JD.com, Inc.

or JD.com's fourth quarter and full year 2023 earnings conference call. At this time, all participants are enlisted in the name of the program. After management prepares for the mark, 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 Vang, Director of Investor Relations.

Please go ahead.

Thank you. Good day, everyone. Welcome to GD.com Q4 and full year 2023 earnings conference call. For today's call, CEO of GD.com, Ms. Sandy Xu, will share her opening remarks, and our CFO, Mr. Ian Shen, will discuss the financial results. Then we'll make a call to questions from analysts. Before turning the call over to Sandy, 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 and please refer to our latest Safe Harbor Statement in Earnings Press Release on the 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 RMB and otherwise stated.

Now, let me turn the call over to our CEO, Sandy.

Thanks, Sean. Hello, everyone. and thanks for joining us today to discuss our Q4 and full-year 2023 results. In Q4, we delivered healthy top-line and bottom-line growth and made solid progress on operations, finishing off a productive 2023. In the past year, we stayed focused on constantly improving user experience, lowering costs, and increasing efficiency evolving opportunities and challenges. Guided by our business philosophy, we carried out a set of proactive moves to drive more sustainable growth for the long term, mainly in the areas of user experience improvement, low-price solving, and platform ecosystem strategy. Despite some short-term impact in 2023, our strategic refocus has successfully steered key operating metrics in a positive direction. 2024 will be a year of execution. Our team will take firm and steady steps to execute our existing strategies and push forward our two priorities for the new year, namely user experience improvement and market share expansion. We are encouraged by what we've seen and are confident that we are on the right path. Let me share some details. First, user engagement. In Q4, we saw the number of quarterly active customers accelerate at 3D group level. If looking at 3D Retro alone, the growth was at an even faster pace in Q4, particularly in new users. We are excited to see our user momentum keep up in Q1. User behavior also changed better. For example, user shopping frequency on JD continued to rise both in Q4 and the full year. This increase was particularly driven by the growth of our loyal existing users and class members. This means if users stay longer with us, they tend to shock more frequently with us, a validation of our user focus on user experience and strengthening user mindshare. In addition, the success growth also translated to a robust order volume growth, hitting double-digit young year in Q4, and accelerating for three consecutive quarters. In terms of JD plots, we saw another quarter of the robust growth of its member base, and GMV contributed by PLUS members grew faster than our total GMV in Q4. The promising progress in user engagement is a result of our stepped-up efforts in improving user experience, low-price offerings, and implementing platform ecosystem strategies. Looking at our efforts in improving user experience, in addition to our previously launched popular initiatives, such as free shipping, instant refunds, and one-click for best price guaranteed, we also recently launched new customer services, such as free doorstep pickup for returns, cashback for delayed shipping, As a result, our net promoter score, the NPS for both our 1T and 3T business have improved substantially in this work. As we are generating great momentum with our users, it's important to continue to build on these initiatives, which we believe will help to propel growth in 2024. Also, as an important part of our holistic approach to improving our user experience, we will continue to step up efforts in building our price competitiveness and platform ecosystem. For low-price offerings, from day one, we've been pushing forward our price competitiveness for branded products and a broader selection of value for many products. During the past year, we have further enhanced our ability to offer great value in branded products and expanded our selection for white label products. Our price competitiveness has notably improved according to our customer survey and in-house price comparison. We are glad to see our price NPS increased both sequentially and year-on-year in Q4, a proof that user experience and mindshare for JD's low price offerings is picking up. We also note other key metrics are trending well. The number of our users from lower tier markets grew faster in Q4 compared to previous quarters. and growth of order volume and shopping frequency generated by lower-tier market users reached double digits year-on-year, outpacing that of our total users. We also note growth of low-ticket-sized orders further sped up and far exceeded the growth of our total order volume in 2004. I want to highlight again that our price competitiveness is not supported by subsidies. The bedrock for JD's business model is always the supply chain capabilities, which enable us to generate scale efficiency and lower product costs so that we can provide better value to users while maintaining healthy financial performance. shifting to platform ecosystem strategy. The number of active 3P merchants on our platform delivered another stellar growth both in Q4 and on a full year basis, as the team did a great job onboarding and supporting them. Meanwhile, 3P users and 3P order volume both saw accelerated growth year-on-year in Q4 and in the full year of 2023. That said, we are still at an early stage of building our platform ecosystem, and we are now prioritizing monetization of our young and rapid growing ecosystem at this stage. Therefore, we are not taken by surprise when we see revenue generated from our 3P marketplace is lagging the growth of our 3P merchant base and orders in Q4, which which was also partially driven by one of the factors. Yin will elaborate on this later. We believe this is only temporary. In fact, Q1 quarter to date, we've seen marketplace and marketing revenues bouncing back to a stronger momentum. As shared before, our platform ecosystem encourages 1T and 3T to develop in a complementary way. our 1P business also continued to make solid progress, thanks to our core capabilities in supply chain. In particular, users responded well to our non-stop services during the Chinese New Year holiday, an offering we've been committed to for 12 consecutive years. Also, enabled by our supply chain's strengths our home appliance and electronics category continue to gain market share throughout 2023, despite industry high winds. Moving forward, we will further leverage our supply chain capabilities to build up better service capabilities, penetrate into lower tier and offline markets, and strengthen our cooperation with suppliers, which we believe will lead to a continuous expansion in market share in 2024. Moreover, we saw our supermarket category trend to the right direction, as it dedicated itself to optimizing the supply chain and building a better product mix and fulfillment network. We believe there will be more upside for supermarket in 2024. Finally, I want to highlight our commitment to shareholder returns. As announced in our earnings press release, our board has approved our 2024 annual cash dividend payment, an aggregate amount of $1.2 billion, a meaningful increase compared to 2023. The board has also approved a new share repurchase program of $3 billion, over the next 36 months. We are committed to creating more value for our shareholders. To conclude, 2023 was a year of strategic refocus and organizational upgrades, which have set the foundation for JD. 2024 will be a year of execution along the strategic roadmap that is in place. We'll continue to build upon the good foundation in user experience, low price offerings, and platform ecosystem strategy. And we'll further build up our core capabilities in supply chain. With market share and user experience at top of mind, we are confident in making steady progress this year. With that, I'll turn it over to Ian for our financial highlights. Thank you.

Thank you, Sandy, and hello, everyone. We recorded a set of healthy top and bottom line results in Q4 ahead of our expectations as we focus on user experience improvement, price competitiveness, and platform ecosystem in 2023. We are also committed to sharing our success with our shareholders The board has approved our annual cash dividend of 1.2 billion U.S. dollars for the fiscal year of 2023, representing 38 U.S. cents per ordinary share, or 76 U.S. cents per ADS. Our dividend per ADS increased by 23 percent compared to the annual dividend paid in 2023. In addition, we stepped up share repurchases in Q4. and bought back 15 million ordinary shares for a total of approximately $203 million. As the existing program will expire soon, the Board has approved a new share replacement program of $3 billion over the next 36 months. This demonstrated our dedication to returning value to our shareholders. Let me turn to our Q4 and full year 2023 financial performance. Our net revenues grew by 4% year-on-year to RMB $306 billion in Q4 and RMB $1.1 trillion for full year 2023 as we navigated a mix of macro recovery, seasonality factors, and our strategic refocus. Breaking down the revenue mix, Product revenues were up 4% year on year in Q4 and 1% on a full year basis. By category, electronics and home appliances revenues were up 6% and 4% year on year in Q4 and full year respectively. Once again, outpacing industry group. We have seen solid market share expansion in this category across every quarter of 2023 and continue to feel confident in this momentum going into 2024. General merchandise revenues saw a turnaround to positive year-on-year growth in Q4, despite the impact of scaling back of Xinxi and international business, the high base in Q4 2022 due to stockpiling, and the seasonality impact of Chinese New Year shopping festival. On a full year basis, such factors led to a 5% decline in general merchandise revenues. Taking a closer look Categories such as home goods and decoration, sports, and apparel recorded double-digit year-on-year growth in Q4, as we further enriched our product and service offerings. These categories also dropped higher user traffic, conversion rate, and user stickiness in the quarter. As for our supermarket category, we believe it has bottomed out, and its growth trend will continue to strengthen in 2024. driven by its increasing order volume and user shopping frequency. Service revenues grew by 3% year-on-year in Q4 and 18% on a full year basis, primarily driven by the growth of logistics and other service revenues, which were up 8% and 30% year-on-year for the quarter and full year, respectively. Marketplace and marketing revenues were down 4% year-on-year in Q4 and up 3% on a full year basis. The soft performance in the quarter was primarily due to the decline in commission revenues as a result of our enhanced support for fast-growing new merchants. While advertising revenues also experienced a one-off headwind in Q4, mainly due to the seasonality impact of Chinese New Year Shopping Festival, we believe those were short-term fluctuations, and our platform is progressing well under our current strategies. with a fast expanding base of active 3P merchants and accelerated growth in both 3P users and 3P order volume. In the Q1 quarter to date, we saw that marketplace and marketing revenues have resumed growth. Now, let's turn to our segment performance. JD retail revenues increased by 3% young year in Q4 and 2% on a full year basis. Our retail segment's gross margin continued to increase both in Q4 and full year of 2023. This was driven by our improved supply chain capabilities, which enabled us to offer more value to our users while recording healthy margin extension due to increased operating efficiency. Our strategic refocus also brought Tailwind to gross margins throughout 2023 on a full year basis. Retail's fulfilled gross margin was up 39 bits, though in Q4. Retail's fulfilled gross margin was down slightly by 7 bits year on year due to extended free shipping offerings since late Q3. Retail segments' non-GAAP operating margin came in at 2.6% in Q4, softer than a year ago, but in line with our expectation as we invest in user experience and expanding user base. On a full year basis, retail's non-GAAP operating margin continues to improve to a record level of 3.8% beyond our expectation. We are confident that our continued focus on user experience will lead to a better market position and expanded market share in 2024, and eventually present more headroom for profit expansion. JD Logistics recorded a 10% revenue growth year-on-year in Q4 and 21% on a full year basis. External revenues accounted for 70% of total revenues in both Q4 and full year. In terms of profitability, JDL's non-GAAP operating margin picked up meaningfully, with a 73-bit expansion year-on-year to 2.8% in Q4 and the 22-bit expansion to 0.6% on a full-year basis. Before moving on to the next section, please note that following DADA's announcement in January, we are reporting the aggregated results of DADA and New Business on the other segments this time. We've adjusted the results of this segment in Q4 to reflect DADA's impact. Revenues of the segment were down 9% and 11% year-on-year in Q4 and full year respectively, primarily due to data impact and the scaling back of Jingxi and international business, excluding the disposal gain and the impairment loss of long-lived assets of JD property. Non-GAAP operating loss of the segments was RMB 474 million in Q4 and RMB 1.5 billion in full year, both representing substantial narrowdown on a year-on-year basis as a result of the scaling back of Jinxi and international business. Moving to the consolidated bottom line, in Q4, we recorded RMB 8.4 billion non-GAAP net income attributable to ordinary shareholders. with non-GAAP net margin expanding 16 bits to 2.7% on a full year basis. Our non-GAAP net income attributable to ordinary shareholders was RMB 35.2 billion, and the non-GAAP net margin was up 55 bits year on year to an all-time record of 3.2%. We continue to generate healthy cash flow Our last 12-month free cash flow as of the end of Q4 was RMB 41 billion, an increase of 14% for a year ago. This was driven by our improved profitability and the further optimized cash conversion cycle. By the end of Q4, our cash and cash equivalents, restricted cash, and short-term investments added up to a total of RMB 198 billion. To conclude, we have taken proactive actions and delivered a set of solid financial and operating results in Q4 and full year of 2023 amid evolving external environment and our business refocus. Going into 2024, we are well set to continue to execute the strategies we have in place. We feel confident in making further progress toward our operating priorities of user experience improvement and market share expansion, and we're committed to sharing our success with our shareholders. With that, I will turn it over to Sean. Thank you. Thank you, Sandy and Ian. For the Q&A session, you're welcome to ask questions in Chinese and English, and our management will answer your questions in the language you ask. will 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. Okay, operator, we can open the call for Q&A session.

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 questions, we will take one question at a time from each caller. If you have more than one question, please request to join the question queue again after your first question has been addressed. Your first question comes from Ronald Kung with Goldman Sachs.

Thank you, Sandy, Ian, and Sean. Congratulations on your performance. We see that JD and other e-commerce companies are focusing on growth and market share this year. a strategy to maintain market share or increase market share back to growth. The electric market is slowing down. I think this is more like zero-sum. How do we balance growth and profits this year in terms of how we promote growth? In terms of profits, there is no target except for the country. In terms of shareholder returns, we have a regular dividend of about $1.2 billion. Thank you, Sandy, Ian, and Sean. I have two questions. One is that JD and other e-commerce companies has focused on defending market share, reigniting growth as kind of key focuses in this increasingly zero-sum e-commerce market. So how will management strive the balance between growth and absolute profit or growing profits in the year ahead? And with that, with the profits and kind of cash flow generation, then we've seen the regular dividend of $1.2 billion in 2023. We've seen the free cash flow for the business was nearly close to $6 billion in 2023. So do we see room to further increase total shareholder return given the strong free cash flow of the business in the years ahead? Thank you.

Thank you, Ronald. I will answer the first question, and then Ian will answer the second question about the return. First of all, the balance between growth and profit has always been a very good question. In 2023, you can see that we have taken a lot of action on the basis of continuing to focus on our business health. including user experience, price, quality, and brand ecosystem. For example, we have seen that in the past year, we have been constantly increasing the number of users' shopping experiences and services, including the expansion and collection of the price protection range, and the free delivery of goods, which has gradually expanded from the private sector to our 3P business. There are also services such as payment without delivery, are improving users' shopping experience and service level, and continuously improving the shopping and service experience that we are differentiating. In the fourth quarter, we saw that the number of shopping users increased, especially the growth of new users, and this growth trend continued to the first quarter. At the same time, we did not see I believe you have not seen a significant decline in our profits, although our service and experience are constantly increasing. This is what we are trying to achieve. At the same time, we are also optimizing our own purchasing costs and enriching our low-cost goods. While emphasizing the value of low prices, on the one hand, we are strengthening the supply of low-cost products, and we have also launched, for example, white-collar subsidies. For example, the 9.9% retail channel and the series of measures to reduce the threshold for buying oil. In fact, while the users feel that the low price quality is good, it also drives the improvement of the shopping frequency of the users. We also believe that we can continue to improve the user experience on the one hand, so it can allow us to gain more healthy user growth and increase the shopping frequency.

Thank you, Ronit. I will answer your first question and Ian will answer your second question. So the question on the growth and versus profits has always been a good question. And in 2023, while firmly focusing on the health of our business, we made many efforts and took action to further enhance our user experience, low-price MyShare, and platform ecosystem. So, for example, last year, we stepped up our efforts on user shopping experience and services by introducing or expanding a series of differentiated shopping and customer services, such as our price guarantee service, a free doorstep pickup service for returns and exchanges, the service expanding from our 1P to our 3P businesses, and also a refund without return services and more. We've seen an accelerated growth in quarterly shopping users in Q4, especially in the number of new users, and we expect the growth trend to continue in Q1. At the same time, we don't see any major drop of our profits, which is also important reflects our efforts on maintaining a balance between growth and revenues and profits. And also, we continue to optimize procurement costs and expand our range of low-cost products. In addition, we have introduced a series of measures, including the 10 billion yuan discount program, the 99 yuan items with free shipping channels, and a lower order value threshold for free shipping Our goal is to provide high-quality products at affordable prices to increase user purchase frequency. We believe that continuous improvement of user experience will promote healthy user growth and purchase frequency, which in turn will help us to increase business scale and market share.

The number of active merchants entering the track is also increasing rapidly. It also brings us better and richer product supply, and also drives the number of users of our CP business to increase rapidly. So in 2024, we will continue to pay attention to the user experience, continue to focus on price competitiveness and improve the direction of our brand's ecological construction.

So from a platform ecosystem perspective, we have seen more and more new merchants are joining JD's marketplace, and the number of active merchants whose business growing on our platform is increasing at an accelerated rate. Their participation has greatly improved the diversity of product offerings on the platform, leading to accelerated growth in both the number of users and orders on our marketplace. So in 2024, we will prioritize improving user experience, price competitiveness, and platform ecosystem. We will make unswerving efforts to execute on these key areas with confidence that we will continue to gain market share.

Yes, I would like to emphasize that our business model itself determines that the increase in business scale, the increase in technical level, will inevitably lead to an increase in efficiency. And the benefits of these improvements can allow us to continue to invest them into user experience, thereby bringing better user consistency, user shopping frequency, and user growth. and continue to increase the scale of the business. This is a positive cycle that can continue, and it will not necessarily have a big impact on profits. In fact, this is also the logic of our business model that we have been communicating with the market for so many years. And this profit will naturally come from our continued increase in market share and value creation for users. Then from the management level, we will also balance the pace of investment and growth.

So here I want to re-emphasize that our business model decides that business efficiency comes from enhancing business scale and technological development. So with these enhancements, we receive increased revenue that we can invest in enhancing user experience. This in turn leads to increased user engagement, shopping frequency, and user growth, ultimately resulting in business scale growth. So this creates a sustainable and virtuous cycle, although it may not have a significant impact on profits. So this is the point we constantly communicate with our investors, and this is the logic of our business model. So the profits are a natural result of our expanding market position and value creation for our users. So during this course and cycle, our management team will strive to maintain a balance and a good pace between investment and growth while creating good returns for our shareholders. Thank you.

Thank you, Ronald. Thank you for your concern about shareholder feedback. I will now take this opportunity to share with you our thoughts and actions. First of all, we are concerned about the long-term health development of our business, including the health expansion of the business scale, as well as the long-term stable growth of profits and cash flows. Based on this, we value long-term shareholder feedback. This is Ian. Thank you, Rona, for asking about shareholder returns. So I'd like to take this opportunity to update investors on our current thoughts and moves.

Firstly, JD focuses on the long-term healthy development of our business, aiming for healthy scale expansion and stable growth in profits and cash flow. On top of this, we're committed to long-term shareholder return and will continue to give back to our shareholders in various ways. Our balance sheet is strong, and we believe that maintaining a good return to shareholders and continuous investment in our business are not contradictory.

We just announced that this year we will distribute $1.2 billion in annual equity. The growth of the equity amount is due to the rapid growth of profits last year, which will create a real profit for our shareholders. Currently, we have accumulated $4.2 billion in capital for three consecutive years.

We have just announced an annual cash dividend of $1.2 billion. This is thanks to last year's rapid earnings growth, which yielded solid returns for our shareholders. Over the past three years, we have returned a total of $4.2 billion in dividends. And we plan to continue to pay annual dividends going forward, sharing the company's valuation with our shareholders.

At the same time, our board also approved a new return plan. The company plans to return $3 billion in the next three years. We will carry out a firm return and communicate with investors on a regular basis.

Also, our board of directors have approved a new repurchase program to buy back to US$3 billion worth of company shares over the next three years. We will firmly execute the buyback and communicate with investors regularly. We believe that investors will recognize the company's tangible efforts to share its value with shareholders. Thank you.

Okay, thank you. Thank you, Ronald.

Your next question comes from Kenneth Fong with UBS.

Hi, Sandy Zhong, Ian, Sean, 大家好,谢谢接受我的提问。 我有两个问题啊, The first is about the platform ecosystem. Our company has invested in this VP business. From the new business tree, the number of active business trees has also achieved good results. Under what premise or under what circumstances will the management city accelerate and accelerate the transformation of the VP business? And what changes and updates will our VP strategy have in 2024? And my second question is about overseas strategies. Thank you, management, for taking my question. My first question is on the platform ecosystem. We have been investing to build our 3P ecosystem. Judging from the total and active merchants, we have received very solid results. Can management share with us under what circumstances we will start to accelerate the monetization of the 3P merchants, and also for 2024, any change and update for our 3P strategy. And my second question is for overseas. We see a lot of e-commerce platforms are investing overseas. Can management share with us your thoughts on our overseas expansion? Thank you.

Thank you, Kenny. Let me answer the first question about the platform ecosystem. And then if you communicate with everyone before, the platform ecology of JD.JPY includes self-sufficiency and 3P, and then the two are complementary. And then this is all to provide a better user experience for JD.JPY platform. NPS in Q4 is also improved in the same way. Platform ecology is also the strategic direction we have always focused on. In terms of the development of 3P, we still have a lot of places to improve. The first step is to increase recruitment and supply, and then attract more users and merchants to help them operate better on the JD platform and provide our users with a richer supply chain, and also form a positive competition for the whole platform. In the past year, we have increased the strength of recruitment, and then simplified the entry process for merchants, and also increased the support and cost reduction for small and medium-sized merchants. Thank you, Kenny.

To your first question about platform ecosystem, as I have previously mentioned, JD's platform ecosystem includes both our self-operated and third-party models. The tools are complementary to each other and jointly contribute to create good user experience. Our net promoter score has improved substantially in Q4 for both 1P and 3P, we have been investing in platform ecosystem as a long-term strategic direction. So there is still a lot of room for improvement in our 3P business development. Our first step is to increase the number of merchants and their product offerings. We need to attract more merchants and help them succeed on the platform in order to enrich the platform's product offerings for our shoppers. and foster positive business competition across the platform. Over the past year, we have increased our efforts to recruit merchants, simplified their onboarding processes, and provided more support and fee reductions for small and medium-sized merchants. To date, the number of effective merchants on our platform is close to one million, reaching the goals we set for ourselves at the beginning of last year. The number of active merchants have accelerated. More and more new merchants are finding effective ways to do business on our platform and continue to grow.

Then the second step, we also see the active feedback from users. Then we have more 3P trading users. The order volume of 3P is also constantly increasing. At the same time, the user experience of 3P is also continuously improving.

At the same time, we've received positive feedback from users. The number of shopping users and order volume on 3P platform continues to grow, with users' NPS for 3P rising at the same time. Both our 3P and overall GMV have gradually entered a trajectory of healthy growth.

Building Jindong's exclusive platform ecosystem is a long-term project and we are still in the early stage. The current 3P's rapid transformation is not our primary task in the short term. The focus of 2024 is to attract more business owners, especially small and medium-sized business owners in the industrial era, to enrich our commodity supply and at the same time continuously optimize the business growth and management tools of platform ecosystem. Then, continue to optimize the flow distribution mechanism, and create a clear growth path and a fair business environment for the business. Improve the experience of users in 3P business, and promote the common prosperity development of Zilin and POP.

Building JD's unique platform ecosystem is a long-term project. We're still in the early stages. Our focus is not on a fast monetization of 3P in the short term, Instead, our priority in 2024 will be to attract more merchants, especially the small and media-sized merchants in the industrial belt, to enrich our product offering, and at the same time, we will continue to foster merchants' growth, the platform's governance, and operating tools. We will also further optimize the traffic distribution mechanism to create a clear growth path and a fair business environment for merchants, and to provide better user experience on 3P platforms, making a prosperous growth of both our 1P and 3P businesses.

We believe that through a more prosperous platform ecosystem, a richer supply of high-quality products, and a more accurate user matching, we will attract more users and meet the needs of different users. and then form a two-way cycle to help the business grow and the 3P transformation will naturally improve. This will also be one of the important driving forces of our long-term income and profit continuous improvement. In the short term, the overall business situation of the company is good and the transformation rate does not increase in a hurry, but the trend of long-term increase and steady increase will not change.

We believe that by creating a platform with a flexible system, Offering a wide range of high-quality goods and improving user product matching accuracy, we can attract more users and meet diverse needs. This will create a virtuous cycle that helps merchants succeed, and as a natural result, VP monetization will increase. Such virtuous cycle will form one of the key drivers of our long-term revenue and profit growth. We're at a good shape now and not in a rush to increase monetization in the short term, but the trend for steady improvement remains unchanged in the long run.

In addition, there has been a short-term small-scale fluctuation in the Q4 platform and advertising service revenue, mainly due to the large-scale development of platform ecology in the last two or three years, and the platform has launched a series of support measures, including new merchants to be exempted, and some products and marketing centers to be actively exempted. to reduce the income of the mercantile. In addition, the increase in advertising revenue has also slowed down in Q4, mainly because of the bad weather of last year's New Year's Eve, plus the high-end technology of the epidemic. Q1, accompanied by seasonal factors, will eliminate advertising revenue and return to healthy growth, accompanied by the improvement of users and traffic. I believe that our advertising revenue will accelerate gradually in 2024.

And in addition, marketplace and marketing revenues experienced short-term fluctuations in Q4. This was primarily due to our efforts to develop the platform ecosystem. We launched a set of supporting initiatives, including commission free offerings for new merchants and proactive commission reductions in certain categories and programs. These initiatives resulted in a decline in commission revenues. Advertising revenue growth slowed slightly in Q4 due to the late start of the Chinese New Year plan promotion compared with the previous year and a high base of the previous year driven by people's stockpiling behavior in December. With the ease of seasonality factors in Q1, we expect that advertising revenues will return to healthy growth And overall, looking at 2024, as user and traffic improves, we expect growth of our ad revenues to gradually accelerate. Thank you.

Okay, let me talk about the second question about overseas business. First of all, we have always been very concerned about international opportunities, and we will use this small step to strengthen the entire domestic business. But because our business model itself and our advantages are actually different from other platforms, so our international strategy is also different from other platforms. But we will also use our own competitive advantage to do the layout of the entire international business. JD's business model is based on supply chain. It is also very clear that it is based on user experience and private business. So let me share some thoughts regarding our overseas business strategies. So first of all, we are always on the outlook for overseas opportunities and take pilot steps to establish our presence.

Given that our business model and advantages are distinct from other platforms, our approach to global expansion will likewise be different. We aim to leverage our competitive strengths to establish our international presence. As you know very well, JD's business model is built on supply chain capabilities and centered around user experience. Supply chain is the cornerstone of our international business development, and we will continue to focus on this to expand our capabilities on the global market.

And then in terms of sales, one aspect is global sales, which is to help Chinese enterprises expand the overseas market and promote more brands to the overseas market. At present, we are still in the early stages of optimizing our shopping experience To share some examples, for JD Retail,

Our outbound e-commerce platform is actively improving shopping experience by offering high-quality products and services to global users. In the meantime, it also assists Chinese companies in expanding their business and brands to overseas markets. We're still in the early stage for all these efforts. And at the same time, we're increasing our efforts in inbound cross-border business. JD Worldwide has established three direct procurement centers worldwide so far to improve cross-border supply chain efficiency, offering consumers in China a wider range of imported products at lower costs while ensuring product safety.

Currently, Shenzhen Logistics has nearly 90 storage warehouses, overseas warehouses and oil warehouses in the world, with a management area of nearly 900,000 square meters. It also serves a lot of overseas customers and Chinese overseas brands. Shenzhen is also a major European market in Shenzhen, Southeast Asia. Currently, business has expanded to Vietnam, Indonesia, Singapore, the United Kingdom, the Netherlands, and other overseas markets. So for GD Logistics, it has established a strong overseas supply chain, starting from warehouse and now expanding to overall supply chain services.

Currently, it operates nearly 90 bonded overseas and direct mail warehouses, managing a floor area of almost 900,000 square meters. This enables JD Logistics to serve a large number of overseas customers, as well as Chinese brands expanding abroad. Also, JD Property is expanding its business in Southeast Asia and Europe, with a focus on markets such as Vietnam, Indonesia, Singapore, UK, and the Netherlands. Its customers include international logistics and FMCG giants, as well as emerging Chinese companies going overseas. As I mentioned, both JD Logistics and JD Property, they are more enterprise service-facing. So for the two seaside customers, they don't have a very strong impression or experience so far.

In addition, in Europe, we have also launched the all-round retail platform Ochama. With our personalized logistics technology and global supply chain capabilities, we provide better shopping experience to consumers in 24 countries in Europe. Not only does it help local local brand merchants, but it is also building up a reliable path for Chinese brands and merchants to go out to sea, but it is still in the recovery stage.

So we also introduced an omni-channel retail platform in Europe called Ochama. This business leverages JD's advanced automated logistic technologies and global supply chain capabilities to provide high-quality shopping experience for customers across 24 European countries. Not only does Ochama serve European local brands and merchants, it also provides a dependable path for Chinese brands and merchants to expand their business abroad. But certainly, Ochama is still our project in the incubation stage. And next, we will continue to focus on these areas, the business layout that we are good at with the strength to expand our global capabilities.

Thank you, Candy. I have the next question.

Our next question comes from Alicia Yap with Citigroup.

Hi, thank you. Then the second question is, will Jindong invest more actively this year In light of the shift of the consumption preference and also the rational spending behavior amid this macro sentiment, Will JD need to or plan to adjust any specific strategy to fulfill the demand shift? If so, what could be the change and growth initiative? What is management expectation for China overall retail sales growth rate this year? How much higher can JD outperform the overall retail sales growth by. Will JD reinvest to aggressively growing new user in lower tier city? Will that mostly come from additional subsidy or through the improvement of product offering? Do you have a target KPI set for the numbers of new customer that you plan to acquire this year?

Thank you. Thank you, Alicia. As you said, in the past year, we have seen that users have become more rational and pay more attention to the cost. Users pay more attention to the product and the quality of the product at the same time as they pay more attention to the price to look for more reasonable-priced products. They may pay more attention to the real-time value and experience. For Jindong, The end of 2022 is also a prediction made relatively early on the trend of consumption. In 2023 and the whole year, we are actually accelerating the promotion of our platform and the construction of the ecosystem to promote our low-cost new products. At the same time, we are also continuously increasing the shopping experience of our users and differentiating our service products. At the same time, we are actually analyzing the latest trends and movements in consumption and brand Thank you, Alicia. As you said,

we've seen consumers have become more rational in spending. They pay attention to both the quality and the cost effectiveness of the product. They really value the good products with a reasonable price. At the same time, they do care about shopping experience. So last year, we took proactive steps in response to consumer trends. While striving to provide users with better shopping experience and differentiated services, we expanded our platform ecosystem and low-cost mindshare. We also studied the latest consumption trends and insights, and we worked closely with brands and merchants to jointly develop new products that better meet user demands. So overall, we see our performance so far has met our expectations. And in 2024, We will stick to our current strategies and firmly focus on execution and optimization without making major adjustments.

On the one hand, the user experience and service will continue to consolidate our core operations and continue to strengthen our fast and good user mentality. On the other hand, it is also more efficient to promote the ground strategy. continue to optimize the purchase cost and enrich the low-price goods, and then enhance the efficiency of low-price subsidies, so that users can feel better about saving. In addition, in this more aspect, it will also help the business grow better by further expanding the scale of the business, enriching the supply of our platform, so that users can feel more product supply.

We will continuously improve user experience and services and strengthen our core competitiveness to further entertain users' mindshare towards our fast delivery and high-quality reputation. At the same time, we will also optimize procurement costs and enrich our low-priced product offerings and to let people to better feel our price competitiveness. And on the side of product diversity, We will continue to expand our merchant base and also improve the richness of the low-price products on our platform.

including the increase in exchange rate, etc. We also expect that the expansion of consumer consumption will be further consolidated and strengthened. This is also good news for some of our products. We estimate that there will still be healthy growth in the whole-year market share. We are also confident that we can maintain the market share of more than the market share and continue to get market share.

So in 2024, we've seen there will be a number of economic stimulus plans and consumption promotion policies come into play, including the encouragement of the trading consumptions, et cetera. So we are seeing this is a healthy recovery trend of the overall economy and the consumptions, and this will also help us to help in some of our advantages categories. So overall, we are optimistic for this year's overall retail sales, and we're confident that we will maintain a faster growth rate than that and continue to gain market share. Thank you.

Alicia, hello. Let me answer your second question. In terms of users, we will actively encourage user growth and user reviews. Our main experience has always been focused on improving user experience. This is the way we think to achieve high quality growth for users. We will continue to improve the richness of our products, promote our low-cost strategy, and build a more suitable shopping mall for lower market and user consumption habits, and improve the efficiency of matching and storage efficiency. So for the second question on user growth,

We will actively drive up user growth and their purchase frequency. Throughout the past year and this year, we have prioritized improving user experience to achieve high-quality growth. We will continue to improve the diversity of product offerings and promote low-price strategy and expand product pool for users from lower-tier markets to better meet their shopping preferences. So this helped us to enhance user product matching efficiency and user retention rate. Additionally, we continuously enhance services safeguarding users' shopping experience during and after sales, like the free doorstep pickup services for returns and a lower threshold order value for free shipping, et cetera. We believe that subsidizing and other marketing activities are all tools for user operation. These measures can serve some special purposes in certain periods of time and should only be used in a targeted and disciplined way.

In the previous Q4, the number of new users increased significantly. The number of old users also remained stable. The number of new users also increased significantly. We saw healthy growth in the number of users in Q4, including new users experienced strong growth, while existing users maintained steady growth. Users from lower-tier markets also achieved an accelerated growth,

User purchase frequency showed a healthy growth, particularly among existing users. Furthermore, user satisfaction rate has improved, with NPS of both self-operated and marketplace achieving an increase year-on-year.

Currently, the growth of QE users has maintained this trend. This year, as a unique interactive platform of CCTV Spring Festival, we have also reached out to more new users.

And so far in Q1, we've seen user growth has maintained such momentum. This year, JD was selected to be the exclusive interactive partner for China Media Group's Spring Festival Gala. During the show, we offered a variety of gifts to viewers home and abroad, reaching a wide range of new users. Our outlook of the whole year, we're confident in user growth.

Okay. Thank you, Alicia. Let's have the last question.

Thomas Chong with Jefferies.

Thanks, management, for taking my question. My first question is about the consumer sentiment in 2024 and how should we think about the trend for different product categories. And my second question is related to our thoughts about the competitive landscape in 2024. Thank you.

Okay, thank you, Thomas. Let me answer this question. First of all, in 2023, as our society fully recovers and opens up, the consumer market will continue to recover from the beginning of the year to the end of the year. But indeed, the consumer ability and consumer confidence of our users are still improving. In 2024, from the first two months of the year, the consumer is steadily improving. Thank you, Thomas, for your question. So by 2023, we have seen the society and economy have returned to normal.

Although the consumption market showed a recovery trend, people's spending ability and confidence still needed a boost. As we enter 2024, in the current two months, as we can observe, the country's national economy is on track for recovery. With the expected effects of the micro-stimulus plans and consumption promotion policies, we believe the momentum of consumption recovery and expansion will be further consolidated or strengthened.

relatively stable. We also have confidence that in 2024, we will be able to gain faster than the growth of the entire market. In the long term, we believe that the goals of the large number of users pursuing a good life have not changed. In the future, we will provide users with better services, higher cost-effectiveness, and the business model will naturally have our unique advantages, which can meet the needs of different types of users in different scenarios.

From JD's perspective in 2024, we maintain a confidence to outperform the overall of the broader market and taking a longer-term view. We believe that most people's desire for a better life remains unchanged. Our business model aims to provide better services and quality products with greater value for money, which has made us unique. advantages to satisfy diverse users' needs in various shopping scenarios.

From the overall perspective of the industry, we can see that in the past few years, the sales volume of food online has been gradually increasing. Some industries have achieved a relatively high penetration rate, but there are also many industries, including supermarkets, sports, home appliances,

So from the industry perspective, as we have seen that the proportion of online retail sales of physical goods continue to increase. For some industries, they have enjoyed a high penetration rate, whereas for other industries, such as supermarkets, sports, furniture and home, automotive, and other industries, their online sales penetration rate still has plenty room to improve.

From a product category point of view, our online sales penetration rate in 2023 will still remain high, even though the entire industry is still facing a challenging situation. In 2024, we are confident that these products will continue to remain high in the industry, especially in the area of central encouragement and promotion of consumer experience exchange, And for the category perspective in 2023, we continue to be the market leader in electronic categories and deliver the faster growth rate than the overall market in this area, even though this industry is facing

challenges last year. So overall, we're confident to maintain faster than industry growth rate in these categories, especially as you see the government is promoting the treating of consumer goods and stimulate the consumption of electronics and other products. So we're confident to maintain a strong growth in this category.

will still be very intense. Of course, the strategy of different platforms and different retailers is also not the same. Our shopping business has undergone a year of adjustment in the past year, including focusing on core channels, and then improving our supply chain capability, and improving our booking efficiency through website changes, etc. So we can see that there has been a relatively good recovery trend.

And the competition in the supermarket category is expected to intensify in this year with various players adopting different strategies. JD's supermarket business has undergone some adjustments in the past year. These include a focus on core businesses, improvements in supply chain capabilities, and enhanced fulfillment efficiency through warehouse network reforms. And these strategies are gradually coming to fruition, and there's been a positive trend of growth recovery for the supermarket category.

In the fashion and home industry, these two categories will depend more on our third-party business. Because JD is a unique business model, the challenges we face when we do open-end ecology and the way we do it may be different from other platforms. And on the fashion and home segment, this is more heavily dependent on the development of our third-party merchants.

And due to our unique business models, the way we foster these two categories will be with a different approach. So, so far we have seen our open ecosystem strategy has yielded some initial results and users are becoming more and more aware of JD Fashion and JD Home. We're confident that we will continue to experience healthy growth for these categories, these two categories in 2024.

On the issue of competition, this is also an eternal problem. We believe that China's retail consumption market is still very large, and there will be different brands and business models. We see ourselves more as a retailer. If we look at the perspective of Chinese retailers, the distribution is actually relatively high. In the face of these competitive patterns that continue to change, we think it's still about how to establish users' satisfaction, the ability to coexist with our partners, and a more efficient business model. In 2023, we indeed made some strategic adjustments, and the performance was also affected by some short-term effects. However, we ourselves see that in many aspects, we are still continuing to gain market share and user confidence. The team also made a lot of technological innovations to improve our transformation efficiency and reduce our operating costs. So for Jindong, we think that in 2020, we will gradually be able to see the previous series of adjustments and release the results that he used. So we will continue to push towards the same strategic direction. We also believe that Jindong's basic business model is a business model that can continue to grow after passing through different stages of growth.

So for the question about industrial competition, which is the internal question here, so we believe that China's retail consumer market is vast and various platforms and business models will coexist. And as we see ourselves, JD.JD, it's a retailer, and then this market is quite dispersed. We think the key for a long-term success here is to satisfy users' experience and create a win-win collaboration with all kinds of our partners. So in that part, we will stick to our strategies and continue to gain market shares, and we're optimistic that all the changes we made in the past year will gradually come to show some effects and variations. And also last year, our different JDS teams have came up with innovative tactics and techniques to improve conversion rates and reduce operating costs. Therefore, we think by firmly executing our established strategies, so we are on the right track to deliver results this year. And at Citi.com, we position ourselves as a supply chain-based company, so we have these strengths and capabilities to withstand and navigate through different economic cycles and to deliver good results this year. Thank you.

We are now approaching the end of the conference call. I will now turn the call over to J.D.' 's Sean Zeng for closing remarks.

Thank you. Thank you everyone for joining us today on the call and for your questions. If you have further questions, please contact me at IRC. We appreciate your interest in JD.com and look forward to talking with you again next quarter. Thank you.

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