JD.com, Inc.

Hello, and thank you for standing by for JD.com's fourth quarter and full year 2020 earnings conference call. At this time, all participants are in a listen-only mode. After management's prepared remarks, there will be a question and answer session. Today's conference is being recorded. If you have any objections, you may disconnect at this time. I would now like to turn the meeting over to your host for today's conference, Ruiyu Yu'i. Thank you. Please go ahead. Thank you, operators, and welcome to our first quarter full year 2020 earnings conference call. Joining me on the call today are Mr. Lei Xu, CEO of GD Retail, and Sandy Xu, our CFO. For today's agenda, Mr. Xu will share his thoughts on the recent business trend, followed by our CFO, Sandy, who will discuss highlights for the first quarter and the full year 2020. Both of them will join the Q&A session. Before we continue, I refer you to our state harbor statement in the earnings press release, which applies to this call as we make forward-looking statements. Also, this call includes discussions of certain non-GAAP financial merits. Please refer to our earnings release, which contains a compilation of non-GAAP merits to the most direct comparable GAAP merits. Finally, please note that, unlike otherwise stated, All the thinkers mentioned during this conference call are in RMB. Now I would like to turn the call over to our CEO of GD Retail, Mr. Lei Xu.

Thank you, Ray Yu. Hello, everyone.

Thank you for joining our Q4 Earnings Call. This is Xu Lei, CEO of JD Retail. I'm glad to take this opportunity today to share with you JD Retail's 2020 review and our outlook for the new year.

2020 is an extremely unfair year. We are concerned about the profound changes that are taking place in the Hong Kong market and the consumer market. The global pandemic has had a huge impact on society and people's lives.

2020 was no ordinary year. We observed the significant changes in the macroeconomy, the retail industry, and the way our customers live their lives. The global pandemic greatly impacted society and everyone's lives. It also brought many uncertainties to the global economy. But great opportunities can be found amidst great challenges. With profound challenges changing in consumers' mindsets and behaviors during this period, China's online retail penetration continues to deepen. Consumers' needs, attention spans, content forms, and means of communication all underwent many changes.

Consumers' demographics and use cases became increasingly segmented and diversified.

The lower-tier market, the silver economy, the users who were born after the 1990s and the year 2000, the community economy, the on-demand consumption, and many more engaging trends have presented us a wide range of growth opportunities.

In the face of direct challenges and opportunities, Jingdong has shown the resilience of the anti-d威胁 capacity, the ability to pass through the economic cycle, the more open business logic, and the ability to ally with the outside world. Jingdong's long-term commitment to the political and commercial values

In the face of these challenges and opportunities, JD's business model has proven to be resilient through different economic cycles. We adopted a more open approach to running our business and continuously enhance our ability to enable our business partners. Our longstanding business philosophy of noble principle of doing business served as our true north in navigating the uncertainties and changes. All these efforts have helped us to gain the trust of many more users and business partners. Over the past year, we have not only successfully withstood the challenges, but also seized the opportunities for further growth and iteration. JD.com delivered a strong set of financial results in 2020. This is mainly attributable to our continuous investment, improving our usage experience, and also always put our customer first in running our business.

In the past year,

By the end of Q4, we hit a new high with annual active customers for the past 12 months reaching 472 million. We saw accelerated user growth and added 110 million new active customers compared with a year ago. This is the largest expansion in our history. We continue to see exciting user growth in the lower tier cities, which contributed over 80% of our new users for the first time in Q4 2020.

At the same time, Jindong's better shopping experience has made users more and more active on the Jindong platform. For example, we observed that in 2015, the number of new users who joined Jindong doubled more than five times in 2020. Especially, the shopping quality of Jindong Plus users and ARP are much higher than that of ordinary users.

We're even more delighted to see increased engagement from our customers. For example, the odds from our 2015 customer cohort increased more than five times by 2020. And we also see a very active engagement of our JDplus members.

In 2020, we maintained healthy growth in our corn businesses and achieved a significant progress in new business initiatives.

JD Retail is JD's earliest and most mature corn business. It plays a fundamental role in JD achieving its long-term strategic goals. We are pleased to say that in the past year, JD Retail realized a high-quality and accelerated growth and meaningful and sustainable innovation.

In the future, in the new year and in the longer term, as a technology and service company based on public chain, JD Retail will continue to implement public chain and technology.

Looking ahead in 2021 and beyond, as a supply chain-based technology and service provider, Daily Retail will continue to focus on three key strategies, enhancing our middle platform capacities for supply chain and technology, our omni-channel strategy, and our online marketplace ecosystem.

First, on the middle platform for supply chain and technology, Didi has been investing intensively in the building of supply chain infrastructure for a long time.

At the end of 2020, we managed more than 7 million SKUs of our direct-sale products in over 900 warehouses across China.

The supply chain is becoming an important factor in the cooperation and development of industries and companies around the world. Especially when the enterprise is facing an uncertain environment, the demand for supply chains is even more obvious. What Dingdong wants to create is a supply chain that is suitable for many scenarios and many ends.

During COVID-19, supply chain has impacted the development and cooperation among industries and enterprises around the world. The need for reliable supply chain is all the more imminent in an environment of increased uncertainty. What JD aspires to do is to build a needle platform ability that can be applied in more diverse use cases and channels.

The core ability of Jindong's unparalleled market share chain and technology over the years is to help online, offline, and business, whether it is industry-oriented or commercial enterprises, whether it is a brand enterprise or a manufacturing enterprise, improve the end-to-end experience, reduce traffic costs, enhance business efficiency, and better support the uncertainty in the environment. Pursuing the industry to achieve results will bring greater value to the entire society, and this will further diversify Jindong's income, and drive the future growth of public income.

With this goal in mind, we have been investing unswervingly in supply chain and technology to help merchants, both online and offline, big and small, including brands and factories, to improve their operations efficiency, to enhance their customers' experience, and to improve their risk resistance capacity. This will also help promote high-quality growth of the whole industry and create value for the entire society. For JD, this endeavor will further diversify our revenue streams and drive our service revenue in the future. Second, in face of a broad range of business channels and use cases, our omni-channel strategy aims to increase the overall retail efficiency to satisfy customers' diverse needs, to provide people with immediate access to products and services, and to create value for merchants and customers. Our omnichannel business is complementary to JD's platform's main retail model. Omnichannel is not only a key strategy for JD, but also a new trend that all the retailers must address. The penetration rate of this model is still quite low among offline businesses. We believe that there is a huge potential to integrate omnichannel and on-demand fulfillment elements with many industries in the future.

Dingdong's all-channel business will cover specialized stores, shopping malls, convenience stores, cars, fresh food, flowers, medicines, etc. and many other offline restaurants and brands. It will identify millions of offline stores. In the future, Dingdong will use its unique supply chain and technical capabilities to create LBS technical capabilities for the real-time consumer market. It will continue to strengthen the core capabilities of all-channel supply chain, all-channel marketing, and store digitalization that support many industries, many restaurants, and many products.

Today, JD's omni-channel business has already covered various offline scenarios ranging from franchise stores, convenience stores, car maintenance stores, fresh groceries, and fresh flowers to pharmaceuticals connecting with millions of offline stores. In the future, based on our unique supply chain and technology abilities, we will develop LBS-based technologies tailored to the on-demand construction market. We will also continue to build up our omni-channel supply chain, omni-channel marketing, and offline store digitalization abilities to support their applications in many more industries, businesses, and scenarios.

At the same time, we will strive to build up the technical consumption mentality of our customers by creating a new model of collaboration with Dada through the process of step-by-step supervision, innovation, and collaboration with Dada.

Meanwhile, we will work on cultivating customers' much share of undemand fulfillment through innovative measures such as our omni-channel fulfillment initiative and cooperation with external partners such as the partnership between JDBJ and Dada Group in 2021 we will expand our cover rates to more ratio verticals and drive the quality growth of our omni-channel business. This will provide us additional monetization opportunities.

We have established a healthy and healthy platform ecosystem environment.

Third, on the building of an online market ecosystem, this is an area of great potential for JD. With several years of development, we have now established a good foundation for the online platform ecosystem. Notably, we have made good progress in building a healthy platform environment and improved the merchant's quality and user experience.

The MTS of the Jindong opening platform is constantly improving. The new year's platform business continuity rate has been greatly improved. It shows a clear improvement in business reliability and recognition. In the coming year, with a more positive development trend in the industry, we will continue to experiment with new models, new strategies, and find suitable Jindong opening ecosystem strategies and methods. Jindong's goal is to provide better shopping experiences and services to consumers, and to fully open and serve the business, and to continue to improve the Jindong retail platform ecosystem.

We are pleased to see that the NPS net promoter scores of our online marketplace continues to improve over the years. So far this year, our merchant's renewal rate is much higher than in the past, reflecting a significant improvement in merchant satisfaction and recognition of our platform. Looking ahead, capitalizing on a healthier industry environment We will continue to experiment with new models and strategies to find the optimal strategies for JD's online marketplace. These attempts will still be guided by JD's ultimate business purpose to improve customers' shopping experience and provide an open and empowering platform for merchants.

In the midst of these challenges, we will continue to base our business on a more open mind and cultivate new business. While adhering to these strategic directions, we will continue to enterpin our business foundation

keep an open mind, incubate new business, and use innovation to save change. Whether it is our first growth curve represented by our established business, such as consumer electronics and consumer goods, or our second growth curve represented by our growing business, such as healthcare and MRO categories, or the third growth curve represented by emerging business, such as racial innovation, service and technology initiatives, and incubate new growth opportunities.

Here, I would like to re-express the strategic positioning of Jingdong, the technology and service industry based on the public chain. Jingdong is a long-term investor. From the beginning, it has been determined to do business in the most difficult and most valuable way. No matter how far we go, as long as we stick to the value creation of Jingdong based on the customer as the core and the public chain as the technology,

Here I would like to emphasize JD's strategic positioning as a supply chain-based technology and service provider. We uphold our long-term business philosophy. Since day one of JD's business, we chose to tackle the hardest but most valuable problems in the industry and society. No matter how far we have come, As long as we remain committed to our customer-first core value and supply chain-based value creation, we'll always be able to go full steam ahead. This attitude embodies our long-standing business philosophy, that is, the noble principle of doing business.

We believe that the values and missions that Jingdong has always adhered to can further improve the change of the environment and industry. The road ahead is long and winding, but taking one step ahead, we will preserve. We believe the core values and mission that JD has been abiding by are relevant to the new microenvironment and industry development.

JD will continue to innovate and invest in these strategic directions. We will constantly and continuously deliver our abilities and create value for society, industries, our partners, and our customers, and in turn, achieve long-term, high-quality growth at JD.

Thank you for your time. I will now give the floor to our CFO, Sandy. Thank you, Lei. Hello, everyone.

We were pleased to finish 2020 with exceptional business and financial performance in the fourth quarter. We outperformed our expectations with accelerated user and top-line growth and exciting progress in multiple new businesses while maintaining solid bottom-line performance and strong cash flow during the fourth quarter and throughout the full year 2020. These results were driven by our relentless focus on customer experience and investments in supply chain capabilities, technology, and logistics infrastructure over the past years, which has become a hallmark of JD.com. As we embrace change and position our business for the long run, JD has been at the forefront of many innovative initiatives and structural shifts that are taking place in China. In addition to the exciting developments at JD Retail that they just discussed, I would like to further elaborate on some operating and financial highlights. First, let me add more color on our user base. By the end of Q4, we hit a new high watermark for our annual active customers in the past 12 months at 472 million. We saw accelerated user growth to 30% year-on-year and added 110 million new active customers from a year ago. In addition, we managed to grow our user base while continuing to reduce our marketing expense ratio in 2020. This improved marketing efficiency was driven by our long-term percentage of picking philosophy and technology-driven marketing efficiency improvement. taking the way for our sustainable user growth going forward. Let's turn to a number of our new business initiatives, which are making exciting progress. First, on GD Logistics, began as GD Group's in-house logistics department in 2007. GD Logistics has been building logistics infrastructure and technologies, as well as operational and industry know-how for over a decade. It has become the leading technology-driven supply chain solution and logistics services provider in China and operated over 900 warehouses with an aggregate gross flow area of 21 million square meters. On February 16, 2021, BD Logistics submitted a listing application form to apply for the listing of its shares on the main board of Hong Kong Stock Exchange. Please note that there is no guarantee as to whether and when the proposed listing will take place. Some of our smaller businesses are also experiencing rapid growth. For example, GD Property recently launched its first logistics property development fund with some prestigious strategic investors. So far, total AUM of GD Property's core fund and the development fund has exceeded 19 billion RMB. TD property also entered into a designated agreement with series A financing. The total amount expected to be raised is approximately $700 million. We also restructured some business units recently to better coordinate our internal resources and capture market opportunities. For example, we established a business group recently to further strengthen our supply chain capacity. better serve customers, and empower SMEs in the lower tier cities. To achieve better synergy, our social e-commerce platform, Syncy, convenience store business, Syncy Tong, formerly known as Sintong Lu, and community purchase business, Syncy Pimpin, were consolidated under the Syncy Business Group banner. And in December, we announced that JD Cloud and AI business will merge with these regions. Subject to the board and regulatory approvals. The proposed reorg was designed to drive synergies in the development of innovative technologies and product solutions. This will allow JG.com to focus more on core retail and logistics business and gain more flexibility in allocating resources to new business. Within our retail business, DD Health achieved an important milestone with its successful listing on the Hong Kong Stock Exchange on December 8, 2020, with a gross proceeds of approximately HK$31 billion. As a technology-driven platform centered on the supply chain of pharmaceutical and healthcare products and healthcare services, DD Health aims to provide easily accessible, convenient, high-quality and affordable healthcare products and services covering a user's full lifespan. JD has demonstrated a proven track record of successfully incubating, developing, and growing new businesses from our core B2C e-commerce business. We believe this is enabled by our relentless focus on superior customer experience and our efforts in building and investing in supply chain capabilities and technology infrastructure. This creates a virtual cycle allowing us to identify new opportunities to empower external business partners and grow beyond our core e-commerce business. Therefore, we will continue to invest in exciting new initiatives that can drive long-term sustainable growth for our group. Our financial performance reflects the trajectory of our long-term development. Our net revenues grew 31.4% year-on-year to 224 billion RMB in the fourth quarter, continuing our strong growth momentum with a successful promotion season. More importantly, we are driving our top line in more expensive ways. Our electronic and home appliance categories increased 25% year-on-year during Q4, continuing to outperform the industry by a large margin. General merchandise revenue continues to grow faster at 34% year-on-year in Q4, led by the FMCG, healthcare, cosmetics, and home product categories. Order volume for the supermarket categories grew by 45% year-on-year in Q4. Another key metric shows that we are growing our top line in a more diversified way is our next service revenue growth. which accelerated to 53% year-on-year in Q4, the highest growth we had in the past 11 quarters. This is mainly driven by the strong growth momentum of JT Logistics' internal revenue, as well as our advertising revenue. For the full year of 2020, net revenues reached 746 billion, with year-on-year growth accelerated to 29.3%, from 24.9% in 2019. Electronics and home appliance revenues recorded solid growth of 22% year-on-year amid challenging market conditions, while general merchandise revenues grew 38% year-on-year in 2020. Next service revenues grew by 42% and accounted for 12.6% of our total revenue in 2020. Our non-GAAP operating margin improved by 13 basis points year-on-year to 0.5% in Q4 and up 52 basis points year-on-year to 2.1% for the full year 2020. DisneyVeto's operating margin came in 1.5% in Q4 and reached 2.8% on a full year basis in 2020, up 28 basis points from 2019 mainly driven by improved operating efficiency and, to a lesser extent, the relief of social security during the COVID-19 pandemic. The margin improvement in 2020 was realized even as we shift our category mix towards the high-frequency but multi-size consumer staple categories that are still in the early stage of realizing earnings potential and proactively reinvest. some of our social security benefits in value creation for our users and the logistics infrastructure. We are well on track of our long-term marketing trajectory. Moving to the bottom line, our 2.4 non-GAAP net income attributable to ordinary shareholders was 2.4 billion RMB, and non-GAAP net margin increased 59 basis points year-over-year to 1.1%. Our full year 2020 non-GAAP net income attributable to ordinary shareholders reached 16.8 billion RMB, up 57% as compared to 10.7 billion RMB last year. Non-GAAP net margin for the full year 2020 improved 39 basis points year-over-year to 2.3%. Again, our profit rate has improved meaningfully in 2020, even as we incur additional expenses related to COVID-19 and exclude the benefit of the Social Security relief, which had about 25 basis points impact. It's worth highlighting that we continue to strengthen our financial position while stepping up to support our business partners. Our inventory turnover stays further reduced to 33.3 days in the last 12 months, one of the lowest among the top global retailers. and our own historical record again, despite of the continuous expansion of total FPUs directly managed by us. This is achieved through the continuous improvement of our technology and operating efficiency. Our free cash flow for the training 12 months hit a new record of 35 billion RMB, through 80% from a year ago. As of December 31st, 2020, cash and cash equivalents This pretty cash and short-term investments added up to a total of 151 billion RMB. We believe our solid profitability and financial position provide us with a strong foundation for investments in a range of growth opportunities. In summary, JT.com passed off a challenging year of increased uncertainty with a remarkable performance. We further improved our technologies and tools, enhanced our ability to serve users and ecosystem partners, which paved the way for our future growth. We continue to witness a deepening of online penetration across many categories and the technology-driven transformation in many aspects of consumers' daily lives and the society in China. We expect to maintain the growth momentum that we generated in 2020 on multiple throats in 2021, in spite of continued micro-challenges and the high comparable base impact. We also expect our long-term margin trajectory will continue. However, we do not forecast short-term margins, as we believe JG.com is still in a fast-growing stage in an enviable growth market with many exciting opportunities. With our core retail supply chain and logistics capabilities, Citi is well-established with convincing value proposition to benefit from secular trends and drive the long-term sustainable growth of our business in 2021 and beyond. This concludes my prepared remarks. Let's open the call for questions. Thank you. The question and answer session at this conference call will start in a moment. In order to be fair to all callers who wish to ask questions, we will take one question at a time from each caller. If you have more than one question, please request to join the question queue again after your first question has been addressed. Ladies and gentlemen, we will begin the question and answer session. If you wish to ask a question, please press star 1 on your telephone and wait for your duty to be announced. If you wish to cancel your request, please press the pound or hash key. Once again, to ask a question, hit star and the number 1 on your telephone keypad. Your first question comes from the line of Eddie Leung of Bank of America. Please ask your question.

Good evening. Just a couple of quick follow-ups after your presentation. Firstly, your user growth is pretty impressive, very strong. I'm wondering if there is any impact on the ticket size. If the ticket size is coming down because of new users, does it affect the operating leverage of your logistic basis? Seems like the fulfillment cost as percentage of sales, you know, a bit higher than our expectations. So just wondering your thoughts And then I think Xu Lizong mentioned that the renewal rate of your platform merchants improved last year. So just wondering how quickly is the number of marketplace merchants growing because of the improved renewal rate? Thank you.

Thanks, Eddie. This is Sandy. Let me take your first question regarding the for growth margin. So I think for growth margin, we would look at 1P and 3P separately. If we look at the PRB to see growth margin in Q4, it went down a little bit. But if we include the advertising revenue in relation to our 1P product, that is how internally we manage the operating results. the gross profit margin for 1T actually slightly increased. So this is after considering all of our reinvestments in Q4 for the additional profits that were generated from the first nine months in the year. As I mentioned at the earnings call last quarter, we plan to reinvest some of the additional profits generated from the first nine months in the fourth quarter to really provide value to our customers. and also to reinvest to build our logistics infrastructure. So again, to emphasize that the growth margin for 1T actually slightly increased compared to the same quarter last year. And if you look at the fulfilled growth margin for 1T, there is also a slight improvement for last year compared to the Q4. And we see very meaningful improvement for the full year compared with last year by about 20 basis points. So this is driven by the steady improvement of gross margin by many categories, including the category makeshift towards lower margin supermarket categories. So the relief of social benefits has no impact on the improvement for the full year of fulfilled gross margin as we had the one time VAT benefit in 2019. So the amount is almost the same. Clearly, what's dragging down the total fulfilled gross margin for our group is the 3P revenue contribution. We can see that the contribution on the 3P revenue went down a little bit in the fourth quarter, even though the 3P contributed more GME in Q4 as compared to Q4 last year. We were quite encouraged by the healthy performance of our marketplace business model. But the category mix within the market-sensitive model also changed slightly. The healthcare, supermarket, electronics, and home appliance category outperformed the apparel and home products. So that means the categories with relatively lower take rates are growing faster than categories with higher take rates. under our marketplace vision model. Again, we believe this is a healthy move and a good indicator of our efforts in building a better marketplace ecosystem, particularly for our historically strong 1P category. And to answer your second question, you have all known that JD's reputation is the strongest in terms of the consumer's impression on our service experience. And through a year, you can see that a number of merchants on our platform have enjoyed a steady growth.

Awesome.

consumers have a higher expectation from our service. We will also have a higher expectation of the qualities and the products from our merchants on the platform.

So last year, we will have some low-income and low-skilled business owners come to our service. So from the point of view of low-income and low-skilled business owners, it is a steady growth. But in fact, the absolute value of new business owners is still relatively high. And their business management ability and their business capacity

So in the last year we have done some screening work over low efficiency and low operation merchants. And still we see the overall number of our merchants on the platform is steadily growing. And this year we have been recruiting more high quality merchants. They are more experienced and are running their business in a more efficient way. So we will pay close attention on the efficiency of our internal platform and also the operation efficiency of our merchants on the platform and how well they are running their stores. And for this year, the cutoff time for the merchants' renewal is on March the 30th. So we have seen the renewal rate is much higher than in the past. And we're also seeing that improvement of our merchants' satisfaction rate on our platform. Thank you for the question. Your next question comes from the line of Ronald King of Goldman Sachs. Please ask your question.

Thank you. Thank you for taking my question. Thank you, and management. And congratulations on the strong 2020 performance. I think my question would be on both Xu Leizong and Sandy. You mentioned about a lot of new businesses which are very exciting. And I could see you've launched at Dingxi also all the different initiatives in the kind of new businesses. How should we think about our kind of plan to invest in these? I think because, of course, JD Retail is very strong on itself. Given so many exciting initiatives, could you go through these initiatives, maybe one by one, or the biggest key and how should we think about our commitment or the plan to invest in terms of magnitude? Thank you.

That's John. This is Sandy. Maybe let me take the question regarding and then Liz can comment on some other new initiatives. So in Q4, as I mentioned, we did a restructuring for our group to really try to generate synergies from the three separate business units. We see there is a great opportunity in this group purchase business or group purchase industry or the fresh produce category. So we firmly believe there is a structural opportunity, the huge market size and highly fragmented supply chain with lots of opportunities and potential to improve the operating efficiency through technology and innovative business models. And we also see that the group purchase business model works better for smaller ticket size items in the lower tier market as it can generate better fulfillment efficiency through short chain logistics and be more efficient in inventory management and marketing, especially for perishable and long-term products and provide users from the lower tiers market with better experience. So even though at present most players in this market use their food purchase business model primarily driven by traffic, we believe by end of the day it will go back to the basis of retail business, i.e. platforms will compete on products operating efficiency and customer experience. So we see this to be a long-term initiative and our ultimate goal is to improve the operating efficiency of the supply chain, the wholesale and retail business in the lower tier markets through technology and improve people's living standards. JB is fully dedicated in this initiative and we will take a somewhat differentiated approach to be more focused supply chain and logistics network and try to leverage our existing capabilities. So we launched our campaign business in certain cities from January and it's still in a very early stage. We were entering into this group purchase business, we need to build localized supply chain, short chain logistics network as well as technologies and tools to support the operation. We also need to recruit group leaders, business development teams, and educate new users step by step, city by city. So there are lots of areas need investments. But we are not starting entirely from the scratch. We tested. We have been testing the group purchase business model for a while in a very small scale. For our convenience store business, now renamed We already established some B2B supply chains primarily in the FMCG category, including some localized supply chains. We also have existing B2B logistics networks and localized business development teams in certain regions of the country. SingCitone now has over 1 million SME customers, and some of these convenience store owners can naturally be turned to the group leaders of our SingCitine team business. Our existing centralized procurement platform, the middle platform mentioned by Lei just now, for FMCG home products or other categories can support Pinting's business and provide users of Pinting with more product selection. At the same time, better generate sales benefits for core retail through sales from Pinting's channel. So we are working with various business partners, including China Daily, and the manufacturing basis for agricultural products to strengthen our supply chain capabilities for the upstream and try to source the best value products for our users. At the same time, helping the existing market players on the supply chain with digital transformation, including the agricultural products into markets. Our e-commerce platform aims to serve the users from the lower tier cities and they have accumulated a lot of loyal users since its establishment. Based on our initial task in a small group of users, we are pleased to see a good conversion of SYNC users to PMP users. So we believe JD Group's existing teams and capabilities in the lower tier cities formed a good basis to start our PMP business, although not sufficient to support the growth of the new business. but we can quickly replicate, adjust, and apply our existing experiences, industry know-how, and capabilities to the new model. Pipping can also help increase the engagement of users and merchants from the lower-tier markets, including convenience stores for Synthi and Synthic Home Business, as well as supporting our main app. So these are also the logic of reorganizing and consolidating the three business units into one business group. Most importantly, JD is fully dedicated in this initiative. We sent our best people to this new business group, and they also got supply chain support from our core retail and logistics business groups. So talking about the investments, we have put aside sufficient budget to start and grow the business as we need to invest in many areas, as I just mentioned, and we will evaluate the ROI for the investments and make periodic adjustments based on the market situation. It's pretty difficult to accurately predict at this stage how much we are going to spend on this new initiative. As you can see, the market is very dynamic with many, many players. What I can tell you is our strategy is not to acquire users through short-term and crazy subsidies, but to really invest in building the hard core capabilities and technology to run the business and create long-term value for our users and business partners and the society. So this is also consistent with our group's operating philosophy. To improve the transparency of our communication with investors, we plan to take out the operating results of the business group from JD Retail segment and report under new business starting from Q1 this year. We are excited about this business opportunity and we look forward to sharing more with the investors as we develop the business.

Let me add something on the new business. And not only for the e-commerce, but essentially for all the retail business, we will focus on the customers' products and the platform. So since the beginning of J.D. Ritchell's

development, we started from our products and we start to expand our product selections. So we do our first party and then the third party product offering. And for the next step, we focused on our customers and we start with providing products to the targeted customer cohorts who are interested in the consumer electronics and digital products. and then we will continue to expand our consumer base to more people in the lower tier cities and female users, et cetera.

In terms of the factory, from the initial centralization, we started to explore the centralization on the line, and in these two years, we started to explore the offline field and the global field. In fact, this is the whole logic of the development of business. But the most important thing behind it is And in terms of the platform, we started to build our platform in a centralized way and then

Now we are moving to more decentralized formats and in the past two years we have been exploring new formats with the offline businesses and our omnichannel initiatives. So this is the basic JD's business logic and behind that the most important thing is that we are thinking and doing things to see what are the pain points, what we can solve, the pain points about bringing down the cost and improve the efficiencies giving better shopping experiences for our customers. So as you can see, it's a process. We are looking for some solutions, some pinpoints, and also whether there will be new ways to find, there will be new or more leading or advanced models or methodologies to do retail.

You can see that the health and industrial products that we have hatched in this year So we have seen that in the past year,

J.D. Retail has incubated J.D. Health and J.D. Arm R.O., and all of this has been created based on our principle to solving some pain points and create value for this industry. And we have seen that in J.D.' 's development history, and this has happened to many other companies as well, when we are considering to enter a new market we will first look at the scale of the market. However, we will think deeper and see whether this new business will truly create long-term value for the industry and the society. So this is, as I mentioned, the basic logic when we are making our decisions to enter a new business or not. So eventually, we would love to create a sustainable and constant value to the society and our customers. Yeah, and also supplement businesses other than the retail business. For JD Logistics, it will continue to build technology and infrastructure to further expand its production service offerings. And we also have JD International. So we have a small operation in Southeast Asia. They are in the hyper-growth stage, but still in the investment stage. Next question, please. Your next question comes from the line of Alicia Yap of Citigroup. Please ask your question.

Hi, thank you. Good evening, management. Thanks for taking my questions and also congrats on the solid results. Just very quickly, wonder have you already generated any revenue from Community Group Buy in the fourth quarter? Just wondering your FMCG category, have you seen any impact given the rising intensity of this Community Group Buy platform from the peers? And then just quickly on the first quarter Chinese New Year, so any qualitative color that you could share with us? Given this year is also another, you know, a little bit special year given the state in the city measure. So what have you observed in terms of the category demand as compared to the normal Chinese New Year period? Any category that you have seen abnormally strong this year? Thank you.

Okay.

This is Zhilei. I will answer the questions related to FMCG and the Chinese New Year grant promotion.

Currently, we are focusing on a few areas. Among them, the raw materials and the fiber-based products. These two areas have a very high proportion. Some of the less-priced products also include some fiber-based products, but this proportion is relatively low.

And overall speaking, we have seen the focus of the community group buying are in the following areas. First is the fresh produce and also the FMCGs, and some may relate to the digital products, but mainly focusing on the first two. We don't see a quite big impact. We don't see the JD's business has been having a big impact from the fast development of community group buying. I think this is mainly related to our customers' shopping behaviors and their mind shares and also their preference on our products.

It's also worth mentioning that some of our SKUs have been some favorable items that some community group buying companies want to work with us through our supply chain enabling business format. In terms of the Chinese New Year, this year's Chinese New Year is very different from last year due to the pandemic. So, from the point of view of the general sales of the Chinese New Year, we think the Chinese New Year is very good.

And regarding the question about the spring festival, shopping festival, because compared with last year's COVID situation, this year there are some major changes on the consumptions. We do see a healthy consumption result and consumers' participation in this year's shopping festival.

We can see that it includes clothes, cosmetics, and food. the increase in these categories is very good, including the added category. Because of the outbreak in February last year, the increase in the number of categories was actually much higher, but this year it has been released. Of course, it may not be as strong as it was last year, but I think this is also due to the pandemic,

We have seen some categories enjoying a very fast growth rate during this year's Spring Festival grant promotion, such as the gifts, beauty products, and food, and also home appliances. The home appliances suffered from the pandemic the most last year, and this year the demand is coming back fast. In contrast, some categories which had a good sales performance last year, such as some home cleaning, health care, and masks, they're coming back to the normal level. So generally speaking, we do see this is a very healthy consumption trend.

And one more point to add is that because the government encouraged people to stay at their working place to celebrate the new year,

we do see a surge of remote orders on our platform. The remote orders are those orders of buyers that make the orders and send them to the recipients living in other cities. And the sales of the remote orders, the numbers of remote orders actually doubled on our platform. And also because of the staycation, a lot of merchants continue to operate their business on the platform during the grant promotion and even extend their working hours there. So we do see they are very engaging and very active in participating in this sales event. Yeah, and on the revenue contribution from community purchase in Q4, we only experimented in very small scale in the fourth quarter in 102 cities. So you can ignore the revenue contribution. We are now approaching the end of the conference call. I will now turn the call over to JD.com's Ryu Lee for closing remarks. Thanks, Operator. Thank you for joining us today on the call. Please feel free to contact us if you have any further questions. We look forward to talking with you in the coming months. Thank you. Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect. Good day.