Behind JD.com's Q3 profit pressure: Food delivery is burning cash, core electronics and home appliances business slowing down, AI-driven advertising emerges as a growth highlight

JD.com Group delivered a mixed earnings report in the third quarter. Although both revenue and adjusted net profit beat market expectations, its core profitability is under significant pressure, mainly due to massive investments in new businesses such as food delivery eroding operating profits. Meanwhile, growth in its traditional electronics and home appliances business has also slowed.

According to Zuifeng Trading Desk, JD.com achieved revenue of 299 billion RMB in the third quarter, a year-on-year growth of 15%, higher than market expectations. Adjusted net profit was 5.8 billion RMB, a year-on-year decline of 56%, but still significantly exceeded analysts’ forecasts. However, JPMorgan analysis suggests that this earnings “surprise” was mainly driven by gains from equity investments and other non-core business items.

In stark contrast, adjusted operating profit—reflecting the health of core businesses—plummeted to 211 million RMB, much lower than JPMorgan’s earlier estimate of 1.7 billion RMB. The bank attributed this to fulfillment costs from food delivery and instant retail businesses exceeding expectations.

UBS released a similar report on the same day, arguing that, although the core retail business remained robust, losses in new business weighed it down. Analysts pointed out that the market will focus in the short term on JD.com management’s statements regarding investment in food delivery, seeing this as a key factor impacting the company’s future profitability.

New Business “Burning Money,” Food Delivery Drags Down Operating Profit

According to JPMorgan's analysis, losses in JD.com's new business sector were the main reason for operating profit pressure in the third quarter. Their report showed that the new business segment, including food delivery, saw operating losses expand quarter-on-quarter by about 1 billion RMB, reaching 15.4 billion RMB—over 2 billion above the bank’s expectations.

Behind the massive spending is JD.com’s pursuit of new growth curves. UBS research noted that JD.com’s management remains “highly committed” to the food delivery business, viewing it as a long-term strategic move designed to leverage JD.com’s core supply chain strengths.

Despite the heavy investment, analysts also see signs of improvement. UBS anticipates that, thanks to improvements in the food delivery business’s unit economics (UE) and stable order volumes, new business losses will likely shrink quarter-on-quarter in Q4. However, the report also warns that continued investment in Jingxi and international business could partially offset this improvement.

Core Retail Engine Slows, Electronics and Home Appliances Growth Stalls

JD.com's core business—electronics and home appliances, which it was founded on—showed signs of growth fatigue in the third quarter. JPMorgan and UBS both highlighted this risk in their reports.

Data shows that sales revenue for this category grew just 5% year-on-year in Q3, a sharp slowdown from 23% in Q2. UBS stated in its report that although sales of phones like the iPhone remain strong, the home appliances segment will face tougher growth baseline challenges in Q4.

However, strong growth in general merchandise categories provided some cushion for JD.com’s retail business. JPMorgan’s report noted that general merchandise sales grew 19% year-on-year, faster than Q2’s 16%. UBS also noted that supermarket, fashion, and health categories all achieved double-digit growth, and management remains optimistic about maintaining this momentum in Q4.

Growth Highlight: AI-Powered Acceleration in Advertising and Marketplace Revenue

Against the backdrop of challenges facing core business, JD.com’s advertising and platform business emerged as a bright spot in the financial report. Marketplace and advertising revenue grew 24% year-on-year in Q3, accelerating from 22% in Q2.

UBS analysts believe that this strong growth is mainly driven by two factors. On one hand, platform traffic continues to improve, with user activity and shopping frequency up over 40% year-on-year; on the other, JD.com’s ongoing optimization of “AI-driven advertising tools” and traffic distribution efficiency has become a sustainable growth engine.

JPMorgan noted that while the financial report may have a mildly positive impact on the stock price, the market’s focus will be on management’s statements regarding new business investment.

UBS believes that intense competition in the instant retail sector, uncertainty over the speed of food delivery loss reduction, and high growth baselines faced from Q4 this year into the first half of next year may limit short-term upside for the stock.

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