JD.com, Inc.

Hello and thank you for standing by for JD.com's first quarter 2023 earnings conference call. At this time, all participants are in the listen-only mode. After management's prepared remarks, there will be a question and answer session. Today's conference is being recorded. If you have any objections, you may disconnect at this time. I would now like to turn the meeting over to your host for today's conference, Sean Zhang, Director of Investor Relations. Please go ahead.

Thank you. Good evening and good day, everyone. Welcome to JD.com first quarter 2023 earnings conference call. For today's call, CEO of JD.com, Mr. Lei Xu, will kick off with opening remarks. Our CFO, Ms. Sandy Xu, will discuss the financial results. After that, we'll open the call to questions from analysts. Let me quickly cover the safe harbor. Please be reminded that during this call, our comments and responses to your questions reflect management's view as of today only. We'll include forward-looking statements, and please refer to our latest Safe Harbor statement in the earnings press release on our IR website, which applies to this call. We'll discuss certain non-GAAP financial measures. Please also refer to direct consideration of non-GAAP measures to the comparable GAAP measure in the earnings press release. Also, please note, all figures mentioned in this call are in RMB. unless otherwise stated. Now, let me turn the call over to Mr. Xu, our CEO.

Hello everyone, this is Xu Lei. Thank you for joining JD.com's first quarter 2023 earnings call. In a face of profound changes in external environment and the industry, together with our own proactive adjustments to our business, JD achieved a high quality performance in Q1.

As many of you know, during the past three years of COVID, JD spared no efforts to maximize our business model and supply chain capabilities and allocated tremendous resources and energy to ensure daily supplies and provide reliable services to our customers and up and downstream business partners. JD was able to play an important role in the economy and people's livelihoods throughout that challenging period.

Since 2023, with the release of the epidemic, the macroeconomic and consumer demand has been on the rise again, but there is still not enough internal power and consumer demand is still insufficient. The consumption of retail products has also shown a different trend of recovery. At the same time, the population structure, lifestyle, and consumption structure are also changing. In 2023, with COVID in the past, the macroeconomy and consumption have started to pick up, but the organic forces driving consumption demand are not yet sufficient.

We've seen different paces of recovery for different categories, as well as changes in the demographic structure and people's lifestyles and spending patterns. JD has taken initiative to embrace the new external environment and industry dynamics in the post-COVID era. 2023 is a year of proactive adjustment for JD and a year that will set a solid foundation for JD's long-term development. Here, I will go through our major adjustments in three areas and some of the progress we've achieved so far.

First, focus on the main line of business. From last year, we have adjusted a series of supply and demand strategies around long-term health and continuous growth. We have fully sorted and optimized the business structure including the type of combination and channel layout, focusing on improving the efficiency and quality of business operations. At the same time, as I shared last time, we have constantly encouraged internal innovation. We need to deal with every innovative project in the business cycle regularly, focusing our resources on those businesses that can create long-term value. We have also focused on some innovative businesses. With the comprehensive improvement of business health, the overall and core business of Jindong has been further improved and created the best profit level in the history of the first quarter. This once again verifies the long-term and sustainable profit growth space of our business model. First, we are refocusing on our corn business. Since last year, we have carried out a set of adjustments on the supply side.

with the goal of long-term healthy and sustainable growth. This includes optimizing our product mix and the sales channels in order to further improve our operating efficiency and quality. Also, I shared last time, we have always encouraged innovative business initiatives while we need to regularly review these new initiatives within each business sector and focus our resources on those businesses that can create long-term value. Therefore, we scaled back on some of our new businesses. As we have been building a healthier business model, we've seen stronger profitability in both JD as a whole and in our corn business, with this reporting quarter setting a new record among all quarter one in our history. This again demonstrates we have a lot of upside in terms of long-term profitable growth. While improving the overall health of our businesses, Our core categories, such as home appliance and home goods, 3C and electronics, as well as categories such as liquor and baby and mom products that are seeing industry-wide challenges, have all been maintaining and even expanding their leadership positions and market share. This trend has continued to strengthen so far in Q2, as we see consumption progressively recovering.

Second, the efficiency of system management and operation. We have adjusted the organization structure on retail and logistics and other integrated business models, including cutting down on management levels, creating a flat, concise, efficient management framework, and offering more authorization to frontline business units. For example, after the organization structure has been adjusted by tens of thousands of employees, there are only three reports between ordinary employees and CEOs. In a company with a similar scale in the industry, Jindong's organization structure will be the most flat. Second, we are improving efficiency of management and operations. We've recently rolled out an organizational readjustment for core segments such as JD Retail and JD Logistics.

with the purpose of further streamlining company hierarchy, building a more flat, nimble, and efficient management structure, and further empowering frontline business teams. After the adjustment, JD Retail, which has tens of thousands of employees, will have just three levels in the reporting line from an entry-level procurement employee to CEO, which will be the flattest managerial structure among all similar-sized industry players. The reorganization will bring greater decision-making power to the execution teams closest to the market and users, incentivize each business unit, and give young talent more growth opportunities. This type of organizational structure is an essential driving force for us as we embrace the post-COVID era and pursue a new chapter of growth. 再进一步繁荣第三方平台生态提升用户体验

The core of Jingdong's business concept is always to focus on the user, based on continuous optimization of cost and efficiency, to achieve the ultimate product, price, and service experience for the user, and to surround the brand's core around the many good provinces, to meet the needs of the user from all angles. Self-sufficiency and platform mode are all ways for us to serve users. Jingdong's goal this year is to further create a rich platform ecosystem, and to work hard to attract merchants, especially small and medium-sized merchants who are relatively small compared to the previous Jingdong platform. In terms of progress, In the business side, since the launch of the Spring Small Plan to support new business owners in the beginning of this year, the expansion of new business owners in Jingdong's open ecosystem has increased by more than 20% compared to Q4 last year. The number of business owners from fashion, home and commercial products is increasing rapidly. Businesses are very eager to invest in the Jingdong platform. At the same time, the low capital costs provided by Jingdong still have advantages and are relatively more efficient. In the user side, We observed that the flow of users in the main station maintained a healthy growth. In March, DAU continued to achieve a double-digit growth. At the same time, as we pay more attention to the quality of user growth, the number of resale users and paid members in the first quarter of the sales business achieved a rapid growth of nearly 20% and 30% in the same month, and the ratio continued to increase, leading to the growth of the overall user shopping frequency and up. Among them, the number of members in the first quarter of JD Plus reached 35 million, At the same time, PLUS members' annual consumption level remained 8.4 times higher than that of non-PLUS users, and continued to be highly active and highly consumable. It is also worth sharing that we have achieved a stable growth in the size and up of the down users who have been active for more than a year, and increased rapidly from the beginning of this year to the beginning of April. At the same time, with the continued advance of our low-price EDLP strategy every day, we are also happy to see that in March, Third, we are further enhancing our marketplace ecosystem and user experience. User focus has been built into JD's DNA. On top of our continuous efforts to optimize costs and efficiency,

we're committed to providing users with best-in-class product offerings, prices, and shopping experiences, addressing user demand on all fronts, including superior selection, speed, quality, and value. Both 1P and 3P models are means to serve users. JD's goal this year is to build a robust ecosystem that attracts more third-party merchants, particularly the tremendous number of high-quality SMEs that account for a relatively small proportion of sellers on our platform. In terms of progress on the merchant side, since the launch of our Spring Down program that includes a number of supporting measures for SMEs, we have accelerated the expansion of our merchant base. In particular, the number of third-party merchants with recorded transactions saw 20% sequential growth in Q1, among which merchants in the fashion, home goods, and supermarket categories increased rapidly. merchants remain motivated to allocate resources to our platform, thanks to our advantages in providing them with lower cost and better efficiency of operation. On the user side, our main JD app maintained healthy traffic growth in this quarter, with DAU growing double digits year on year in March. Moreover, as we continue to focus on user quality in Q1, the number of repurchasing users and the paid users of JD Retail experienced a rapid year-on-year growth of nearly 20% and 30%, respectively. And their proportion of our total users continued to rise, leading to a higher shopping frequency and in the quarter. In particular, the number of JD Plus members reached 35 million by the end of Q1. And Plus members spent 8.4 times of the average annual amount of non-Plus members. sustaining their high shopping frequency and spending power. What's also worth highlighting is that lower-tier market users who have stayed with JD for over a year saw healthy growth momentum in both user scale and up in Q1 and April as well. In addition, as we continue to push forward our everyday low-price strategy, we're happy to see that NPS score of our main JD app increase on a sequential basis, This makes us more confident that as we continue to build up the supply side and enhance our user service and user operation, we are able to ensure best-in-class experience for our core users while at the same time addressing diverse demands of new users. We still have a lot of upside in user acquisition.

business and organizational structure adjustment at the best time. These adjustments will inevitably affect our performance in the short term, but at the same time, we will fully grasp the long-term development opportunities and create strategic growth to establish an indispensable foundation. The progress we have made so far also fully demonstrates the expected effect of adjustment. Jingdong's long-term strategic direction has not changed. The core competitiveness is constantly improving, and the development capacity is constantly increasing. From a long-term perspective, Jingdong is still on a healthy and sustainable high-quality development track.

I hope my sharing today has made it clear that 2023 is the best timing for JD's proactive adjustment as we undergo a fluid external environment and embrace new opportunities in the post-COVID era. While such adjustments will impact us for now, but will provide a necessary foundation for us to seize the long-term strategic opportunities. The progress we've achieved so far is strong evidence that our adjustment is moving forward steadily and in the right direction. From a long-term perspective, we believe JD is still on a healthy and sustainable track of high-quality growth as our long-term strategies remain unchanged and our core competitiveness and driving forces are constantly improving. We will remain committed to creating lasting value for our users, business partners, and shareholders.

Finally, I have officially applied for retirement from the board of directors and spent more time with my family. This decision has also been approved by the board of directors. Over the years, I have been able to work with President Liu and the management team, which is full of passion, hard work, and experience, in order to create value for users, partners, and society. I feel very honored. I am very grateful for the trust and support of President Liu and the board of directors of Jingdong Capital. I am also very fortunate to have worked closely with 3D for many years. Finally, I've submitted my retirement request to the board to spend more time with my family, and the board has approved it. Over the years,

It's been a great honor working at and growing together with JD, creating value for our users, business partners, and the society, and working side by side with Richard and our passionate, hardworking, and dedicated management team. I'm very grateful to the trust and support from Richard and the board of directors. It's also been a fortune to have worked closely with Sandy for the past years with her profound insight and vision for our businesses. outstanding professional achievements, and strong dedication, Sandy is the perfect candidate of the next CEO. I will also work together with her and do my best to ensure a seamless transition in the coming months. With that, I'll hand over to Sandy.

Thank you, Xizhong, and hello, everyone. It's a great honor to become the third CEO of JD.com, and I deeply appreciate the trust from Richard, Xizhong, and the board. Richard and Shizhong have set a strong foundation for our future endeavors, and they will continue to guide our long-term strategic developments. I look forward to further driving the high-quality and sustainable growth of the company and bringing more values to our customers, business partners, and the society. Now let's turn to our financial performance. In the first quarter of 2023, we continued to build on our progress in business and organizational adjustment and began to see encouraging trends, including improved user engagement, as Xizhong just shared, rejuvenated 3P marketplace performance, improving NPS score, and resilient profitability, among others. Also, as elaborated by Xizhong, our ongoing business adjustment as well as the reorganization announced in April, could result in moderated growth, especially as measured by revenues in the short term. And yet, with the encouraging trends we've seen and our focus on building a team that can thrive in an ever-evolving business environment with adaptability, strategic agility, and resolve, we are more confident than ever in our ability to deliver healthy, sustainable growth for the long run. Now let me walk you through our financial results in Q1. Our net revenues grew by 1.4% year-on-year to 243 billion RMB in Q1, as we continued to focus on user quality and building deeper user engagement. We are encouraged to see that, during the quarter, JD Retail LTM average GM per user and shopping frequency continued to increase year on year for six quarters in a row, mainly driven by the expansion of our core user base. Breaking down the revenue mix, product revenues were down 4% year on year in Q1. I'll discuss category performance shortly. Service revenues grew by 34% year on year in Q1, among which marketplace and marketing revenues grew by 8% year on year. We are encouraged to see that 3P revenues delivered robust momentum in the quarter, reaching the highest growth rate in the last four quarters. Notably, growth of 3P advertising revenues meaningfully outpaced that of 1P in the quarter, which is primarily driven by our continuous efforts to support merchants, particularly SMEs. leading to a substantial merchant base expansion in the quarter. We believe this is an important step forward in our business adjustment to build a vibrant marketplace ecosystem and further enrich product supplies and user experience on our platform. Logistics and other services revenues grew by 61% year on year in Q1. Now let's turn to our segment performance. JD Retail experienced a soft revenue performance in Q1 while continuing to expand on both fulfilled growth margin and operating margin. As communicated before, the continuous improvement of our profitability and bottom-line growth indicates that we are moving in the right direction towards building a healthy, sustainable business model. In terms of revenues, city retail recorded a 2% year-on-year decline in Q1. By category, electronics and home appliance revenues were down slightly by 1% year-on-year during the quarter, mainly due to the lagging recovery of durable goods consumption compared to other discretionary categories. That said, we continued to notably outperform the industry in Q1 thus effectively defending our market share in this category. More importantly, our outperformance in electronics and home appliance industries becomes more pronounced heading into Q2, and we are confident to not only defend, but also to further increase our market share in this category. Thanks to our strong supply chain capabilities, user man-share, and solid progress in both online and offline channels. General merchandise revenues were down 9% a year in Q1, a mixed result of our business adjustment and a high count for supermarket category last year due to the stockpiling during COVID. Since we are on the topic of supermarket category, I'd like to share that it once again achieved an impressive margin improvement as our business adjustment aimed to build a healthier product mix is yielding results. Our emerging categories, such as healthcare products and services, apparels, and accessories, delivered double-digit top-line growth in the quarter, demonstrating our broad-based user man-share across categories. I want to highlight JD Retail's profitability improvement. JD Retail's fulfilled growth margin was up an exceptional 95 basis points year-on-year to 8.9% in Q1, mainly driven by our efforts to optimize cost and efficiency and the improving economies of scale. This also boosted JD Retail's operating margin to 4.6%, up 101 basis points from a year ago another impressive margin expansion in four consecutive quarters in a row. Our core retail business remains well on track of our long-term margin trajectory as we are making proactive adjustments to set JD in a stronger position for achieving sustainable growth. JD Logistics saw a 34% revenue growth year-on-year in Q1, excluding the impact of consolidation of DuPont. GD Logistics' growth rate was 7%. This is mainly contributable to the resilient growth in revenues from external customers, the proportion of which reached 69% in Q1. In terms of profitability, GDL's non-GAAP operating loss margin was 3.1% in the quarter, primarily due to the extra resources allocated in response to COVID in January and February. Dada reported revenues of 2.6 billion RMB in Q1 and non-GAAP operating loss of 217 million RMB in the quarter. Intra-city on-demand retail business remains as an important pillar for us, and we are glad to see that JDDJ and ShelfNow have expanded to cooperate with over 300,000 offline stores. and provided more than 2,000 cities and counties with on-demand retail services that cover a wide range of categories. As a result, our intra-city on-demand retail business ShopNow maintained its robust momentum with year-on-year GMB growth rate of 60% in Q1. Finally, revenues from new businesses scaled back to 3.5 billion RMB in Q1. As we continue to adjust the investment pace in both CNC and international businesses, while JD Property maintained its robust growth momentum, in terms of profitability, operating loss of new businesses continued to narrow down substantially on both year-on-year and sequential basis. As shared previously, we will continue to explore new initiatives and encourage innovations that generate better synergies with our core businesses and capabilities, while pulling off those that we don't see a clear path for meaningful returns in the foreseeable future. Moving to the consolidated bottom line, as we continue to focus on our core businesses to drive high-quality growth and further optimize operating efficiency, We recorded 7.6 billion RMB non-GAAP net income attributable to ordinary shareholders in Q1, and non-GAAP net margin arrived at 3.1%, up 144 basis points compared to a year ago. Finally, our IOTM free cash flow as of Q1 was 19 billion RMB. This was mainly driven by the deferrable payment of accounts payable. the impact of which is exaggerated when sales growth rate moderates, a typical phenomenon for retailers. As we are working to drive healthy, sustainable growth, we believe our free cash flow will go back to normal levels going forward. By the end of Q1, cash and cash equivalents, restricted cash, and short-term investments added up to a total of 203 billion RMB. During the quarter, we also did share buyback of 1.1 billion RMB. The share buyback coupled with our previously announced cash dividend demonstrated our confidence in JD's future prospects and commitment to returning shareholders despite the short-term volatility in the stock market as we go through our proactive adjustment. To conclude my remarks, We ended Q1 with strong footing in improved operating efficiency and expanding profitability, boding well for our proactive business reorganization. We are working to build an adaptive and efficient business model, a more ownership-oriented team, and ultimately to achieve profitable expansion and market share gain in the long run. the same narrative of JD's development over the past 20 years. JD has gone through many cycles and always emerged stronger thanks to our visionary moves and steadfast execution. We will continue to commit ourselves to the three key sense of retail, user experience, cost and efficiency, and to the right way to create long-term value for our customers. business partners, and shareholders. With that, let's open the call to the Q&A. Thank you.

Thank you, Sandy. For the Q&A session, analysts are welcome to ask questions in Chinese or English, and our management will answer your question in the language you ask. We'll provide English translation when necessary and for convenient purpose only. In the case of any discrepancy, please refer to our management statement in the original language. Operator, we can open the call for Q&A.

Thank you. The question and answer session of this conference will start in a moment. In order to be fair to all callers who wish to ask questions, we will take one question at a time from each caller. If you have more than one question, we request you to please join the question queue again after your first question has been addressed. If you wish to ask a question, please press star 1 on your telephone and wait for your name to be announced. If you wish to cancel your request, please press star 2. If you are on a speakerphone, please pick up the handset to ask your question. The first question comes from Thomas Chong with Jefferies. Please go ahead.

Good evening. Thank you for accepting my question. I have two questions. The first one is about the recent internal structure and the logic of the management team's adjustment and the impact. Can you share it? The other question is about our 100 billion subsidies. The low-cost strategy has been implemented for almost two months. How is the effect of the growth contribution of user growth and GNV? Thank you.

Tomas, go ahead. Thank you.

Thanks, management, for taking my questions. My first question is about recent organizational adjustment. Can management share about the rationale behind as well as the impact And my second question is about the subsidies program. It has been launched for about two months. Can management share about from the perspective of user growth, merchant participation, and GMV growth? Thank you.

好的,谢谢Thomas的问题。 我是Sandy,那我先回答一下这个管理架构的调整。 um um mainly canceling a level of the business group and changing the business group into the business department. The original person in charge of the business group will be the person in charge of the business department. The business group will be divided into the business department according to the specific category of products. The full responsibility of the business department will also have a relatively large change compared to the previous one. They will have greater management decision-making rights and business management rights. Thank you for the question. This is Sandy. Let me answer the question about the organization restructuring. As you might notice in the news, we have undergone such changes for JD Retail and JD Logistics business, and I would take JD Retail's

restructuring as an example to give you more explanations on it. So the previous level of JD Retail's business group has been removed and replaced with business departments. Former leaders of business groups will now act as leaders of business departments, and the business departments that used to oversee various product categories will be further split into numerous operational units that focus on specific product categories. and each of these units will have greater decision-making and management responsibilities, and their KPIs will be tied closer to their operating results, which will help to incentivize entrepreneurship at every level and better align team interests with those of investors.

Hello, Xu Lei. I would like to add a little bit about the adjustment of the CEO this time. In fact, Sandy should be the third CEO of JD Capital. In fact, investors and analysts should be very familiar with Sandy. In the past five years, Sandy and I have worked closely together. I know many of you will remember how Ling Shou was adjusted in 2018 to go out of the time of crisis that we defined ourselves. At that time, Sandy and I And I thank Sandy very much in my heart. If Sandy didn't do it with me, I believe I might not have done it at that time. So in fact, Sandy played a very, very big role in the development of Jingdong Group. And Sandy's professionalism, she is younger than me and Lao Liu, and she has more combat power. And she got the recognition of the entire company's executives in terms of the inheritance and values of the company. So the adjustment this time, including myself, including the board of directors of the entire Group, including members of the SEC of the Group, we believe that we can lead Jingdong to enter the next stage, which is to pay more attention to the health and quality of the business and the new period of development. As for myself, I started as a consultant for Jingdong in 2007, and it has been 16 years since then. I will be the first chairman of the Jingdong Group Consulting Committee, This is Shilei. I would add a few words regarding my role change.

And so Sandy, she will be the third CEO of JD.com. She is no stranger to our investors and analysts. In the past nearly five years, Sandy and I have been working closely from JD Rater's business to the group level. And some of you might recall in 2018, it's only because my close teamwork with Sandy that made it possible for us to write through this so-called darkest moment. So Sandy has played a very important role, and without her, I don't think I can make it. And plus, Sandy is a very young leader and do have a lot of energies, and she has been widely recognized with her professionalism and dedication inside and outside the company. So everyone, including myself, members of the board, and the SEO committee, all believe that she's capable leader to lead JD into the new phase of healthy and high-quality growth. And for myself, my JD story can be traced back to 16 years ago when I first became the company's external advisor in 2007. And in the future, I will also continue to become the first chairman of JD's advisory council. And my support to JD will be a lifetime commitment I just changed the perspective and position, but I will always support JD whenever the company needs, and this is also a very meaningful and privileged thing for me, and thank you.

I would like to emphasize that our strategic direction will not change, and it will remain the same for a long time. I will continue to work with our management team. We use the concept of cost efficiency and product price service as the core of JDG. We adhere to the principle and values of customers first, to create greater value for customers, for the industry and society. We will continue to deepen the strategy of the group and pay attention to the next-gen market. So thank you, Mr. Xu Lei. He has made a great achievement and contribution to the development of the company.

And I would also take this opportunity to emphasize our strategies, which will remain unchanged in the long term, and will continue to focus on our business philosophies, to focus on our cost efficiency and usage experience, and to continue to create a value for the customers, industries, and the society. And our key growth drivers will continue to focus on our lower-tier markets to build an open ecosystem on demand omni-channel retail. And by leveraging the economies of scale and of our operating efficiencies, we will continue to diversify our revenue structures to achieve healthy and sustainable growth in the long run.

好的,那接下来来回答Thomas的第二个问题,就是关于百亿补贴。 那我们上次呢,其实在财报发布会以及会后的这个沟通上也分享过, including 100 billion subsidies, cheap oil,秒杀, and so on. These are the specific forms and actions that consumers will have a clear sense of the price strategy and user experience of Jingdong. We also want to emphasize that in fact, in terms of creating Jingdong's daily low price, the low price is the final result and experience that we hand over to the users. These are actually based on our continuous long-term accumulation and investment on the supply chain. In fact, in exchange, it is a higher efficiency and lower cost advantage. Therefore, on the one hand, we will continue to improve our open environment and provide more abundant price bands, more abundant products and products, including branded products and branded products, etc., to our consumers of different levels. At the same time, we will continue to release the scale effect through our own supply chain advantages. So let me answer questions about our discount program. As we mentioned in our last quarter call,

we had a series of programs offering competitive prices and services that consumers truly appreciate and enjoy, including the $10 billion subsidy program, low-cost and free shipping, flash sale, and more formats. This is based on our continuous investment and accumulation in the supply chain, which results in higher efficiency and lower costs. On the supply side, We are constantly improving our open ecosystem to offer users a wider selection of price ranges, products categories, including brands and other white label products. We also leverage our supply chain advantages to realize economies of scale and pass on the benefits to consumers. Therefore, JD's ability to offer everyday low price is based on our focus on everyday low cost.

就更加符合我们倡导的天天低价的用户心智来回归零售的本质,也可以让整个行业的供应链能够更加平稳地运行,帮助我们的合作伙伴,我们的品牌商和第三方的商家去提升经营效率,为他们创造更大的价值。 We will drive several user experience changes this year by making adjustments on marketing strategies, guiding users to embrace our everyday low-price concept instead of stocking up goods only at promotions.

that we will see the share of everyday sales increase this year, which is in line with our goal of everyday low price and returning to the essence of retail. This will also help stabilize the whole industry's supply chain operation that's enhancing the efficiency and value creation for our partners, brands, and third-party merchants.

Thank you. We have invested in the marketing resources of many brands and brands, so that consumers can feel the real advantages. This can only attract users, and attract more brands and merchants to join us in this marketing activity. So we can see that the flow of users, the activity of active and repurchase are improving. At the same time, the number of active pop merchants is also clearly increasing. So the performance of this discount program, since it was launched two months ago, has met our expectations.

With our joint investment in marketing resources with brands and merchants, we strive to provide consumers with tangible benefits only by truly passing on benefits to users. can we attract them, which in turn attracts brands and sellers. By serving users well, we can also serve the brands and merchants well. We have noticed improvements in user traffic, engagement, and repeat purchases, as well as a significant increase in the number of active third-party merchants. So we're confident in our ability to control the overall impact of this program, and this program have a limited impact on our margins. Thank you.

Yeah, thank you. Next question, please, operator.

Thank you. The next question comes from Ronald Keung with Goldman Sachs. Please go ahead.

Thank you, Chairman Chiu, Sandy, and the management. How do you plan to maintain the competitiveness and return to Thank you. Thank you, Ronald.

Since the second quarter, we have seen that the increase in GMV has been accelerating compared to the first quarter. And the increase in GMV is still faster than the increase in revenue. The driver behind this is what we just talked about in the opening remarks. The number of merchants in 3P is constantly growing. So, the increase of 3P GMV will also be faster than the 1P self-sufficiency. Of course, this may also be due to the relatively low technology of the 3P business last year. In fact, in addition to the increase in the number of merchants, we have also done a series of optimization of this kind of algorithm and technology, including the adjustment of the flow distribution mechanism. JD's GNV growth rate in Q2 has been faster than Q1, and the growth rate of GNV is also faster than that of revenues.

We've seen the number of third-party merchants with active sales continue to rise, and their GMV growth is faster than 1P businesses. And also there's the factor that last year, this quarter, the 3Ps comes relatively lower. In terms of the organization structure change, we're gradually implementing the detailed plans, so the impact will be released over a certain period of time in the following quarters.

Next, let's talk about our 1P business. Our core sales business has always been the consumer as the core. We should provide a diversified demand model to consumers rather than deciding what we are good at. So, on our platform, whether it is 1P's self-sufficiency model or 3P's third-party business model, they are all different ways of serving users. So for JD's core ratio business, we have always be centered on our customers. So any model that better satisfies consumers

diversified demand should be offered to them, and it will also attract users to make purchases. JD platform offers both 1P and 3P models to serve consumers, and we should always give the decision making right to the consumers. And one of our unique advantages is that these two models are actually complementary to each other.

Yes, in fact, our self-employed business has a strong competitiveness in many categories, and it is also our deepest complement. For example, uh, So for several categories, JD's self-operated model is highly competitive. For example, high-ticket size products, products that require higher level of quality and service assurance for consumers,

and products that can generate lower cost and higher efficiency through economies of scale. At the same time, as JD's consumers and the purchasing demands become increasingly varied and differentiated, we need to enrich our supply side through the marketplace business model.

Yes, so our organizational structure adjustment this time, in addition to the team structure of 1P and 3P, we also made some adjustments to the goal of the performance assessment, so that everyone's interests are more consistent. In fact, in the end, it will form the user as the center to let the user choose which mode is the best and most suitable. In the short term, the adjustment of this business may affect our revenue increase to a certain extent. So our current adjustments, including the holistic management of 1P and 2P and the

the considerations on the KPIs tied to the performances to give better choices and more options to the users. So for the short-term, business adjustments can indeed affect revenue growth, especially for certain categories. However, we believe that through these adjustments, categories such as like our supermarket categories will remain JD's most important growth driver and return to a healthier growth trajectory in the long term.

Thank you. I'll put in the next question. Thank you, Rana. Thank you.

The next question comes from Eddie Wang with Morgan Stanley. Please go ahead.

Mr. Xu Lei, Mr. Sandy, thank you for accepting my question. First of all, I wish Mr. Xu Lei all the best in the future. I wish Mr. Sandy all the best in his new position. I have two questions. The first one is, I want to ask if you can give us some details about the situation of consumer recovery in April and May, especially the demand for consumer electronics and home appliances. When do we expect to have a stronger demand for recovery in these two categories? The second question is, this 618 is coming soon. In fact, this is the first 618 after we announced the white paper and the strengthening of the land price. I want to ask, what is our entire strategy in this 618? Will this investment be different from before? Or will it be closer to the previous investment and various strategies? Thank you.

Okay, let me share the situation of consumer electronics and home appliances that you are concerned about. Indeed, the entire home appliances, including home appliances, have been greatly affected by the demand for consumption and housing. In our view, the consumption of home appliances and home appliances as a whole is much later than what we can see now. This consumption may take some time. But the good news is that we ourselves, through our multi-channel construction over the past few years, we should say that we are much higher than the growth rate of the industry in this field of home appliances. And I believe that in the coming few seasons, if the entire economy and the industry can recover, then we should be able to rebound quickly. I would like to share some insights on the categories of home appliances and the home goods.

So in Q1, the performance still affected by soft consumption demand and the real estate industry. So the recovery of durable goods consumption, such as household appliances and home furnishing, lags behind that of catering, entertainment, and other consumer goods. Whereas the good news is that through JD's years of building our multi-channels, and we have always delivered a higher than industry performance. So with the economy recovery in the following quarters, we expect the demand will come back on JD's platform?

Regarding the 3K data, it is similar to home appliances. In the current unstable economic situation, the high-end-priced products are consuming relatively slowly. But it is also similar to home appliances. This is a strong user mindset in JD, and we have been running it for many years. In the past few years, we have made a lot of innovations in services and channels. Yeah, and for the 3C and electronics category, it also belongs to the durable and the large ticket categories.

So JD has a very strong mentality among our consumers, and we have also done innovative measures on the channels, on the services, and continue to lead the market share. And we're seeing that the Q4 market is getting better. And admittedly, for these two categories, it still takes some time waiting for more recovery of the market, and it also depends on the confidence restoration from the factories and the manufacturers. When the confidence is back, I believe the recovery rate will bounce back quickly.

Regarding this year's 618, I would like to share a few things. First, 618 is the 20th year of Jingdong. The 20th year is very important for us. So this year, we will continue to strengthen the cooperation of the entire 618 with the brand and the business. This is the first point. The second point is that there are indeed a lot of brands and merchants in many categories. In fact, the current business pressure is relatively high, and the storage pressure is relatively high. We will also take advantage of the big vinegar of 618 this time. At the same time, we will make some adjustments in some marketing and operation methods. For us, for the whole 618 this year, whether it's innovation or cooperation with brands and merchants, we think we will create a new height.

So I have a few words on our 20th 618 grant promotion. It is a very critical and important event for us. And on the one hand, we will use this opportunity to strengthen our collaborations with our brand partners. And for certain categories, they do face operating and inventory pressures. So we will leverage the 618 grant promotions to make more adjustments on the marketing and operations to conduct more innovations to create a new high in terms of innovation and partnership.

好的,我就再补充一下关于这个Electronics and Home Appliance这个品类的情况。 的确呢,在这个整个行业现在还是面临着一些挑战, 但是我们也看到一些好的趋势, 就是在4月份这个增速是有在逐渐回暖的趋势。 那我们也非常有信心,对于这些我们比较传统的优势品类,我们将会持续取得比行业大盘更好的表现。 So just one more observation on the 3C and electronic categories. We're seeing the sales in Q4 is picking up.

So for those categories that JD has some strength on the market, we're confident to continue to lead the market and have outperformed the industry average. In April, sorry. Thank you.

Thank you.

Thank you. The next question comes from Alicia Yap with Citigroup. Please go ahead.

Hi, thank you. I'm going to ask Ingrid. So good evening, management. Thanks for taking my questions and also congratulations to Sandy on your new role as CEO and also best wishes to Shidong. I have questions surrounding the categories growth and also competition. So while, I mean, I remain quite cautious, especially for the big ticket items like 3C. But it's also things like the OEM and the hardware, handphone manufacturers are eager to de-stocking their existing models in preparation for the new models launch in the fall. So how will JD work with them to leverage the upcoming 618 promotion to stimulate the consumer purchasing sentiment And do you anticipate competition in 3C and appliance to heat up? Or is JD seeing more competition headwind in the FMCG category? And lastly, can management elaborate what is JD's next growth expansion story? Thank you.

Thanks, Alicia. Well, the overall consumption might remain cautious, especially for large ticket size products like three-season home appliance. However, we heard from the brands that all the OEM manufacturers said they are quite willing to provide attractive refit or discount to boost their sales. and also to try to sell through their existing inventory in order to prepare for the new models releasing in the second half year. So if this is true, then JD will be, you know, there will be a great opportunity for us given our stronger relationships, our stronger supply chain capabilities with the brands. And also, we heard that in particular for the brands of home appliance, they are all expecting positive sales growth for the year. In terms of the supermarket, right? Competition. I would say our competitive advantages are very different from the other competitors. Again, we are a supply chain driven platform instead of a traffic driven platform. So even though we are facing some short term challenges because of our proactive business adjustment or proactive channel or product mix adjustment, I can see that our fulfilled gross margin for many product categories are still improving. That means we will continue to gain operating efficiency while set competitive pricing in front of the consumers. So the healthy business is still growing, and I'm pretty comfortable that after all the business adjustments are completed, or absorbed this year, we will go back to our normal growth trend.

Thank you.

Thank you.

As we are now approaching the end of the conference call, I will turn the call over to JD.com's Sean Zhang for closing remarks. Please go ahead, sir.

Thank you. Thank you, everyone, for joining the call today. And for your questions, if you have further questions, please contact me and our team. We appreciate your interest and support in JD.com and look forward to talking to you again next quarter. Thank you.

Thank you. Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect. Good day.