseas warehousing capabilities. Quarterly revenue from this business rose 17 percent to CNY51.6 billion.

In June, JD Logistics launched a self-operated express delivery brand in Saudi Arabia, JoyExpress, officially commencing local delivery operations. JD Logistics now has warehouses in 23 countries and regions.

Editor: Futura Costaglione