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spk08: Hello, and thank you for standing by for JD.com's third quarter 2022 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 is being recorded. If you have any objections, you may disconnect at this time. I would now like to turn it over to your host for today's conference, Shawn Xiong. Please go ahead.
spk04: Thank you, Michael. Good evening and good day, everyone. Welcome to JD.com's third quarter 2022 earnings conference call. For today's call, CEO of JD.com, Mr. Lei Xu, will kick off with opening remarks. Our CFO, Cindy Xu, will discuss the financial results. After that, we'll open the call to questions from analysts. I'd like to remind you that during this call, our comments and responses to your questions reflect management's views as of today only. and will include forward-looking statements. Please refer to our latest Safe Harbor statements in earnings press release on our IR website, which applies to this call. We'll discuss certain non-GAAP financial measures. Please also refer to the reconciliation of non-GAAP measures to the comparable GAAP measures in the earnings press release. Also, please note that unless otherwise stated, all figures mentioned in this call are in RMB. With that, I'll turn the call over to Mr. Xu, our CEO. Mr. Xu. Mr. Xu.
spk05: many challenges such as supply chain collection In addition to the external environment In the face of a difficult environment Jingdong fully exploits the power of supply chain built over many years and the advantages of a more resilient business model We will do our best to serve consumers and help actual economic participants to improve the certainty of business At the same time, it maintains a healthy growth of its own business And what makes us happy is that the growth quality of Jingdong's business has been realistically improved this year Based on our predictions for the economy and industry at the beginning of the year For the past year, Jingdong has continued to focus on core business, strengthen its own management quality, and pay attention to improving the health of business. We believe that this is the time when external pressure is greater. Companies ensure business stability and ensure the best path for rapid growth when the economy recovers. Therefore, when our business maintains growth, business quality, safety, and profit level are also steadily improved. 2022 has been a year full of challenges, a year both momentous and extraordinary. We have withstood nationwide COVID resurgences, challenging macro conditions,
spk07: luggage consumption demand, as well as supply chain disruptions. Facing the complex dynamics, JD has been making full use of our supply chain capability and the resilient business model we've built over the years as we strive to provide best possible service to customers, raise operating certainty for real economy participants, while at the same time delivering steady business growth of our own. We are delighted to see substantial improvement in our growth quality this year. Given the evolving economic and industry environment, since the beginning of the year, JV made preemptive decisions to focus on our core businesses. While reinforcing quality operations and management and attaching great importance to business health, we believe this is the best way to maintain operating stability in times of external stress and ensure rapid rejuvenation when the economy recovers. As a result, along with our steady business growth, we have also experienced better operating quality, stability, and profitability. This validates what we have communicated with investors many times before about the potential for margin improvement in our unique business model. It also builds a solid foundation for sustainable development throughout different economic cycles.
spk05: We welcome and support the government's efforts to further optimize epidemic prevention and control measures, and to meet the requirements of scientific precision prevention and control work. We believe this is a necessary measure to prevent the spread of the epidemic as soon as possible, to stabilize the economy, and to promote safe development. Especially for companies that are closely linked to the industrial chain and the people's livelihood. We see a clear knowledge policy. Jindong will actively cooperate with the government to implement relevant decision-making. Cheng Ran, in the short term, the epidemic situation is still severe. Economy and consumption are still facing a relatively big challenge. But our direction of continuous optimization of epidemic prevention and control is very confident in the big trend of China's toughness and long-term consumption. We have seen the opportunity of development in the challenge.
spk07: We welcome and support the government's recent move to further optimize COVID control measures with a more science-based and targeted approach. We believe this is important to contain virus threats and maintain the stability of economic and social development. There are also supportive policies for companies like JD that play an indispensable part in supporting the industrial belt and people's livelihood. We will fully cooperate with and implement the authorities' relevant decisions and arrangements. It is true that COVID conditions will continue to pose challenges to the economy and consumption in the near term. That said, we remain confident in the continuous refinement of the COVID control measures the resilience of the Chinese economy, and the long-term prospects of the consumption market here. We also see growth opportunities amaze all the challenges.
spk05: At the same time as we actively adjust and pay attention to the management quality, Jindong always persists on the original intention of using user experience, cost, and efficiency to create core capabilities and long-term business models. Under the guidance of such a management concept, we have continued to achieve long-term progress in the quality and efficiency of consumers and the supply chain. In the third quarter, Jingdong's active user size reached 5.88 billion, mainly due to the core retail business user ratio competition of more than 10 million. Our DAU also continues to maintain the same double-digit file growth. At the same time as the increase in size, Jingdong's overall user structure and quality have also been significantly improved. The resale users and plus users of retail businesses grow faster, and the proportion of all users continues to increase. It has further mobilized the average shopping frequency and up of users. At the same time, while the number of members continues to increase, Jindong Plus members also maintained high consumption, high activity, high integrity, etc. The average annual consumption level is eight times higher than that of ordinary users. In the past Double 11 Dacu, Jindong has further highlighted the value of cost performance and value for money while improving high quality stores and products. Dacu has gained a steady growth, and the number of shopping users has increased again. The number of participating brands, merchants, and online documents has also created new records. At the same time, it has led to a large number of farmers and agricultural products in the industry to gain real-time growth. During the large-scale period, nearly 10,000 agricultural products were sold for more than 100,000 yuan. Our experience has shown that the promotion of high-quality agricultural products can indeed improve the income of local farmers and further promote consumer improvement. Therefore, we can strongly push from high-quality agricultural products to consumer improvement and then to the regular cycle of rural revitalization of farmers. In addition, one of the highlights that we want to emphasize is that more than 500 million people have applied for a price guarantee. This is a post-pricing service proposed by Jindong many years ago. Not only does it show Jindong's responsible supply and demand capabilities, but it also confirms our commitment to the ultimate user experience, so that consumers can buy and rest assured at any time. Now we are happy to see that this service is not only a flagship of Jindong's ultimate shopping experience, but also a benchmark of the industry, which has led the industry to explore and advance in the field of user experience.
spk07: As we make proactive adjustments and focus on our operating quality, we always put the essence of the retail business at the center of our core competencies and business model, namely customer experience, cost optimization, and operation efficiency. With this long-held business philosophy in mind, we continue to achieve great progress in increasing customers' mindshare and supply chain efficiencies. In Q3, JD's annual active user base reached 588 million, mainly driven by the net addition of over 10 million active users from our core spatial business. Our DAU also recorded a double-digit year-on-year growth In addition to user-based expansion, we also saw better user structure and user quality. In particular, both the number of old users and plus members delivered higher growth rate than other groups of users and made up a larger proportion of total users. This helped to drive increases in overall average shopping frequency and output. For PLUS members, along with the scale expansion, we also saw that each of them, on average, spent over eight times as much as a non-PLUS member, demonstrating their high degree of loyalty, engagement, and purchasing power. During the latest single-day grant promotion, JD highlighted the 12 themes of cost-effectiveness and value for money, which helped us to onboard an increasing number of high-quality merchants and products. The promotion achieved a solid growth, with a meaningful increase in the number of shopping users and a record number of participating brands, merchants, and offline stores. In addition, the promotion also boosted growth for many agricultural households and areas, with nearly 10,000 SKUs of agricultural products sold over 100,000 RMB. JD is committed to promoting the virtuous cycle of rural revitalization. from direct sourcing of high-quality agricultural products to consumption upgrades to increased income for farmers. During the promotion, we are also proud to see that over 500 million users clicked the best price guaranteed program in the app. And after same service that JD has provided for many years, this reflects JD's supply chain capabilities and showcases our commitment to providing the best possible user experience helping users to feel reassured at all times when they shop on our platform. This service has become a hallmark of JD's premier user experience, and also pushes the boundaries of what the industry can do to advance user experience.
spk05: The improvement in the quality of the product also continues to invest in the development of an open ecosystem, the layout of multi-layer systems, and the long-term strategy of supply chain for the physical economy, etc. In the third quarter, the number of third-party businesses in the open ecosystem of retail has increased by more than 20% in seven consecutive quarters. The sales of fashion, home-based, outdoor sports, and other products have also maintained a good growth pattern higher than the industry. With the introduction of Fendi, Jindong has become one of the top nine fashion brands under the LVMH Group. At the same time, fashion, cosmetics, and trend brands have entered Jingdong, further expanding Jingdong's brand base. Jingdong Supermarket has also accelerated the construction layout of state-owned enterprises. Before this, more than 70 state-owned enterprises have been opened, and during the pandemic, more than 20 state-owned enterprises have been launched, providing consumers with imported products from all over the world. Jingdong has been working hard to build an open-end ecosystem that can continue to operate, reduce the threshold and management costs of business entry, and continuously optimize traffic distribution and platform rules. At the same time, by using the core capabilities of supply chain logistics technology and service in Jingdong to improve the business efficiency of the business, it will bring sustainable growth for brands and small and medium-sized business owners in an uncertain environment. During the big vinegar period, the business operations in Jingdong were good, and the sales contribution ratio was improved both in the same ratio and compared to this year's 618 weekly big vinegar.
spk07: The continuous improvement of operating quality also makes a solid foundation for us to make further progress in our long-term strategies, mainly our online marketplace ecosystem, omnichannel businesses, and supply chain capabilities to empower the real economy. Our online marketplace ecosystem makes solid progress in QV, with the number of third-party merchants recording over 20% year-on-year growth for the seventh quarter if fashion, home goods, sports, and outdoors categories all outperform the industry. Notably, with the onboarding of Italian luxury brand, Sundy, dating has become the first platform to establish an all-round partnership with the nine luxury brands under the LVMH group. A collection of fashion, cosmetic, and sportswear brands also joined JD in Q3, such as Christian Louboutin, La Prairie, and Lululemon, further expanding our brand base. In addition, our supermarket business, JD Super, continued to roll out its national pavilion program, providing consumers high-quality specialty products worldwide. In addition to the 70 national pavilions already in operation, we welcomed nearly 20 countries to open their national pavilions on TV.com during the latest single-state grant promotion. Overall, JD is dedicated to build an online marketplace ecosystem where merchants can thrive with lower entry barriers and operating costs, better traffic allocation and marketplace rules, as well as higher operating efficiency driven by the best of JEE's supply chain, logistics, and technical capabilities. All these efforts have contributed to a sustainable growth of merchants and SMEs in times of uncertainty. During the latest promotion, merchants on our platform reported sell-off performance with higher sales contribution both on a year-on-year basis and compared to business 618 grant promotion.
spk05: In the third quarter, Jingdong's whole channel retail business maintained a fast-growing trend, especially in the small-scale shopping business, which continued to gain the same three-digit growth, and has basically completed the coverage of major chain supermarkets across the country, effectively promoting cooperation with brands and offline merchants to help actual retail partners gain a growth of the whole channel. In the launch of the new iPhone 14 series, Jingdong Daojialian and Xiaoshigou are the only real-time retail platforms with the official authorization and pre-sale qualification of Apple, Since the beginning of September, up to the 21st of December, a total of hundreds of thousands of iPhone 14 series new phones have been sold, and Apple's new phones have been updated greatly through the record of sales through the time-saving mode. In addition, during the big sale, Jingjing Daojia and Xiaoshigou combined the convenience of supermarket, mobile phone numbers, makeup, home, mother and baby pets, and other more than 200,000 full-fledged physical documents, online and offline, all channels, all over the country, more than 1,800 district, county, city consumers, to provide full-fledged small and large items.
spk07: It is Omni-channel intra-city business maintains strong growth momentum in Q3. In particular, ShopNow, our one-hour delivery service, recorded a triple-digit year-on-year GNV growth. with the services covering the vast majority of supermarket chains in China. ShopNow has forged close collaborations with brands and offline stores and generated incremental growth through omni-channels for brick-and-mortar partners. During the latest promotion, as the only on-demand retail platform selected by Apple for the pre-sales of new iPhone 14 series, BBBJ worked together with ShopNow and sold hundreds of thousands of new iPhone models, making a record for new iPhone sales using on-demand retail models. In addition, JDDJ and ShopNow also partnered with over 200,000 offline stores during the latest promotion, covering a wide range of categories such as supermarkets, mobile phones and electronics, cosmetics, home goods, baby and maternal, and pets, and provided hourly delivery services in over 1,800 cities and counties.
spk05: Jindong logistics continues to provide integrated supply chain solutions for Shanghai oil companies in an uncertain macroeconomic economy. Helping companies to improve co-operative and low-risk capabilities, quickly enter the market, and increase sales. In this quarter, Jindong logistics also continues to deepen the cooperation scope with the leading customers in the fast-food, home appliances, housing, clothing, 3C, car, and so on industries. Based on this, Jindong logistics has not only achieved a steady income growth in the third quarter, And the external integrated supply chain revenue and number of customers continue to maintain double growth At the same time, the external revenue ratio is close to 70% In addition, Jindong logistics continues to steadily advance logistics infrastructure deployment within the global scope Until the end of the third quarter, the number of warehouses operated by Jindong logistics in Debang has exceeded 1,500 The total area of management of logistics infrastructure is more than 30 million square meters It is worth mentioning that Jindong logistics aircraft will officially start operation in the third quarter In the future, JDL will not only strengthen JDL's integrated supply chain service capabilities, but will also continue to promote the efficient and stable performance of the entire chain.
spk07: Despite the challenging environment, JDL continues to provide up- and downstream industry partners with reliable integrated supply chain solutions, supporting enterprise customers to mitigate risks, respond to rapid external changes, and optimize cost and efficiency. In Q3, JDL also expanded the depth and breadth of collaborations with a variety of leading players in FMCG, home appliance, furniture, apparel, 3C, automobile, and fresh produce industries. As a result, JDL maintained resilient revenue growth in this quarter. Notably, both the number of JDL's external customers and external revenues delivered double-digit year-on-year growth, with the latter with the ledger contributing nearly 70% of its total revenues in Q3. Moreover, JDL continued to expand its logistic infrastructure around the world. As of the end of Q3, JDL operated over 1,500 warehouses with an aggregate cross-floor area of over 13 million square meters. It is also worth highlighting that JD Logistics Airlines, an affiliate of JD Logistics, commenced operation in Q3. In the future, JD Logistics Airlines will strengthen JDL's integrated supply chain services and help drive lower cost and higher efficiency along the supply chain.
spk05: It can be seen that in the face of the changes in the external environment since this year, JD Logistics Airlines has effectively made strategic adjustments to focus on business quality and focus on core business. It has ensured the growth of our business quality, brought healthy profit and cash flow, and accumulated market power for future development. As I said at the last meeting, at this stage, we are in the middle of a period of regular adjustment. In response to the short-term challenges, we can clearly see the power of industry recovery and the opportunity of huge development. As a new physical enterprise that always insists on serving the physical economy, it is capable of both expanding the power of internal demand contribution and participating in deepening the structural reform of supply and demand, promoting the effective improvement and reasonable growth of the physical economy, As for the future, we believe that Jindong's long-term construction of public chain infrastructure, technical capabilities, and social responsibility can allow us to better integrate the new development pattern of China and play an important role. As the saying goes, if the past is not in the past, the future is in the future. That's all for my sharing today. Next, I will hand over the microphone to Jindong to analyze.
spk07: To conclude, amid the evolving external environment this year, David had the foresight to double down on operating quality as a core business. This has enabled us to constantly deliver high-quality growth, generate healthy margins and cash flow, and accumulate strength for long-term development down the road. As I mentioned in the last quarter, as we navigate through the cyclical economic adjustment amid short-term challenges, we try to see the momentum of industry and the tremendous growth opportunities ahead of us. As a company that is rooted in and serves the real economy, JD supports the expansion of the demand side and the structural reform of the supply side in China, helping the real economy to achieve better quality and sustainable growth Looking ahead, our well-established supply chain infrastructure, technical capabilities, and the social responsibilities we are committed to will enable us to play a more important role in China's new development phase. We believe that only through unwavering determination and perseverance can we live up to the time. With that, I'd like to give the floor to Sandy. Thank you, Lei, and hello, everyone. As many of you can feel here on the ground, The COVID situation is still evolving and may add complexities to consumer sentiment and the operational environment from time to time. Nevertheless, in the third quarter, we recorded a set of improving metrics and encouraging milestones across our financial and business operations. Our solid results in the quarter demonstrated our ability to cope with difficult external dynamics, while improving our core competencies to support a more sustainable growth trajectory going forward. In the third quarter, our net revenues grew by 11% year-on-year to R244 billion, returning to a healthy growth track. We navigated through a challenging time impacted by COVID resurgence and micro uncertainties. Our annual active user base also returned to growth and reached 588 million in total, representing a net addition of 7.5 million customers sequentially, despite a partial drag due to our agency business adjustment. More encouragingly, we saw more customers staying with us for a longer time, and average spending per customer has been consistently increasing as well. All of these improving metrics demonstrated deeper user engagement and enhanced customer trust. Breaking down the revenue mix, product revenues were up 6% year-on-year, a recovery compared to 3% year-on-year growth in Q2. Service revenues grew by 42% year-on-year to 46.5 billion R&D, achieving a historic high of 19% of total net revenues. Logistics and other services revenues grew by 73% year-on-year in Q3, including the consolidation effect of Japan. It still delivered a year-on-year growth rate of 36%, continuing the momentum from Q2. I will elaborate more on the underlying drivers later. Marketplace and marketing revenue grew by 13% year-on-year, up from 9% year-on-year growth in Q2. In order to drive recovery, we saw merchants becoming more active again and invested additional advertising budget on our platform, which helped to accelerate our advertising revenue growth. Also, thanks to our relentless focus in improving the 3P ecosystem, we successfully onboarded an increasing number of merchants onto our platform including a few notable wins in the apparel category. This brought our merchant base to a new height, laying a solid foundation for our open ecosystem. Now let's turn to our segment performance. City retail maintains solid top line growth with a healthier business mix and a continued margin improvement on a year-on-year basis. City retail's revenues reached 212 billion RMB in Q3, growing at a solid 7% year-on-year. Electronics and home appliance category returned to an impressive 8% year-on-year growth, up from flat growth in Q2. During the quarter, as a result of our supply chain capabilities and strong consumer man-share, we sweetened swiftly matched the demand spike for air conditioners due to the unusual weather pattern, driving double-digit revenue growth in the home appliance category. Meanwhile, the launch of the latest mobile phone models in September helped to lift consumer demand and sales. General merchandise revenues were up 3% year-on-year in Q3. COVID situation and soft macro continued to dampen spending in consumer discretionary products such as cosmetics, beverages, and partially contributed to the soft growth of general merchandise. Meanwhile, we started to proactively optimize our product mix, particularly in the supermarket category, to improve operating efficiency and profitability, which we expect to impact its growth rate for a transitionary period. However, we believe it is important for us to stay focused on our core categories and capabilities in order to establish a healthier and more sustainable growth trajectory for the long term. That said, for the emerging categories such as healthcare, home food, pets, and sports and outdoors, we continue to experience double-digit top-line growth in the quarter. demonstrating our pending user man-share across a wide range of categories. We are seeing the result of our business optimization. CD Retail's profuse growth margin was up 80 basis points compared to the same quarter last year, mainly driven by our optimization efforts and the improving economies of scale. Also, as we continue to expand growth margin for most categories and remained disciplined in OPAC. DD Retail's operating margin was up 115 basis points on a year-over-year basis to 5.2% in Q3, above the 5% mark for the first time since the founding of the company. DD Logistics, or JDL, maintained a solid top-line growth in Q3. and has achieved breakeven for two quarters in a row. DD Logistics Q3 revenues grew by 39% year-on-year to 36 billion RMB, partially because DDL acquired a majority stake in DAPAN, which was consolidated since the end of July. Excluding the impact from the consolidation of DAPAN, DDL's revenues were up 16% year-on-year mainly driven by the resilient growth in revenues from external customers, which also saw acceleration on a sequential basis. As a result, revenues from external customers once again achieved a record high revenue contribution of nearly 70%. More encouragingly, SDDL relentlessly focused on improving customer mix, optimizing operations, and realizing the economies of scale Its operating margin was up 350 basis points from a year ago to 0.7% in a seasonally low quarter. These results demonstrate JGL's ability to maintain a resilient growth even in a challenging environment while remaining well on track of improving its profitability. Data reported revenues of 2.4 billion RMB and its operating loss narrowed sequentially to 300 million RMB. Dada continued to work closely with both internal and external business partners. Notably, JD Super, our supermarket business within JD Retail, has been collaborating with Dada to broaden product portfolio that offers intra-city on-demand retail services. The ShopNow service to consumers achieved a triple-digit GMV growth in Q3. This initiative also contributed positively to the margin of supermarket category. Dada also established collaboration with a variety of external brands. For example, Dada now has been expanding instant delivery services to the coffee and beverage category, which is now available in over 2,000 cities and counties nationwide. As you can see, with a broader spectrum of use cases offered by Dada, KD is in a much better position to serve our customers anytime, anywhere. Finally, as I shared in the last quarter, we continued to pursue rational development across our new business segment. Its reported revenue of 5 billion RMB and operating profits of 280 million RMB with a positive operating margin in the quarter. This was mainly due to the gain from the first change closing of DZ Properties' third property core fund in Q3 and the narrowing loss from Zinzi Business. As DZ Property has a well-proven business model with total transferred AUM surpassing 27 billion RMB, we remain committed to further expanding this business in line with our prudent investment philosophy. In the face of the complex micro-conditions, both domestically and internationally, we have also been pursuing strategic realignments in other non-core businesses, such as the Zinzi business. These measures resulted in a more moderate revenue growth, but continued to narrow the operating loss sequentially, even after excluding the gain from JD property. Moving to the consolidated bottom line, as we proactively adopted measures to focus on our core businesses and improve operating efficiency, our bottom line reached a new milestone in Q3. Non-GAAP net income attributable to ordinary shareholders surpassed the 10 billion RMB mark for a single quarter for the first time in history. Now, gap net margin was 4.1%, representing an impressive year-on-year improvement of 180 basis points and reaching a historic high. On a gap basis, net income attributable to ordinary shareholders also improved to 6 billion RMB, with gap net margin of 2.4%. Our free cash flow for the trailing 12 months this quarter was 25.8 billion R&D. This was mainly driven by our improving operating cash flow, while partially offset by an increase of capex in our infrastructure expansion that would position us well for the future goals. By the end of Q3, cash and cash equivalents, restricted cash, and short-term investments added up to a total of 218 billion RMB, up from 207 billion RMB last quarter. To close my remarks, the solid set of Q3 results demonstrated JD's business resilience in the face of rapidly evolving macro conditions. There may be no better time than now to review the progress across our business initiatives and make positive changes where needed. we believe it's vital, especially in a time of uncertainty, to stay focused on delivering better operating efficiency, lower cost, and best-in-class user experience, which represents the essence of the retail business and the backdrop of JD's long-term success. Our focus on building resilient business means that we are well-positioned to help our users and business partners to cope with external challenges and make meaningful contributions to the society. All of these factors will make sure we are well prepared to benefit the next phase of great growth opportunities, which we believe won't be too far ahead. With that, let's open the call to the Q&A. Thank you.
spk08: Thank you. The question and answer session of this conference call will start in a moment. To ask a question, please press star then one on your touch-tone phone. To remove yourself from queue, please press star then two. In order to be fair to all callers who wish to ask a question, we will take two questions at a time from each caller. If you have more than two questions, please rejoin the question queue again after your first question has been addressed. Today's first question comes from Ronald Kung with Goldman Sachs. Please go ahead.
spk00: Thank you, President Shih-Li, Sandy and Sean. Congratulations on the very strong profits of the third quarter. I mainly want to ask, we have reached this new stage, especially when it comes to logistics. The new business is no longer dragging the entire group's profit level. Will the management team consider focusing on new growth points and investment opportunities in the future? Thank you, Shilei, Sandy, and Sean, and congratulations on the strong third quarter results. I want to ask about the investment phase and Nick's growth drivers. As we can see from the third quarter, that logistics data and new businesses are no longer dragging the group earnings. So where are we thinking on Nick's investments and growth areas? And then within JD Logistics, we've seen that the general merchandise supermarket growth had moderated, while margin level for JD Retail reached a new high. So heading into next year, how are we thinking about balancing growth, price advantage, and stable margins. Thank you.
spk05: Let me answer this question. Let me first talk about what kind of business Jingdong has been doing for the past 19 years. For the past 19 years, it has not changed. It has persisted. That is, we will persist in looking at the experience, cost, and efficiency of all business in the Group. This is what we need to do for any new or old business. We need to stick to these three points. In addition, what we are very concerned about in the 2C business is the product price service. I believe that many of our friends in the field should know this. In fact, the most difficult part is how to stick to 19 years.
spk07: This is Zhiyue. Let me start the question by sharing with you our long-term health philosophy to do business. This has remained unchanged for the 19 years of JD.com. We will always put great importance to the user's experience and the cost and efficiency no matter what kind of old and new business we do. We will stick to these three points. And in terms of our customer businesses, we'll attach great importance to the quality of our products and prices and good prices and premium services. So many of the other investors know this is very difficult to always stick to these philosophies and concepts through the 19 years of JD's development.
spk05: If we want to talk about changes, our biggest change this year is that we conducted a strategic focus on the stock market. This year, we based on the overall economic situation and supply chain situation to make a judgment.
spk07: And in terms of some changes this year, I would say that we make more concentration and focus on our core businesses. This is based on our analysis early this year, and we have made some proactive measures according to our early analysis, which is based on our core business. Today, we think it's a very timely adjustment we have made and also taking the leading action among this industry.
spk05: We can see, we can confirm that although the epidemic and the economic downturn have caused a lot of difficulties for many companies this year, we can be sure that in the future, it should be going well. There is already a sign of recovery, a clear sign, but it is not certain how fast the recovery will be. So for us, the more important thing is to stick to the current direction of our strategy to see clearly the changes in the entire market, development, and economic recovery in the future to maintain a steady investment. At this point, we are still very clear
spk07: And we are certain that even though many enterprises are facing challenges, we do see a brighter future and there are some obvious signs on the economic recovery. Even though the sign is very clear, but we are still not very clear about how fast the speed of the recovery. So from the management perspective, what we want to do is that we stick to our current strategies and we should have a very clear view on the future in terms of which directions and what will be changing in this industry, in this market, and how strong is this momentum so as to make our resources investment in a more clear pace?
spk05: As for the retail strategy, we have already mentioned it in the last few months, and it will not change in the future. The four major strategies for retail include the improvement of the capacity of the supply chain,
spk07: And in terms of the strategies for JD Retail, we will continue to stick to the big four strategies, which are the building of the supply chain capabilities and expansion into the lower-tier markets, and building an open ecosystem and the intra-city retail. We will stick to these four.
spk05: The growth rate of the third quarter is indeed declining compared to the previous year. There are many reasons for this. The impact of the epidemic is relatively obvious. At the same time, I can tell you very clearly that the health, profit, and product management capabilities of the DALANGCHAO business should take a new step this year. Moreover, the penetration rate of our DALANGCHAO users in the main station has exceeded 50%. The number of consumers And in terms of the supermarket business, indeed, they're mainly affected by the COVID resurgence.
spk07: Its growth is going in the down way. However, there are many progressives made in this category, including its healthiness, its profitability, and its ability to manage categories. So its overall for the JD supers users accounts for 50% of the overall JD.com platform. And we are confident for the future growth of this category. And we also made some new experiments in this category for our intracity and lower tier market expansion this quarter. Thank you.
spk00: Thank you.
spk08: Thank you. And our next question comes from Thomas Cheung at Jefferies. Please go ahead.
spk02: Then if we look at a short-term GNV and a growth in income, how should we understand this logistics problem? The second question is about what we will do in the future. We can share with you the recent situation of different categories such as mobile home appliances, fast food, clothing and other categories. Thanks, management, for taking my questions and congratulations on a very solid set of results. My first question is about the logistics disruption due to the pandemic recently. How should we think about impact to consumer sentiment, user experience? And on that one, how should we think about the short-term impact to GMV and revenue growth momentum? And my second question is about the latest product category trend. Of course, smartphones, consumer electronics, FMCG, and apparels. Thank you.
spk05: Indeed, as you said, the impact of the whole logistics industry this year should be the biggest in the past three years. I can share a data with you. From the beginning of September, As of now, the ban on private addresses has exceeded 17%. This is the highest number in the past three years. So addresses should be able to be sent to the user's home. Of course, this 17% does not represent the impact of the order volume and the impact of the sales volume, but it is enough to see that it should be the highest in the entire industry for the entire logistics contract in the whole country.
spk07: And indeed, as you pointed out, that the logistic fulfillment has been severely impacted by the COVID situation. Actually, in the past three years, this year is the most heavily affected. I want to share with you a bit of data here that since September to present, In terms of our logistic fulfillment, 17% of our customer home addresses have been affected by these COVID control measures. And this doesn't mean that it affects the orders amount and the sales on JD, but indeed this is the worst year in terms of fulfillment.
spk05: The overall situation will definitely affect our contracts and sales. But at the same time, I would like to share with you the latest experience of the National Transport Agency on logistics and tourism in the entire industry. Jinzhong's latest data should be the number one in the industry. I think this should be the most important reason why we have been able to win the recognition of consumers in the industry over the years.
spk07: And indeed, these difficult situations will affect our sales and fulfillment, but also I'm proud to share with you, according to China's Postal Bureau's service recently, in terms of the service experiences, JD Logistics stands number one among this industry, which once again validated our efforts made in our supply chain capability building to help us to stand out. and gain consumers' trust in this difficult time.
spk05: Combined with the data of Double 11, we can see that because of some of the reasons mentioned above, the canceling of orders is indeed slightly higher than in previous years, due to some difficulties with logistics and travel, or for some longer periods of time. But what I can share once again is that because the entire shopping platform in Jingdong is a certainty shopping platform, And just also basing our data from the single-stake brand promotion, we do see there are higher rate of order cancellations. It's a higher cancellation rate than the past years.
spk07: because of the fulfillment difficulties and the longer waiting times. However, I want to emphasize here that people come to JD.com for more planned shopping. So, we believe the cancellation rate for those platforms with more impulsive shopping or shopping based on their interest, the cancellation rate should be higher.
spk05: Another area that we care about is the brand and the business. In fact, the certainty of the purchase in JD.com And another group of people we attach great importance are our brand partners and merchants.
spk07: And based on JD's shopping features with more planned shopping and the premier shopping experiences, these can translate to the better operating cost and the profitability for the merchants and brands and make us stand out among all the other e-commerce platforms.
spk05: Now, let's analyze the quality of the products. Among the three sectors, the products with the highest growth rate are home appliances, raw materials, health products, sports, pets, and other products, as well as small and medium-sized businesses, and the rest of the entire sector, including five-star businesses. The overall performance should be better than the average market.
spk07: And in terms of the faster growing category, in Q3, we've seen that home appliances, fresh foods, health, sports, and pets are doing a good job, also including our shop now services for the intercity ratio and of our offline business, five-star appliances stores.
spk05: So, if we say that Dongfu is not an ideal category, it should be challenged by makeup and mobile phones. We can also see the data of the industry, but as the new machine comes out in September, the recent improvement of mobile phone brands, including the extension to the four-level group, should still be improved. The nine and five-level brands in the large-scale product range should still be affected by the decline of the entire consumer scene, including the impact of the population of the consumer population, but at the same time, because of the entire product range, we have more than 30 first-level categories. And for this, the last ideal performing category includes cosmetics and mobile phones.
spk07: But also, we see that since September, as some new form of releases, the situation is getting better, and this will continue in the lead up to Q4. And for this alcohol category, it's affected by the limited shopping scenarios due to the COVID, and also the baby and the mother category is affected due to the reduced newborns. And there are many first-tier categories on daily.com and we are regularly reviewing those loss-making categories and make dynamic adjustments to maintain healthiness across all categories. And we have seen improvements on the performance of all categories and better satisfaction among brands and merchants. And despite of all the ups, we see their market share all continues to increase. Thank you. This is Sandy. I can add more color on the short-term DMV or revenue trend. So as Susan just mentioned, we are still facing some short-term challenges due to the COVID control measures. And also we view the 20 new rules guiding COVID control policies to be very positive and constructive for the recovery of domestic supply chain and consumer confidence. But it will take some time to actually see the positive impact on consumption data, given the current situation. So in the short term, we recommend analysts to be more conservative in modeling the top-line performance. But we are more confident in the long-term strategies and the growth next year. Specifically for JD Retail, Yes, we see that the resurgent of COVID situation affects more regions in the country at this time. And also, there are disruptions to logistics and fulfillment, resulting in a decrease in the successful fulfillment rate, as Xizhong just mentioned, as well as an increase in the order cancel or return rate compared to prior years. So the consumers also become more conservative or rational under the current macro environment. And in fact, the demand was good during the major promotions, but softer before and after the promotion. So in Q4, We see that different categories perform differently, but in general, the essential daily necessity products perform stronger than the discretionary products. In particular, for apparels and other discretionary products remain relatively soft. So we are, the management team is paying more attention to operating quality this year, taking proactive initiatives, including making some structural adjustments to the SKUs or subcategories with heavy investments. So this will have some negative impact on the short-term top-line growth, but we believe, you know, it will build very good foundation for our long-term top-line performance. So with all these factors considered, the top line growth trend will continue in Q4, but may slow down a bit, moderately from Q3. And then for DD Logistics, its organic top line growth will be similar to Q3. And the internal revenue will again be affected by the decrease of the orders of business. CD Logistics' external revenue growth will significantly outpace that of the internal revenue again in the fourth quarter. The pound was consolidated at the end of July, and you will contribute more to external revenue in Q4. On the new business segment side, So the revenue growth opportunity will still be negative, will be addressed for our overall revenue performance. And international business strategy has also been adjusted to improve the operating efficiency. And well, our JD property maintains a relatively high growth momentum. Thank you.
spk05: Thank you.
spk08: Our next question comes from Eddie Wong with Morgan Stanley. Please go ahead.
spk03: Mr. Xu, Mr. Li, and Sean, thank you for accepting my question. I would also like to congratulate you on this very good profit beat. I actually have a question here. Mr. Li mentioned earlier that the epidemic control gradually loosens up Taiwan Taiwan Taiwan What are some of the strategies we can use to prepare for the future? This might include our goods, our products, our mix, or our sales. The only problem is that we can see that the margin of J.D. Retail's margin is very strong. It has improved a lot in the past two seasons. If next year, the entire consumer demand, under this premise, Is it possible to say that the improvement of the margin and the growth of the revenue and GMV will be very similar? Or is it possible to say that if the entire consumption recovery is relatively obvious, we may pull the margin back a little bit or focus more on this to see if we can get more top-line growth from the consumption recovery? I will translate it myself. Thank you, management, for taking my question. My question is that we have already witnessed a positive signal in terms of the COVID policy relaxation as well as the potential reopening in early next year. So just want to hear your view that assuming that this reopening will gradually to happen in next year, what kind of a preparation or strategy change based on our current strategy in this year. And the follow-up question is that we have seen very strong margin improvement in terms of the JD retail business and other business. So assuming that there will be a very strong recovery in terms of consumption next year, Are we able to achieve both a strong margin improvement together with the top-line receleration, or it will be a balance between the margin improvement and the top-line growth? Thank you.
spk05: I will answer the first question. The second question will be added later. Uh, I, I, I, I, I, I, I, I, I, I, I, I, I, I, the speed and strength of the specific rebound is at what time can rebound how high because frankly speaking, this economy is a very complex one. So it involves a lot of consumption, especially in China, especially in Beijing, which is a platform that covers the whole of China, one and two-thirds of the five lines. So it means that it is possible to rebound in different groups and different areas. It's different. In addition, this year, because at the beginning of the year we talked to a lot of brands, we found that almost all the brands are more concerned about profits today, because they have also made a prediction. And at the beginning of the year, the European market will be affected by some categories of supply chain, so the next words, then the brands of all categories are based on And let me answer the first question. First, I want to make a bit of correction. There are certainties and uncertainties.
spk07: By the certainties I mean is that we do see there's some new signals and we are getting ready for the good things to come. I believe that the worst time has been passed and we do receive some signals and some good information and factors for a brighter future. However, for the red bands, the question is when and how strong. So these are the uncertainties. We are not quite sure. what's the time the recovery will come. So for Titi.com, we are such a large company that's covering the whole country from the first to fifth tier cities, and we believe the recovery will come in different formats and at different times, different group of people in different regions. And based on our communications with our brand partners, they all expressed their strategy to focus on profit this year. And this also coupled with their concerns on the supply chain impact made by the Ukraine war. So whether or not next year they will focus more on profitability or on the growth, it's really hard to tell at this moment. So we will also make our dynamic evaluation and to make the investment decision at the right time next year. Hope this answers your question.
spk05: I would like to make an explanation of the situation of profits this year. The growth of profits in JD.JPY over the years is mainly driven by two aspects. One aspect is the change in the structure of the product. Some products are getting higher and higher, and the productivity of this product is also getting higher. And the improvement of our service income. This is the first important change. The second is that in business, all the industries in the world, everyone will mention the effect of reducing costs. These two are actually the most important reasons why we have been able to continue to increase profits for so many years. However, I think the most important change or improvement in profits this year should be the reduction in the effect of the discount. For example, we are more focused on And on the profits, I want to make a further explanation here. For JD's growth throughout the years, there are two main drivers.
spk07: One is for the product structure changes. With a higher percentage of certain products, their growth margins will improve steadily, and also the increasing revenue from the services we provide. So throughout the years, you can hear that all the companies are talking about lower the cost and improve efficiency. And for GD.com this year, we focus more on lower the cost. and to improve the ability for the internal management. And I believe in the next two years, we will focus more on the improvement of efficiency. I can see there's many areas we can continue to improve efficiency. That's what I want to add. Thank you. This is Sandy. I want to emphasize that our long-term margin target hasn't changed. which is based on the industry-level margin and the operating efficiency we can generate through technology and the scale of our business operations. If the consumer confidence is largely recovered, we will add more investments to drive growth in users and the market share. However, at the same time, we will also gain additional operating efficiency, as Xu Zhong just mentioned, due to scale of benefit. due to technology and due to the increased contribution of our service income. So this is the beauty of retail business. Although we achieved a very important milestone for net income this quarter at the group level, but on an annual basis, our margin is still below the industry level for almost all business segments. So there is still room for us to continue to improve our bottom line performance. JD always pursues sustainable growth, and we will try to deliver stable margin with steady improvement year over year until our long-term margin target is met. Of course, during the journey, we will make dynamic adjustments based on the market situation. Thank you.
spk08: Thank you. And our next question today comes from Lingyi Zhao with SWS Research. Please go ahead.
spk06: I would like to congratulate the management team on the great results, and thank you for taking my questions. My first question is about on-demand results. What is the long-term vision we see in on-demand retail markets? And after data integration, what adjustments have we made and which fields will be summarized? We all see the article by Mr. in People's Daily, which talks about promoting the deep integration of digital and real sectors of economy. My next question is, could you please introduce JD's measures in these big trends? Thank you.
spk05: I've answered this question many times before. Today, I'd like to share with you some of my thoughts. First of all, I'd like to say that the reason why we are doing this is because of the needs of our users, not because of the growth opportunity of our business. I'd like to tell you this very clearly. We will also understand this business in terms of the supply chain. Thank you for the question, and I have shared a lot about the intra-city ratio before, and now I want to give you some updates on our thoughts and observations. So first I want to say that for JD.com to enter into the intra-city,
spk07: retail business is purely based on the need drive of the users. It's not some opportunity, business opportunities, we jump in. It's based on the user's demand. And we're looking at this business and our understanding is based on the perspective of supply chain. I don't want to think in other people's brain about how they think about Intercity Retail, this is where we start from.
spk05: And in terms of the entry point, different companies adopt the different dimensions. For JD.com, we entered this market by building a relations with the big supermarket chains as our KA.
spk07: And in terms of the categories, we start with our 3C and supermarket categories. And for other players, they might start with some SME stores. So we are entering in different directions.
spk05: Also, compared to other companies, the brand is our advantage. Because the brand has created a very large We have been working together for many years, including in the supply chain, in the product sales, in the new products market, and in the entire marketing and marketing efficiency field. So when we are doing co-branding, the brand is a very, very good partner for us. We work together with the brand to combine the offline commercial convenience stores to form a three-party joint benefit.
spk07: And our resources and relationship with brand partners is one of the key strengths for us in this intra-city business. And this has been based on our long-time collaboration with our already existed B2C models. We have been collaborating with our partners in many directions, in many dimensions on the supply chain cooperation, the marketing and the sales, the release of new products, etc. And all together, we are forging a three-party winning situation among JD, grant partners, and the offline supermarkets.
spk05: Let's use one brand as an example. For example, Apple's iPhone 14. As you know, it was released in September. Among them, many companies are using Apple's new release to do sales and marketing. The data we got is that we were ranked 7-10 times in the second place in the same period of retail or in-time retail. But we never took it to do so-called marketing, because we are from the point of view of service consumers, how to quickly and conveniently buy Apple phones and cooperate with Apple officially to improve efficiency.
spk07: Let me make one example about the intra-city retail cooperation with Apple. As you know that in this September Apple released its iPhone 14, and a lot of companies are taking this opportunity to do marketing. And according to all the data we collected on this market during the same period of time, our intra-city retailing business topped in terms of the sales. and we are seven to nine times higher in terms of sales of iPhone 14 series as opposed to the second place, the runner-up virtual platform. However, we do not want to brag about it because our starting point to do this collaboration is to provide more convenience for consumers to buy the new new series of iPhone, and we believe the value to collaborate with the official brand and to improve efficiency for this new phone release.
spk05: Of course, in comparison with our own B2C capabilities, we believe we still have a lot of room for improvement. For example, in terms of user experience, and the multi-faceted cooperation with the brand, including LBS's comprehensive service capability. including logistics, how to optimize travel and transportation. In fact, we think there is still a lot of room for improvement. So, in the current stage, we are more concerned about the user experience indicators, the user review indicators, as well as the increase in orders and the infiltration of users throughout the station. More importantly, we are looking at this business from the perspective of efficiency and experience.
spk07: And as opposed to traditional B2C models, this intercity ratio is a new type of supply chain we are building. There's still a big improvement room for us to improve, such as users' experience, the synergies we form with our brand partners, the LBS-based services, and optimize the fulfillment and the transportation power improvement. So for now, we will focus on several indicators for this business, including user experience, their repurchase rate, the improvement of the number of orders, etc. So still, we focus on the efficiency and experience to develop this business.
spk05: Regarding what you mentioned, the integration of the physical economy and the digital economy, I can share some of our suggestions. First, we proposed a responsible public chain. And in terms of the integration with the rail economy, I want to share that
spk07: building a responsible supply chain and this does not only provide more stability and reliability for our own supply chain, we also open ourselves with this capability to support our partners upstream and downstream to help in their digital transformation and improve cost and efficiency and to promote a high quality real economy development.
spk05: For JD's supply chain services,
spk07: We are now serving over 8 million active enterprise customers. This includes over 90% of global 500 companies who operate in China and nearly 70% of the so-called specialized and sophisticated SMEs. And we also provide some specialized supply chain services to the manufacturing and energy field.
spk05: Our supply chain is also connected to millions of small and medium-sized stores in more than 300 cities across the country. There are many types of stores that I will not share with you now. We not only help them solve the problem of sales and service in the last mile, but also support and serve some of the problems of the first mile in the supply chain. Therefore, it should be said that what these small and medium-sized stores bring to them is the effect of supply and discount.
spk07: At the same time, JD's supply chain has been connected with millions of small and medium-small stores across China in over 300 cities. There are many forms I want to elaborate. And we are not only providing the lots of mild solutions on their sales and services, but also helping them on the first mile of the supply chains in upstream. This has been a very effective support for them to drive more traffic and lower their cost and improve their business efficiency.
spk05: And here I just want to add that JD.com generating
spk07: generate rational profits, and we're running based on the low cost. And we fully understand the difficulties for the SMEs. They build their business in the offline scenarios. So while we are doing the supply chain support for them, we don't want to eat their profits. We want to form synergies with them, and together we build rational profits. So this will not make us as some other companies who are entering this offline market and generate ultra profits. This is not something I think rational. Thank you.
spk05: The last question is about the recovery plan for rural revitalization that was launched in 2020. At present, we have driven hundreds of billions of assets to help millions of farmers to increase their income. And we also hope to achieve our goal of 3-year production value of more than 100 million in advance. All of the above should be our understanding and what we are doing as a new era enterprise. In fact, we are very clear that we are not doing well enough. It is also because we still need to improve our ability. But from our point of view, we are steadfast. Thank you.
spk07: And lastly, I want to mention that since 2020, the city has launched our Rural Revitalization Initiative called the March to Reach Plan, and this plan has given tens of billions of industrial outputs in the rural areas and helping millions of farmers to increase their income. And we do a confidence that we set a goal to achieve trillions of industrial output under this program in rural areas within three years' time, and we can accomplish this ahead of the schedule. And so all of these are our understandings as a new type real economy company. However, we know we are not doing enough. We are still improving ourselves, improving our capabilities. However, this is the goal we set, and we will stick to it. Thank you.
spk08: Thank you. We are now approaching the end of the conference call. I will now turn the call over to JD.com's Shawn Zhang for any closing remarks.
spk04: Thank you for joining us on the call today and for your questions. If you have further questions, please contact me and our team. We appreciate your interest in JD.com as always and looking forward to talking to you next time again. Thank you.
spk08: Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect. Good day.
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