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spk09: Good morning, ladies and gentlemen, and thank you for standing by for DADA's first quarter 2021 earnings conference call. At this time, all participants are in a listen-only mode. After the management's prepared remarks, there will be a question and answer session. As a reminder, today's conference call is being recorded. I'd now like to turn the call over to the host for today's call, Ms Caroline Dong. Head of Investor Relations for Dada. Please proceed, Caroline.
spk06: Thank you, operator. Hello, everyone, and thank you for joining us today. Our first quarter 2021 earnings release was distributed earlier today and is available on our IR website at ir.imdada.cn as well as on global newsware services. On the call today from Data, we have Mr. Philip Kwai, Chairman and the Chief Executive Officer, Mr. Beck Chen, Chief Financial Officer, and Mr. Jun Yang, Co-Founder and the Chief Technology Officer. Mr. Kwai will talk about our operations and company highlights, followed by Mr. Chen, who will discuss the financials and guidance. They will all be available to answer your questions during the Q&A session that follows. Before we begin, I'd like to remind you that this conference call contains following statements as defining the Section 21E of the Securities Change Act of 1934 and the U.S. Private Security Investigation Reform Act of 1995. These following statements are based on the current management, current expectations, and current market and operating conditions, and relate to events that involve known or unknown risks, uncertainties, and other factors, all of which are difficult to predict and a matter of which are beyond the company's control. These risks may cause the company's actual results or performance to deform materially. For the information regarding these and other risks, uncertainties, or factors, as included in the company's filings with the U.S. SEC, the company does not undertake any obligation to update any forelooking statement as a result of new information, future events, or otherwise, except as required under applicable law. Please note that, unless otherwise stated, all figures mentioned during this conference call are in RMB. It is now my pleasure to introduce our Chairman and Chief Executive Officer, Philip Kwai. Philip, please go ahead.
spk05: Thank you, Caroline, and thank you all very much for joining us today. We are pleased to deliver a strong quarter to kick off 2021. Our total net revenue for the first quarter reached $1.7 billion, which is beyond the high end of our guidance. The year-over-year growth rate was 52%, despite the high base from Q1 of 2020. The two-year compound average growth rate was 78% when calculated from Q1 of 2019. Revenue generated from JDDJ reached $778 million with a two-year trigger of 97%. I'm going to talk you through our deepened strategic cooperation with JD Group, some highlights of the April 15th anniversary promotion, and some recent progress of our two platforms. Then I will hand the call over to Beck to talk about our financial results. On March 22nd, We announced that JD.com will increase its stake in EARTH to 51% by investing a total of $800 million in newly issued ordinary shares. The increased investment marks a deepened cooperation between JD.com and DADA under the Omni-Channel strategy. Leveragent JD's devoted strategic support will better fulfill demand for local on-demand retail and its delivery on JD, covering various scenarios and categories, and expand our omnichannel cooperation with JD. Together with JD, we will continue to provide consumers with superior shopping experience, empower retailers and brand partners, and achieve a win-win cooperation for all. So with aligned interests and strategic goals, we have started to seamlessly collaborate with JD Retail to explore more synergy opportunities. So we are working together to meet the consumers' needs of on-demand service on JD.com across all categories, including supermarkets, consumer electronics, beauty and health, apparel, et cetera. Effectively, we are optimizing access points and exposures fine-tuning product offerings, and innovating marketing activities to improve consumer experience and operational efficiencies of the on-demand service on JD. So over the past six years, our JDDJ platform has obviously grown very fast, and our anniversary promotion has become one of the most important promotional events across categories in the on-demand retail industry. This year, sales on our platform during the events were 1.7 times greater than last year. And total sales generated by brands that we partner with rose by two times year-over-year. Sales during the promotional events in lower tier cities that we have entered for over a year experienced a more than 100% year-over-year growth rate. This significant growth momentum demonstrate our potential in existing lower-tier cities and the competitive advantages in effectively meeting consumers' needs. Now I will provide some of the updates on our two platforms, starting with JDDJ. First, we have been constantly expanding our geographic coverage, especially in lower-tier cities. and further diversified category coverage to provide our consumers with more product offerings in more categories on demand. At the end of the first quarter, our JDDJ platform has covered over 1,500 cities and counties, which has more than doubled compared to the same period last year. While our flagship supermarket category remains on the fast-growth past, we have made significant progress across many other categories. For consumer electronics, we have now nearly 9,000 stores listed on our platform. In the first quarter, we successfully facilitated sales from smartphone brands such as Realme and OnePlus. During the anniversary promotions, sales of mobile phones from brands such as Apple, Vivo, Xiaomi, and OPPO, all increased by more than seven times year-over-year. We also deepened the strategic collaboration with Lenovo's LACO brand to bring all of the LACO's 1,000 offline stores online to provide consumers with access to Lenovo's PC and other products on demand. For cosmetics, we continue to improve our product line to enrich product offerings and improve consumer experience. For example, we have newly partnered with leading cosmetic retailers such as Sephora, World Color, and Colorist. And we're also progressively bringing their offline stores onto our platform. For apparel, We attracted a number of new brands and distributors to the platform, such as Skechers, Crocs, and a few leading Chinese sports brands. We will continuously focus on expanding brand partnerships, especially in the men's clothing and sportswear segments, to strengthen our presence in the apparel category. For the mom and baby category, we deepened our cooperation with Kisswant, a leading player in the category, and have brought almost all 400 of their stores across the country onto our platform. For home appliance, we're now cooperating with Five Star Appliance and Shun Dian to provide one-hour delivery for consumers who buy small home appliances on our platform. And second, we are continuously strengthening our relationships and deepening our collaboration with our various retailer and brand partners. We newly established partnership with about 30 leading supermarket chains on our platform. As of today, we have partnered with 75 of the top 100 supermarket chains in China. In the fresh product category, we collaborate with Miss Fresh to officially launch their front-end warehouses on both JD.DJ and JD.com. This partnership allows us to offer more consumers on-demand delivery of fresh products and further demonstrate our advantage as an open platform. Our cross-source and digitized picking service for retailers, Adapicking, also saw increased adoption. So data picking is a great solution for retailers who struggle to meet the fluctuated demands and bring down labor costs. The picking order volume in Q1 increased by 230% from the fourth quarter of last year. In the time it took the riders to to fetch goods declined by 23%. We are now in the process of expanding to packaging and replenishing service to provide a comprehensive set of solutions for improving retailers' operational efficiency. Moving on, I would like to talk about the online marketing service for brand partners. During the first quarter, online marketing revenue from brand partners remained strong, increasing by over 130% year-over-year. We continue to deepen our strategic partnerships with a great number of international brands, especially for omnichannel and targeted marketing services that help them effectively engage with consumers. For example, we jointly launched a new promotional campaign called Omnichannel Super Brand Day with JD.com and the dairy brand Wolf China on May 20th. So the event effectively integrates online L2O, online B2C, and offline marketing to allow brands to precisely target consumers and digitize the entire marketing process. So on May 20th, WorthChina's sales on JDDJ platform increased by 3.7 times year-over-year, and JDDJ became the biggest O2O channel for WorthChina. And third, I would like to talk about our innovative technology to empower our retailer and brand partners. So our Hybo system, the omnichannel online retail operating system, continues to be welcomed and popular among retailers because it's an open, neutral, flexible system. As of the end of April, the system has been adopted in more than 3,300 retailer stores, a significant increase from the 2,200 stores as of the end of February. So in addition to supermarket chains, with minimum additional development, we successfully expand the Hygo Systems deployment scenarios to convenience stores and consumer electronics categories. So this demonstrates the feasibility of implementing the system as a standardized solution across multiple verticals. The great thing about the Hypo system is that it's evolving with our merchants' demands. We help merchants to enhance operational and cost efficiencies by constantly iterating and upgrading the system to address their pain points across their omni-channel O2 operations, which also leads to a higher consumer satisfaction. For example, during the first quarter, we added a new automatic replacement feature which digitized the replacement process when an SKU is out of stock. This feature alone has helped cut down the average cost and our managing product shortage by 80%. We also upgrade the dashboard of the system so that the stores can break down the online subsidies, delivery fees, and commissions into each SKU. So this enables merchants to have better insights on SKU profitability, operational performance across channels, and identify issues in a timely fashion. I would like to provide a specific case study, the deployment of our hybrid system at a leading supermarket chain in Jiangxi province, which has been acknowledged by CCFA which is a China chain store and a franchise association for the impressive digital transformation. So this merchant has hoped to boost sales through O2O channels, but we're struggling with losses caused by a lack of detailed operational data and subsidy efficiencies. By adopting Hypo system, they were able to automate financial reconciliation process for omnichannel business. And HYBO's visualized dashboards enable them to analyze operational data across dimensions, including sales channel, stores, product categories, and SKUs. So after adopting the HYBO system, the merchants' omnichannel O2O sales increased by over 50% from previously. the profit margin of their auto business improved by 3.5 times. Moving forward, we will promote this value-added service to more of our existing retail partners. Moving on to DataNow. In the first quarter, our intra-city delivery service to chain merchants continued to grow significantly, with revenue increasing by more than 130% year-over-year. As more chain merchants choose our service and the store penetration for each merchant continues to rise, we expect the business to maintain its fast growth in Q2. Revenue from catering chains increased by over 400% year-over-year as we keep expanding our customer base and increasing store penetration in existing partners. we're pleased to see that our high-quality delivery service are increasingly recognized by restaurants. In the pharmaceutical category, we were able to increase the revenue from the pharmaceutical chain merchants by more than 600% year-over-year as we continue to enhance our service offerings for pharmaceutical chains. Specifically, we upgraded our operational tools to provide better support for long-distance and late-night orders. In the supermarket category, based on our strategic partnership with CR Vanguard, we have already fully integrated our dedicated delivery service to the omnichannel orders of around 1,300 CR Vanguard stores starting from April. In addition to chain merchant business, our delivery service provided to small and medium-sized merchants also experienced very fast growth. In Q1, the number of small and medium-sized merchants that complete orders on DataNow platform more than doubled year-over-year. I would like to talk about the last-mile delivery. At the end of Q1, we provided support to logistics companies in over 2,700 cities and counties. We continue to deepen our cooperation with JD Logistics. During April, we successfully changed to a more asset-light model as we told in the last earning call. With that, I will now pass the call to Back-Chan to go over our financials for the quarter. Thank you.
spk04: Thanks, Philip. Before we go over the numbers, just a few housekeeping items in advance. We believe year-over-year comparisons are the most useful way to judge our performance. All percentage changes I'm going to give will be on a year-over-year basis, and all figures are in renminbi unless otherwise noted. The total net revenues increased by 52% to $1.7 billion. Net revenues from DALANOW increased by 51% to $894 million, mainly driven by the increase in order volumes for our services to logistics companies and intra-city delivery services to chain merchants. The total net revenue from JDDJ increased by 53% to $778 million, mainly due to the increase in GMV from the same order last year which was driven by the increases in average order value and the number of active consumers. The year-over-year increase in online marketing services revenue was over 130%. Moving over to the expenses side, operational and support expenses increased to $1.4 billion mainly due to an increase in rider costs as a result of increasing order volume for our services to logistic companies and intra-city delivery services. provided to various chain merchants on the Dynanaut platform and the retailers on the JDGJ platform. Selling and marketing expenses rose to $791 million due to The growing incentives to JDDJ consumers and an increase in advertising and marketing expenses, which was primarily attributable to the increasing referral fees paid to the staff at retailer stores and third-party promotional service providers for their efforts to attract new consumers to the JDDJ platform. G&A expenses increased. slightly to 103 million, mainly due to increases in professional service fees that the company incurred as a listed company. R&D expenses rose to 124 million, mainly because of the increase in research and development personal costs as the company continues to strengthen its technology capabilities. The increase in share-based compensation expenses also contributed to the increase in personal costs. In Q1, our non-GAAP net loss attributable to ordinary shareholders was 618 million versus 410 million in Q1 last year. Non-GAAP diluted net loss per share was 75 cents compared with 1.11 in the first quarter of 2020. As of March 31, 2021, we had $5.5 billion in cash and cash equivalents, restricted cash, and short-term investments. In addition, our board of directors has authorized a share repurchase program for Dada to repurchase ADSs with an aggregate value of up to $115 million during the next 12 months, funded by our existing cash balance. The share buyback reflects our confidence in the potential and growth momentum of our businesses. Before providing the outlook, I would like to recap the upgrade of our last mile delivery benefits to improve our working capital efficiencies. Starting in April, the cost of riders for our last mile delivery benefits has been directly paid through third-party companies instead of through us. And now we only charge JD Logistics a platform services fee, which we recognize as net revenue. The change in rider cost settlement as well as the revenue and cost recognition will have no impact on the services and support that we provide. The new approach will significantly improve both our working capital efficiencies and the revenue quality. And to help our investors better understand our revenue growth in the next four quarters from 2Q 2021 to 1Q 2022, we will also provide the pro forma information that aligns data now last mile delivery revenue to net basis for Apple to Apple comparisons purposes in our upcoming quarterly earnings release. So for the second quarter of 2021, we expect total net revenue to be between $1.4 billion and $1.45 billion. representing a performer growth rate of 72% to 78%, adjusting Q2 20 and Q2 21, and that are now last month's revenue to net basis. In addition, we are excited with JDDJ's strong growth momentum, so that the year-over-year growth rate of JDDJ's revenue will be over 80% in Q2, and it will further accelerate in the second half of this year. As Q2 might still be the very early stage of our deepened collaboration with JD, we expect a much more incremental impact will progressively kick in starting from Q3. Both JD and Dada are highly confident that we will provide JD's 500 million annual active customers with superior customer services and enrich the coverage in on-demand retail delivery and the penetration of on-demand services among JD's users will provide substantial potential for growth. We will work together to enable our partners and accelerate the digital transformation of real economy enterprises. So let's conclude our prepared remarks. And operator, we are now ready to begin the Q&A session. Thank you.
spk09: Thank you. We will now begin the question and answer session. If you wish to ask a question, please press star 1 on your telephone and wait for your name to be announced. If you need to cancel your request, please press the pound or hash key. Our first question comes from Ronald Keung from Goldman Sachs. Please go ahead.
spk03: Thank you. Thanks Phillip, Bec, June and Caroline. I have two questions for this result. So first is I want to ask about our GDDJ growth in the second quarter, and you talked about the acceleration that we expect in the second half. So can you just give us maybe the drivers of that from, say, ticket size, which we call AOV, and user and user purchase frequency, particularly as we lapped that high AOV last year during COVID, but we're still delivering accelerating growth. Just want to know whether we're seeing all the growth acceleration and the drivers behind And then my second question is, we did see some impact of community group purchase, not on our business, but on mostly our merchants, which are the offline supermarket sales. According to some public news, that their sales have been seeing some impact in the month of March. I just want to see how do we see our merchants, which are the offline supermarkets, is O2O actually becoming an even larger pie of supermarket sales, judging from our very healthy growth of GDDJ sales? So how much should O2O sales portion reach and how should we interpret the evolving shopping patterns of Chinese consumers between the different channels? Thank you.
spk04: Thank you, Ronald. So let me address the first question and I will pass the second question to Philip to answer. So in terms of the growth drivers of JDDJ in Q2 and also the second half of this year, we expect on a year-over-year basis, the AOV will slightly increase. In Q1, actually, the AOV is reaching 170 RMB. But I would like to just attribute this factor to the Chinese New Year factor. So even the supermarket category is reaching historical high. But basically, compared to Q1, we think Q2 and also the second half of this year will not be that much high. But still, on a year-over-year basis, it will increase. And second is, of course, the growth of the number of consumers and Right now, actually, for example, like the 500 million active consumers of JD, there is a very, very small percentage of the customer base was experiencing the OTO on-demand retails before, and we have target and also not so much target that to grow this percentage to much larger than before. So we believe for the second half of this year, the growth of the number of prospective consumers on JDDJ will be a major contributor to the growth of JDDJ platform.
spk05: I will address the second one regarding the community group buying impacts. First of all, we believe the market potential is huge. As you can see, in Q1, we continued to grow fast. In some of the provinces, like Hunan or Hubei, Guangxi or Jiangxi. So those are the province that community group buying has been most actively doing business. So our GMB in those province continue to see a year-over-year doubling growth. So we grow more than 100% in those province. So I think the market potential is huge, and we have been doing well despite all the community group buying. I'm sure you have also noticed that the regulation in this sector has been more and more tight. And we believe this will be beneficial for everyone in this market for the long-term healthy growth, sustainable healthy growth. And as you mentioned, some of the supermarkets certainly have got affected by the community group buying. And as a result, so almost all of the supermarkets are even more willing to deepen partnership with us. That's why we are now seeing more and more supermarkets are adopting hybrid system, and we are seeing more and more supermarkets are starting their partnership with us. So I think this is also helping us to deepen the partnership. At the same time, many of the supermarkets have tried community group buying on their own. But then they realized that for supermarkets, the best way to improve their sales performance and to compete with community group buying is not to do community group buying on their own. Instead, they should be focusing on the store-based on-demand retail. So that's another reason why almost all of the supermarkets are now strengthening their partnership with us. So I think overall we are very much confident for our growth and also we are confident to help our partners to grow their business and to compete with community group buying. And certainly the percentage as the on-demand retail contribution to the supermarket is certainly growing. And I think the number will just keep growing for the foreseeable future. And at the same time, we are helping our supermarkets to improve their profitability, et cetera, by providing advanced technologies and operation support.
spk03: Thank you very much, Philip. I think that's very useful.
spk05: Sure. Thank you.
spk09: Our next question comes from Eddie Leung from Bank of America. Please go ahead.
spk08: Hi, good morning guys. As you guys mentioned about your cooperation with JD, may I have two follow-up questions? The first one is about the current the current status of your user acquisition channels. Roughly speaking, how important is the JD channel for you guys versus your own APP and other channels like mini program. And then secondly, besides natural selection, which is more for the consumers, We also heard from JD in their own earning call that they could be thinking more about logistics and back-end cooperation with their subsidiaries, including you guys. So besides the user acquisition channel, any potential cooperation on the fulfillment and logistics side? Thank you.
spk05: Sure. So thank you, Eddie. I will provide some perspectives and if Beck will have anything to add. So first thing about the user acquisition and the penetration. As of today, the user penetration in JD.com for the on-demand retail is very low, very low, like low single digits or even lower. But at the same time, both JD and Earth are fully aligned and we have the same goal to increase, to grow this penetration. And we plan to grow this penetration all the way to like 50% or even more. So strategically we are fully aligned. And historically JD was not a very significant, not even a dominant user acquisition channel for JDDJ. Since this year, we believe that JD will become a more and more important user acquisition channel for GDDJ. And I think this will absolutely be mutually beneficial because we're providing JD with the lots and lots of quality offline stores and inventory, which will help JD to grow the user frequencies and to grow the user base at the same time. So we will increase the penetration in JD's user base, and JD will leverage our capabilities to grow the frequencies and to continue to expand their user base. I think it will definitely be mutually beneficial. And beyond the user partnership, we believe that more and more strategic partnership will definitely be seen in the next few quarters or in the foreseeable future. Some of the things I will just give you some examples. So the logistics, as you mentioned. So for some of the bulky or heavy products at JD.com, the order fulfillment cost is very high, as you can imagine, delivered all the way from warehouse to warehouse to depots and to customers. And those heavy and bulky products require cold chain. are already located in the stores near the customers in the three miles or even one mile radius. So leveraging our on-demand delivery capabilities and the inventory already located in offline stores certainly the logistics cost and the entire efficiencies will be greatly improved. So I think this, again, will be mutually beneficial for JD, for us, for retailers, and for our brand as well. Another example that, as we mentioned in the remarks, in May 2020, we have already had a very successful three-way partnership case with JD and Unilever China, their brand called Wolf. So Wolf, their ice cream are sold in JD.com as well as on JD.J. So three offers partnered together to launch a joint marketing program. So this again helps to improve the sales performance as well as to improve the efficiencies. So things like that. So we are very much confident that a lot of strategic synergies can be seen from this JD partnership, and we are very much looking forward to that.
spk04: Yeah, and also, some more points from my side is, Yeah, we just touched about like the marketing, innovating marketing activities. So traditionally, we are just like separate two teams. JD is cooperating with some online team of the brand side and the JDJ is cooperating with the offline or O2 team of the brand side. And there is some inefficiency between us. So in the future, we will actually collaborate together and to have a unified marketing campaign to work with the brands. And we believe that the potential for the marketing revenues for both sides is huge. And we mentioned in the prepared remarks that we are optimizing some access points and exposures and fine-tuning the product offerings because previously we are a little like losing in the relationship. But right now with the tightening of the partnership of both sides, we expect there is some like huge, even huge opportunities ahead of us. So maybe you will see it soon. So this is my position.
spk08: That's correct. Thank you.
spk09: Our next question comes from Thomas Chung at Jefferies. Please go ahead.
spk02: Hi, good morning. Thanks management for taking my questions and congratulate on a strong Q2 guidance. Given our cooperation with JD, May I ask about how we should think about the unique economics of JDDJ and the monetization potential for JDDJ across the different lines like commission, marketing, delivery, and how we should think about the timing for JDDJ to turn into profitability into the future? And my last question is about the housekeeping questions. May I also ask about the contribution from the non-supermarket in terms of the orders and the GMV during the quarter? Thank you.
spk04: Okay, so thank you for the question, Thomas. So the non-supermarket, actually the customers non-supermarket categories is contributing like 25% of the total GME in Q1. So the market is accounting for like 75%. And for the economics, so basically for the monetary side, there is no big difference between the benefits on JDGJS app or JDGJS app. Generally, it's very similar or very same. Actually, right now we are also launching some products and offerings to optimize the subsidy level of our merchants and also the platform ourselves together. So we expect to see the effect coming out in the second half. And in terms of the total strategy, like on the collaboration of JD, right now, we prioritize the growth because the growth momentum and the potential is huge for just imagine 500 million active users on JD. So when the growth is big enough, and we will further optimized like the subsidy level to help the businesses to achieve, you know, break even or profitable as well as possible. So generally we think the growth potential is bigger than our previous expectation and with this those ticked in, we have more opportunities to optimize our direct margin level even earlier than prior expectation.
spk02: Thank you.
spk09: Our next question comes from Ashley Shu at Credit Suisse.
spk01: Please go ahead. Thank you, Philip and Bec, for taking my questions. Just a quick follow-up on our second quarter guidance. I just want to check what does the guidance reflect in terms of both geographic and category expansion for the quarter? And also, in terms of our cooperation with JD currently, are there any more concrete plans? for our cooperation starting second quarter, especially in terms of user traffic. Thank you.
spk04: Okay, so for the first question, yes, so we are penetrating into the lower tier cities and also like the suburb areas of those big cities or these direct operating cities. So this is all accounted into the guidance we are giving out. And in terms of the detailed cooperation plan actually, starting from April and May, both of the parties, including JD and JDDJ, are sitting together, and we already have a work team to partner with each other, and there are some very concrete plans, including some plans like the traffic or access points, and we Actually, I think, you know, you're expecting to see it very soon in Q3. And even like the previous plan, previously we called it like wooden cancer plan, maybe we'll have a brand new name and upgrade it as well. So right now, it's still under the last minute, like the development. So as soon as it's coming out, we think we will have you guys know it as soon as possible.
spk05: Yeah, and just to add a little bit, so as you mentioned the geographic and the category, we will certainly continue to expand our geographic coverage. more cities and also to expand to more categories and we're happy to see that we have got some early win from the consumer electronics and now as we are expanding to like beauty and personal care and other categories we're seeing a very good momentum as well. We're able to sign up the best offline retailers on board and we are confident to see more growth from more categories. And in terms of the partnership with JD, I think first of all, we're happy to see that at the very top level, we're able to arrive at a very concrete agreement with the top leadership at JD. So omnichannel strategy is absolutely considered as a very top priority for JD top leadership. And this is fully aligned with all the JD executives and all the general managers across JD business units. So I think this is very important. And as a result, JD app is now being optimized to be more location-based, to be able to support the on-demand retail business. And also, as you may see in the near future and in the foreseeable future, we will be able to get more access points from JD as well. So users will have more chances to experience the on-demand retail. So that agreement is, we have already arrived at that agreement with the JD leadership. I think we are very much confident about Outlook.
spk01: Very helpful. Thank you.
spk09: Our next question comes from Wei Feng from Morgan Stanley. Please go ahead.
spk10: Thank you very much for taking my question. I have two questions. The first is we see that the guidance for second quarter, the JDDJ revenue is quite strong, so the GMV growth should also be very strong. So within that growth, do we have any color on how much of the GMV growth will come from the merchants that we developed onto our JDDJ platform by ourselves? And what is the contribution from the Woojin Tenzo platform in the GMB? And my second question is that for those orders from the Woojin Tenzo system, can we assume that these orders are positive in direct margin? So basically, we charge some commissions from the merchant and probably will pay some traffic to jt.com and then It's just a positive direct market. Do we need to pay any like subsidy for those orders from would intend the system? These are my questions.
spk04: Thank you Okay Thank you for the question. Okay, so and so first of all and for all the merchants right now actually the operating guides or sales guides of JD.J is developing those new merchants and invest them onto the platform and onto JD.com through the natural selection systems simultaneously. So JD.J's guide is the guide to operate or to invest those store merchants. And also, in terms of the contribution of the JD's Wu Jing Tianzi, right now, in Q1 or in Q2, the JD's Wu Jing Tianzi is still contributing a lower percentage of our benefits. But we expect that in the following quarters, the contribution of JDDJ will be slightly bigger and bigger you know, in the future. And at this moment, for example, like for the supermarket categories and products invested on JD.com through Woojin Tenzo, we still will give like the customer subsidies to attract or to retain the consumers. But just as I said in the previous question, so As long as we have got some, you know, more access points and the benefits on wooden tinter is growing significantly, for example, in the second half of this year, we already have a plan to cut down the subsidies to, you know, given to the consumers to make it, like, to improve, actually, the unique economic or the direct margin on AJD.com. So, this is all in our planning.
spk10: Thank you very much.
spk09: Our next question comes from Alicia Yap at Citigroup. Please go ahead.
spk07: Hi. Good morning, management. Thanks for taking my questions. I have a couple questions. Number one, related to the second quarter guidance, if we take out the JDDJ growth expectation, The growth rate for data now actually implies a pretty decent growth at maybe roughly over 60 to 70 percent. So maybe can you elaborate a little bit on the order demand outlook for these chain merchants versus the orders coming from SME and also overall competitive landscape for the on-demand delivery? And then second, if you can also elaborate a little bit, what is the differentiation or competitive advantage of your high board system that make it very differentiated and also attracted to these retailers that you are serving? Thank you.
spk04: Thank you for the question. I'll address the first question. In terms of the Q2 guidance for the data node side, because actually starting from Q2, accounting-wise, only the chain merchant businesses will be recognized on gross basis. last mile finances and also like the small and the medium-sized or individual centers and it is will be reconnected revenues will be recognized on that basis so which means actually the chain merchant business is growing very fast. So in the first quarter, the chain merchant business is growing by over 130%, and we still believe that in Q2, this business will maintain a triple-digit growth rate. And we are even more confident that even in the second half of this year, the business is still very strong. And we believe that maybe in the second half of this year, for the chain merchant business, actually, we started from Q2 2019 And after two or more than two years, we expect that this business will grow to be the largest platform in China to provide, you know, to those pay aid or chain merchant businesses. Just in the second half of the year, surpassing every kind of intra-city delivery platforms in China.
spk05: Regarding the HYBO system, first of all, we have the best technology and functionality with this system. Because since 2015, we are the very first platform to work with the retailers especially supermarkets to do their on-demand retail business and since then we have been providing like anything from other fulfillment to operation tools to help our retailers. So that's why the Hybo system are able to grow together with JDDJ and the retailer's practice. So that's why Hybo has been getting more and more advanced and sophisticated. And because we are able to work with almost all of the leading players in the market, that's why we are able to see all the use cases and able to improve the systems. I think this is a very solid and unique foundation that makes Haibo a very best solution in the market. As you can see, our adoption is overwhelmingly So that's why, so I think that's a widely discussed issue. widely appreciated by our partners. That's the number one, the technology and functionality foundation. And second, because of JDDJ, we are a pure mutual platform and we never compete with our retailers. And over years, we have been establishing very solid trust with the retailers. That's why the hypo system, because the hypo system needs to access a lot of sensitive information. And for some of the partners, even we are given their like the margin information or like the very sensitive information. And the retailers' trusters, deeply with those information and we are able to work with the retailers to improve their efficiencies and improve their probabilities leveraging those information. So I think those kind of trust is also very much unique and we believe that this also helps us to position Hypo as the most competitive system in the market.
spk07: Thank you.
spk09: Thank you. Our next question comes from Robin Leong from at Daiwa. Please go ahead.
spk11: Hi. Thanks, management, for taking my questions. I have a follow-up questions on the user acquisition in JD. So besides , we noticed that there is also a user traffic acquisition channel . So can management share the differences in the use cases of these channels and the channels fees that JDDJ is paying to JD? And for the synergies in the second half, if we expect more traffic from JD, should we expect the traffic is coming from the existing channels like the JD supermarket or is it from the new channels in this? And also, my second question is on the Hibor system. Any monetization plan in this? And as we now are starting to do more on the convenience store, how is the difference in the unit economics comparing to our supermarket? And if we can know the percentage of supermarket that is already using our Hibor system, the figure, that would be great, too. Thank you.
spk05: Okay, so thank you, Robin. I will give you a brief answer and see if I have anything to add. So first of all, we're getting barrels. There are many kinds of access points that we can get from JD.com. And thanks for noticing the change and go. And we have access points like that. And we are now... going through a comprehensive R&D, the research and development process with JD's technology team. We are currently reviewing the performance of all the access points and designing the the way that the customer can experience the on-demand retail most effectively and with the best customer experience on JD.com. So all the things you have seen now, like the Chuan Chuan Go or the Wu Jing Tian Zuo from the search result page, so those are all the child cases before this partnership and we believe that in the foreseeable future we will be seeing a more advanced and a more advanced practice with better performance and like conversions and Etc. So based on our previous data points already collected from the previous trial cases so I think We'll be getting more at this point as well as better performing practice and in terms of the the Hybot monetization. So first of all, we continue our monetization for the Hybot system with all kinds of retailers across the board. We continue to collect
spk00: a commission fee from their GMV handled by Hypo system.
spk05: So I think that's something we have already been doing. And going forward, as we are providing more value added service to retailers and to the brands, I would envision that in the future we will be able to have more monetization opportunities around hybrid systems. Not necessarily from licensing model, but as we are providing more value, I think more value-added services can bring in additional revenue as well.
spk11: Great, thank you.
spk05: Sure.
spk09: Our final question comes from Hans Chung at KeyBank Capital Market. Please go ahead.
spk12: Hi, good morning. Thank you for taking my question. So a couple of questions for me. First, can you provide the color about the subsidy label and also the direct margin for JDBC in Q1? while those evolve in the same quarter and in the second half. And then the second question is about the customer behavior and just like what's your observation on the consumer behavior since the pandemic and then as we started to be recovered to the pre-pandemic scenario, and then how does consumer behavior evolve recently? And then, if possible, can you give us color about the customer, like for the past year, for those customers acquired in 2020, how about a retention and a cohort? in terms of the shopping frequency and so on. So that will be helpful. Thank you.
spk04: So for the first question, so the direct margin of the JDK in Q1 is minus 2.8%. And we believe that for the next three quarters during the year, it will be declining. So Q1 is the, in terms of the direct margin level, Q1 is the worst. And the subsidy level is also the highest in Q1, 6.2% for the consumer incentives. And also in the following three quarters, we expect this subsidy level will go down.
spk05: Yeah, and in terms of the customer behavior, so we are seeing that customers are, even in many China, like the what we call the post-pandemic era, we're seeing customers are more used to buying things online and especially for on-demand. I think we're absolutely seeing this customer behavior shift probably like permanently and so I think our business will absolutely benefit from this trend. And at the same time, we are seeing a trend that a customer has been educated from buying restaurant food delivery, and then to grocery delivery, and now to more and more categories. So customers are now used to buy everything on demand. I think this is fully aligned with our vision that everything will become available in one hour. So we are happy to see the trend.
spk04: And actually in China, the pandemic is already settling down one year ago. And compared to the 50% growth rate in Q1, For JDDJ, we are expecting more than 80% in Q2 and also even faster, much faster in the second half, which is also a demonstration for our platform's popularity among consumers. Thank you, Kent.
spk12: Thank you.
spk09: Thank you. We have no further questions. I'll hand back to management for any final comments.
spk06: Thank you, operator. In closing, off of DADA's management team, we'd like to thank you for your participation on today's call. If you require any further information, feel free to reach out to us directly. Thank you for joining us today. That concludes the call.
spk05: Thank you. Thank you.
spk06: Thank you all for joining.
spk09: You may now
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