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spk12: Good morning, ladies and gentlemen, and thank you for standing by for DADA's second 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 will now turn the meeting over to your host for today's call, Ms. Caroline Dong, Head of Investment Relations for DADA. Please proceed, Caroline.
spk13: Thank you, operator. Hello, everyone, and thank you for joining us today. Our second quarter 2021 earnings release was distributed earlier today and is available on our IR website at ir.imdata.cn, as well as on Globe News World Services. On the call today from Data, we have Mr. Philip Kwai, Chairman and Chief Executive Officer, Mr. Pat Chen, Chief Financial Officer, and Mr. Jun Yang, Co-Founder and 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 forelooking statements as defining the Section 21E of the Security Exchange Act of 1934 and the U.S. Private Security Litigation Reform Act of 1995. These forelooking statements are based upon measurement to 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. This risk may cause the company's actual results or performance to deform materially. All the information regarding this and other risks, uncertainties, or factors is included in the company's filing with the USFDC. 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. In addition, 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, Mr. Quai. Philip, please go ahead.
spk07: Thank you, Caroline. And thank you all for joining us today.
spk00: We are pleased to announce another set of solid results for the second quarter of 2021.
spk07: I would like to start by providing updates on our operations and highlights. And I will turn the call over to Back to dive deeper into our financial and operating results. As a leading local on-demand delivery and retail company, we have long served the real economy and been growing together with the brick and mortar retailers and brand partners. Leveraging our unique advantages of retail plus delivery capabilities, we are fully committed to supporting the healthy development of China's real economy. and promoting domestic circulation. We believe this is the key element of the country's steward circulation strategy. Especially, we enable our retailer and brand partners in achieving their digital transformation and adaption to the new O2O era. As a pioneer of the on-demand retail and delivery model, we empower our retailer and brand partners with our five core pillars of open platform, fulfillment, marketing, user engagement, and digital empowerment. Recently, we have seen an evolving regulatory environment in China. While our government fully supports the development of innovative Internet companies that can enhance China's international competitiveness, the authorities also aim to create a sound legal environment to ensure that companies maintain compliant operation. For example, the government recently strengthened anti-monopoly efforts to prevent the disorderly expansion of capital. Our business model is in line with policy directives. We welcome the strengthening of regulation and believe an orderly and fair environment will lead to the long-term sustainable development of the industry. Now I will move on to the update of our JDDJ platform, the leading local on-demand retail platform. For the June 18th Shopping Festival, we have achieved extraordinary results. Our total GMV more than doubled, and GMV of consumer electronics, cosmetics, and home appliances all grew more than double year over year. It is vital for China to boost the domestic market and build new expansion models by enlarging domestic demand and promoting high-quality economic development. We will leverage our strength to support national economic policies to help foster win-win situations and common prosperity. As such, I would like to discuss JDDJ's progress on four fronts – serving users, enabling retailers, boosting brand promotions, and technology empowerment. So overall, by creating value for participants along the value chain, we aim to drive long-term sustainable value creation. First, in terms of serving evolving consumer needs, we continue to win customers' trust by providing timely, efficient, and high-quality services. The number of active consumers increased significantly by around 60% year-over-year to 51.3 million. We will continue our in-depth cooperation with JD to better serve the omnichannel and on-demand needs of JD's over 530 million active users. In July, our JDDJ one-hour e-commerce platform project was selected as a demonstration project for a new form of retail by the State Ministry of Industry and Information Technology , which demonstrated the government's recognition in our innovative model and our ability to satisfy the growing needs of consumers for a better and more convenient life. Second, in terms of empowering retailers, we provide integrated digital solutions encompassing open marketplace, fulfillment, membership management, and technology platform to help retailers improve sales and enhance operating efficiency. We continue to see enormous growth potential for local on-demand retail services. According to the National Bureau of Statistics, offline retail still counts for 76.3% of consumer goods sold in the first half of the year. To realize quality growth and stay competitive, we believe accelerating digital transformation will continue to be the strategic focus of physical retailers. With our vision of bringing people everything on demand, Our JDDJ platform keeps expanding category and merchant coverage. We maintain the leading position in the supermarket category by deepening our strategic cooperation with existing partners and establishing a partnership with new supermarket chains. We have now onboarded 80 out of the top 100 supermarkets, including 9 out of the top 10. In the smartphone category, we are glad to see that the value of on-demand retail is increasingly recognized by smartphone manufacturers. To ensure sufficient and high-quality supply of smartphones, we have already partnered with hundreds of authorized distributors. In the second quarter, we went further and established direct partnerships with smartphone brands, including Apple and Vivo. In the PC category, we have newly partnered with Microsoft, Asus, Dell, and Alienware. We're helping this brand strengthen O2O presence by gradually onboarding their offline stores onto JD.DJ. We also continuously roll out value-added services to retailers. For example, our data picking service helps retailers to improve order picking efficiencies. while reducing their store personnel costs and staff shortages. Currently, data picking is deployed by Walmart, CR Vanguard, Yonghui Supermarket, Seven Fresh, and other merchant stores. During the second quarter, data picking gained significant pace. The number of stores, number of units picked, and income for pickers all increased by around 60% quarter over quarter. During August 8, promotional campaign, the average picking time for Walmart stores, which utilize our data picking service, was reduced down to just three minutes. And third, online marketing service for brand partners. During the second quarter, Online marketing revenue from brand partners remains very strong, increasing by more than 110% on a high base in Q2 last year. This further demonstrates our unquestionable leading position in the on-demand retail sector for brand partners. On top of deepening our cooperation with existing brands, we have also signed several new domestic FMCG brands. including WH Group, CNS, and Blue Moon, and emerging global brands such as Oatly. We're promoting the China National Tides, or the Guo Chao, and riding on emerging consumption trends. Lastly, technology empowerment. As enterprises become more digitized, networked, and intelligent, they will add new momentum to economic development. Under the backdrop of the state's promotion of digital economy development and industrial digitalization, we abide by the national policy directives of Building Digital China. Our Hibo system can be a good example. Hibo is a SaaS product that enables retailers to drive O2O sales while streamlining operations. As of the end of August, Hyboy has been adopted by more than 4,300 retail chain stores, up significantly from 3,300 stores as of the end of April. Our Hyboy system now covers over 40% of the top 100 supermarket chains. In the second quarter, we launched a new intelligence pricing model to replace manual pricing adjustments. This module helps merchants improve their auto promotional efficiency and probability. As a result, stores that have utilized the new module have seen a 60% increase in profit and a 5% point improvement in growth margin. Let's move on to DataNow. As a platform that connects consumers and merchants with cross-source-based delivery services, we provide a large number of flexible employment opportunities. And at the same time, we are committed to protecting the rights and interests of every gig worker, as is encouraged by the authority. On rider carry, we listen to and understand the rider's standpoint and needs in time via multiple channels. Accordingly, we continuously optimize our platform to help riders deliver more efficiently and safely. At the same time, we regularly host training sessions to improve rider delivery experience and service capabilities. In addition, we have upgraded our rider stations In the new stations, we not only set up rest areas, but also provide convenience amenities, including drinking waters, medicine, epidemic prevention materials, and battery charging services. On business progresses, during the second quarter, our on-demand delivery service to chain merchants, so-called the key accounts, continued to see explosive growth. The revenue year-over-year growth accelerated to over 140%. In the supermarket category, revenue increased by 70% year-over-year. We have recently announced partnership with CP Group. We provide comprehensive on-demand delivery services for the Omnichannel 12 orders of CP Lotus. In the restaurant category, year-over-year revenue growth was over 200%. we have seen significant growth from our existing partners merchants such as mcdonald's this was driven by an increase in the number of stores and the increase in order in order volume per store in the meantime we have expanded into the key beverage category and have signed a number of new tea brands in the second quarter small and medium-sized merchants are very important to the country's economy. That now allows small business owners to gain access to on-demand delivery service at reasonable cost. The number of merchants that place orders continue to double year over year in the second quarter. For our last mile delivery business, We successfully transitioned to a more asset-light model this quarter. Based on our cross-border provider network, we provide comprehensive and cost-effective last-mile delivery and picking solutions, especially during the peak seasons. Going forward, we will continue to deepen our cooperation with JD Logistics. Last but not least, I would like to talk about our exciting technology developments in the logistics industry. Technology innovation is an important driver to promote a positive change in quality, efficiency and growth engine of China's economy. Upholding the spirit of national guidance of building a digital China and benefiting the public, we have always been the pioneer of developing cutting-edge technology. Recently, on-demand consumption is becoming the new norm of how people shop. We believe the use of unmanned vehicles for on-demand delivery is paramount to improving both our operational efficiency and consumer shopping experience. In July, we officially launched the Data Autonomous Delivery Open Platform. which is open to autonomous vehicle companies, leveraging our on-demand orders, operational know-how, and other discussion capabilities. Our open platform accelerates the application of on-demand delivery in the on-demand retail industry. Currently, on-demand delivery powered by our open platform is on trial runs in selected districts in Beijing and Shanghai. In the short term, autonomous delivery will be utilized to supplement manual delivery and help to ease the capacity constraints, especially during peak or other seasons or periods of extreme weather conditions. Over the longer term, it will significantly reduce the cost of delivery as the scale becomes larger. I would like to end with a brief recap of how we are shouldering social responsibility. Data Group has made social responsibility an essential aspect of the company and its leadership. While creating value for business partners and our users, we also adhere to our original intention to fulfill our corporate social responsibility initiatives. Recently, we made more efforts to improve people's likelihood. For example, we ensure living needs during pandemic containment in Guangdong and Jiangsu, provided the disaster relief in response of the Henan flood, promoted internet inclusion among the elderly, and launched a series of programs to support the social work speed. With that, I will now pass the call over to Beth to go over our financials for this quarter. Thank you.
spk01: Thank you, 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. Therefore, all percentage changes I'm going to give will be on year-over-year basis, and all figures are in RMB and less otherwise noted. Total net revenue increased to $1.5 billion. Aligning the revenue recognition method of DataNow Last Mile delivery services to a comparable net basis, performer revenue growth would have been 81% year-over-year. Net revenues from DataNow were $594 million. The performer revenue growth rate was 81% year-over-year, mainly driven by the increases in order volume of Intercity delivery services to chain merchants. Total net revenues from JDJ also increased by 81% to $881 million, mainly due to the increase in GME from the same quarter last year, which was driven by increases in the number of active consumers and the average order size. The increase in online marketing services revenue as a result of the increasing promotional activities launched by brand owners also constituted an increment of the net revenues generated from JDDJ. Operations and support costs were $1.1 billion. The rise was primarily due to an increase in rider costs as a result of increasing all the volume for intercity delivery services provided to key chain merchants on the DataNow platform and the retailers on the JDDJ platform, partially offset by the decrease of rider-related costs incurred by the business upgrade of our last mile delivery services. Selling and marketing expenses were $824 million, mainly due to a growing absolute dollar amount of incentives to JTDJ consumers and an increase in advertising and marketing expenses, which was primarily attributable to the increase in referral fees paid to the staff at retailer stores and the third-party promotional service providers for their efforts to attract new consumers to the JTDJ platform. G&A expenses decreased to $100 million mainly due to the decreased share-based compensation expenses as share-based compensation expenses were recognized immediately in the second quarter of 2020 resulting from options granted to employees with a natural performance condition. R&D expenses were 132 million, mainly because of the increase in research and development personal cost as the company continues to constrain its technology capabilities. Non-GAAP net loss attributable to ordinary shareholders was 549 million versus 319 million in Q2 last year. Non-GAAP diluted net loss per share was negative 58 cents compared with negative 80 cents in the second quarter of last year. As of June 30, 2021, we had $4.7 billion in cash and cash equivalents, restricted cash and short-term investments. Under the $150 million share repurchase program announced in June, we have repurchased approximately $73 million of our ADSs as of August 31, 2021. For the third quarter of 2021, we expect the total revenue to be between $1.63 billion and $1.68 billion, representing a pro-forma growth rate of 80% to 86%. adjusting data now last mile revenue to a comparable net basis in Q3 of both years. In addition, net revenues from JDJ increased by 81% in Q2 this year, and we also expect the revenue growth of JDJ to accelerate in the second half. With continuous improvement in operation, In operating efficiency, we expect that the performer gap net loss margin after adjusting revenues of last mile delivery services to a comparable net basis to further narrow in the third and the fourth quarter of 2021 on both year-over-year and sequential basis. This concludes our prepared remarks. Operator, we are now ready to begin the Q&A session. Thank you.
spk12: As a reminder, to ask a question, you will need to press star one on your telephone. To withdraw your question, press the pound or hash key. Please stand by while we compile the Q&A roster. Once again, it's star one to ask a question. First question comes from the line of Ronald Kuhn from Goldman Sachs. Please ask your question.
spk10: Thank you. Thank you, Philip and Caroline. Two questions. Firstly, we would like to hear our latest deepening cooperation with JD as this omnichannel continues to be a key focus. Just want to hear any updates, further changes or the natural selection or any further dedicated projects that you're working on from dedicated channels or how are we planning to expand categories in order to promote this higher on demand shopping? not only for our own JDDJ app users, but also into the JD users. My second question would be, Bec, you talked about the accelerating growth for JDDJ in the second half. Just want to hear within our revenue guidance, what is the kind of embedded JDDJ standalone growth that we're expecting in the third quarter? Do we expect any seasonality between third and fourth quarter to drive your expectation of a faster
spk07: jddj growth in the second half of this year thank you thank you ronald uh so i will take the first question and i will have that to address the second one uh so the Our partnership with JD Group has been really, really important and a win-win for both parties. And we have together dedicated to provide good services to the customer needs and to improve the consumer experience. So in Q2, we are very happy to see that our partnership has significantly strengthened. In Q2, the GMV from the JD one-hour shopping, the Jindong Xiaoshigou, which is empowered buyers, had a quarter-over-quarter growth of 90%. And you perhaps have already noticed that if you open up a JD app, in many cities, including Shanghai and Shenzhen and many cities, you have seen on the very top on JD's homepage, there's a new entry point called Fujin, or nearby or local. This is in test. We plan to roll out this new service to more cities and have a bigger scale of expansion. This will essentially bring our customers more on-demand delivery experience and the shopping experience. At the same time, we are working closely with JD to improve the penetration into the JD's 530 million annual active consumers for more and more of them to experience the on-demand retail services. And we'll continue to do that. And we'll continue to work very closely with JD to improve the shopping experience and streamlining the products and services and to improve the penetration. So our partnership with JD not only happens with the JD retail, but also with the JD logistics. So in addition to the existing order picking and order delivery partnership, we have recently launched a new partnership with JD Logistics on the data autonomous delivery open platform. and we will jointly to promote the upgrade and transformation of the intelligent delivery business and to jointly improve the infrastructure of Intracity delivery and on-demand delivery. So we are again very happy and excited with what's happening with JD Group and we jointly will push this forward and it's a highly win-win partnership.
spk01: Okay, so for the second question about the JDGJ, basically at the JDGJ growth, basically I want to add more color The expansion of categories. So by cooperation with JD, we are expecting to explore into or just extend our cooperation into more categories, including home appliances. So not only just like a supermarket FMCG products and smartphones products before previously, we were exploring to more business, including home appliance and cosmetics by cooperation with the JD Group. So there is some seasonality for the second half when we expect Q4 revenue growth of JTTJ will be even more than Q3's numbers because usually for Q4 there will be our big campaign and also for all those businesses like apparel and smartphones, there will be new products launched. We expect Q4 will be even better than Q3. And also, we are confident that the online marketing revenues growth rate. Because in Q2, as we have discussed, that the online marketing revenues is increasing by over 100% on the higher base of Q2 last year. If everybody is remembering Q2 last year, the brands are actually spend a lot of marketing dollars on different e-commerce platforms, not only us, but also JD and BABA as well. But in Q2 this year, we still witnessed the triple-digit growth rate of the marketing dollars, and we also expect that for the second half of this year, for each quarter of this year, our online marketing revenues will continue to grow like triple-digit year over year. With that support, we believe that our overall monetization rate will be also growing not only on a year-over-year basis, but also on a sequential basis for Q3 and Q4. So this is the guidance for the JDG growth for the Q3 and Q4 journals.
spk10: Wonderful. Thank you, Philip and Ben.
spk12: Your next question comes from the line of Edu Leung from Bank of America. Please ask your question.
spk05: Good morning, guys. I have two questions. The first one is about the rider calls. We saw that on your press release, you mentioned that the operations and support calls went up and partly because of an increase in rider calls. So just wondering if you could give us more color on the rider calls. For example, any trend in terms of the rider calls per order and is that anything that going forward we need to buffer for extra calls because of the call for protection of our worker benefits. And then secondly, about sales and marketing, just wondering if you could give us some color about the customer incentives portion versus advertising and staff costs. Thank you.
spk01: Okay, so thank you for the question, Andy. So for the first question about the rider cost, so basically the absolute, we were talking about like the absolute dollar amount of the rider cost increase. So the cost, generally like the trade merchant's benefits was growing by 100, almost 150% year over year. we will pay more absolute dollar amounts of the rider cost to the riders. So basically, the cost per order value is generally stable this year. And also, for the sales and marketing customer incentives. So on a Q-level sequential basis, our consumer incentives is still maintaining the same level, a little bit decreased compared to Q1 this year. And we also expect that on a sequential basis, the consumer incentives given to the customers will be increasing in Q3 and Q4 this year. And also in terms of the operation cost as percentage of the GMV of JDDJ, we also expect it to decrease on a sequential level, not only in Q2 but also in Q3 in the second half.
spk07: I just want to add a little bit on top of what Zach just mentioned. If you look long-term in terms of sales marketing and customer incentives, I think one of the very positive things we're now looking at is our partnership with JD. Unlike what happened in the last few years, we need to acquire brand new customers Now, as we are working closely with JD, so we are working together with JD to penetrate into JD's massive active user base. So we envision that this partnership in the long term will help to drive down the sales and marketing and customer incentive dollars because those customers have already been JD's customers. So, as you might imagine that the acquisition cost or the conversion cost for those customers might be lower than the brand new customers. And also for the rider cost, the same thing. If you look at the mid to long term, we are confident that with the increase of our order density, as you can see that the growth of our data now on demand Delivery business has been very fast. We're now serving more and more chain merchants. At the same time, the other numbers of JDDJ has been growing very fast as well. So the order density will also help to reduce the rider cost. The higher density, the more numbers of orders that riders can carry and can deliver in a certain period of time. So this will improve the efficiency and therefore reduce the cost. To summarize, I think if you look mid to long term, the rider cost can be well managed, and the sales and marketing expense can be lowered. Got it.
spk05: Thank you.
spk12: Your next question comes from the line of Thomas Chong from Jefferies. Please ask your question.
spk03: Hi, management. Thanks for taking my question. I have two questions here. So first, how should we think about the impact from COVID and to data? And my second question is that are there any changes we are seeing in competitive environment in fresh produce for our hybrid systems? Are we seeing our peers also offering regular products? Thank you.
spk01: Hello, could you repeat the first question?
spk04: Yeah, my first question is that how about the impact from COVID and the blood to JDDJ and DADA?
spk01: The COVID impact on JDDJ and DADA, right?
spk04: Yeah, COVID and the blood in Henan province.
spk01: Okay.
spk07: Okay, okay. So, yeah. Yeah, to give you a quick update on the COVID and the recent, the flood in Henan. So in the last few months, we have seen that occasionally in some cities or area in China, we are seeing COVID cases. And we work very closely with local government to provide the the daily supplies and the on-demand delivery for the customers. So almost in every city we receive a recognition from the government to basically giving us very positive feedback on what we have done to help help the city and help the society. And certainly we are seeing that customers are getting more and more used to ordering from online instead of going to offline stores all the time. So I think this in the long term will benefit us, basically to help us to acquire and educate more customers. This is something that has already happened in the last two years and we expect this to continue to happen going forward. At the same time, this also helps to educate the merchants. Therefore, we are now seeing almost like all of the top supermarkets have been already working with us. And also, we are seeing that more and more leading merchants from other industries are now turning to working with us. I think this also helps to educate the merchants. Everyone knows that in order to deal with the COVID or to deal with the customer needs shift, they have to transform quickly and digitally. So I think this also will benefit us.
spk01: And also for Q3 financials, we don't think the flood situation in Henan will have any material negative impact on us.
spk07: Yeah, and your second question regarding the Hybo competitiveness. So first of all, we're very proud that the Hybo system has been, that the value of Hybo has been recognized by more and more leading retailers and at the same time because of our neutral positioning of JDDJ because we are not retailer ourselves. So that significantly helpers as well in terms of penetrating into more and more merchants. So in the last quarter, we have now seen over 4,300 active stores using HypoSystem. And this number keeps going up. And at the same time, HypoSystem has already been proven that able to increase the the efficiency of retailers' O2O business and also to increase their revenue from O2O business. So I think the Hygola system is questionably the most adopted and the most leading system in the market.
spk03: That's very clear. Thank you.
spk07: Sure. Thank you.
spk12: Your next question comes from the line of Alicia Yap from Citigroup. Please ask your question.
spk02: Hi. Good morning, management. Thanks for taking my questions. My first question is related to the community group by platform. So with the slowdown of many of these platform volumes, have you seen any additional demand flowing back? to your supermarket retail partners? Any qualitative comments on how the demand trend has changed over the last two months versus what you've seen earlier this year that you could share? And then second is, how much in terms of the longer term, the cost saving that you foresee the autonomous delivery could bring along, and how will the pricing or the margin structural that brings along with this autonomous delivery when it gets bigger scale. Thank you.
spk07: Thank you, Alicia. So I will give you my view, and I will see if Beth has anything to add. So first of all, the community group buy-in. I'll give you some data points. So in Q2, the GMV growth of GDDJ in a number of province that are most actively developed by community group, including like Hunan, Hubei, Guangxi, Jiangxi, Henan, Shandong. So in all those province, the GMV of GDDJ achieved over 100% year-over-year growth. So we are doing very well in all of those provinces. At the same time, as you probably have noticed, the regulators have now placed tighter regulations in terms of unfair competition and and also the anti-monopoly, etc. So this certainly places a lot of pressure on the community group buying players. So we are very confident that in the long term we will have more competitiveness. And also, because we always believe that the supply chain capability is a key to win in this market and to fulfill customer needs. And we are able to work with all the local leading players to have the strongest supply chain capabilities and have the broadest geographic coverage that we can to fulfill customer needs nationwide with the broadest SKU assortment. So all of those are incomparable by the community group buying players. At the same time, because we are one hour delivery, so much more efficient and a much better customer experience than the next day delivery. So this also help us to differentiate ourselves. And another thing I want to mention is that, for example, like Meituan, they do both community group buying as well as platform business, which is quite controversial because for the retailers they definitely will consider Meituan as a competitor in terms of a neutral players or a partner. So we have the position of a platform business only, so we are neutral and we only help the retailers and never compete with them. So I think this is also helping us to differentiate ourselves. So in short, we are quite confident about our competitiveness against the community group buying players.
spk01: Yeah, and also for MoColor, And maybe in the beginning of the year, some of the retailers are in fierce competition in their local Tier 3 or Tier 4 cities with the CGP businesses. And right now, I think most of those retailers are in a much better position to grow their businesses. What we have witnessed is that for those retailers, their overall businesses' gross margin is improving apparently, which makes them to be in a better position to further invest in the online businesses in the second half of this year and going forward.
spk07: Yeah, and also for the autonomous delivery, I will give my view and see if Mac or Dream will have anything to add. so we're quite excited to announce our open platform for autonomous delivery in the last few months we have been working on this for quite a while working very closely with jd logistics along with a few other partners and we have already successfully launched this service with uh like Walmart, Sam's Club, Seven Fresh, Yonghui, in both Beijing and Shanghai. So in some districts, according to the local government guidance. So in terms of the process or customer experience, I think those are having dramatically improved over the last few months. All of those autonomous delivery are happening in the real environment and serving the real customers every day, every single day now. And so we are confident that the customer experience is very good. And at the same time, we are seeing that the cost is improving along the time as well. And also, I think in the short term, autonomous delivery will be utilized to supplement manual delivery and relieve capacity constraints, especially during peak seasons or during the extreme weather conditions. And in the longer term, I think leveraging the scale application of the autonomous delivery, we expect it will significantly reduce the cost of delivery in the long term.
spk06: Yeah, Felicia, I'll add some color on that. So right now, the trial run is still quite limited, and the whole ecosystem is in its very early stage. So if you look at the cost per order, I think it's still relatively high because of the hardware cost as well as the the limited trial, but we are seeing, you know, already a trend and also the projections, the hardware cost is going to go down quite significantly over the next few years. So we are expecting, you know, in probably two to three years, I think there's a chance that the cost will be, you know, lower than the human cost in a way. And another trend kind of to work out is the human cost in, the next few years expect to probably get even higher given what the population looks like. So that's why we are investing really early stage to making sure we can accelerate the commercial use of the autonomous delivery.
spk02: Great. Thank you for the color.
spk12: Your next question comes from the line of Wei Fang from Morgan Stanley. Please ask your question.
spk08: Thank you. Good morning, Philip, Becky, and Caroline. I have two questions. The first is on the monetization side. I saw that the total monetization rate seems to be stable quarter on quarter, but seems like the structure has been changed. I noticed that the delivery fee as a percentage of GME has dropped by something like 0.5 percentage point. Is there any particular reason behind that that we are lowering the charges from the customers or it's just due to the mix of the other types? And the second question is on the cost side is still about the rider cost. I'm trying to reconcile the overall support and fulfillment cost items. I have noticed that it seems like the cost, rider cost increase is higher than what I can calculate from the JDDJ's rider cost increase and the DataNorth rider cost increase. So I just wonder whether in the second quarter, are there any one-time or one-off items in the rider cost side, such as some special subsidy to riders during the pandemic or something like that, any one-time impact there? That's my question. Thank you very much.
spk01: Thank you, Wei. So, yeah, for the first question about the monetization rate, so basically the overall monetization rate is increasing by 20 bps on a sequential basis. And I also said that for the third quarter and fourth quarter, we expect the monetization to be steadily growing on a sequential basis as well, in which online marketing monetization rate is increasing significantly to like 2.9% in Q2 this year versus 2.5% Q2 last year. And as you mentioned that every service fees or commission fees percentage, that percentage of the GME is dropping a little bit. This is mainly because of the mix change about the product categories. In Q2, the smartphone businesses is increasing relatively faster than the average and because their commission rate is lower than the average and their AOV is higher, much higher than the average platform AOV, so which means less orders compared to the other categories. And also, we will just receive less delivery fees as percentage of the GME of the smartphones in Venice. And we also believe that in Q3, the commissions and delivery fees as percentage of GME will be a little bit growing on a sequential basis compared to Q2, because in Q3, usually this is a little bit slack season for the smartphone businesses, so the growth rate of smartphone businesses will be lower than Q2. So the overall commission rate and the delivery services fee will be growing as a percentage of GME, while we still maintain a relatively higher growth rate of online marketing, which makes a steadily growing monetization rate in Q3 and Q4. And in terms of the second question about the rider cost, yes, there is some one-time issue, but basically it's not a one-time issue because as we mentioned that things affected from Effective from April this year, we successfully transitioned the business model of the last mile delivery services from gross basis to net basis. But actually, it's starting from like mid of April. So accounting-wise, for the first half of April, for the last mile of businesses, we still count on gross basis, which makes us have more rider cost in in the operation and the supported cost line because we need to pay some rider race cost to the last mile riders in the first half of April. But for the rest of the quarter and also for Q3, there is no such issue.
spk08: Thank you very much, Beck, for the very detailed answer. Thank you. Thank you.
spk12: Your next question comes from the line of Ashley Xu from Credit Suisse. Please ask your question.
spk11: Thank you, management, for taking my questions. My first question is on the growth outlook for our data business in KA, because in the past we have seen this business growing quite well. So looking forward, what's our expansion plan and outlook on this front? And my second question is about the potential impact from social security requirement on the riders. Any recent updates or change on that front? Thank you.
spk01: Thank you, Ashley. Let me just take two questions. And so for the first question about the growth rate of data now, yeah, so in the first half of this year, the the Dynanow Key Accounts chain merchant business is growing very quickly by 140% for the first half. And we also expect that definitely in the second half, this business will continue to grow at triple digits, just like we mentioned in the earlier script. And also for the next year, we also expect this business is growing at... uh you know uh relatively higher speed and we expect right now we are almost close to the like the tier like the top number one player in the chamber chains uh services businesses uh we expect that in the first quarter or like in in the first quarter or early in next year, our business volume in the chain merchants sector in China should be like almost the number one leader. And in terms of the potential impact from the right of cost from the law, so yeah, so the guiding opinions on protecting labor and social rights and the interests of workers engaged in new forms of employment was jointly released by eight central departments of the government in July. We fully understand the government's policy to better protect flexibly employed social workers and are pushing forward with the implementation of the guidelines. While we create a large number of flexible employment opportunities through our crowdsourcing network, we are also committed to safeguarding the rights and interests of data riders. And specifically, in terms of the work-related injury insurance, I think we have discussed in the last earnings call that we have been actively participating in discussion panels hosted by the government and strictly stick to the principle of safety production and under the guidance of the relevant authorities We are also, right now, preparing for the test run of pilot phase of work-related injury insurance in selected provinces like Shanghai, Guangdong, and Beijing. And the incremental cost of purchasing the work-related injury insurance for riders is estimated to be like $0.04 per order, just like we mentioned in June. And we think this could be well offset by our increasing order density. And based on the opinion, authorities and local governments are formulating specific measures for different industries. For example, for food delivery, the State Administration for Market Regulation, SAMR, subsequently took the lead in the formulation of the guideline to specify the responsibility of food delivery platforms and protect the rights of food delivery riders. So based on our communication, with SAMR, the guideline released by SAMR is not applicable to us because we do not operate a food delivery platform and our riders do not work for self-owned food delivery platforms. This is just, you know, right now the impact for us, and we expect that only $0.04 per order on the work-related injury insurance will be well digested in our cost improvement next year.
spk11: That's very clear. Thank you.
spk12: Your next question comes from the line of Robin Liu from Daiwa. Please ask your question.
spk09: Hi. Thanks, management, for taking my question. Could management comment on the mix of the supermarket and non-supermarket contributions? And as management said, with the deep-end cooperation with JD and that will have more contribution from home appliances and cosmetics. Should we expect the non-supermarket mix to increase meaningfully? And also, what is the AOV this quarter? So with the non-supermarket mix even higher, will that lift the AOV even more? And given the subsidies are mostly spent on the supermarket category, so when the non-supermarket category increase, should we expect that to benefit the margin more in the second half? Thank you.
spk01: Okay, so thank you for the question, Robin. So basically for Q2, for the mixed contribution, the supermarket is contributing about 70% to the total GME, while the smartphone or 3C binaries, I would say 3C including smartphone and the home appliances, like around 20% of the total GME. And with the further cooperation with JD, just like we mentioned in the earnings call in June, that we expect the non-supermarket categories will gradually continue to increase the total market share in our GME amount. And in terms of the average order value, so in Q2 this year, our average AOV of the platform is about 180 RMB, while for the AOV of the supermarket categories is still as high as 140 RMB. And we think in the second half of this year, we should be still able to maintain the higher AOV for our platform average and also for supermarket average. You're right. So not only because of the mixed contribution, but also we are gradually increasing the subsidy level or the consumer incentives given to the shoppers. So our average cost percentage and SGME of JDDJ will be also sliding down in the second half. That's why for Q2 this year, our direct margin is minus 2.3% versus 2.8% in Q1 this year, which is improving by 50 bps on sequential basis, while in Q3 we are seeing further the improvement by almost 100 bps to minus 1.3%. Thank you.
spk09: Very helpful.
spk12: I would like to hand the conference back to Ms. Carolyn Dong for closing remarks. Please continue.
spk13: Thank you, operator. In closing, on behalf of the status 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. This concludes the call.
spk12: This concludes today's conference call. Thank you for participating. You may now disconnect.
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