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spk02: Hello, and thank you for standing by for JD.com's third quarter 2023 earnings conference call. At this time, all participants are in a listen-only mode. After management's prepared remarks, there will be a question and answer session. Today's conference is being recorded. If you have any objections, you may disconnect at this time. I would now like to turn the meeting over to your host for today's conference, Sean Zhang, Director of Investor Relations. Please go ahead.
spk06: Thank you, operator. Good day, everyone. Welcome to JD.com third quarter 2023 earnings conference call. For today's call, CEO of JD.com, Ms. Sandy Xu, will start with her opening remarks, and our CFO, Ms. 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. 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 press release. Also, please note, all figures mentioned in this call are in R&B. And as otherwise stated, now let me turn the call over to our CEO, Sandy.
spk03: Thanks, Sean. Hello, everyone, and thanks for joining us today to discuss our Q3 results. We continue to see this development across many of our operating and financial metrics, and we saw a robust performance for our single-day grant promotion with double-digit order growth and many innovations. The successful promotion further amplified our efforts to bring lower cost, higher efficiency, and superior customer experience to our customers and business partners. This is JD's operating philosophy, which we have been committed to since day one. User experience is at the center of our operating philosophy, and we have gone extra mile to further improve our user experience. Let me share some recent highlights. In Q3, we expanded free shipping coverage for our users by leveraging our improved logistics capabilities. We lowered the minimum order value for free shipping services from 99 RMB to 59 RMB for all users and offered JDplus members unlimited free shipping for 1P products. As always, JD.com customers will continue to enjoy our premium so-called 211, R11, same and next day delivery services. JD's live streaming sessions hosted by our own category managers proved very popular with users and brands during our single day promotion. What's unique about JD's live streaming is that not only are the category managers the experts for the products they bring to the shows. They are also empowered by JD's supply chain capabilities. And they don't charge any additional commission fees. This means that they can bring a great selection of products to our users at excellent prices. Customers and brands have embraced this new live streaming format as they benefit from the streamlined cost structure and superior value. As a result, our live streaming sessions hosted by category managers attracted over 380 million viewers in total during the promotion period. We also stepped up our after-sale customer service by increasing the coverage of our industry-leading instant refund and one-click for best price guaranteed services. both of which are increasingly resonating with our users. All these efforts to improve our customer service quality and user experience have been reflected in higher user engagement, as we saw an accelerated growth of user order frequency in Q3 compared to the past six quarters. Beyond the recent efforts, to improve user experience. We are very focused this year on investing in long-term key capabilities to drive sustainable growth, namely our strategies to build a differentiated platform ecosystem and improve everyday low price, or ETLP mindshare. I would like to spend some time to share with you our thinking on why this is the right direction for JD and on the progress we have made. Let me start with our platform ecosystem. Providing the best-in-class user experience is at the heart of everything we do. Our platform ecosystem allows our 1P and third-party business to grow in a complementary and sustainable manner and together serve our customers better. By ensuring both 1P and 3P sellers follow the same operating philosophy, and can compete and thrive in a comprehensive platform ecosystem, JD is best able to provide consumers with a superior user experience. As such, we never drive one business model at the cost of the other. On the warranty side, JD's leading supply chain capabilities and scale advantages provide users high-quality products at competitive prices and greater customer experience. This will always be a key offering and differentiator for JD. And our 3P marketplace gives us the flexibility to expand into new product categories where it is difficult to achieve the same level of efficiencies we have under our 1P model. So in the face of consumers rapidly evolving demand, and increased price sensitivity, our 3P marketplace allows us to efficiently serve customers with a diverse selection. What is our approach? The essence of what we are doing to build our platform ecosystem can be summarized in the following key steps. In addition to our 1P suppliers, it's equally important to encourage our 3P merchants to embrace and adhere to the same operating philosophy that we have been committed to over the last 20 years. To do this, we are investing tremendous efforts to improve our platform ecosystem, including traffic allocation, algorithms, operating tools, and infrastructure to encourage and empower the 3P merchants. While setting clear rules and stepping up our platform governance efforts, to enhance risk management. On top of this, we are working to ensure that positive behaviors of 3P merchants are rewarded. The main goal is to incentivize 3P merchants to follow our operating philosophy and align their performance with our commitment to improving user experience. For example, we have established a scoring system based on the key elements underpinning our operating philosophy, including price competitiveness, product and service quality, as well as store rating. The score system applies to both our 1P and 3P merchants in a fair and transparent way, and merchants are able to review and track their scores across different aspects. Once they're embedded We then embed these scores in our traffic distribution algorithm to create a virtuous cycle. We continue to strengthen our 1P business model in the areas where it generates higher efficiency and delivers better user experience. At the end of the day, it is the choice of our users to pick either 1P or 3P. I want to reiterate that we will not drive 3P development at the cost of our 1P business. What we do is to create a platform ecosystem that enables both 1P and 3P to compete on a fairer ground and better serve our customers. Looking to how we track and measure our progress, To evaluate the long-term success of our platform ecosystem, we look at a set of key operating metrics. We were encouraged by the continued rapid growth of active 3P merchants and growth of 3P orders and active users who purchased from our 3P merchants in Q3. Even though 3P monetization is not our priority in the near term, we have been delighted to see continuous double digit growth in 3P advertising revenue, especially driven by the improving engagement of new merchants on JD's platform. On 1P side, we were happy to see improved user experience as evidenced by increased users NPS. Building JD's unique platform ecosystem is a long-term commitment. and we are still at the early stage of realizing its potential. We believe the set of operating metrics are moving in the right direction. We are determined to continue our efforts to strengthen our capabilities and build our unique platform ecosystem. Now let me continue to elaborate on the thinking behind our efforts this year to improve our EDLP mindshare. What does low price mean in JD's case? At JD, low price means improving our price competitiveness across different product categories, particularly the branded products and expanding selection for white label products to cover a wider price range in order to show up what we lacked in the past. I want to clarify some of the market misunderstanding here JD is now shifting our focus away from our core competency in branded products or serving the top-tier market. On the contrary, we are further enhancing this strength by improving our price competitiveness. Also, we'll never allow any bad quality or counterfeit product on JD's platform while we provide low price. Our low price commitment does not mean to pursue absolute low prices at the expense of other aspects of user experience, such as product quality and service. Why we need to improve our price competitiveness? Price competitiveness is the most important value proposition for retail business, and one of the most important pillars of JD's customer-centric philosophy. Our focus on price competitiveness drives us to continually strengthen our 1P supply chain capabilities, improve efficiency, and sharpen our abilities to foster a prosperous platform ecosystem where healthy competition among merchants and suppliers are encouraged. All these drive better user experience, which is key to our long-term success. Both our 1P and 3P marketplace play a critical role in this. In our 1P retail business, we are relentlessly driving down costs, improving operating efficiency along our supply chain through technology and scale, and passing on the efficiency gains to our customers. This is a sustainable way to ensure price competitiveness and enable us to fulfill our commitment of offering EDLP for our great products and service. A key part of our low-price strategy is focused on 1P retail business, especially on branded products. To supplement this, on the 3P side, we aim to onboard merchants that offer diverse product selections covering a wider price range. Merchants are rewarded for offering low prices, great selections, and good services to our customers based on the positive traffic feedback mechanism that we are building. Since the beginning of this year, we have launched a series of new initiatives to enhance our value creation for customers. Our category manager-led live streaming during the single-state promotion was a good example. Another example is that we continue to enrich the value-for-money selection of 3P products within our 10 billion discount program, and we saw 3P GMV contribution to the total of this program increased to over 50% in 2020. And lastly, how to track and measure our progress on low-price or EDLP man-share buildings. We tracked the trend of key customer metrics including customer NPS and engagement. While the structural change in NPS may take longer time to shape, we are seeing strong early progress in user engagement as evidenced by the double-digit growth of order volume and a pool of users from lower-tier markets. We also note that growth of low-key size orders accelerated an outpace the total order growth in Q3. All these are strong testments to our early progress in EDLP Man Shared Building. We look forward to sharing more with you on the progress of our key initiatives in coming quarters and we look ahead to the future. We will continue adhere to our operating philosophy and execute our strategy to provide the best customer experience. We believe it will guide us to achieve a high-quality, sustainable growth and win-win value creation 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.
spk06: Thank you, Sandy, and hello, everyone. In the third quarter, we delivered a stable top-line performance facing a mix of gradual macro recovery, seasonality, and a high base, while we continued our proactive strategic refocus. Our bottom line maintained healthy momentum with non-gap net margin hitting all-time high, which enabled us to invest in user experience in a sustainable way. As Sandy mentioned, We saw improvement across many of our operating metrics, and we are on the right path to strengthen our core capabilities, enhance price competitiveness, and build a platform that allows both 1P and 3P to better serve our users, even though these efforts may not be fully reflected in the short-term financial results. With that, let me turn to our Q3 financial performance. Our net revenues grow by 2% year-on-year to RMB 248 billion in Q3. Breaking down the revenue mix, product revenues were down by 0.9% year-on-year. By category, electronics and home appliances revenue were flat year-on-year, primarily due to seasonality and a high base from last year. That said, This category continues to outpace the industry in Q3 and in the first nine months this year. Once again, it shows our strong user mindshare and robust supply chain with industry-leading service capabilities. General merchandise revenues were down 2% year-on-year in Q3, as the supermarket category is still recovering. The decline continues to narrow compared to the first two quarters this year. and we started to see positive signs from supermarket and fashion-related categories, such as increased order volume, higher user shopping frequency, and healthier product mix. Service revenue grew by 13% year-on-year in Q3, accounting for 21% of JD's total revenues. Within service revenues, Marketplace and marketing revenues were up 3%. In particular, 3P advertising revenues once again recorded double-digit growth for the quarter, which was partially offset by the decline of 3P commission revenues. This is an expected short-term outcome and is in line with our platform strategy, under which we have rolled out a number of cost reduction measures and operating tools to support 3P merchants onboarding and operation. This strategy has produced early results, as we have saw a substantial expansion of active 3P merchant base in the quarter. At the same time, we are also deploying a more effective traffic allocation mechanism for both 1P and 3P to ensure better user experience and the healthy development of our platform. Turning back to our service revenues, logistics and other service revenues go by 19% year-on-year in Q3. Now, let me turn to our segment performance. JD retail revenues increased by 0.1% year-on-year in the quarter as we continue to see headwinds on our short-term financial results from our strategic refocus. We know that. Our core business growth has maintained a healthy momentum, as evidenced by the continued expansion of JD Retail's profitability. Both gross margin and fulfilled gross margin increased to record highs in Q3, despite our investment in low prices and user experience, such as expanded free shipping service. This shows that our low price offerings are enabled by our supply chain capabilities and healthy development of our platform, instead of only by subsidies. JD Retail's non-GAAP operating margin came in at 5.2%, largely flat year-on-year. As we continue to invest in improving user experience to encourage stronger user engagement, and this will help our long-term sustainable growth. We also saw encouraging trends in user shopping behavior in the quarter. JD Plus members maintained a double-digit growth, and the group continued to show high loyalty and strong spending power. Their annual output was eight times of that of non-Plus members in Q3. JD Logistics saw a 16% revenue growth year-on-year in Q3, driven by the acceleration of both internal and external revenues. External revenues accounted for 72% of revenues in Q3. In terms of profitability, JDL's non-GAAP operating margin was 0.7% in the quarter, same as last year. Dada reported revenues of RMB 2.9 billion, up 20% year-on-year, and a non-GAAP operating loss of 52 million for the quarter, a substantial narrow down of 83% compared to last year. This was driven by better operating efficiency and economies of scale. The on-demand retail is still an important pillar for JD. In the quarter, The number of offline stores that cooperate with Daojia and ShopNow expanded from around 300,000 to over 400,000, providing more than 2,000 cities and counties with on-demand retail services covering a wide range of categories. Lastly, revenues from new business were RMB 3.8 billion in Q3, down 24% year-on-year, due to the scale back of our international business. New business operating loss was RMB 139 million in the quarter, a notable narrow down of 85% from operating loss of 953 million a year ago, including the gain on disposals of JD properties assets in Q3 last year. Moving to the consolidated bottom line, We recorded RMB 10.6 billion non-GAAP net income attributable to ordinary shareholders in Q3, up 6%, even off a high base in the same quarter last year. Non-GAAP net margin increased by 17 bps year-on-year to a new record of 4.3%. Finally, our LTN free cash flow As of end of September was RMB 39 billion, an increase of 18% from 33 billion at the end of June, and 52% from 26 billion at the end of September last year. This was driven by our improved profitability and further optimized cash conversion cycle. By the end of Q3, our total cash balance, including cash and cash equivalents, restricted cash, and short-term investments added up to a total of RMB $250 billion. Excluding interest-bearing debts and accounts payable, our net cash balance was RMB $50 billion by the quarter end. To conclude, we have seen a set of encouraging trends during the quarter, and we will continue to firmly execute our strategies on low prices and platform ecosystem to provide better user experience. This will position us for long-term sustainable growth. With that, I will turn it over to Sean. Thank you. Thank you, Yin. For the Q&A session, you are welcome to ask questions in Chinese or English, and our management will answer your question in the language you ask. We will provide English translation when necessary 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 session.
spk02: Thank you. 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 have more than one question, please request to join the queue again after your first question has been addressed. 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 are on a speakerphone, please pick up the handset to ask your question. The first question today comes from Thomas Chong with Jefferies. Please go ahead.
spk07: I would like to introduce my questions. My first question is about our 3P strategy. Mr. Guan, can you share with us a little bit about our strategy for expanding the number of products and products in the next three years in 2021? And then, can you share with us our vision for the future of 3P and the ratio of GMV? My second question is Thank you, Thomas. I will answer these two questions.
spk03: First of all, as I just mentioned, the platform ecology has always been the focus of our strategic direction, whether it is at the group level or at the retail level. We are also continuing to improve the platform ecology construction of our Jindong characteristics, so that the value of Jindong falls and becomes a unified elite concept that Jindong Self-Servicing and 3P merchants can follow. At the same time, we are also constantly improving the infrastructure and tools of our platform, Thanks, Thomas. I will address both of the questions. As I mentioned earlier, the platform ecosystem has always been one of GE's key strategic focus both from the corporate level and also GE retail level.
spk04: and we are continuously refining JD's distinct platform ecosystem. This aims to realize JD's value proposition and establish a unified business philosophy, followed by both our 1P and 3P merchants. And we consistently enhancing platform infrastructure and tools to ensure that both 1P and 3P merchants on JD have ample resources, fair competition, and a shared growth opportunity ultimately delivering an enhanced user experience for all our customers.
spk03: And throughout this year,
spk04: We have streamlined the merchants' onboarding processes, increased the support for the new merchants, especially small and medium-sized sellers, and established clear rules, provided more operational tools, and witnessed historic highs in both total and active merchants. We are pleased to see that the number of healthy merchants maintaining a triple-digit growth rate. Notably, a significant increase in our healthy merchants in the categories of supermarkets, fashion, and home goods. Additionally, the number of active merchants is accelerating, with an increasing number of new merchants gradually finding effective operating strategies to operate on JD and empower their sales growth.
spk03: Just mentioning my script.
spk04: while our ongoing investment in marketing support does not prioritize short-term 3P monetization. We have also observed a continued double-digit growth in our 3P advertising revenue thanks to our increasing engagement of new merchants.
spk03: From the perspective of the users, we also saw an active feedback. The penetration rate of the number of users sold by our three-party business
spk04: And from the users of user-based performance, we've received positive feedback. The penetration rate of users shopping from 3P merchants continue to increase year-on-year, and 3P order volume also achieved healthy year-on-year growth.
spk03: Yes, platform ecology has been our long-term investment direction for the past two or three years. We will continue to grow in this direction to build a unique platform ecology. At present, in my opinion, a lot of our tools, as well as our overall data analysis tools and management rules, actually need a lot of room for improvement. Next, we will continue to move in this direction The platform ecosystem has, in the past two to three years, been our long-term investment direction and we aspire to building a unique JD-style ecosystem. This is an ongoing project.
spk04: And still we are in the early stage of this goal, and there's plenty of room for us to continue to improve our governance and the tools on our platform ecosystem. And we are also making our commitment to create a clearer growth path and a fair business environment for merchants, promoting the mutual prosperity and the development of both 1P and 3P business.
spk03: Regarding people want to shop for 1P or 3P, this will be a natural outcome of our choices from our users.
spk04: And as we see the gradual mature of our platform ecosystem, I think in the long run, the share of 3P orders and GMV will eventually surpass that of 1P. But of course, this will be an ongoing process. 我们的核心目标是通过丰富的产品供给来满足不同用户的多样化需求,不断提高我 们的用户体验。 So our core objective is to meet the diverse needs of different users through a rich product supply, continuously enhancing our user experience. This will be one of our essential drivers for the sustained growth of our long-term revenues and profits.
spk03: Today, we have issued an announcement that the new president will leave the position of retail CEO and will have other responsibilities in the group. Since the CEO of Jindong Retail in September 2021, the new president has been leading the team to face various challenges and constant changes in the external environment and industry, and has also led the retail team to continue to introduce partners. Yeah, and then to answer the second part of your question, we've announced today that Mr. Xin Lijun will leave the role of CEO of JD Retail for another appointment by the company.
spk04: Since Mr. Hsin assumed the role of CEO of JD Rachel in September 2021, in case of development of external environment and industry, he has led the team to successfully expand collaborations with business partners and strengthen user mindshare, making significant contribution to the business. We truly appreciate Mr. Hsin's dedication, and I believe he will continue to play a vital role at other positions at JD.com.
spk03: Yes, retail business is our core business with the highest income ratio, and it is also the foundation of other diversified businesses in the Middle East. Next, I will continue to work hard to promote retail as the core strategic ground for cost-effectiveness experience to promote retail and other business blocks in the Group.
spk04: And JD Retail is obviously the very core business of JD and contributes to the highest proportion of our total revenue. It is also the cornerstone for us when exploring diverse businesses. At this role, I will continue to drive the execution of retail strategies and strengthen synergies across business units.
spk03: Yes, the strategy for retail was designed by our group at the ICC level. I usually participate in the promotion and landing of important strategic projects, so the overall strategy for retail will not change much.
spk04: Daily retail strategies are set up by our strategy execution committee, the CES, SEC, and I'm personally involved in the discussions and implementation of these strategies. So there will be no change to JD Retail's strategies. Thank you.
spk06: Thank you, Thomas. Alfredo, can we have the next question?
spk02: The next question comes from Ronald Cheung with Goldman Sachs. Please go ahead.
spk00: Thank you, Sandy, Ian, and Sean. Uh, uh, Okay, let me briefly translate the question. Ronald wants to ask in terms of, you know, the
spk06: strategy adjustment, KPI adjustment, and team restructuring. After this adjustment, what you have seen in terms of core GNV growth trend, and how's your 3P business been trending? And the second question was, what's your basic assumption for back row and consumption for next year? And based on that, what is your strategy to maintain your core business or categories market share? And how do you balance between growth and profitability? OK. Thanks, Ronald. Over the past four quarters, the growth rate of our corn GMV has been significantly higher than the total rate of sales of consumer goods.
spk04: And in this quarter, our corn GMV achieves the high single-digit growth, which was higher than total retail sales and the online retail sales of physical goods.
spk06: In the last quarter, we shared the rapid growth of registered business numbers, and this quarter, registered business numbers also increased rapidly. So in the last quarter, we shared the rapid growth of the onboarded merchants, and we also witnessed accelerated expansion
spk04: of active merchants in Q2 and Q3. At the same time, users shopping from 3P merchants grew faster than total users in the past two quarters.
spk06: We believe that the progress of the open platform is in line with our expectations. We also see more active merchants and more top trading users.
spk04: We believe the current progress of the platform ecosystem is in line with our expectations. We're seeing more active merchants and more users. It takes time to convert them to 3P orders and the GMV growth.
spk06: So I still want to stress that we're committed to providing our users with more choices and cheaper prices through 3P.
spk04: we are pursuing a sustainable and healthy ecosystem, allowing our 1P and 3P together to provide users with a better shopping experience.
spk03: Okay, let me answer Ronald's second question. First of all, in our view, China's economic growth is still in a state of continuous recovery. Although this The situation is slightly worse than expected for the beginning of the year. As all policies continue to show results, including support and recovery, expanding our consumption, stable employment, promoting economic growth, and supporting the stable operation of the real estate market, And for the second part of the question, with the recovery of China's economic growth, though the speed is slower than we
spk04: anticipate at the beginning of the year, and also at the same time driven by those theories of effective policies supporting consumption, employment, private enterprises, and the property sector. We anticipate that consumer spending will continue to steadily recover next year, and consumption will continue to become a major driver of economic growth.
spk03: Yes, and then specifically in terms of product range, first of all, in our relatively good market position on the power supply category, or in the relatively large market share on the power supply category, we are proud of the advantages of the supply chain that we have accumulated over the years, as well as our continuous strengthening of the user's mentality, and the improvement of the penetration rate of the entire online e-commerce. In the first three seasons of this year, we still maintained the speed of the fast industry, So from the perspectives of categories, for some categories that JD has the advantage or have a bigger market share, such as home appliances and electronics category,
spk04: Our supply chain strength and enhanced user mind share have enabled us to maintain growth rates surpassing the inventory level in the first three quarters of the year. And we continue to gain on these categories, we continue to gain market share. At the same time, our focused investment in our coin capabilities this year are giving us the confidence in continuing to acquire market share next year.
spk03: In terms of mobile phone and 3D digital products, we will continue to promote the advantages of mobile phone and 3D digital products, and continue to optimize the cost efficiency. At the same time, we will provide more diversified products for users with more advantageous prices and richer services. At the same time, we will strengthen the creation of new products and trending products
spk04: In the mobile phone and the 3C and electronics categories, we leverage our supply chain advantages to continuously optimize cost efficiency and providing users with diverse range of products and competitive prices and better services. So we also lead the trend of these categories of industries by strengthening our offerings of new and trendy products.
spk03: We will also further improve our online and offline sales and service capabilities, because this is a very important service category. On the one hand, we will continue to improve our supply chain capabilities on products of different price ranges, and enhance the high-end value-added quality of J&J home appliances. And in the home appliances category, which is the category heavily rely on services, so we will further enhance our retail and service capabilities, both online and offline. So while we are promoting higher-end and emerging products,
spk04: we are also enhancing users' mindshare of high cost effectiveness of this category. Additionally, we are also making breakthroughs in our service capabilities in the home appliances category, such as trade-ins and one-stop assembly, delivery, and installation services, all aiming to further elevate the users' experience and stimulate consumer demand.
spk03: Yes, and then our Jindong's commercial products have undergone some relatively large business adjustments this year. These include our entire product planning, network changes, and detailed operations for some channel adjustments. These strategies are gradually landing. Currently, we have seen that the increase in commercial products has improved a lot compared to the first half of the year. Next year, we will return to a healthier growth trend. For the long term, we believe that the commercial products So for our supermarket category, after our proactive efforts this year and the initiatives, we have a series of initiatives including the category of planning,
spk04: warehouse network transformation, and refined operations, et cetera. And all these initiatives have been making steady progress. And this category, we have seen a better momentum compared to the first half of the year. I would believe for the supermarket category, it will return to a healthier growth trajectory next year. So this will also reaffirm our belief that the supermarket category will remain to be JD's most important growth driver in the long term. And on this category, I would also want to remind you that it has benefited from last year's pandemic period, which gives it a very high base a year ahead. So, yeah.
spk03: to look at it, we expect that one is that the impact of our active optimization adjustment this year will be reduced. At the same time, as the economy and consumption gradually recover, and this year we have a series of adjustments in this strategy and optimization of our algorithms and systems, then our core advantage based on supply chain will continue to play out. And these adjustments this year So for 2024, we expect the impact of our proactive business optimizations and adjustments will become less.
spk04: So with the gradual recovery of the economy and the consumption and also the release of all these effects of JD's algorithms and all the other measures based on our supply chain will continue to play out. As the low-price mindshare and also our platform ecosystem strategy will also gradually take root, we anticipate achieving high-quality business growth next year.
spk03: Finally, in the process of launching the strategy, we will also balance growth and profits. In the long term, the improvement of our profits comes from the improvement of supply chain efficiency and the gradual improvement of platform ecology. Our long-term and steady goal of improving profitability has not changed.
spk04: Throughout the strategic implementation process, we will strike a balance between growth and profitability. In the long term, our profit improvement will come from the enhancement of our supply chain efficiency and the gradual improvement of the platform ecosystem. So our long-term goal of steadily increasing profit margins remains unchanged. Thank you.
spk06: Thank you. We are ready for the next analyst.
spk02: The next question comes from Charlene Lu with HSBC.
spk01: Please go ahead. Thank you. 你其实就觉得预计24年的这个竞争格局会怎么样的变化,这个对于京东的战略会有着怎么样的一个影响? 京东会继续把中心放在增长GMV和市场份额上面,还是会转到关注盈利的这个能力呢? The first question is about competition. So competition intensified in 2023. Can you please kindly shed light on how you expect the competitive landscape to change in 2024 and how this would shape JD strategy going forward? Will GMV and market share be the continued focus over profitability? Second part to my question is, given most structural adjustments are expected to complete by end 2023, On a clean base next year, how much growth can we expect for the overall company, retail, and more specifically for FMCG in 2024? And what could drive the results to potentially surprise on the up or down side and why? Thank you.
spk03: Thank you, Charlene. Let me answer the first question. First of all, The e-commerce market in China is actually in a different platform and business model. The different models also have different advantages. In fact, each family has its own different advantages.
spk04: So, thanks, Charlene, for answering the first question. So, currently, China's e-commerce market features various platforms and business models. For each platform, it has its distinct characteristics.
spk03: Yes, although I may have said it many times, I still want to emphasize that since the beginning, we have always insisted on the basis of supply chain and user experience as the core business model. We have always been around supply chain and user experience to continuously build our core capabilities, and to build high-end and low-priced products with our partners. Though I might repeat myself many times, so here I still want to share that
spk04: For GD.com, we constantly adhere to the supply chain-based and consumer-centric business model. Building core capabilities around supply chain and user experience, we collaborate with our partners to create a supply of high-quality and affordable goods to precisely match suitable users and provide ultimate shopping experience and earn users' trust. So this business model has created value and fostering outcomes for consumers, business partners, and the society at large. It is designed to be the most resilient and sustainable business model capable of navigating different economic cycles.
spk03: Our industry, of course, for many industries, competition will always exist. It doesn't exist when it's more intense or less intense. So, maybe this year, a lot of peers, everyone is paying attention to some aspects of improving user experience. Everyone may also be talking about low prices or paying attention to their own economic operations and sustainable development strategies. This will make the market feel that So in terms of the competition of the retail markets, the competition in this industry has always been here. Actually, there's another saying about this, like more fears or less fears is always the competition here.
spk04: So for retailers, We've observed that for this industry, many players this year have been focused on enhancing users' experience and also refining operational and sustainable development strategies. So, yes, so always there's a competition, and this year you might feel this is intensified.
spk03: Yes, but we actually didn't, as you can see, Because of competition, our own profit rate is clearly affected. I think this is mainly related to the way of implementation of various strategies and the business model. For JD, we don't really look at what competitors are doing. We think that the core of retail business, or its basis, is cost, efficiency, and experience. These three elements. Our own goal is to So amid these competitions,
spk04: you can see that these platforms, their profit margins have not been significantly impacted. We believe this is mainly attributed to the way for each platform to implement their business strategy and business models. So for JD.com, we don't stare at others. We continue to believe that our core strategy is to improve our supply chain efficiency through technology and the economy of scales, and we would like to use these capabilities to be able to share the actual profits brought by efficiency improvements to our partners and users, which includes improving user experience. So in another word, the user experience improvement is not built on sacrificing our reasonable profit margins and shareholder interest.
spk03: So we believe this should be a virtuous business cycle with a better user experience and drive more traffic.
spk04: And with more traffic, there's more sales opportunities and generate more profit margins. And with the margins, we can further reinvest into improve our user experience. So we will continue to adhere to our long-term strategy, and we have confidence in our business model to sustainably maintain a virtuous cycle and gain market share.
spk03: Yes, from our own KPI perspective, we will also achieve a better balance. In fact, for different types of business, we may have some differences in growth, profits, and cash flow.
spk04: So in terms of our KPIs, so we have different business segments exhibiting distinct characteristics and being at different stages of development in terms of the GMVs and the profits and the cash flows. So for the weighing of these three indicators may vary. In the long term, we believe in achieving a healthy balance across these three indicators.
spk06: For the second part of the question, our major structural adjustments
spk04: have been made and implemented this year, including the business healthiness adjustments, enhancing user experience, low price, and platform ecosystem strategies. The full impact of business adjustments will be reflected in this year's numbers.
spk06: We have not changed our growth goals for next year and the long term. We expect the sales business of JD.com to resume normal growth in 2024. We are confident that we will be able to get a higher rate of sales than Shilin. Of course, because Jindong already has quite a large volume, our growth is also closely related to the red line and the retail market. Our goal is to achieve higher growth than the industry and to continue to gain market share.
spk04: So our growth targets for next year and the longer term remain unchanged. We anticipate that JD's overall and retail business in 2024 we have returned to normal growth rates. We're confident in achieving growth faster than the national total retail sales of consumer goods. And given JD's substantial scale, our growth is highly correlated with the country's macroeconomic conditions and the retail market. We aspire to outperform industry growth and continue to gain market share.
spk06: Overall, although the market is facing business adjustment this year, after the end of the epidemic, the current consumer recovery and the high-tech challenges of last year, we believe that the effect of business adjustment will be gradually reflected. The market is back to a healthier growth trend. For the long term, we believe that the market type is one of the most important growth driving forces.
spk04: So overall, despite for the supermarket categories, despite the challenges faced by these categories due to our business adjustments and the post-pandemic recovery in the offline consumption and the high base from the previous year, we believe the effects of adjustments will gradually materialize. And the category is returning to a healthier growth trajectory. And in the long term, we remain confident that it will continue to be JD's most important growth driver. And starting from next year, we expect the supermarket to gradually recover growth rates faster than the overall retail market.
spk06: OK, thank you. Can we have the last question, maybe?
spk02: The next question comes from Kenneth Long with UBS. Please go ahead.
spk05: Hi, thank you for answering my question. I have two questions. The first one is about users. In this big environment, is it possible to share some changes in the user experience and performance of different products? And is there any structural change in our operation? The second question is how do we think about the balance of growth and profit in the future? Because on the strategy, we focus on the low price and improve the user service. And then the big environment is consumption and return and competitive furniture. But we are also relatively stable in terms of air-to-air profit. Can you share a little bit about the 31 and the future of this investment? How should we think about the balance of income and profit? Do we have any changes to the goal of the mid-term profit rate of JD Retail? Let me repeat it. Thank you, management, for taking my question. My first question is about user and strategy. Under the current uncertain macro, can management share with us some of the behavioral change of a user and how is the performance split among different categories and any change in the operation strategy in light of the current macro challenges? Second is about how we balance the margin and growth. On one hand, we continue to emphasize on the low price strategy, user subsidies. Our competition is also intensifying. That said, we have been very disciplined and able to maintain a stable margin. Can management share with us the investment during 2011 and beyond? How should we think about the balance between growth and investment? And any thoughts and updates on the JD retail long-term margin target? Thank you very much.
spk03: Thank you, Kenny. That's a very good question. First of all, from the perspective of our own platform, we see that consumers' consumption decisions are more rational. They also pay more attention to price and quality. So, at this time, on the one hand, we are improving our supply chain efficiency to reduce our purchase and operation costs. On the other hand, we are also improving the richness of our entire platform ecosystem. Thank you.
spk04: It's a very good question. So for JD's platform, we've seen that consumers are making more rational purchasing decisions with rising focus on price and quality. So we continuously enhance our supply chain efficiency to lower procurement and operational costs, and enrich the platform ecosystem and the price competitiveness and the diversity of product offerings to meet consumers' diversified demands and their shopping experience.
spk03: So as we shared certain statistics
spk04: So JD retail users' purchasing frequency continued to grow, and with the growth rate surpassing that of Apple.
spk03: So notably,
spk04: As we increased product diversity from merchants and lowered the free shipping threshold, we witnessed accelerated growth in the number of orders and with the low average order value. So with the significant, the orders of low average order value, it significantly outpaced the overall order volume growth.
spk03: So the spending power of our users from the first and second tier cities remain robust, and JDR Plus continue to experience a double-digit growth
spk04: in the number of users, which has shown a very strong stickiness of these memberships.
spk03: Yes. I would also like to add one more point. We can see that the user's demand for service has not decreased, although it is sensitive to price. The low price required by the consumer is definitely not the absolute low price of the product. Consumers still need quality and service support. So for this, I just mentioned that we actually this year, first of all, through the optimization of our own internal operating efficiency, and then to optimize the purchase cost and the selection of rich products to make the price real. At the same time, we are also doing everything that involves our entire service well, including these installments, and the after-sales, etc. These services make the user experience extreme.
spk04: So here, I also want to share a viewpoint that we observed that users did not really want to compromise all the services while pursuing low prices. Low price doesn't mean that they will sacrifice the qualities of the products and services. So for ourselves this year, we have been continuously improving efficiency, optimizing our procurement costs, and expanding product choices, and do everything we can to better or even making the ultimate efforts to improve our services such as the installation services and after-sales services to ensure we still offer our services at no compromise.
spk03: So for the long term, we'll continue to pursue
spk04: the services as our core competitiveness on this market in the fierce competition.
spk03: Yes, and then regarding your second question, which is the balance of income growth and profit, I actually think that, first of all, from a long-term perspective, this matter does not need to be balanced. If you have income growth, of course, there will be profit growth, right? Of course, there will also be profit growth. And then, as I just said, it can form a positive cycle. But indeed, in a relatively short period of time, it may be necessary to balance whether I should invest a little more in marketing, whether I should invest a little more in user acquisition. But I think short-term is still a tactical choice. From a long-term perspective, we are pursuing long-term stable profit and profit rate growth. This goal has not changed.
spk04: And just a second question on the balance between the revenues and the margins and profitability. I think in the long run, it shouldn't be a problem or a question. It will eventually form a virtuous cycle with growing revenues. There will be growing profits. Whereas in the short term, I think it's more a tactical issue that whether we should invest more on marketing, on the user's acquisition, et cetera. So overall, in the long term for Didi.com, we continue to pursue a steady and sustainable growth and development. So our steady pursuit of feasibility increase remain unchanged.
spk03: Yes, I would like to add one more thing. In fact, we never pursue too high conversion rate or profit rate. What we pursue is a reasonable profit rate as a retailer. I will repeat this long-term goal.
spk04: So finally, I would like to stress that for GD.com, we don't pursue the short term, very high monetization and profitability. As a retailer, we've always pursued the reasonable profits for our industry. So this is as always. Thank you.
spk06: Thank you very much. Thank you, Kenny, for the question. I think operator, time has run up. I think that's all for today's Q&A session.
spk02: I will now turn the call over to JD.com's Sean Zhang for closing remarks.
spk06: Yeah, thank you for joining us today on the call and for your questions. If you have further questions, yes, as always, please contact me and our team. We appreciate your interest in JD.com and looking forward to talking to you again next quarter. Thank you.
spk02: Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect. Have a good day.
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