Dada Nexus Limited

Good morning, ladies and gentlemen. Thank you for standing by for Data's fourth quarter and fiscal year 2023 earnings conference call. At this time, all participants are in 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 would now like to turn the meeting over to your host for today's call, Ms. Caroline Dong, Head of Investor Relations for Data. Please proceed.

Thank you, operator. Hello, everyone, and thank you for joining our fourth quarter and the fiscal year 2023 earnings conference call. On the call today from DADA, we have Mr. Bing Fu, interim president, and Mr. Henry Jun Mao, CFO. Mr. Fu will talk about our operations and company highlights. Then Mr. Mao will discuss the financials. They will both be available to answer your questions during the Q&A session. Please kindly note that Mr. Fu will give his remarks and answer questions in Chinese and the consecutive translation will be provided. In case of any discrepancy between the original remarks and the translated version, statements in the original remarks should prevail. Before we begin, I'd like to remind you that this call contains forward-looking statements. Please refer to our latest safe harbor statement in the earnings price list on our IR website, which applies to this call. Also, during this call, we will discuss certain non-GAAP financial measures. Please also refer to our earnings price list, which contains a reconciliation of non-GAAP measures to the comparable GAAP measures. Finally, please note that, unlike otherwise stated, all figures mentioned during this conference call are in RMB. It is now my pleasure to introduce our interim president, Mr. Fu. Mr. Fu, please go ahead.

Thank you, Caroline. Welcome to our conference call.

Thank you, Caroline, and thank you all for joining us.

Before I introduce the operation progress of this quarter, I will first report the independent audit results announced by the company on March 5. A month ago, we revealed that in the internal audit process of a large number of companies, the company discovered that the previous three seasons of online advertising and marketing services, income and cost may be high. The company pays great attention to this matter. The Board of Directors of the Board of Directors immediately initiated an independent audit. by a leading international law firm and a legal accounting expert from an international consulting firm. This firm is not a reviewer of the company. After the review work is basically completed, we announced the survey results and revision measures on March 5, including the necessary and appropriate measures to verify some information in the financial statements of the relevant seasons. As you may have seen, in the first three seasons of 2023, the fiscal data of the seasons that have been verified have been disclosed in this fiscal announcement. It should be noted that the verification of historical data for independent investigation results

Before we get into the highlights from the quarter, I would like to address the recent independent review results released by the company on March 5, 2024. Back in January, we disclosed that during a routine internal audit, the company identified potential overstatement in revenues and costs related to online advertising and marketing services for the first three quarters of 2023. The company took this matter seriously and the audit committee of the board immediately initiated an independent review with the assistance of a third party independent professional advisors consisting of a leading international law firm and forensic accounting experts from an international consulting firm. that is not the company's auditor. Upon the substantial completion of the review, we announced the findings and remedial measures on March the 5th, including correction of certain information and the relevant past financial statements that are necessary and appropriate. As you may have noticed, the corrected line items of financial statements for the first three quarters of 2023 are presented in our earnings release, and it's important to note that neither net profit or loss, nor cash balance, was impacted by the correction in the corresponding period.

We will strengthen the company's internal policy, system and control, and record preservation, strengthen monitoring and supervision mechanisms, and carry out more rigorous internal audits.

As part of our dedication to reinforcing corporate governance, we will enhance the company's internal policies, systems, and controls, and record-keeping, and implement rigorous internal audits with enhanced monitoring and oversight mechanisms going forward to strengthen transparency, accountability, and integrity at all levels of the company.

Now let's go through our financial and business performance.

During the fourth quarter of 2023, though faced with challenges, Dada Group made steady progress in improving both top-line and operating efficiency. Our total net revenues increased by 3% and adjusted net margin improved by 1 percentage point year-over-year.

Before we start the business highlights of Jindong Daojia and Dada Express, we would like to introduce the progress of our cooperation with Jindong Group. We continue to infiltrate and optimize the user experience of JD. In the fourth quarter, the number of users who pre-ordered in the month of April increased by 50%. In the fourth quarter, the number of users who pre-ordered in the month of April increased by 100%. This is mainly due to the increase in the number of clicks in the first page. At the same time, the click conversion rate within the channel has increased by more than 1%. This has led to a growth of more than 200% of the online GMV of the small Shida channel. In addition, in the fourth quarter of the search, the GMV of the small Shida channel has increased by 30% after the search.

Before I get into the operational highlights from our two platforms, a brief update on our cooperation with JD.com. With respect to JD.DJ, we continue to reach more JD users and optimize their user experience. In the fourth quarter, the number of monthly average Xiaoshida transacting users increased by 50% year-on-year. To break down by entry point, the standalone Xiaoshida tab saw its DAU more than double year-on-year, driven by increased click-through rate on the JD homepage. Meanwhile, order conversion rate within the Xiaoshida tab increased by more than one percentage point year-on-year. As a result, GMV generated by online traffic on the Xiaoshida tab more than tripled year-on-year. For search result exposure, another major entry point on JD. We're glad to see that GMV generated by users who actively filter out non-Xiaoshida products among search results increased by 30% year-on-year in the fourth quarter, demonstrating growing on-demand mind share among JD users.

In the fourth quarter, Dada and I will continue to provide dedicated support to JD's on-demand delivery needs.

with orders fulfilled nearly doubling year on year. Now let's go through the detailed fourth quarter operational highlights for JDDJ, the leading local on-demand retail platform in China. In the fourth quarter, we continued to deepen cooperation with large chains and empower more SMEs. As of the end of 2023, JDDJ had onboarded over 500,000 retail stores more than doubling from the end of 2022.

In the supermarket category, we cooperated closely with over 90 part of the top 100 supermarket chains,

as well as regional champions to provide our users with industry-leading high-quality supplies.

At the same time, we deepened the cooperation with major convenience store chains, such as JD Convenience Store,

The offline store format empowered by JD.com, Meijia, the largest convenience store operator in China in terms of store count, and Lawson, the fifth largest by the same metric. Total GMV generated by convenience stores in the fourth quarter increased by more than four times year on year.

Moving on to consumer electronics.

In the smartphone category, the GME of OPPO and Samsung mobile phones more than doubled year-on-year in Q4. In the computer and accessories category, digital products maintained rapid GME growth of more than 50% year-on-year, and we also made significant progress in essential accessories such as chargers.

Turning to the home appliance and home furnishing category.

During the quarter, we established new partnerships with major appliance brands, such as Panasonic and Robin, one of China's top kitchen appliance brands. Meanwhile, we worked more closely with leading smart locks manufacturers, such as KEDAS, Kaidi Shi. Collectively, we newly onboarded over 10,000 home appliance and home furnishing stores onto our platform. As a result, in the fourth quarter, GMV of home appliance merchants increased by more than 50% year-on-year, while GMV of home furnishing merchants nearly doubled year-on-year.

在酒水品类,得益于区域门店的拓展, GMV同比增长超过三倍。 In the liquor category, GMV in the fourth quarter increased by more than three times year-on-year.

driven by regional store expansion.

In the apparel category, GMV surged more than three-fold, driven by our continued expansion in the sports and outdoor segments.

and differentiation of product offering.

Technology deficiency has always been the focus of our cooperation with retailers. By the end of 2023, we will be facing the entire O2O operating system of retailers, Haibo, which covers more than 130,000 stores, with a growth rate of more than 40%. In 2023, even if the number of businesses cooperating with Haibo increases significantly, the market share rate is still around 90%. This also reflects the market's recognition of the Haibo system to help them improve the efficiency of operation. Haibo continues to replace functional modules to help the market resolve pain points and further improve efficiency. For example, in the fourth quarter, we added an order control engine. Through intelligent identification of false orders, real-time monitoring and warning,

technological empowerment is an important focus in our partnership with retailers. Haibo, our omni-channel OTO operating system, has been deployed in more than 13,000 stores as of year-end 2023, an increase of over 40% from the end of 2022. In 2023, Hybor's customer retention rate remained at around 90%, despite a significantly enlarged customer base. This underscores the recognition among merchants of Hybor's ability to enhance their operational efficiency. We continue to add more features to Hybor and improve its existing functionality to help merchants address pain points and improve operations. For example, in the fourth quarter, Haibo added a new feature to intelligently identify fraudulent orders and provides real-time monitoring and alerts. That's enhancing merchants' risk control capabilities and operational security.

Dada快送的即时配和落地配业务分别覆盖超过2500和2600个市区线,进一步渗透更多的低线市场。2023年, Dada快送的活跃即时数从比增长超过20%至超过120万,作为重包配送平台的就业蓄水池的作用进一步被放大。

Let's move on to Dada Now, the leading local on-demand delivery platform in China. As of the end of 2023, our intra-city delivery and last mile businesses covered over 2,500 and over 2,600 cities and counties respectively, penetrating into more low-tier cities. In 2023, we had more than 1.2 million annual active riders on the DataNow platform, an increase of more than 20% year-on-year, further expanding flexible employment opportunities for a wide range of workers.

从业务线看,首先是KA,也就是连锁商家业务。 第四季度,KA业务持续高质量增长,完蛋量同比增长超过20%。 For our KA or chain merchants business,

In the fourth quarter, KA Business delivered high-quality growth, with orders fulfilled increasing by more than 20% year-on-year, average gross profit per order continuously improving year-on-year, and fulfillment rate at above 95%. The quality and cost effectiveness of our fulfillment services remain well recognized by merchants. Notably, all of the top 50 revenue contributors among our K-A clients in 2022 continued to rely on our services in 2023.

In terms of product K-A, the number of orders completed in the previous quarter has increased by more than 60%. In October, we won the best strategic cooperation award in RuiXin. In addition, in early 2023, when we reached strategic cooperation with King Tea, the number of orders increased rapidly, In the beverage KAA category, orders fulfilled increased by more than 60% year-on-year in the fourth quarter. In October, we received the Best Strategic Partner Award from Luckin Coffee, the largest coffee chain in China by store count.

In addition, we also received a recognition from Cha Ji, a popular new style tea chain in China, having fulfilled a rapidly growing volume of orders with high quality service since the establishment of our strategic partnership in early 2023. In the restaurant KA category, orders fulfilled for newly partnered brands, such as Tasteian, a Chinese style burger chain, also ramped up quickly.

Moving on to our SME and C2C business. The number of SME and C2C orders fulfilled in the fourth quarter increased by more than 20% year-on-year,

from the high base in the prior year period, driven by pricing optimization, expansion into new verticals, and increased penetration into lower-tier cities. This concludes the overview of our business performance. To wrap up, it was a robust close to the year. And heading into 2024, we will continue to place healthy growth at the heart of our overall strategy for creating shareholder value. I will now pass the call over to Henry to go through our financials for the fourth quarter and fiscal year 2023. Thank you.

Thank you, Mr. Fu. I'm pleased to be on my first earnings call as CFO of Data Group to discuss our financial performance with our valued analysts and investors. Just a few housekeeping items before we go over the numbers. We believe year-over-year comparisons are the most useful way to evaluate our performance. Therefore, all percentage changes I'm going to give will be on year-over-year basis. And all figures are in RMB, unless otherwise noted. In addition, figures for full year 2023 have reflected the correction of past financial statements, details of which are laid out in annex to our earnings rates. Total net revenues in the fourth quarter increased by 3% to $2.75 billion. Net revenues from JDDJ reached $1.55 billion, mainly due to the decrease in the online advertising and marketing services revenue. Net revenues from DataNow increased by 36% to $1.2 billion, mainly driven by the increases in all the volume of intra-city delivery services to chain merchants. Moving over to cost and expense side, operations and support cost were $1.9 billion. The increase was primarily due to an increase in rider cost as a result of increasing order volume for intra-city delivery services provided to various chain merchants. Selling and marketing expenses decreased to $1 billion, primarily due to a decrease in promotional activities conducted on JDDJ platform and a decrease in advertising and marketing expenses. General and administrative expenses decreased to $89 million as a result of decreased amortization of intangibles related with the acquisition of JDDJ in 2016 and a reduced share basis compensation expenses. Research and development expenses decreased to $91 million, mainly due to lower R&D personnel costs. Impairment loss of Goodwill was $958 million for the fourth quarter of 2023. Non-GAAP net loss was $159 million, an improvement compared with the loss of $179 million in the fourth quarter of 2022. Non-GAAP net loss margin was 5.8%, improving by 1 percentage point year over year. As of December 31, 2023, we had $4 billion in cash, cash equivalents, restricted cash, and short-term investments. I will now quickly run through a few key full-year 2023 financial results. Further details can be found in our earnings release. Total net revenues in 2023 increased by 12% to $10.5 billion, with revenue from JDDJ growing by 5% to $6.5 billion and revenue from DataNow growing by 27% to $4 billion. Operations and support costs were $6.5 billion compared with $5.7 billion in 2022. Selling and marketing expenses were $4.5 billion compared with $4.7 billion last year. General and administrative expenses were $253 million compared with $409 million in 2022. Research and development expenses were $460 million compared with $631 million in 2022. Our non-GAAP net loss was $342 million compared with $1.3 billion in 2022. Non-GAAP net loss margin was 3.3%, improving by 11 percentage points year over year. In addition, we have announced that the Board of Directors have authorized a share repurchase program of up to USD 40 million of American depository shares funded by our existing cash balance for a two-year period through March 2026. Our decision to repurchase shares is part of our broader strategy to create long-term value for our shareholders. We will stay committed to prioritizing shareholder interest and enhancing shareholder returns. This concludes our prepared remarks. Operator, we are now ready to begin the Q&A session. Thank you.

Thank you. If you wish to ask a question, please press star 1 on your telephone and wait for your name to be announced. If you wish to cancel your request, please press star 2. If you're on a speakerphone, please pick up the handset to ask your question. Your first question comes from Li Zhang with Bank of America. Please go ahead.

嗨,管理層,早上好,謝謝接受我的提問。 我的問題呢,第一個主要是想請教一下宏觀的我們整體業務的影響, 尤其是2024年整個的各朝鮮business, 怎麼看我們可能整體宏觀帶來的一些潛在的影響。 Thank you for taking my question. Two questions here. First, can you share more color with us in terms of the macro and consumption downgrade, the impact to our business? Secondly, wondering your overall 2024 outlook, including the subsidy plan of JDDJ business. Thank you.

Thank you for your question. Let me answer the first question.

Thank you for your question. I will answer your first one.

As the economy and society return to normal in 2023, the retail market continues to recover. In 2023, as the economy and society normalized

the consumption market gradually recovered. Nonetheless, there was still room for consumers' standing power and confidence to improve. Heading into 2024, with the economy poised to further rebound and improve, as well as the introduction of a series of micro-stimulus and pro-consumption policies, the recovery and expansion of consumption will be further strengthened.

In 2023, due to the recovery of the offline scene and the release of the demand, the consumption of services such as catering, tourism, and cultural entertainment has resumed. This has affected the recovery of food consumption to a certain extent. From the consumption data of February to February of 2024, the demand for catering, tourism, and other service consumption is still relatively high, but food consumption is also recovering steadily.

Last year, service consumption, such as catering, tourism, and entertainment, boomed thanks to the return of offline consumption scenarios, as well as the unleashing of anti-demand, which took off some steam. from the recovery of physical goods consumption. Consumption data for the first two months of the year indicates continued strength in service consumption, such as catering and tourism, and a stable recovery in physical goods consumption. Looking ahead, we expect a more balanced wallet share of services versus physical goods this year.

The on-demand retail sector is still in the early days of development. Given the edge of on-demand retail and both convenience

and product selection, we remain confident that its penetration among retail sales can further trend up in the long run.

Thank you, Lei. And I will take your second question. So regarding the overall strategy, I think it's kind of for with respect to JDDJ, I think it definitely will continue to enrich its supply to meet the rising consumer demand for the online demand shopping, enhancing our user experience and mindshare. Meanwhile, I think we will focus on the health of JDDJ's business and improve the operating efficiency. In terms of the promotion activities and consumer incentives, I think we will continuously invest in a targeted manner to drive the growth while ensuring the health of the business by evaluating the ROI across different channels, user demographics, and categories to optimize our subsidy efficiency. And also, with respect to DataNow, I think we all know that DataNow has its own adventurous nationwide provider network. So, Adana will continuously focus on its KA business with sustained efforts to enhance its services and technologies. Going forward, I think Adana will work more closely with existing customers while proactively acquiring new clients to ride on the boom of on-demand delivery to seek business growth along with the efficiency gains. And I hope that answers your questions.

Thank you. Your next question comes from Thomas Chong with Jefferies. Please go ahead.

感谢管理层接受我的提问。 我这边有两个问题想请教一下。 第一个问题是今年达达闹这边来自K的订单和收入增长趋势是怎么样的? 那第二个问题是能否也分享一下我们对2024年JDPJ的业务展望? Thanks, management, for taking my question. I have two questions. First, for DataNow, how do you see the key order and the revenue momentum this year? And my second question is about JDDJ. Could you please provide any color about JDDJ's outlook in 2024? Thank you. 我先回答一下第一个问题。 Thank you.

I'll take the first question. In the fourth quarter of 2023, our K's business continued to grow at a high quality. The share price increased by more than 20%. The revenue also increased faster than before. This is mainly due to the fast growth of our tea and drink products. And we are constantly deepening our cooperation with the brand. At present, this trend will continue in 2024.

In the fourth quarter of 2023, our KA business delivered high quality growth with the number of orders fulfilled increasing by more than 20% year on year, as well as rapid revenue growth year on year. The healthy momentum primarily resulted from robust growth of our beverage chain customers, as well as our deepened cooperation with them and we are pleased to see that these trends remain ongoing and we expect that to continue into 2024.

The above growth is mainly due to Dada's fast-tracking network, We are confident that we will continue to attract new business owners to cooperate and continue to deepen our relationship with existing customers with excellent service capabilities. From a long-term perspective, Tata Express will continue to gain momentum in the third-party instant delivery market and maintain a high-profile industry.

We think these trends are likely to sustain thanks to DataNow's nationwide provider network, stable and efficient fulfillment, ability to cater to top brands' need for customized services, as well as our competitive edge in cost efficiency. We're confident in attracting more merchant partners in all verticals and deepening partnership with our existing customers. In the long run, we expect to further gain market share in the third-party on-demand delivery industry and maintain above-industry growth.

Okay, I will take the second question.

As I mentioned earlier, I think regarding JDDJ, So in 2024, we will be laser-focused on the high-quality growth of the business and tap into the market opportunities of on-demand retail together with JD.com to further improve the shopping experience for the customers and to unleash more synergies with JD.com. And in the long run, we are very confident in delivering sustainable, healthy growth given our commitment to the implementation of our on-demand retail strategy, along with our efforts to enrich the product offerings and to enhance the user experience.

Thank you. Thank you. Your next question comes from Zhong Wang with UBS. Please go ahead.

Thanks, management, for taking my question. Could management share your strategic focus on JDDJ development? Are we more focusing on user growth and frequency improvement or are they continuing to do more cost-efficiency improvement and improve unit economics in 2024? Could you give us more color around balancing the top-line growth and profitability improvement? Thanks.

Thank you for your question. I think, yeah, we have discussed this a lot. I think, on one hand, we've always been focused on high-quality user growth and high-quality improvement repeat purchase rate, and shopping frequency. With users at the heart of our strategy, we will continuously optimize our merchandise offerings, interface design, and business operations. Also, we will continue to unleash more synergies with JD.com to efficiently serve consumers diversified on-demand shopping needs. I think in doing so, We aim to improve the overall user experience and to enhance user mind share. I think for this year, JDDJ will focus on the health of its business growth and adapt a more ROI-driven approach to achieve high-quality growth and operator efficiency improvement. Our overall goal is to achieve high-quality, healthy, and sustainable business growth along with a steady improvement in profitability. I mean, in the long run, we are very confident in delivering the sustainable, high-quality growth.

Thank you. Thank you. There are no further questions at this time. I'll now hand back to Ms. Caroline Dole for closing remarks.

Thank you, operator. In closing, on behalf of the Data Management Team, we'd like to thank you for your participation in today's call. If you require any further information, please feel free to reach out to us directly. Thank you for joining us today. This concludes the call.

That does conclude our conference for today. Thank you for participating. You may now disconnect.