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spk08: Hello, and thank you for standing by for JD.com's second quarter and interim 2023 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 the meeting over to your host for today's conference, Shawn Zhang, Director of Investor Relations. Please go ahead. Thank you, Drew.
spk07: Good day, everyone. Welcome to JD.com's second quarter and interim 2023 earnings conference call. For today's call, CEO of JD.com, Ms. Sandy Xu, will kick off with opening remarks. Our CFO, Mr. Ian Shan, 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, and will include forward-looking statements. And please refer to our latest safe harbor statement 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 price release. Also, please note all figures mentioned in this call are in RMB, unless otherwise stated. Now, let me turn the call over to our CEO, Ms. Sandy Xu.
spk04: Thanks, Sean. Hello, everyone, and thanks for joining us today to discuss our Q2 results. Q2 was a productive quarter for JD. We delivered a solid performance with both top-line and bottom-line results, exceeding our expectations. More importantly, during the quarter, we effectively executed our business and organizational development, further improved our supply chain capabilities, and achieved many operational and financial milestones while navigating a challenging industry environment. We are encouraged by the progress we are making on these priorities. And I want to share some of the details with you. Let me start by reiterating JD's operating philosophy since our inception, which is to relentlessly strive for lower cost, higher efficiency, and superior customer experience. This is at the heart of everything we do. And it primarily consists of two critical elements, namely customer experience and supply chain capabilities. First, on customer experience, we always focus on providing best-in-class customer experience and continue to find ways to improve selection, speed, quality, and value in Chinese , particularly Since the beginning of this year, we have gone extra miles to improve our selection and value, while our quality and speed continue to lead the industry. On selection, we are taking solid steps to improve our platform ecosystem, which in JD's case means the prosperous coexistence of both our 1P and third-party marketplace businesses. Our platform ecosystem strategy is guided by our goal to continuously improve customer experience, and both 1P and 3P models are means to this end. It was an exciting quarter for our third-party marketplace business. We feel that we are only at the early stage of realizing JD's marketplace business potential, but we were encouraged to see The number of 3P merchants more than doubled year-on-year and set an all-time record in Q2 as we improved our tools and traffic allocation mechanisms to build a fire and effective operating environment. With the improving operating environment, more 3P merchants brought a broad selection of products to our customers driving 3P marketplace GMV growth to accelerate over the last two consecutive quarters. Moreover, we have seen two consecutive quarters of double-digit 3P revenue growth, mainly driven by robust growth of advertising revenues as more 3P merchants allocate ad budget to JD's platform. On value, since the beginning of the year, we have launched new initiatives to enhance our reputation for providing value to users. Sometimes I hear people make the argument that data's pursuit of low prices will inevitably impact user experience and our profitability. We know this argument is incorrect. Value means providing both low price and extra value or services for the many customers pay. And not surprisingly, JD's supply chain capability is the key to delivering this. With lower cost and higher efficiency generated through our supply chain, we are able to provide more value and extra service to our customers. Take our 10 billion discount program as an example. as we continue to enrich its value for many selections of 3P merchandises, which is resonating with our customers. 3P GMV contribution with this program has gradually increased to over 50% in July. Also, with this program moving ahead, we were still able to maintain a healthy bottom line in Q2, which Ying will elaborate shortly. This is a strong proof of how we leveraged our supply chain and managed our business effectively to serve our users better. Another proof is that our core categories, including 3C and home appliances, continued to benefit from our robust supply chain capabilities. which enable us to provide steady supply at low prices and high quality services at the same time. As a result, we further gained market shares in these core categories in the quarter. During the quarter, we observed strong user engagement trends, including higher purchase frequency and our pull on our app, in particular, The number of repeat customers continued to grow by double digits, while the average GMV per user increased by high single digits. The number of JDplus members continued to grow over 20% year over year and reached 36 million in Q2. All these are strong testaments that are on top of our speed and quality. User recognition of our improved selection and value gets stronger as our supply chain capabilities continue to serve as the bedrock of our resilient business performance. In the last two quarters this year, we have been heads down executing our strategic priorities including our platform ecosystem, and enhancing our customer experience with superior selection, speed, quality, and value. As we have talked a lot about our business development today, now I'd like to share some color on the progress of our organizational restructuring. We launched this initiative in Q2 in which we focused to flatten our management structure and delegate greater decision-making power to the operational units that are closer to users. Our goal is to improve organizational efficiency and incentivize entrepreneurship, even at the frontline level. So far, the restructuring is progressing as expected. We've completed reassigning responsibilities and citing KPIs for each of the operational units and are now in the process of tracking and assessing execution as well as further streamlining the nodes in operation and iterating our business supporting systems. The restructuring involves a lot of efforts and it takes time to bring its effectiveness into full play, but we've seen that Under the new structure, our operational units are more incentivized and showcase enhanced professionalism and executive capabilities. It's really encouraging to see our decisions and efforts start to pay off and yield early positive results. As DD continues to execute these strategies, from a long-term perspective, We are more confident than ever in our ability to deliver healthy and sustainable growth and continue to seize new opportunities to innovate and drive our business goals going forward. At our 20th anniversary this June 18th, we introduced our ambitious 35711 vision. The vision includes our goals in the next 20 years of establishing three enterprises with over one trillion RMB in revenues and seven billion RMB in net profits, having five JD subsidiaries ranked on the Fortune Group 500 list, and seven publicly listed companies with over 100 billion RMB market cap, while contributing 100 billion RMB in taxes and creating over one million jobs as a group. This is a vision that outlines both the path for sustained growth for the next 20 years and our commitment to positive social impact. It also highlights our unshakable confidence in and commitment to China's long-term economic development. As we look ahead to the second half of year and the future, we are focused on the healthy growth of our business and investing in exciting new opportunities, driven by our unchanged long-term strategies that center around cost, efficiency, and customer experience, and a deeper sense of mission. We believe we are well-positioned to create long-term value for our users, business partners, shareholders, and the society at large. With that, I'll turn it over to Ian for our financial highlights. Thank you.
spk07: Thank you, Sandy. Hello, everyone. We're happy to report that JD delivered both revenues and profitability ahead of our expectation. We continue to execute our proactive business development and made solid progress across several of our priorities. including building a robust marketplace ecosystem, enhancing user mind share, our value propositions of selection, speed, quality, and value, and delivering healthy profitability. Such results validate our strategic focus, and we're confident in the underlying strength of our business momentum. With that, Let's turn to our financial results in Q2. Our net revenues grew by 8% year on year to RMB $288 billion in Q2. Breaking down the revenue mix, product revenues were up 3% year on year in Q2. By category, electronics and home appliances revenues grew by a remarkable 11% year on year in Q2. mainly driven by the strong growth of home appliances and mobile phones, both of which have outpaced the industry growth during the quarter. Our further reinforced market leadership in these categories showed our strong user mindshare, robust supply chain capabilities, and industry-leading service quality, which are all key differentiators for JD. General merchandise revenues were down 9% year-on-year in Q2, primarily due to the soft performance of our supermarket category, which was partially impacted by the relatively high base in the same period last year due to COVID. That said, I would like to reiterate our confidence in supermarkets' future performance as its operating efficiency has improved significantly. with a healthier product mix. Service revenues grew by 30% year-on-year in Q2, of which marketplace and marketing revenues were up 9% year-on-year. I would like to highlight that revenues generated by SERPAT in merchants grew faster than 1p in the quarter, driven by 3p advertising revenues. As we roll out more supportive measures for merchants, we saw notable acceleration in merchant-based expansion in the quarter. It's also encouraging to see that our traffic conversion rate had a meaningful improvement that indicates our traffic allocation algorithm is driving co-development of our 1p and 3p business effectively. Turning back to our service revenues, Logistics and other service revenues grew by 52% year-on-year in Q2, excluding impact from DEPON's consolidation. Organic growth of logistics and other service revenues was 12% year-on-year. Now, let's turn to our segment performance. JD Retail revenues grew 5% year-on-year in the quarter as we continue to fine-tune our operations that focus on improving efficiency and building core capabilities since Q4 last year. Regarding JD Retail's profitability, gross margin continued to expand year-on-year in Q2. Our proactive efforts have clearly driven higher operating efficiency of our supply chain, even as we took firm steps to address value on our platform. JD Retail's non-GAAP operating margin came in at 3.2%, slightly declined compared to Q2 last year, as we made proactive efforts to invest in user experience. which has already started to show in the improvement of our user engagement. The slight year-on-year operating margin decline was also partially due to an abnormally high margin in Q2 last year on the COVID impact, when we aggressively cut back operating expenses, including marketing spending. We maintain our goal to drive sustainable growth and improve profitability of our core retail business in the long term. In terms of users, as we continue to expand supplies and address value on our platform, JD Retail saw a year-on-year increase in user shopping frequency and retention in Q2, which led to a higher average GMB per user in the quarter. This was also partially contributed by the expansion of our core user base. Overall, we're happy with strong user quality metrics, which is a result of our focus on user quality and user experience. JD Logistics saw a 31% revenue growth year-on-year in Q2, excluding the impact of consolidation of DAPON. The growth rate was 5%, thanks to the resilient growth from external customers in Q2. Revenues from external customers reached 69% of JD Logistics' revenue. In terms of profitability, JDL's non-GAAP operating margin was 1.2% in the quarter, a jump of 113 bps from a year ago, primarily driven by its optimized business structure and customer mix and better economies of scale. and business expansion. Dada reported revenue of RMB 2.8 billion and non-GAAP operating loss of RMB 29 million for the quarter, a substantial improvement compared to a year ago, primarily driven by better operating efficiency and the economics of scale. Intracity on demand retail business remains an important pillar in our strategic positioning. And we're encouraged to see that Daojia and ShopNow have expanded to cooperate with 300,000 offline stores and are providing on-demand retail services in more than 2,000 counties, districts, and cities. Revenue from new business come down to RMB 4.3 billion in Q2. as we further scaled back Jingxi and international business on a year-on-year basis, while JD property maintained its robust growth momentum. New business saw a turnaround of profitability and recorded an operating profit of RMB $1.1 billion, primarily due to the gain from the third core fund closing of GDP in Q2, as well as the narrowing losses from Jingxi and international business both of which were minimal for the quarter. Moving to the consolidated bottom line, we recorded RMB 8.6 billion non-GAAP net income attributable to ordinary shareholders in Q2, up 32% year over year. Non-GAAP net margin reached 3%, up 55 bits from a year ago. which set a new record for our June promotion quarter. Finally, our last 12-month free cash flow as of June 30 was RMB $33 billion, increased by 21% on a year-on-year basis. This was mainly driven by our improved profitability, which led to a higher operating cash flow, as well as further optimized cash conversion cycle. To conclude my remarks, as we continue to improve our operations, we saw multiple encouraging trends in Q2. We are confident that we'll emerge stronger with a healthy and sustainable bin structure and enhanced core capabilities to unlock our growth potential. With that, I will turn it over to Sean. Thank you. SEAN WOHLTMAN- Thank you, Ian. For the Q&A session, you are welcome to ask questions in English or Chinese. And our management will answer your question in the language you ask. We'll provide English translation when necessary for convenience 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.
spk08: The question and answer session of this conference call will start in a moment. In order to be fair to all callers who wish to ask a question, we will take one question at a time from each caller. If you wish to ask a question, please press star then one on your telephone and wait for your name to be announced. If you wish to cancel your request, please press star then two. If you are on a speakerphone, please pick up the handset to ask your question. If you have more than one question, please request to join the question queue again after your first question has been addressed. The first question comes from Ronald Kung with Goldman Sachs. Please go ahead.
spk02: Thank you, Sandy, Ian, and Sean. Thank you, let me translate it first. Congratulations on the second quarter growth performance. I exceeded management's own expectations with the electronics appliance being strong and faster 3P growth versus 1P. I just want to hear management's view on the performance by categories in the second quarter and the outlook for these with your business restructuring and the KPIs that you're tracking and the outlook just for overall growth into the second half taking into the account of macro and the business restructuring. Thank you.
spk04: Thank you for your question. Although the second wave continues to face the challenges of the external environment, including the recovery of consumption, we are still firmly following our land policy and the strategy of open ecology. At the same time, we are also continuously promoting the optimization of our organizational structure. These measures have exceeded our initial expectations. In terms of overall 2G consumption pressure, you can see that our consumption model is very resilient. Through our continuous enhancement of the supply chain capability, in the whole big vinegar season, we also ensured that our high-quality product members can be more stable, the price is also more competitive, and the service is also more guaranteed. All of these have led to our core priority category, especially the power supply category, to continue to acquire market share. China China China China China China China Thank you, Ronald, for your question.
spk05: Despite challenges in the microeconomic and consumption landscape during Q2, we have remained dedicated to solidifying user mindshare towards our price competitiveness, fostering an open platform ecosystem, and moving forward with our efforts to further optimize business structure. The outcomes achieved thus far have surpassed our expectations. JD's business model has shown remarkable resilience in the face of the ongoing consumption environment. By constantly enhancing supply chain capabilities, we have ensured a more reliable product supply at lower cost and high-quality services during the promotional season, resulting in further market share expansion in our core advantages categories. For instance, as the retail estate market and demand of durable goods are still recovering, the overall home appliances market has faced pressure. However, JD's home appliances business meaningfully outperformed the industry and continued to gain market share. We attribute this achievement to JD's strong user mindshare and match the shopping experience we provide and the competent supply chain that we have been diligently built over the years.
spk04: Furthermore, our three C categories showcase the strong performance
spk05: This can be attributed to our robust supply chain capabilities, competitive pricing, and deep user mind share, exceptional shopping experience, including convenient trade-in services, and our active development in the O2O market. Notably, our sales of mobile phones achieved a double-digit growth rate in Q2, surpassing the industry level.
spk04: As I mentioned in the opening remarks, we have achieved great progress in the construction of the open space this year. The scale of the business and the supply of goods have expanded rapidly. The GMV of the third-party business has also been accelerating growth in the past two seasons. So as I just mentioned in my opening remark, it is worth highlighting that
spk05: we have made significant progress in the development of an open platform ecosystem this year, with both merchant base and product supply expanding at a faster pace. A growth of 3 PGMV has also accelerated over the past two quarters. Moreover, since the start of the year, despite we have introduced a series of supporting policies for our new merchants, such as lowering platform service fees and take rates, Our 3P revenue growth rate continued to outpace that of 1P in the first two quarters, remaining a double-digit range.
spk04: Of course, we also need to continue to improve and improve our products and businesses, especially in the second quarter. We can see that the market is still facing adjustments in business and commercial products. And after the end of the epidemic, the cost of consumption has returned to the line, and last year, the epidemic spread to high numbers, and so on. This has caused us to face some challenges in the short term. However, the number of POPs and products in the commercial industry is constantly increasing. In this regard, we continue to strengthen our self-sufficiency and optimize our contracts. We believe that through the adjustment of our strategic landing organization structure, we will gradually reflect that the commercial industry will return to a healthier growth trend in the second half of the year. For the long term, we believe that the commercial and foreign products are still the most important growth driving forces in the capital.
spk05: Certainly, there are other categories that require continued efforts and improvement. For example, the supermarket category's growth momentum is impacted by the category mix optimization and also the resurgence of the offline promotion after the COVID and a high comparison base from the previous year. However, we have witnessed a significant increase in the number of third-party merchants and product offerings in the general merchandise categories on our platform, including the supermarket category. We're also continuing to strengthen our supply chain capabilities and optimize fulfillment. Our strategic execution and organizational restructuring efforts are gradually yielding results, providing momentum for healthier growth in the supermarket category for the second half of the year. For long-term perspective, We firmly believe that our supermarket category holds immense potential as a key driver for the growth of JD.com.
spk07: Okay, Ronald, I'll answer your next question. Regarding the strategy, when we promote low-cost new products, we speed up the performance of users. In Q2, we saw that users' indicators were good. Our primary focus is our user performance as we promote the strategy for price competitiveness.
spk05: we saw improving user engagement trends, especially both Apple and the scale of our core user base continued to grow. These trends indicate that our efforts to enhance user experience have been successful in earning greater recognition among them, as well as their wallet share.
spk07: For example, with the 100% 100% of market attention, we saw a 100% increase in the purchase rating of users.
spk05: take the 10 billion subsidy program for example the program has been effective in boosting shopping frequency and across category purchases on the platform and also the platform sorry also the program contributed meaningfully to attract new users and activate low shopping frequency users.
spk07: Secondly, for the open environment, we are more concerned about the richness of business and products, as well as the efficiency of business operations. Since the beginning of the year, we have simplified the process of business entry, and also increased the serviceability of the business, including reduced operating costs. Secondly, in terms of our open ecosystem, we place significant emphasizes
spk05: on the diversity of merchants and products, as well as merchants operating efficiency on our platform. Since the start of the year, we have simplified the joining procedures for merchants and increased our supporting measures for them, such as lowering their operating costs, providing more operating tools, and setting up clear guidelines for merchants, et cetera. As a result, we have witnessed a rapid growth in the number of new merchants joining our platform and recorded a three-digit year-on-year increase in merchant base in Q2. By enriching our pool of merchants and expanding our product offerings, we are better able to meet the diverse shopping demands of our users. This will serve as a key driver for our future revenue and profit growth.
spk07: Thirdly, in terms of the improvement of supply chain capabilities, it is directly reflected in the fact that we provide excellent services to consumers This can be proven in terms of the market share of our core priority products. At the same time, the ability of the supply chain also helps to continue to improve our exchange rate.
spk05: Thirdly, we've been taking efforts to enhance supply chain capabilities. A direct reflection is that we are able to continue to provide high-quality services to our users while promoting the strategy for price competitiveness. This is also demonstrated by our further market share gain in our core categories. At the same time, our supply chain capabilities also help us to deliver consistent growth in our fulfillment growth margin.
spk07: As we discussed before, the most important KPI of all strategies this year will still be the GNV profit and cash flow.
spk05: So I just want to add that as we previously shared. So for this year, our focus of KPIs will be focused on our GMV, profitability, and cash flow. Thanks.
spk07: Thank you. The third question is, as Sandy shared in her opening speech, the current macroeconomic and industry environment is relatively uncertain. However, And your last question regarding the outlook of the second half of the year, as Sandy shared earlier, despite uncertainties from the macroeconomic and industrial environment, our business has continued to demonstrate healthy improvement.
spk05: we will remain committed to our long-term strategies and are confident that our core business growth will maintain robust momentum. Thank you.
spk07: Thank you, Ronald. Next question, please.
spk08: The next question comes from Thomas Chong with Jefferies. Please go ahead.
spk00: Good evening. Thank you, Senator Sean, for accepting my question. My question is about our 3P strategy. Mr. Guan, can you share with us your opinion on the future of 3P's GMV ratio and future prospects? Another question, we also mentioned that there is a rapid growth in the number of buyers. I also want to ask how we see the latest update of our expansion in the market. Can you share with us? France Management for taking my questions. My first question is about our 3P strategies as well as the GMV contribution in future. And my second question is about our category expansion strategies. Can management share the latest updates given we are seeing a very fast growth in the number of merchants? Thank you.
spk07: OK. Let's answer the number of business owners first. In terms of the specific business owners and their categories, there are three main sections. The first is the entry level. In terms of the entry level of the business owners, we will increase our business entry level and reduce the entry threshold of the platform. At the same time, we will greatly reduce the cost of entry and delivery, and reduce the cost of fixed cost.
spk05: So first I will answer your questions on the users' recruitment. So there are several measures. So first of all, we will expand our efforts in attracting merchants. and also lower the barriers and making it more streamlined to welcome our platform and streamline the processes and also bring down the fixed cost for the merchants to operate on our platform.
spk07: We will promote fair competition on the platform, including between Zeein and POP, as well as between POP merchants. Secondly, on the merchant's operating side, we will foster a fair environment for everyone to compete on our platform.
spk05: This competition is not only between our 1P and our 3P merchants, but also among our pop merchants. So we will make a very clear growth path for the merchants to grow their business on our platform, which is in line with our value propositions and do adequate publicity and the promotions among our merchants.
spk07: And also we will provide sufficient tools
spk05: to support our merchants to operate on the platform, including the data support, and also the cultivation of their skills to operate on JD's platform to improve their operating efficiency.
spk07: As I mentioned before, I am not in the final Q2. The Q2 effective number of merchants achieved the growth of the same three numbers. As to the achievements for this quarter, I just mentioned earlier that the overall number of merchants in Q2 grew by three digits, and especially we see the increasing number of merchants
spk05: from the categories of supermarkets, fashion, homes, et cetera. And their 3P revenues also grow at a double-digit rate, which are all higher than the 1P revenue.
spk07: For the 3P revenue, I would like to emphasize that 1P and 3P overall serve our consumers as the center of value, as well as how much is good.
spk05: So for the outlook of our 3P business, so overall, we just want to reiterate that both 1P and the 3P, we're developing to be aligned with our consumer-centric value proposition, which is superior selection, speed, quality, and value, and with the ultimate goal to increase their wallet share on JD.com.
spk07: So we will do our best to strike a balance
spk05: between cost efficiency and consumer experience. So, to allow our users to choose between our 1P offering and 3P offerings based on the products, price, services. So, to do our best to cater to the diversified needs of different users. So, our long-term objectives for our 3P is to have its proportion of GNV account for about 60% of the overall GD platform.
spk04: Okay, let me add on the quantity of products. First of all, in the second half of the year, or in the third quarter, we will still face a relatively slow recovery in terms of consumption. In addition, this year there are also high-temperature miscarriages, and there is also a certain uncertainty in the sales rhythm of new mobile phones. These red flags and industry factors will actually affect our performance in the fourth quarter and the second half of the year. We also believe that in such an environment, Dingdong's supply chain capacity will also be easily released, and our operations will also be more resilient. So we are still confident, including home appliances, mobile phones, and other domestic power supplies or advantageous products, will still maintain the advantages of leading the industry and the performance of the industry.
spk05: And also I would like to share more about on the category side. As we see the economy recovery, it's still in ongoing situations and affected the mismatches of the high temperatures and the different time scheduling of the cell phones, et cetera. However, it is important to note that the overall performance in Q3 is not only influenced by the macro environment consumption trends, but also these kind of seasonalities. And additionally, there are ongoing efforts from our proactive efforts to further optimize our business structure. Nevertheless, overall, we are confident in the development, momentum, and improvement of the health of our business.
spk04: We just mentioned that we expect the commercial products to be better in the second half of the year. It will be better than the first half of the year. And as mentioned earlier, we expect for the supermarket category to show an improving trend with better growth rate
spk05: in the second half of the year compared with the first half. With our dedicated focus on enhancing the operational quality of this category, such as optimizing product category mix, improving sales channel structure, and enhancing operational capabilities, we are confident to see positive profitability trends of the supermarket category. Long-term speaking, supermarket category remains one of the key drivers of our growth.
spk04: In the session category, we remain committed to expanding brands and merchants in reaching product offerings, optimizing the category structure and traffic allocation
spk05: By focusing on these key areas, we aim to maintain an improving growth trajectory of the fashion category.
spk07: Thank you. Let's take the next question, please.
spk08: The next question comes from Alicia Yap with Citigroup. Please go ahead.
spk03: Hello. With the first half and the 618 promotion event behind us, can management share with us how do you rate your own execution performance so far year-to-date, which areas you believe JD has met your initial expectation, and which areas JD still need to improve or need to modify initial strategy to achieve the performance that you want. Thank you.
spk04: Thank you, Alisha. As I mentioned earlier, the few projects that we have been promoting in the first half of this year, including the day-to-day low price, platform ecology, etc., have achieved some periodical results. We have also seen that in terms of users, we have actively adjusted the price strategy this year to improve the users' experience of a series of stable landing actions, and consumers have a very obvious sense that the results are better than expected. However, Thanks, Alika. So I just mentioned that actually in this quarter, we have taken measures
spk05: to promote our everyday low price and to foster our open platform strategies all have seen some positive progress. So on the user side, we've steadily implemented a series of actions to further optimize our price strategies and enhance user experience, which has been well received by consumers, exceeding our expectations. Whereas with the success of the grant promotion, also indirectly proves that users still have a very strong mentality towards promotions, which also means that it takes a relatively long period of time for users to change their mindset. Therefore, our commitment to promoting the everyday low-price daily sales model needs time and dedication.
spk04: And on the merchant acquisition part,
spk05: It also takes time for the marketplace ecosystem to flourish. And although we have made good progress in attracting merchants, there's still significant room for improvement in platform operations and traffic allocation mechanism, et cetera.
spk07: Okay. Thank you, Alicia. Let's take the next question, please.
spk08: The next question comes from Eddie Wong with Morgan Stanley. Please go ahead.
spk01: Thank you for accepting my question. I have a question about the new business. We saw that there are rumors that we may have to start over. But if you look at the second quarter, the whole new business is very weak. So I want to ask, from a company's perspective, in the next 12 to 18 months, what will be the focus of our new business? I will translate it myself. Thank you, management, for taking my question. My question is on the new business. We have heard some news flow talking about we will refocus on ping-ping business. But if you look at the second quarter, the narrow loss of the new business actually has been quite significant. So I just want to ask what's our focus of the new business in the next 12 to 18 months? Thank you.
spk04: Our strategic focus or business focus has always been focused on the improvement of supply chain capabilities, open environment construction, and the long-term capability of real-time sales. In this context, real-time sales, as well as recent upgraded small and medium-sized businesses, are one of our main strategies for the new retail industry. Creative new retail businesses include P&P, and other business integrations. More importantly, it is to promote the coordination of their supply chain, In fact, these businesses are still in the trial stage, mostly in the exploration mode. Explore our business conditions, supply chain coordination can generate greater synergy. Even in some markets or cities, this mode is verified. In fact, it also requires the promotion of one city by one city. Thank you, Adi.
spk05: Our primary focus remains on enhancing our supply chain capabilities, establishing an open ecosystem, and developing on-demand retail and other long-term capabilities. On-demand retail includes our recently updated ShopNow service, which is a key component of our new retail strategy. Our innovative retail business integrates our Pingping Community Group buying business, distributed warehousing, and 7Fresh. Its main purpose is to create synergies within our supply chain operations. Currently, we are in the experimental phase testing different models to enhance synergies in supply chain and to generate a higher revenue to meet customers' demands and improve their shopping experience. Even when the business model proves viable in certain markets, we still will take a step-by-step approach and to test it city by city. So overall, the investment is manageable. It won't affect our expectations for the four-year profitability.
spk04: Yeah, I think the English should be to generate higher synergy instead of higher revenue. So scale is not our top priority for these new businesses at this stage.
spk06: Thank you. Thank you, Andy.
spk07: Okay, let's take the last question, please.
spk08: And that question comes from Kenneth Fong with Credit Suisse. Please go ahead.
spk06: Hi, thank you for accepting my question. I have two questions. The first is about this e-commerce platform. I see that everyone is focusing more and more on the low price. I feel that the platform is becoming more and more synchronized. I also see that many users are also going to cross-platform to compare, and it is becoming more and more common. I would like to ask, how should we think about the competition with other platforms in the Middle East? And what about the future development of the e-commerce industry in China? Thank you, management, for taking my questions. My first question is that we noticed that the e-commerce platforms increasingly use low-price strategy as a key focus and key initiative. Users are more frequent to compare prices among different platforms, and platforms are also becoming more commoditized and similar. How would JD differentiate going forward, and how should we think about the development for the overall China e-commerce industry going forward? And my second question is that we noticed that we are reentering the community group trade chase. Can you share with us a strategy and how it would differ from Jingxi that we invested before? Thank you.
spk04: Okay, thank you for the question. I think the first question is about e-commerce platform, the question of synchronization and low price. From the perspective of Jindong, we are actually always focused on our supply chain infrastructure and our differentiated competitive advantage. We are also surrounding the supply chain and user experience to constantly build our core capabilities. On the one hand, to ensure quality, low price and stable product supply. At the same time, it can accurately match these products to the right users, provide better shopping experience for users, and continue to win the trust of users. In fact, what I want to emphasize is that not only is it an e-commerce platform, but the retail business has been very important and low-priced since its birth in history. So that's why we put this Thank you, Connie. At JD.com, we have constantly focused on strengthening our differentiated competitiveness.
spk05: So our core advantages lies in our supply chain-based business model. By continuously developing our capabilities on supply chain and user experience, we can guarantee high-quality, low-price, and reliable product supplies. And also, we can effectively match products with our users, creating a superior shopping experience and further building users' trust in Didi.com. And I also want to reiterate that for not only e-commerce, but all the retailers from day one of our existence, our core competitiveness or the essence of our business is the low price. So that's why we have always anchored on our business philosophy, cost efficiency and customer experience. So in fact, actually, we're very welcome and we're looking forward to welcome our users to compare prices across platforms before they place the order decisions. as we are very confident in our supply chain capabilities and the low price and high quality services we can provide based on our distinct 1P services, which benefit from our scale advantages.
spk04: Yes, as I said at the beginning, we will continue to strengthen and strengthen our own advantages, continue to play and strengthen our experience in both fast and good aspects, and continue to strengthen the trust of users. On the other hand, we will also gradually make up for our own shortcomings by introducing more businesses to enrich our platform ecology, and increase the diversity and richness of supply and demand to meet the different needs of users.
spk05: So as I introduced earlier that we continue to focus on strengths and users' mindshare towards our superior selection, speed, quality, and value offering. So now we want to leverage our established advantages in speed and quality while at the same time we're continuously working on expanding our platform ecosystem by attracting more merchants and enhancing its diversity and richness. This will enable us to cater to more verified demands of our users to work more on the selection and battle part.
spk04: At the same time, we have also done a lot of work to ensure and improve customer experience, including, first of all, to strictly maintain the standard threshold and product management of platform merchants. Second, to increase the scale and effect of self-sufficiency business, drive revenue costs, continuously reduce user tolerance, and at the same time, to improve the service standard of self-sufficiency to ensure the best user experience in the heart of self-sufficiency.
spk05: So at the same time, we have made significant efforts to ensure and improve the user experience, including first, maintaining efficient management for merchants' entry and product management, and secondly, continuously enhancing the scale effects of our one-day business to drive down procurement costs and pass on the benefits to users. In the meantime, raising the standards of our 1P services to ensure the best user experience. And lastly, emphasizing on the core criteria of product, price, and service in our platform operation. Yes.
spk04: Regarding the community group purchase business, I mentioned before when I was communicating with everyone that our PINPIN business team has always been there. After the adjustment of business last year, the core team will focus on Beijing and surrounding areas to continue exploring the local short-chain supply chain model, especially the raw product category, and continue to optimize product experience and system processes to improve the benefits of this operation. At the moment, the PVE business is still in the small-scale market, and the overall investment is relatively controllable.
spk05: As regards to PINPIN, we have mentioned previously our community group buying business and its team have maintained its presence throughout. Following our business optimization last year, PINPIN has shifted its focus to Beijing and the surrounding regions. The team is now exploring the local short-chain supply chain model, especially on fresh products, refining its product offerings, enhancing user experience, optimizing business processes, and improving its UE. Currently, Pingping is conducting small-scale pilots to test this model, and the overall investment is manageable.
spk07: Thank you. Thank you, Kenny.
spk08: We are now approaching the end of the conference call. I will now turn the call over to JD.com's Sean Jung for closing remarks.
spk07: Thank you for joining us on a call today and for your questions. If you have further questions, please contact me and our team. We appreciate your interest in JD.com and look forward to talking to you again next quarter. Thank you.
spk08: Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect. Good day, good evening.
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