JD.com, Inc.

Hello, and thank you for standing by for JD.com's third quarter 2021 earnings conference call. At this time, all participants are in listen-only mode. After management's prepared remarks, there will be a question-and-answer session. Today's conference has been 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, Mr. Sean Zhang, Director of Investor Relations. Please go ahead, sir.

Thank you. Good evening and good morning, everyone. Welcome to our third quarter 2021 earnings conference call. Joining us on the call today are Mr. Lei Xu, president of JD.com, and Ms. Sandy Xu, RCFO. For today's call, Lei will kick off with opening remarks, and Sandy will discuss the financial highlights. After that, we'll open the call to questions from analysts. Before we continue, Let me refer you to our latest Safe Harbor statement in earnings press release on our IR website, which applies to this call, as we'll make forward-looking statements. Also during this call, we'll discuss certain non-GAAP financial measures. Please also refer to our earnings release, which contains a reconciliation of non-GAAP measures to the comparable GAAP measures. Finally, please note that unless otherwise stated, All figures mentioned during this call are in RMB. And now, I would like to turn the call over to our president, Mr. Lei Xu.

Hello, everyone. This is Lei Xu. Thank you for joining JD's third quarter earnings call.

Starting from this earnings call, it's great pleasure for me to take the position as president of JD.com and communicate with you in my new capacity.

As we all have observed,

In the second half of this year, multiple happenings have brought notable uncertainties and challenges to the world, to China and the retail industry, such as the COVID cases, the macroeconomic fluctuations, lacking of goods in a wide range of worldwide due to supply chain disruptions. The planet we live in is undergoing profound changes.

This quarter, Jingdong continues to deal with high-quality growth. When the external environment changes, Jingdong's business performance is relative to that of the industry. more certain and more solid. Because we have stronger control over the supply chain and all business links. In the face of changes in the external environment, the response is more sensitive. Even in the face of extreme weather, epidemic and other special situations, it can also ensure the stable and efficient delivery of business, thereby creating greater value for users, partners and the actual economy. This once again proves that in the past 18 years, Jindong has firmly achieved core capabilities such as supply chain and logistics infrastructure and other core capabilities, which has formed an advantage that will not be lost in the future.

JD continued to deliver high-quality growth this quarter. When the external environment shifts, JD is able to continue to outperform the industry with more certainty and stronger resilience. This is due to our stronger control across our supply chain and entire business processes, which allow us to react more agilely to changes and ensure stable business operation and reliable fulfillment, even in the face of extreme weathers, COVID, and other special circumstances. Therefore, we're in a unique position to create greater value for our customers, business partners, and the real economy. The core competencies in supply chain and logistic infrastructure, which we have been committed to building for 18 years, have accumulated powerful advantages for us, These advantages have greatly differentiated us, particularly in terms of value creation and business resilience from the platform-based traffic-driven companies.

首先,这种确定性体现在面对宏观经济和行业的众多挑战。 京东集团在Q3继续取得强劲的业务表现。 本季度总收入在去年高基数之上取得26%的健康增长。 In terms of active users, in addition to this quarter continuing to increase rapidly, we are more happy to see that as the user experience continues to improve, the user mentality continues to strengthen, as well as the improvement of shopping frequency and activity. In the past 21st year, Jindong has also maintained a strong trend on the basis of accelerating growth last year, proving that Jindong not only increasingly obtains the recognition of consumers, consumers and brands, but also plays a key role in the continuous growth of the retail industry and the upstream and downstream physical industry. especially by helping hundreds of millions of small and medium-sized enterprises get fair growth and reasonable profits. At the same time, the health development of core businesses and the continuous improvement of supply chain capacity and operation efficiency allow us to carry out our long-term strategy more firmly.

First of all, our resilience is reflected by another solid set of results in Q3 despite macro and industry challenges. Our total revenues sustained healthy growth at 26% year-on-year, even on a high comp from last year. Regarding active users, in addition to the healthy growth rates in Q3, we are more pleased to see that our continuous improvement in user experience has resulted in stronger consumer nightshare and engagement. In the latest single-day grant promotion, JD maintained strong growth momentum even on the basis of last year's accelerated growth. This demonstrates the rising recognition JD gained among customers, suppliers, and brands. It is also a testament to JD's contribution in the recovery of the retail industry and the real economy. In particular, JD has helped millions of online and offline micro and SMEs to gain fair growth opportunities and reasonable profits. Moreover, the healthy growth momentum of our core retail business combined with further enhanced supply chain capacities and operating efficiency has put us in a stronger footing to firmly execute our long-term strategy.

And now let's take a closer look at how JD's resilience is reflected in our corn retail business as well as the execution of JD logistics and new business long-term strategies. In this quarter, Dingdong's bubble platform ecosystem has been significantly improved. Since the second half of last year, we have been working hard to provide a series of intelligent operating tools for business owners, to reduce the entry threshold of new business owners, and to provide integrated supply chain solution solutions to improve business operation efficiency and optimize growth paths. At present, we have seen the results. Dingdong platform ecosystem has been improved in several ways. First, the growth of business types and number of similar military lines has increased rapidly. Q3, the number of successful investors in the third-party business in the capital has reached three times the total in the first half of the year. Among them, the number of new business investors in the fashion home has increased the most. Q2, the business efficiency, growth, and business satisfaction of the business are constantly improving. Q3, the user experience index of platform business is also constantly improving. Among them, the NPS of the fashion home category is the highest in history. In the future, we will grasp the fair competition environment and positive development trend of the industry. JD's market-based ecosystem has made solid progress in this quarter. Starting from the second half of last year, we have introduced a series of smart operating tools, lowered the entry barriers for new merchants,

and provided integrated supply chain solutions to further optimize merchants' operating efficiency and growth path. Our efforts has generated initial success. I'd like to share a few progress our marketplace business made this quarter. First, growth of both total number and the types of merchants accelerated on both a year-on-year and a sequential basis. In Q3, the number of third-party merchants joined JD tripled that of Q1 and Q2 combined. with apparel and home categories leading the growth. Second, merchants' operating efficiency, growth path, and satisfaction level further improved. Third, the Net Promoter Score's NPS of our marketplace business continued to improve, particularly the NPS of apparel and home categories were at their all-time high. Going forward, we will leverage the healthier competition and development environment of the industry to continuously enrich our marketplace ecosystem, explore new models, and formulate our differentiated strategic approaches. Our goal has always been to provide customers with better shopping experience and services, open to and empower merchants, and build up JE's marketplace ecosystem.

We predict that the retail industry will be centralized and will continue to evolve. The whole channel strategy is not only to open the long-term development of Jingdong retail, but also to develop the second normal curve. It will also deeply connect the current physical retail industry and assist the digital transformation and upgrade of the retail industry. The basis of the whole channel is the most comprehensive supply chain capability of Jingdong's industry, especially in our three to five supply chain modes, including B2C mode, production mode and local retail mode. At this stage, we are concerned about the ability of the whole channel to build, including our supply chain capabilities, digitized operation and integrated marketing capabilities, and apply them to the online and offline diversified scenarios, covering fast-selling products, digital home appliances, telecommunications, health, clothing, home, life services, cars, and other industries. This quarter, the GDP growth contributed by the entire channel business is close to three-digit, which is a rapid growth this year with Dada's joint construction of Google Home Business.

We made further progress in the implementation of our omni-channel strategy. In our view, the decentralization of the retail industry will continue, and our omni-channel strategy will serve as our second curve for growth to break the ceiling of JD's long-term growth. The strategy is also designed to facilitate further integration and digital transformation of China's offline retailer. In the industry, JD possesses the most comprehensive supply chain capabilities that enterpin the omni-channel model. In particular, the three comprehensive supply chain models, namely the B2C centralized warehouse model, the F2C origin warehouse model, and the local retail model. At this stage, we focus on building our omnichannel capabilities, including decoupling our supply chain capabilities, digital operation, and integrated marketing solutions. We will then apply these solutions to a wide range of shopping scenarios, both online and offline, and enable millions of brick-and-mortar merchants in a variety of industries, including FMCG, consumer electronics and home appliances, healthcare, apparel, home goods, life services, automobiles, and many more. In Q3, GMV of our omnichannel business grew by nearly triple digits year on year. We enriched the O2O on-demand retail business that JD jointly built with Dada Group, recorded and accelerated growth. I highly recommend and invite you to visit our innovative offline stores, such as JD Mall that was launched at the end of the quarter in Xi'an, JD Super Experience Stores, 7Fresh, and Jinxi Community Stores.

In addition to the steady growth trajectory of our corn retail business, our logistics and new businesses also made many robust growth this quarter. Jingdong logistics is accumulating more and more customers in the industry such as fast-food, home appliances, 3C, clothing, cars, and raw materials, and is also continuously enhancing our industry's ability to solve projects. Therefore, the revenue from the integration of the outside world and the service of the public chain will also continue to drive the overall growth of Jingdong logistics in the future. Second, because of the outstanding contribution of Jingdong logistics during the outbreak of the epidemic last year, the government-provided employee social security reduction and other discount policies have been given. After the epidemic was controlled, On JD Logistics, I would like to highlight two positive trends.

The long-term investment JDL has made in establishing integrated supply chain logistics service capacity started to bear fruit as it serves more external customers and expands its addressable market. For example, JDL has been developing industry-specific solutions and gaining traction with clients in FMCG fresh produce, 3Cs and home appliances, furniture, apparel and automobiles. Going forward, We expect external revenues of its integrated supply chain solution will be the main growth driver for JDL. Second, JDL received social security relief for its employees and other measures from governments for its distinguished contribution in containing the COVID outbreak last year. Starting from Q3 last year, JDL invested these financial gains in network capacity expansion at large scale in lower tier cities as well as in frontline worker recruitment, which created additional employment opportunities, the quick expansion of JDL's business and operation optimization this year have gradually mitigated the financial impact from these upfront investments in capacity. As a result, JDL's overall margin performance meaningfully improved in Q3 compared to the first half of the year.

The surprise business is designed to serve the general consumer and local businesses in the market, provide high-cost services, products and services, and meet the needs of consumers and small and medium-sized businesses for a better life. We observed that the problem of the industry is that it does not really reduce the cost of goods circulation and cost reduction, and it cannot effectively improve the efficiency of raw material supply chain and logistics. There is no rich small shop owner and small stall owner, and it cannot guarantee the user experience. And solving these problems is exactly the core of Jingdong's long-term growth. The core business logic, we believe, is a long-term model of 5 to 10 years. It needs to gradually create short-term logistics, basic facilities and user-centeredness. Therefore, it is not the time to pursue scale. The surprise is that on the basis of legal and rule, the city is the unit to build the ability and explore the real business model of creating value. After half a year of exploration, the surprise is that in July, the initiative strategic focus on 10 methods. In the focus city, the surprise of industrial efficiency and cost structure continues to optimize. Our Jinxi business is committed to serving mass consumers and merchants in the lower-tier markets in China, providing cost-effective products and services in support of their pursuit for a better life.

The industry today is still characterized by high merchandise circulation costs, low efficiency of supply chain fulfillment, especially for fresh produce, while local small shopkeepers and store owners are left underserved and user experience is far from ideal. JD is better positioned to make breakthroughs on these fronts, where we have been working on our corn business logic for many years, In our view, Jinxi Business is in the sector that requires five to 10 years commitment to building up the infrastructure capabilities for short-chain logistics and users' mindshare. It is not the time to prioritize scale expansion at the current stage. Instead, Jinxi Business will focus on building the core capabilities at the city level, exploring business models that create real value to local stakeholders while ensuring that we have a sound compliance base. Since July, Jinxi has proactively shifted focus on 10 selected provinces where we are pleased to see improving supply chain efficiency and cost structure in Q3. In particular, fulfillment cost per order has lowered by nearly 50% compared to that in the early stage of the business, and user experience have largely improved as well. More importantly, thanks to our focused efforts and investment in infrastructure, revenues generated by local group leaders and mom-and-pop stores on Jingxi have been clearly climbing up.

We believe that Jindong is in a position of strategic advantage and will have greater development and long-term development opportunities. We are full of confidence in the future. This is mainly due to the fact that Jindong has always insisted on doing the most difficult, the most tiring, but the most valuable thing. The unique core capabilities and business model we have built over the years have made the value creation more and more obvious. We still have a lot of work to do. Thank you for your trust and support. That's all for today's sharing. I'll hand over the microphone to the CFO of Jindong Group, Sandy.

I hope that my sharing today has showed that JD is a new type of real economy-based enterprise that has the traits of both real economy and digital technology capabilities. Such type of enterprises will play an even greater role in China's economic development in the new era. From a long-term perspective, JD is strategically positioned to generate compelling growth opportunities despite the current complex and evolving microenvironment. We remain fully confident in the future, as we have been relentlessly working on the most difficult, the hardest, yet the most valuable things for all our shareholders, thanks to our core capabilities and unique business model that we have built over years. That said, we still have a lot to do, and thank you all for your continuous trust and support for us along the way. This concludes my remarks today. Now I'd like to give the floor to our CFO Sandy for more details.

Thank you, Xizhou. Hello everyone. We delivered a set of solid operating and financial results while making steady progress on many of our strategic priorities in Q3. This demonstrates our commitment to pursuing sustainable quality growth. We are encouraged by the overall strength and resilience of our unique business model, which continues to put us on a strong footing to navigate the unprecedented complexities in the macro environment. Our total net revenues reached 219 billion RMB in Q3, representing 26% year-on-year growth and 27% two-year kick-off, maintaining a strong growth momentum even on a high count from last year. Our growth continued to outperform the industry, and we further gained market share in the Our top-line growth was backed by sustained improvement in our user base and user engagement. We are very pleased to see a 25% year-on-year growth of our IoT M active user base, reaching a total of 552 million in Q3 with the addition of 111 million users from a year ago. We attached greater importance on improving our user experience and user engagement in Q3. Our mobile DAU grew even faster than active users, accelerating to over 30% year-on-year in September, which demonstrates our expanded consumer mindshare. In addition to gaining mindshare, we are also winning users' wallet share. Average order frequency for all our users increased 23% year-on-year, driven by both our new and existing users, while total order volume sustained a year-on-year growth of above 40% in Q3. Within JD Retail, the number of categories users purchased expanded to a historical high even in the low season. In particular, users who have stayed with JD for more than a year tend to double the number of categories they purchase. These core JD users love the new products and categories that we introduce and are increasingly spending more on fresh produce, cosmetics, fashion, and luxury goods. The improved user engagement is again driven by our continued focus on customers' experience. Our NPS score has been on a steady growth trajectory hitting all-time high this quarter as we continued to enrich our product offering and improve shopping experience after sales and fulfillment services through technology. Category-wise, we would like to highlight that the growth of our net service revenues was over 43% year-on-year compared to 23% growth of net product revenues. Net service revenues contributed a historical high of 15% to our net total revenues. Marketplace and advertising revenues continued a high growth of 35% year-on-year, a notable acceleration from 24% that we achieved in the same period last year. This is a strong testament of our continuous efforts to improve our marketplace ecosystem. which drove an influx and higher engagement with third-party merchants across almost all categories. We expect our marketplace business to continue to gain momentum in the coming quarters. Logistics and other services revenues grew by 53% year-on-year, mainly driven by the hypergrowth of JD Logistics' external revenue, which I will discuss more shortly. Now let's look at our segment performance. First, our core business daily ratios revenues reached 198 billion RMB in Q3 with 23% young year growth and a two-year CAGR of 25%. The power of JD's supply chain capability was on a full display against the global supply chain constraint. Our electronics and home appliance revenues maintained resilient growth of 19% young year, significantly outpacing the industry's low single-digit growth in the same quarter. We are also delighted to see GMV growth of our third-party sales in these categories accelerated to 45% young year, significantly outpacing that of our 1P business. General merchandise revenues grew 29% young year, and 32% two-year CAGR in Q3. This was mainly driven by the 35% two-year CAGR of our supermarket 1P order volume growth in the quarter. I want to share a few observations of our supermarket categories. First, supermarket categories were again the largest contributor of our new users in this quarter. The average number of orders per user for supermarket categories continued to increase and reached its all-time highest level. Third, users are purchasing more high-frequency supermarket products on JD, including food and beverage, fresh produce, and baby and maternity products. All these have helped drive our daily user engagement meaningfully. Moving on to JD Retail's margin, Its fulfilled gross margin was similar to that of Q3 last year, and operating margin was 4.0%, which retained largely stable compared to its all-time high in Q3 last year. Again, we are successfully shifting our category mix towards high-frequency items that can better engage customers and experimenting new business strategies. such as Omnichannel and ShopNow, without compromising our margin trajectory. We remain confident in healthy category expansion and long-term margin improvement of our core retail business. Our strategic investments also made steady progress in Q3. JD Logistics' JDL maintained its growth trajectory in the quarter with revenues growing 43% year-on-year to 25.7 billion RMB, mainly driven by the growth in the number of external integrated supply chain logistics customers and their average revenue per customer. External revenues continue to account for over 50% of JDL's total revenues, while reaching a historic high in this quarter. JDL's operating loss ratio was 2.8%, on track to achieve a better margin profile compared to that in the first half of 2021, as JDL continues to ramp up utilization and improve operating efficiency. The number of warehouses operated and managed by JDL has steadily expanded to approximately 1,300, with an aggregated growth floor area of over 23 million square meters. Our new business segment revenues grew 33% year-on-year to 5.7 billion RMB in Q3. JD property recorded a gain from sales of logistics facilities of 579 million RMB in the quarter. Growth of our international business continued to accelerate in Q3. For our juicy business, we want to highlight that during the quarter, it achieved a notable improvement in both user experience and operating efficiency, which are our strategic priorities over scale. As we started to proactively focus our Jingxi Pingping business in selected markets, we are able to better allocate resources to improve our supply chain for fresh produce and short-chain logistics infrastructure capacity. empower the local merchants, and achieve better UE. On the back of our 1P supply chain capacity, we also helped local merchants and farmers to grow quickly on our QC platform. As a result of these strategic shifts, the operating loss of new businesses was 2.1 billion RMB, as compared to 1.2 billion RMB in the same period last year. we remain fully committed to empowering local SMEs, including mom and pop stores, by providing supply chain support and creating diverse revenue streams for them. While we expect the operating loss ratio to GMB to gradually narrow down as we continue to optimize the operating efficiency. Moving to the consolidated bottom line, our non-GAAP net income attributable to ordinary shareholders was 5.0 billion RMB, with non-GAAP net margin of 2.3%, compared to 3.2% in the same period last year. The decrease is mainly attributable to normalized marketing expenses and increased investments in logistics and new business segments for our long-term strategic positioning. Notably, since 2012, we have maintained inventory turnover days consistently below 40 days, despite the significant increase in the number of SPUs under our management. By Q3 this year, we further shortened our inventory turnover days by four days to 30 days in the last 12 months, thanks to our continuously improving supply chain managing capacity. We then passed on this efficiency gain to further increase our support for our business partners as we also shortened our LTM account payable days by 4 days to 46 days. This is another example how JD's unique business model and relentless focus on building sustainable capacity can really create value for all our business partners in the real economy. Our LTM free cash flow this quarter came in at 28.5 billion RMB, which remained largely stable year on year. As of September 30, 2021, cash, cash equivalents, restricted cash, and short-term investments added up to a total of 196 billion RMB, up from 178 billion RMB at the end of Q2 or 127 billion RMB a year ago. In summary, JD showed remarkable resilience again in face of macro and supply chain headwinds, with a solid top-line growth and steady profitability in our core business. This showcases our resolute commitment and effective implementation of our strategies, which we are very proud of, and we want to say our greatest appreciation to our hundreds of thousands of employees. Finally, I want to reiterate that DD's sustainable growth will continue in the new era, where our 18 years of trailblazing efforts in building our core competence and our right way to success business philosophy will continue to be rewarded. With that, let's now move to the Q&A. Thank you.

Operator, we can open the floor for Q&A now. Thank you.

Thank you. The question and answer session of this conference will start in a moment. In order to be fair to all the clients, callers who wish to ask questions, we will take one question at a time from each caller. If you have more questions, please request you to join the question queue again after your first question has been addressed. It's followed by one to ask a question. Thank you. Your first question comes from the line of Ronald Kwong from Goldman Sachs. Please go ahead.

Thank you. Congratulations, Mr. Lei. Thank you, Sandy and Sean. I would like to ask about the margin of JD Retail, especially how to look at the future driver. I saw that our category mix, our category mix, is indeed a supermarket that is growing very fast in 3G. But the OP margin is also doing very well. MARKETPLACE CATEGORY Thank you, management. So my question is on JD retail margins. We've seen that the margins were strong in the third quarter despite strong growth in supermarkets. So I just want to hear our strategies in private labels, omni-channel, and a fast-growing marketplace, and how would that kind of coupled with the category mix that could drive the overall blended margins. Are we on track to reiterate our long-term margin target of mid to high single digits? Thank you.

Thanks, Jonathan. Let me take this question. Yeah, your understanding is correct. As we are experimenting with various new business models, including Omnichannel, including the ShopNow business model, Overall, our financial model may be affected a little bit. For example, for omni-channel business, we may leverage the warehouse and the inventory of offline business partners. We would share the growth profit with them, but at the same time, we also save the fulfillment cost. So the growth margin remains stable, while you may see a decline in the growth margin because of the growth of this new business model. And then our gross margin will also be affected by the category mix shift, as we have been discussing in the past couple of years. However, what we have seen this quarter is because of the higher growth of 3P business, that kind of offset the impact from the category mix shift towards higher frequency revenue contribution from the supermarket products. which has relatively lower fulfilled gross margin. So overall for Q3, if you look at the fulfilled gross margin for JD Retail, it was relatively stable compared to same quarter last year. So looking ahead, I would say our expectation on the margin profile or margin trajectory remain unchanged. In the short term, we may be facing the drag from the category mix shift as well as the change of the business model, but as JD has been continuously building our capabilities in the supply chain and improve the operating efficiency of inventory management through technology, so we can gradually improve the margins, I would say, in the long term steadily. And also, as I mentioned before, for many of our categories, our current procurement price is still higher compared to the offline channels. So as we continue to grow in scale, we can gradually realize the scale benefit as well. So in short, our long-term margin trajectory remains unchanged for daily retail.

Wonderful. Thank you, Sandy.

Thank you. Your next question comes from the line of Eddie Leong from Bank of America. Please go ahead.

Thank you for taking my question. I'm asking on behalf of Eddie. Wondering the potential impact from the macro factor such as the lockdown of the weakness of real estate and impact to our category growth trend. Thank you.

This is Julie. Let me take your question. and the price of raw materials will continue to rise. At the same time, the pandemic in China, including the extreme weather, will challenge the entire retail market, including some specific types of chips and other raw materials. We are afraid that the supply chain tension will last until the first half of next year. However, because the core capacity of Jindong has always been the supply chain, And from the macro level, we do see quite a lot of challenges, especially in the second half of the year, especially relatively weak consumption demands.

and the tight supply chains from the upstream, and also the rising price of raw materials coupled with the COVID cases and extreme weather, et cetera. This all has posed a lot of challenges for the radio industry, and certain product categories were impacted by the shortage of shapes and other component parts. We anticipate we will receive this shortage of supplies of the chips and so on will continue to last into the first half of next year. And for JD.com, we have always been holding our strength with our core capacities in supply and chains, which have helped us to deliver more stable performance in this time of uncertainty.

Regarding consumer fragility, I would like to explain the main people of consumption in JD.com. the main consumer group is still in the form of urbanization, family consumption, purpose, certainty, and planned shopping. So this type of consumer group currently accounts for the overall consumption of our overall consumption will be higher. Therefore, the impact of Dingdong will be relatively smaller than that of the same group. Of course, we do not rule out that in the form of consumer softening, it may have some random shopping.

And on the point of a weaker consumption demand, I want to highlight here that for the main consumption group, the customers group with the JD, they feature more like the urban residents and they shop for the families. They have more plans and have more certain shopping plans when they're shopping on JD's platform. So this is the main characters of our consumer base. and they are taking the majority of the proportion of our platform. So in such way, we are getting a smaller or limited impact on this overall trend. But however, under these circumstances, I also want to point out that for those kind of random shoppings and end-plan shoppings for some companies or platforms, while featuring more of this kind of shopping will get a better hit, will get a larger, greater hit.

In addition, due to the shortage of raw materials and the rising price, we estimate that Q4 and Q1 will gradually reach the consumer end. Since Dingdong has always been the core of the public chain, we have recently found that our communication with our partners has become closer. Our partners also hope that through Dingdong's advantages, And also I'm facing these challenges of the shortage of supplies and the rise of the price from the upstream. And we can see that in this Q4 and the next Q1, the price rise will be transmitted or passed on to the consumer side.

emphasize that JV will focus on our core strengths in supply chain and these will give us a better position to tighten our cooperation with our partners and our merchant partners would like to close with us more closely and to use our strengths to help them to improve their cost and efficiencies and we will also take as much effort as possible to help them and help the customers to offset the fluctuation in the prices.

And on the impact of real estate on the home appliances category,

Actually, this is not an impact only happen now as you see on the news. If you observe the overall, the one-year performance, you can see that the performance of home appliances categories on JD platform is outgrowing the industry average the whole year.

First of all, our B2C business, our most important business this year is called推新卖高. And this can be attributed for several reasons. First is our B2C model.

our main sites and we have been introducing more emerging and new brands, new products and high-end products, the home appliances products on our platform and to upgrade our products mixed and at the same time the consumers are looking to buy more high-quality and better quality products. At the same time, this is coupled with our premium services including some worry-free change of the products or some trade-ins and all these have driven up the sales and performance of this category.

In addition, a few years ago, we have already paid great attention to the offline market of Xia Chen, so we have also made a preliminary layout. So today, we have also gained some profits in the offline market of Xia Chen, which accounts for a certain proportion of our entire home sales, which has helped us to improve the users and market space that we did not get before.

And secondly, actually, a few years ago, we already started to deploy our lower tier markets. So they have also bearing some fruit from the offline market. The offline market sales of the home appliances has gaining an increasing share of our overall categories and helping us to gain more new users and new markets.

ZHANG ZHANG ZHANG ZHANG ZHANG ZHANG And thirdly, we also pay lots of attention to work closely with our partners on the production of customer-to-manufacturer products and also differentiated products. And all the three points

I need to say that this home appliances industry has been a quite saturated market, and under different circumstances, our special efforts and our differentiated strengths in these above three points have helped us to achieve continued growth in the home appliance industry, home appliance category. Thank you.

Thank you.

Thank you. Your next question comes from the line of Thomas Chang from Jefferies. Please go ahead.

user behavior changes? And then I would like to ask Sandy, if we see that we have good results in 31 programs, although we see that there are more uncertainties in the macro, can you share with us how we can see the growth rate of Q4's JD Retail? Can you give some directions? Thanks management for taking my questions and congratulations on a very strong set of results. Given that we have done very well in our W11 campaign, just want to get a sense from the management what have we learned from W11 in particular from the behavior of the merchants as well as the consumer behavior for this year. And separately, because of the strong W11, how should we think about our JD Retail performance in the fourth quarter? Any qualitative kind of would be grateful. Thank you.

I would like to share with you the situation regarding Double 11. I have already sent a report, so I will not introduce the sales data.

This is Zhu. Let me share something about the single-stay grant promotions, and we have already released our performance and results and sales details, so I will not elaborate on this part.

First of all, there is a very big change in the double-stay today. Jingdong actively proposed a way to fight without staying up late at eight o'clock. In fact, In June 2018, we decided to cooperate with all the companies in the company for three to four months. After that, we finally received a lot of support from the consumers, the brand business and the logistics partners.

And one major change we have made in this year's singles day is that we kicked off all the discount activities at 8 p.m. four hours earlier. And this decision has actually made during our June 18th. shopping festival period, so it gave us three to four months time for the preparation. We have done a lot of communications and preparations internally and externally. So we think this campaign is very well received by all parties, from consumers, brand partners, and logistic partners. This has given more convenience for our consumers to shop, as well as our partners to prepare and reduce their cost, and they can operate at more ease.

Second, today's Double 11 received greater advancements in the ecosystem and all-channel layout of POP business. Because of our early layout and preparation, we have received active participation from online and offline businesses, and the final sales result is far beyond their expectations. Overall, the performance of POP business is very good, especially our past non-powerful and non-advantaged products.

And secondly, during this single day, we have been making big progress in our marketplace ecosystem, as well as omnichannel deployment. And for this, we have also made a lot of preparations before, and which has been very well received and involved a lot of our merchants' participation. So overall, the performance of our marketplace merchants are surprisingly well. And even in those categories that we do not traditionally have the advantage But with less advantageous categories, they also get very good results.

Of course, this is only one campaign which already proved the validated of our models and innovations and efforts we have made.

And so in the following period, there's still a lot of work for us to do.

Okay, let me add on the outlook for Q4. So there are a few factors I would like to highlight for JT Retail. One is that the user growth is the growth driver for JT Retail. We expect JT Retail to continue to deliver quality growth in terms of total user base. user engagement and dignity, as they continue to reinforce the consumer's man-share. Second, the supply chain disruptions for certain products remain unchanged and existing, as we just discussed. So this will affect the growth of our 1P business to a certain extent, in particular the mobile phones and electronics categories. However, as Xizhong mentioned, based on the strengths of our supply chain capacity, We expect that we can create even more value and certainties for our business partners in this changing environment and continue to outpace the industry growth for these categories. And then third, with the implementation of 3P ecosystem and omni-channel strategy since the beginning of this year, the 3P business is growing well on our platform. The 3P merchants served as a great supplement of our 1P business for the categories that are facing supply chain disruptions. Overall, we expect that the growth of 3P will be faster than 1P in Q4, similar to what you have seen in Q3. Fourth, we see that the seasonality is getting stronger this year, similar to the first half Users' man share for big promotions is also getting stronger. They are better educated. So there was pent-up demand from October, and consumption demand from December being released early during the Double 11 Shopping Festival. So overall, we expect JD Retail to largely maintain the growth momentum from Q3. Thank you.

Thank you. Your next question comes from the line of Alicia Yap from Citigroup. Please go ahead.

Hi. Thank you. Good evening, management. Thanks for taking my questions. Congratulations on the strong results. I have a pretty simple question. First is regarding your consumer spending cohort. For those that newly added last two years, what are the typical spending patterns as compared to the older users who were already on JD platform like 10 years ago? So if you can give us some color, it would be helpful. uh uh

are basically starting to be sold on various online shopping platforms. Since last year, there have been two types of people who are more representative of our new users. In addition to Xia Chen, whom you were more concerned about before, because we have also announced our technology before, basically, the number of users from the Xia Chen market has increased by 75%. But in terms of age, there are two types of users. The first one is people over 45 years old. As you can understand, the number of these people on the Internet is actually slower than the 25 to 35-year-old people we understand. But their ability to consume is actually pretty good in the entire market. They are grateful to all the companies on the Internet, so that these consumers who may not be familiar with the Internet before can go online and start shopping. Later, I found that Jingdong is a place that makes them more at ease and has more certainty in their purchases. Therefore, the consumption here has actually been released. The other type is a group of 18 to 25-year-old students. In the past, we thought that the student group might be relatively low in online consumption, but perhaps with the arrival of this era, their consumption capacity is higher than what we thought in the past. But overall, these users, when they come to a new platform, they need a certain amount of time to upgrade their app. So what we can clearly see is that, for example, the amount of consumption after half a year, or the frequency and amount of consumption after four to five purchases, will be improved. This is a little slower for consumers ten years ago or even five years ago.

And this is Shih-Li. Let me share with you some observations on the new users on this platform. Actually, since last year, we have seen some very remarkable features. And in the past, we believe that actually most of the people who shop online, they're already online. However, there are two groups of people categorized by ages are rising rapidly on the internet. Besides, as I mentioned before, from the lower tier markets on the regional perspectives over 70% of users new users are from the larger markets and beyond them there are two groups age groups of people one is the consumers age to 45 years or above they are going online later than those people from 25 to 30 years to 35 years old however when they start to shopping online they have been demonstrating a very strong purchasing power thanks to the education of all kinds of e-commerce platforms they get access to before. And after a period of time when they are customized to the online shopping habits, they find JD and they find shopping with JD is more at ease and it gives them more guarantees. So their shopping power starts to manifest on JD's platform. And the second group is the Gen Z, people aged between 18 to 25 years old. They have demonstrated also an increasing consumption demand and purchasing power on our platform beyond our imagination. So for those newcomers, shoppers on our platform, their ARP value will need some time to ramp up. It often takes six months' time, or after they shop for four to five times, they will start to accelerate their online shopping activities in terms of their shopping frequencies versus the money they spend on these platforms. So this is a very remarkable trend we have seen very different from four or five years ago?

This is Sandy. I'll add on one point. I think 10 years ago, most users, they came to our platform to make their first purchase on electronic products, mainly computers or mobile phones. But as I discussed just now, that in Q3, supermarket categories contributed the most new users to our platform. So we can see that the consumer's men's share on supermarket categories is getting stronger and stronger.

Okay. Thank you, Sandy. Thank you, Shilei Zhong.

Thank you. Your next question comes from the line of Robin Zhu from Bernstein. Please go ahead.

Thank you, Yicheng. I have a question. There is a problem with 3C this year. Because Su Ning's business is not going well this year, I believe after the second election, we have improved with some of the platform partners. So my question is, JD this year has likely benefited from both the poor performance of Suning and share gains from peer platforms. I want management to share some thoughts on How durable these tailwinds are? When do these tailwinds become sort of annualized and become less apparent? Thank you.

First of all, I would like to introduce the power generation category. In fact, in the Jindong power generation category, everyone is familiar with IT, digital, communication, and home appliances, etc. These are all our traditional high-end products. In fact, we are not just a seller. We are already in the integrated supply chain with the brand. In C2M, we have gone further than other retailers. To share a bit about our electronic products, this includes IT, digital products, telecom products, and home appliances, which are the traditionally advantageous categories on JD's platform.

And on these categories, we are not merely a retailer to sell these products. Actually, we have gone a long way to collaborate with the partners on their integrated supply chain, on their R&D and C2M products and productions, especially during this special time as we face the uncertainties of the global supply chain challenges. These help us to perform better together with our partners than the overall market performance.

The overall product range may have a certain impact on us at a certain time. But in fact, we are more focused on the development of the industry and the movement of consumers to meet their higher needs. In fact, relatively speaking, we are more willing to operate in this way.

And for these categories, maybe at specific certain points, we are facing competitions from external. But more importantly, we focus on the development of this industry. We focus on the consumer's actual needs and try to satisfy them. So this is what we have been oriented on doing ourselves better to meet the demands of our customers and partners.

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And for the apparel and home categories, it's quite a different story, and it's not our traditional advantages categories, and their development in the past is not as we expected, but there's a huge potential to develop. And with the ban of the PIP 1 from 2, in the past two years, we have been stepping up our efforts in building the teams and the systems and the ecosystems in these categories. And for this year, we do have a stellar performance in the single-state grant promotion, and we're stepping up and accelerate our investment and expectations in these categories. Thank you.

Thank you. We are now approaching the end of the conference call. I will now turn the call over to JD.com's Sean Zhang for closing remarks.

Thank you for joining our call today. We look forward to talking with you again next quarter. Thank you.

Thank you for your participation in today's conference. This concludes the presentation. You may not disconnect. Good day. Thank you all.