JD.com, Inc.

JD.com's first quarter 2024 earnings conference call. At this time, all participants are in listen-only mode. After management's prepared remarks, there will be a question and answer session. Today's conference is being recorded. If you have any objections, you may disconnect at this time. I would now like to turn the meeting over to your host for today's conference, Sean Jong, Director of Investor Relations. Please go ahead.

Thank you. Good day, everyone. Welcome to JD.com first quarter 2024 earnings conference call. For today's call, CEO of JD.com, Ms. Sandy Xu, will share her opening remarks. And our CFO, Ms. Ian Shan, will discuss the financial results. Then we'll open the 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's only, and will include forward-looking statements. Please refer to our latest Safe Harbor statement in the earnings press release on our 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, unless otherwise stated. Now, let me turn the call over to our CEO, Sandy. Sandy, please.

Thanks, Sean. Hello, everyone, and thanks for joining us today to discuss our Q1 2024 results. We kicked off the year with encouraging momentum in Q1. Our top-line growth accelerated and market share expanded. Well, our bottom line trended healthily in the quarter. More importantly, our users showed strong enthusiasm for our further improved shopping experience and differentiated services. And our net promoter score, the NPS, notably improved year on year. This is a result driven by our strong execution. Amidst evolving industry dynamics, our team stayed focused on our own strengths, strategies, and the pace of development, and continued to drive steady progress across all our strategic initiatives in improving user experience, price competitiveness, and platform ecosystem. Our strong execution is reflected in our improved category performance in Q1. To start with, Our general merchandise had a great quarter as our supermarket category returned to healthy growth, while fashion and home goods maintained robust momentum. Particularly, the bounce back of our supermarket category is a great example of how we are able to drive strong business performance by focusing on the key aspects of user experience, namely product quality and selection, price competitiveness, and service quality. After spending the past year on strengthening procurement capabilities and upgrading fulfillment network and operating efficiency, our supermarket category recorded double-digit GMB and revenue growth in Q1, with increased order volume and shopping frequency. We expect supermarkets' momentum to continue throughout the rest of the year and it to remain an important growth driver in the long run with massive time. Our electronics and home appliances category remains resilient in Q1. We are confident in our market-leading position and proven supply chain capabilities in this category. and we will continue to focus on our own strategies to scale the business and profits with differentiated value-add services, such as one-stop trade-in services, new product launches, more competitive price offerings, and a more dynamic platform ecosystem. Now let me share some operating highlights we achieved in Q1. in executing on our strategies. First, user engagement. We are excited to see a series of positive signs in both our user base and user behavior in Q1. Our quarterly active customers delivered another robust growth year on year during the quarter, driven by growth across all user groups, including new users, existing users, as well as our plus members. As to user behavior, shopping frequency on our platform delivered a substantial double-digit young year growth in Q1, more than offsetting the decrease in average order value as a result of our low price offerings. This led to a relatively stable up-pull in Q1 compared to the same period last year. In addition, driven by our expanding user base and shopping frequency, our order volume continued to increase at a double DJ rate year-on-year in Q1, a pace we have seen for three consecutive quarters. This robust momentum with users makes us confident to say that our relentless focus in user experience are paying off. We rolled out a number of user experience initiatives, and the team made solid progress in executing them. As such, our NPS continued to rise in Q1 on both 1P and 3P. We believe this is an important driver of our sustainable growth along the way. We are leveraging our core capabilities in supply chain to differentiate user experience on our platform. For example, the integrated treat-in services we provide in our electronics and home appliances category are at an industry-leading level. And we are further working on this to provide users hassle-free services, including coordinated delivery, installation of new devices, and dismantling of used devices. In addition, our supermarket category also made full use of its supply chain to roll out differentiated services, including direct shipment from suppliers to end users, and 24-hour fresh milk delivered to users since production. Among others, Our service offerings are catching up on the 3P side as well. For example, our 59 RMB threshold for free shipping now also covers almost all of the 3P products on our platform. We also made progress to expand coverage of our free doorstep picking up for return service among 3P merchants. We are encouraged to see 3P user experience on our platform continue to improve, and our 3P NPS score trended upward in the quarter. Moving on to our low price offerings. Our price NPS continue to increase in Q1, both sequentially and on a year-on-year basis, as our improved price competitiveness increasingly resonates with users. Meanwhile, growth of our user base in lower tier cities accelerated into one, exceeding our growth rate in higher tier cities. Order volume and shopping frequency generated by users in lower tier cities continued to record double-digit young year growth in the quarter, faster than that of our total users. Moreover, growth of low ticket-sized order volume continues to accelerate meaningfully in the quarter. All these reflect our increased attractiveness to price-sensitive customers and our abilities to serve them effectively. With our 1P supply chain capabilities and enriched offerings of 3P, we are strongly positioned to pursue low-price, in a sustainable way. This is the essence of retail, the core of JD business model, and a key competence that helps us stay ahead of price competition. Next, moving on to our platform ecosystem. We were encouraged to see our active merchant base continue to rapidly expand on our platform in Q1. driven by our effective supporting measures and optimized operating tools. Both our 3P user base and 3P order volume continued to grow at a faster pace in Q1 compared to previous quarters. Our marketplace and marketing revenues returned to a positive growth in Q1 as we navigated one-off impacts in the past quarter. This was primarily driven by the growth in our advertising revenues, while commissions remained felt due to our strategy to prioritize ecosystem development over monetization at the current stage. I want to point out that the low 3P monetization rate at the moment does not reflect the true potential of our marketplace and marketing revenues. and we anticipate more upside going forward. That said, we maintain our strategic priority of building a vibrant and thriving platform ecosystem where both our 1P and 3P merchants are adequately incentivized to better serve users. On a separate note, 2024 marks the 10th anniversary of our listing on NASDAQ. Looking back on the past decade, our revenues have scaled up significantly by 16 times from 69 billion RMB in 2013 prior to our listing to over 1 trillion RMB last year. Our non-GAAP income attributable to ordinary shareholders has expanded by an even more impressive 157 times from 224 million RMB to 35 billion RMB. The total amount we returned to our shareholders through dividends and share buybacks has surpassed the total capital raised over the course of the past 10 years. And we have created full-time jobs for over 500,000 employees with social insurance and health insurance benefits. as of the end of 2023, a 13-time increase compared to 10 years ago. We are proud of our achievements in the past as we created tremendous values to our users, employees, shareholders, and the society as a whole. We have a clear vision to navigate the next decade with our ever-improving user experience, stronger price competitiveness, and thriving platform ecosystem. To conclude, 2024 is marked with our consistent strategies and continued execution. And we are pleased to kick the year off with a quarter of accelerated growth and healthy profitability. As we focus on executing our strategies, we will further improve our user experience which leads to stronger demand share and user growth, thus helping to reinforce our market position and expand our market share. This will keep us on a sustainable path of healthy profit and cash flow and allow us to continue to execute and deliver for the rest of the year and the years to come. With that, I will turn it over to Ian for our financial highlights. Thank you.

Thank you, Sandy. And hello, everyone. In Q1, we delivered a solid on both top line and bottom line. We also took active steps to return value to shareholders. Since the beginning of the year, we have repurchased a total of 98.3 million Class A ordinary shares. equivalent of $49.2 million for a total of $1.5 billion, amounting to around 3.1% of our ordinary shares outstanding as of December 31, 2023. We have also completed our $1.2 billion annual cash dividend payment in April 2024. This moves Demonstrate our commitment to creating value for our shareholders through shareholder return and, more importantly, through our sustainable business growth over the long term, as we've done since our listing on NASDAQ in 2014. With that, let me turn to our Q1 financial performance. Our net revenues grew by 7% year-on-year to RMB $260 billion in Q1. Breaking down the mix, product revenues were up 7%. Within product revenues, our electronics and home appliances category was up 5% in the quarter, thanks to the resilience of mobile phones and home appliances offset by the softness of PC due to industry headwinds. Our general merchandise category returned to a solid new growth year on year. as supermarket categories rebounded to achieve double-digit revenue growth in the quarter. Other categories on general merchandise, such as fashion and home goods, also maintained strong momentum in the quarter. Service revenues grew by 9% year-on-year in Q1, primarily driven by logistics and other service revenues, which were up 14% year-on-year in the quarter. Our marketplace and marketing revenues return to positive growth in Q1 as we've caught more 3P merchants and nurtured our platform ecosystem. Our advertising revenues resume healthy momentum in Q1 as we improve traffic allocation efficiency on both our platform for both 1P and 3P merchants. Commission revenues under marketplace and marketing continue to decrease at this stage. due to our supporting measures to merchants to cultivate our platform ecosystem. Now, let me turn to our segment performance. JD Retail revenues increased by 7% year-on-year in Q1. I would like to highlight that. Even as we dedicate ourselves to low-price offerings, JD Retail's gross margin continues to increase in the quarter. Higher 1P product sales gross margin across almost all categories. This again demonstrates the beauty of JD's business model with strong supply chain capabilities at our core. We're able to continue to expand our economies of scale and pass the benefits to our users. In addition, we continue to improve our user experience, including lowering the threshold for free shipping, improve user engagement through initiatives like our sponsorship Spring Festival Gala. as a result of this effort. We achieved higher user shopping frequency and increased order volume. JD Retail's non-GAAP operating profit decreased by 5% and operating margin was down 50 bps year on year to 4.1% in Q1, in line with our . Moving on to JD Logistics. Revenues of JD Logistics increased by 15% year-on-year in Q1, with strong momentum for both of its internal and external revenues. Moreover, JD Logistics' non-gap operating margin increased to 0.5% in the quarter, a meaningful improvement compared to a loss margin of 3.1% a year ago. This is the result of JD Logistics' optimized fulfillment network and operational efficiency increased scale benefits, as well as healthier revenue growth. Turning to new business, please note that from Q1 2024, we started to report data results on the new business. Therefore, this segment mainly includes JD Profit, Dada, Jinxi, and overseas business. Revenues of new business were down 19% in Q1, primarily due to the adjustment of Jinxi business. Excluding the impact of the distilled gas assets of JD property. Non-GAAP operating loss of new units was RMB 670 million in the quarter, narrowing from RMB 846 million in the same quarter a year. Moving on to our consolidated bottom line, our non-GAAP net income attributable to shareholders at the group level came in at RMB 8.9 billion. a 17% increase year-on-year, with non-GAAP net margin coming at 3.4%, 30 bits year-on-year. This was primarily driven by increased gross margin, effective investments in GDU's experience, and GD Logistics' improved bottom-line performance. Non-GAAP diluted net income per ADS. Ladies and gentlemen, we've lost connection with the speaker line. Please hold and the conference will resume shortly.

Please go ahead.

Okay, we're back. Sorry. So our last month free cash flow as of the end of Q1 was RMB 51 billion, compared to RMB 19 billion in the same period last year. The year-on-year increase of free cash flow was mainly due to our further optimized cash conversion cycle, improved profitability, moderated capex, as well as seasonality factor, Notably, our last 12 months was a historical low level of 29 days in Q1, compared to 32 days in the same period last year, which also contributed to our increase in free cash flow. By the end of Q1, our cash and cash equivalents, restricted cash and short-term investments, added up to a total of RMB 179 billion. To conclude, We're encouraged by our solid results in Q1, and we're confident to deliver our operating targets while staying focused on executing our long-term strategies. P24 not only marks the 10th anniversary of our listing on NASDAQ. It's also a start of a new chapter for JD to serve more users and provide them and parallel user experience by developing an ecosystem that fosters the prosperity of both 1P and 3P. With that, I will turn it over to Sean. Thank you. Sure. Thank you, Ian. We apologize for the breaking up for today's call. So for the Q&A session, you're welcome to ask questions in Chinese or English, and our management will answer questions in the language you ask. We'll provide English translation when necessary for convenient purpose only. In case of any discrepancy, please refer to the management statement in the original language. Okay, can we open the call for Q&A? Thank you. Thank you.

If you'd like to ask a question, please press star 1 on your telephone and wait for your name to be announced. The question and answer session of this conference call will start now. 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 Keung with Goldman Sachs. Please go ahead.

Thank you. Thank you, Sandy, Ian, and Sean. I have a question on our growth and then how do we balance growth and profitability. Let me ask first in Chinese and I'll translate my question. How do we maintain the market share? We think the driving factor from the product category, including the electric products, is relatively high in the second quarter of last year. Sandy just mentioned that the stock market has returned. Thank you, management. I have a question on our growth and then how do we balance that with profitability. We've seen many players this year, even our incumbents, I call them, each aiming to grow faster than total retail and aiming to sustain this year. So in this overall industry where everyone wants to grow faster in the industry, how do we see the key drivers for JD this year? So sustaining and regaining market share across categories, electronics, where there was a high base last year, how do we see this growth? FMCG and general merchandise, just talked about the supermarket growth that Sandy mentioned. How do we get drivers to grow faster than industry and from user and frequency perspective existing for new users? And how do we balance this growth and profitability, our targets for margins as more players reinvest for growth? Thank you.

Hey, Ronald, thank you for your question. First of all, China's consumer retail market is a very large market, and the overall consumer market is still growing healthily. At the same time, China's exchange market is also in a highly distributed situation. We see that there are more than 300 major cities with more than 1 million people. In 2023, the online penetration rate will also be around 30%. As the efficiency of online platforms and enterprises continues to improve and the model is innovating, the online penetration rate will also increase further. Thank you, Ronas, for your question.

So first of all, I want to point out that China has a vast consumption market, and this market continues healthy growth. And in the meantime, China's consumption market is fragmented, with over 300 cities in China boasting a population of over 1 million people. So in 2023, we see that China's penetration of online physical goods sales stood at around 30%. So this is a figure expected to rise as e-commerce platforms enhance our efficiency and evolve our business models.

And from the perspective of product types, we have recently found that there are some products that we think have a relatively high online penetration rate, such as computers and home appliances. So, In category wise, we see certain categories such as computers and home appliances have a higher than expected potential to further penetrate online, despite that we think these categories already have a relatively high online consumption rate. And moreover, significant room for online penetration exists in

Some other categories, like we can see, supermarkets, home goods, automotive, stores and outdoors, and services. These categories have a large potential to continue online penetration, and these are also among the fastest-growing categories on our platform. So with that, I want to say that we believe we are still facing a massive total addressable market.

So in terms of JD's core competitiveness, it lies in

For JD, we are China's largest retailer leveraging our 1P business. We're able to leverage our supply chain capabilities to provide users with a premium and differentiated user experience and to excel in cost and efficiency management. It also paves the way for us to develop our platform ecosystem.

We have shared with you that in the past year or so, we have been focusing on improving the quality of our products, the quality of our products, the quality of our products, the quality of our products, the quality of our products, the quality of our products, the quality of our products, the quality of our products, the quality of our products,

So as discussed last quarter, over the past year, we centered around user experience, low prices offerings, and platform ecosystem, and we've taken a set of proactive moves with a focus on business health, including enhancing our and reducing procurement costs and introducing a varied customer service upgrade, such as lowering the threshold for free shipping, upgrading the one-click price guarantee service, offering free doorstep pickup for returns, and implementing open-only policies, among others. 那麼這些在體驗上面的努力也帶來了用戶層面的很多變化。

So all our efforts at improving user experience has paid off with some positive changes for user growth and engagement. So in this Q1,

Both JD Groups and JD Ratios quarterly access numbers experienced double-digit growth, continuing the trend of high growth rate from Q4 last year. So at the same time, we've also observed a clear uptick in users' shopping frequency as they engage more actively on our platform.

We also see that the NPS of users is also improving. Furthermore, our NPS have shown consistent improvement

In Q1, our NPS saw meaningful improvements on both 1P and 3P sites on an year-on-year basis as well as a sequential basis. While the influx of new to our platform as we pushed forward our platform ecosystem last year led to some fluctuations in our NPS. whereas our ongoing improvement in platform governance and risk control have driven an upward trend in user satisfaction.

So in summary, our efforts

have yielded some promising outcomes as we see users' mindshare resume momentum towards JV in terms of our ability to provide more diverse, affordable, and high-quality products at a faster speed. This also gives us the confidence to achieve long-term growth trajectory and market expansion.

接下来我来交给Yin回答第二个关于平衡增长的问题。

Thank you, Ronald. Regarding your second question, first of all, based on Sandy's answer, we are confident that the annual revenue will exceed the total revenue of the company. At the same time, we will maintain a stable foundation of the company and the profit margin. We are more likely to invest in the improvement of user experience and the acquisition of market share. The second is that in our view, business balance and profits are not contradictory. This is a one-to-one. Jindong's business model is based on supply chain and user experience. We will improve long-term supply chain capacity and user experience, and make appropriate business investments. Our long-term sustainable profits are also from our market position and user experience.

This is Ian to address the second part of your question. To follow on what Sandy just said, we're confident that our 24 full-year growth will outpace China's total retail sales of consumer goods. And we will deliver stable profits for both J.D. Group and J.D. Retail. And on top of that, we will remain committed to disciplined investments aimed at enhancing user experience and expanding our market share. So in JD's view, business growth and profitability is more reinforcing than contradictory. JD's business model is based on supply chain with user experience at the core. So we firmly believe that our long-term sustainable profits will stem from our strong market position and exceptional user experience.

Then, because there is a better experience to drive the continuous growth of GNV, and then expand our market share. As the business scale expands and the market position increases, the advantages and efficiency of our supply chain will continue to improve, and thus bring about a healthy growth of profits, allowing us to continue to invest in product price service and continuously improve the user experience.

So for JD.com, from our perspective, we believe that by constantly dedicating energy and resources to enhancing product, price, and service, we can deliver superior user experience. And this, in turn, drives up GNV growth and expands our market share. And as our business size expands and the market position gets enhanced, our advantage in supply chain and efficiency is further strengthened, which leads to healthy profit growth. And this enables us to continue to invest in product price and service to constantly improve user experience. This forms a virtuous cycle among business growth, user experience enhancement, and long-term profit growth.

Thirdly, there is a lot of room for improvement in the efficiency of business operations. Last year, we spent a lot of time improving the efficiency of operations, simplifying the workflow, and improving our long-term competitiveness. We found that, in fact, there is still a lot of room for improvement in the efficiency of business teams' management capabilities, users, and traffic.

So last year, much of our efforts was directed towards internal enhancements, including boosting operational efficiency, streamlining workflows, and enhancing long-term cost competitiveness. And through this process, we identified significant opportunities to further improve our operating abilities And we believe that strengthening these capabilities is crucial for our success in enhancing profits and long-term competitiveness.

In terms of investment in business, since last year, we have been continuously reducing the entry and exit thresholds of business owners in the construction of platform ecosystems, and increasing the support for small and medium-sized businesses, and providing more efficient operating tools for business owners. to help businesses in the Jindong region to offer more choices for their customers. In terms of user experience improvement, we continuously reduce the barrier of self-sufficiency, upgrade the price and guarantee the free payment of self-sufficiency and POP, online payment, etc. Through this series of service innovations, we drive the improvement of the NPS of customer satisfaction.

So in terms of business focus and investment, since last year, we've been working on several key initiatives. We've lowered the threshold for merchants to onboard our marketplace, while we enhanced the support measures for SME merchants. In addition, we've provided them with a range of effective tools to operate our platform. Therefore, we're able to increase the variety of product choices available to our customers. And regarding user experience enhancement, we've implemented a series of gradual updates of various customer services. These include lowering the thresholds for free shipping services for 1P, improving the functionality of our one-click price guarantee feature, introducing free doorstep pickup for return services for both 1P and 3P, and implementing refund-only policies and more. And these industry-leading service innovations have resulted in a notable increase in user satisfaction as evidenced by our rising NPS. 总结一下,从长期来看,

So to conclude, from the long-term perspective, we will consistently leverage the advantage we have in our 1P and continue to promote our platform ecosystem

to strengthen the virtuous cycle between our business scale and profit growth. And we're confident to achieve that objective in the long term. Thank you. Next question, please.

The next question comes from Alicia Yat with Citigroup. Please go ahead.

Hi, thank you. Thank you for accepting my request. Then the second question is about commercial products. I remember Manager Chen mentioned before that the commercial products, the FMCG, will become an important product that supports the growth of Jindong this year. In addition to low costs, does Manager Chen think that consumers will really spend more money on FMCG? Good evening, management. Thanks for taking my questions. Congrats on the solid results. First question is, if the appliance trade-in policy were implemented, amid the cautious consumption spend remain? Will the policy be effective enough to boost consumer to really spend? And what could be the incremental growth JD aspect to be able to enjoy from the trade-in policy? The second question is management previously noted that FFCG will be an important category to support growth for JD this year. Other than low base and easier comp, do you think consumer will really spend more income on FMCG category? If consumer demand remains lesser, will FMCG still be the key growth driver this year? Do you anticipate JD to take more share in this category? Thank you.

Thank you, Alicia. First of all, I would like to thank you. This year, it has been about 10 years since the last round of resale of consumer goods around the country. We also see that many domestic home appliances have entered the resale cycle. The performance of these old products is indeed a little poor, and the energy consumption is also very high. Thank you, Alicia, for your question. First on the trade-in service. So as you know that it has been about a decade since China last introduced the nationwide trade-in initiatives. So for many Chinese households,

It's now time to replace their home appliances and other durable goods. And these old products are often low in functionality, high in energy consumption, and may pose risks to health and safety. However, due to the high cost of replacement, many families continue using them for the moment.

So this round, the introduction of a new trading policy offers incentives to address this longstanding demand

It will encourage Chinese families to trade in their old items for new ones at a lower cost, thereby enhancing the overall quality of life for many people.

那麼我們也在和很多的地方政府在對接, 有一些陸陸續續也在上線。 那麼我們也期待接下來會有更多的補貼落地, 來真正的讓消費者來享受到這些實惠。 So currently we've seen that governments at all levels are actively promoting the implementation of trading policies. So we see the Ministry of Commerce

has released the action plan to promote trade-ins for consumer goods, while local governments are also conducting research and making arrangements, and we're also coordinating with different levels of governments, and we look forward to the introduction of additional trade-in subsidizing measures that will directly benefit Chinese consumers.

Meanwhile, JD, we have collaborated with over

100 brands, including the top brands like Haier, Media, Gray, and so on, to launch a trade-in alliance for household appliances and home goods. And this alliance has so far launched trade-in subsidizing promotions in 20 cities and regions across China with the goal of offering more cost-saving and hassle-free trade-in services to consumers nationwide.

From the perspective of Jingdong itself, we have been building and improving our ability to save and exchange in the past few years. It includes the integration and utilization of our own supply chain, logistics, and service advantages to continuously improve the service experience of saving and exchanging. We have made progress on saving and exchanging, providing free access and free discharging for consumers, free transportation, delivery of new machines, and installation of new integrated services. We can also not limit the purchase channels of old machines, not limit the brand, not limit the year, and not limit the quality of the three-way, four-way service. We will also reduce the service process of logistics that can be completed by going to the door many times in the past to only one or two times. It is safer to go to the place one by one. So over the years at JD.com, we've also been building and refining our

treating service capabilities. And leveraging our strengths in supply chain, logistics, and services, we continuously elevate the treating service experience to new heights. So we introduced integrated one-stop treating service, which includes free doorstep pickup, dismantling, handling of the old goods, and free delivery and installation of new goods, et cetera. And moreover, there are no restrictions on the treating items, original purchase channel, brand, age, or condition. So with these offerings, JD has shortened the treating process no more than two times of user home visits. So this is a very unique strength we can provide our services to our users because we are not only having our retail services but also logistics services. And on the back end, we have also done a lot of work over the years to provide the systematic support. So all of these infrastructures and abilities enable us to provide such a seamless treaty and services to our consumers today. So since 2023, more than 16 million users have chosen JD to trade in their old appliances for new ones. And the first-time users of our trading service has also recorded a 200% year-on-year increase.

对,在2023年已旧换新在我们家电的大盘占比是占在中高个位数左右。 那么今年伴随各地政府继续推进已旧换新,我们相信已旧换新将为我们的家电品类带来更多的增量,而销售占比也将进一步提升。 So in 2023, trading program accounted for mid to high single digit percentage

of JD's home appliances sales. And with the government's active promoting this initiative this year, we anticipate more incremental sales to our home appliances category. And this trade-in driven sales are expected to comprise a higher percentage of our overall sales in this category.

At present, the entire commercial and fast-food industry has maintained a good growth trend. From the data released by the Bureau of Statistics, in the first quarter, commercial products, especially basic life products, also have a healthy growth. At the same time, whether it is FMCG or fresh products, they have a relatively low rate of online consumption and a relatively fast growth rate. And about the FMCG question, so first of all I want to share from the consumption trend standpoint, the overall FMCG sector maintains positive growth momentum.

According to the Q1 NBS data, FMCG categories, particularly basic living goods, have shown robust growth. And FMCG and fresh produce are the two sectors that enjoy a rapid increase, that enjoy rising sales, whereas they have relatively low online penetration. So we've seen a lot of online platform and e-commerce players we are steadily capturing market share from traditional offline markets.

And in light of JD's Q1 data,

the anticipated swift rebound of FMCG played a significant role in driving the overall growth of our general merchandise sales and revenues, leading to our general merchandise growth rate outperforming the corresponding industry growth released by MBS.

And in terms of our strategies for the supermarket categories,

We've seen significant enhancement in this category as we delve in deeper into each subcategory to enrich product offerings and reduce procurement costs and pass on the benefits to our consumers. And additionally, to address user demand and consumption pain points, we are exploring various measures such as open sourcing of products, customized development of new products, to provide consumers with high-quality products, competitive prices, and excellent services.

We also need to make major changes to the algorithm and design every few years. Our unique city warehouse model is far beyond the experience of the general market model. This also requires us to continuously improve our scale and effect. Then, through the algorithm design, to reduce the number of deliveries, to shorten the distance of customer delivery, so as to continuously reduce the overall cost of warehouse delivery.

So at the same time, our logistic fulfillment network reform has also empowered us to lower the threshold for free shipping. And tailored to the characteristics of different product categories, we are undertaking fulfillment network reforms. As JE's business scale and category mix have evolved significantly over the past years, We've adjusted the algorithm and design of fulfillment network every few years. So for instance, our unique city-based warehouse model offers a superior shopping experience compared to the industry-wide sending nationwide from one place model. However, our city-based warehouse model require us to improve scale efficiency to reduce possible moving times from one place to another, and reduce the delivery distances through algorithm upgrades, and thereby continuously reducing overall fulfillment costs.

So all in all, we believe the essence

to continue to promote the growth of the supermarket category is to return to the essence of retail, which is to focus on the better cost, efficiency, and users' experience. So looking ahead, so despite fierce competition in the supermarket categories and the industry players adopting various strategies, we remain confident in the growth potential of this category and to view the supermarket category as the crucial driver of our overall growth. Thank you.

Next question, please.

Thank you. Your next question comes from Kenneth Fong with UBS. Please go ahead.

Hi, Sandy, Ian, Sean, thank you for accepting my question. I have two questions. The first is about the content. 我们在内容化一直有一些新的尝试,包括之前的产销直播,以及最近的东哥苏职员的AI直播等等。 我们也跟同行有一些差异化的竞争。 可以说一下我们将来这个内容化的进展及策略吗? Thank you, management, for taking my question. I have two questions. The first one on content. JD has been trying different means on the e-commerce content, as I've seen a very innovative and differentiating version of our peers, like merchandise, live streaming, and recently Richard AI live streaming. They have received very positive results. Can management share with us the progress and upcoming strategy for content investment into our core e-commerce platform? And my second question is about shareholder return. We have substantially stepped up shareholder return and repurchased 1.2 billion worth of shares last quarter. How should we think about the pace, the scale, and the sustainability of the buyback going forward? Thank you.

Okay, thank you, Kenny. Let me reply to some of the thoughts about the live broadcast and the content. At the beginning of this year, we also proposed to strengthen the content. We hope to provide users with a better shopping experience while also providing users with more comprehensive content experiences. We believe that more rich and high-quality content will bring new traffic to the capital and reduce the cost of goods and customer service. At the same time, it will also help us build the brand ecosystem. At the same time, more rich content will also improve user connectivity, drive user market, and bring traffic distribution efficiency and transfer rate improvement.

So thank you, Kenny. Let me share some thoughts on live streaming and content ecosystem. So for JD Retail, we announced our commitment to strengthen our content ecosystem at the beginning of the year, aiming to offer users more diverse and comprehensive content experience alongside our superior shopping experience. Because we believe that by offering premium content, we attract new traffic to JD's platform and reduce our users' acquisition costs and the benefit of our platform ecosystem. And we also believe that reach content also plays a crucial role in increasing user engagement and the time spent on our platform, and consequently enhancing our traffic distribution efficiency and conversion rates.

Yes, including the Double 11 retail live broadcast you mentioned last year and the AI digital live broadcast in Dongge recently, This is also a innovative attempt by our business team. Especially, Dongge's digital live broadcast is also the first entrepreneur's digital live broadcast in the industry. The first show has more than 20 million views per hour. This also reflects our Jindong's technical capabilities, including AI-related technical capabilities in the field of e-commerce innovation. In the future, we will also firmly surround core business to make technical investments.

So our attempts on live streaming, as what you mentioned, with the popular sessions led by our category managers during the single-state grant promotion, and our recent showcases featuring an AI digital representative of our founder Richard, exemplify our commitment to content innovation leveraging our JD's technological capabilities, and notably, Richard's avatar live streaming, which marks the industry's first live streaming hosted by an AI avatar of an entrepreneur, drew over 20 million views within the first hour, which also showcases our AI and other capabilities and these applications in the e-commerce scenarios. So moving forward, we will persist in making technological investments centered on JD's core business, including our large language model, et cetera.

So we're still at the early stage of our content

ecosystem building, and we hope to provide greater exposure and more traffic to high-quality and original content and its creators, so thereby adding value to our consumers by helping them discover products and make informed shopping decisions.

Okay, Kenny, I'll answer the question about your shareholder feedback.

Thank you. To answer a question on the shareholders' returns, I would like to draw your attention to our three-year plan for the $3 billion U.S. plan, and so far we still have around $2.3 billion U.S. as we scheduled in the years ahead. Year-to-date, we repurchased a total of 98.3 million Class A ordinary shares equivalent to 49 million APS for a total of 1.3 billion in open markets from both Nasdaq and Hong Kong, accounting for approximately 3.1% of the total ordinary shares outstanding at the end of 2023. So in the long term, our returns will focus on our sustained and healthy business growth, profitability, and the dividends, share buyback, and et cetera. So we will continue to reward our shareholders through various means and sharing the success of JD's business.

Next question, please.

Thank you. Your next question comes from Thomas Chong with Jefferies. Please go ahead.

Thanks management for taking my question. My first question is about 2018 and industry competition. How should you think about this year 2018 and also how we should think about the industry landscape? How is it different versus the previous year? And my number two question is about our ecosystem strategy. Can you make some comments about the number of 3B merchants as well as the contribution in the coming quarters? Thank you.

Thank you, Thomas. Let me introduce the strategy of 618 this year. First of all, the theme of 618 this year is good and cheap. While we continue to stick to the low-cost strategy, So thank you, Thomas. Let me share some plans of the upcoming JD618 grant promotion. So this year's grant promotion theme is quality and affordability. We've noticed a trend in the market where many low-priced products appear identical.

So as we continue to implement our low-price strategy, our focus for this year's shopping festival is to highlight JD's ability to offer differentiated good products at inexpensive price with excellent service.

And this year's promotion approach

and space will have some difference from the previous years, and all arrangements will be centered on enhancing users' experience, and the event will kick off at 8 p.m. on May 31st, with products readily available for immediate purchase. And we will also remain committed to cultivating strong partnership with our brands and suppliers to further solidify JD's market presence and use as mindshare. And we will also step efforts to support SME merchants and to support more than double number of merchants to achieving over 1 million sales and to support more partners to achieve their growth objectives. So overall, we're optimistic about the overall performance of this year's 6.1 promotion, and we believe that with different market players, we have different strategies in the everyday sales and during the grand promotions. What makes JD stand out is still our advantages in supply chain and the reliability we can offer to our users.

So we firmly believe that JD's business model, based on robust supply chain and user-centric experience,

is resilient and sustainable across various economic cycles. And we're confident in our ability to consistently gain market share over the long term with this business model. Thank you.

Thank you.

Sorry, we haven't been to the second part of Thomas' question. In the past few seasons, I have also shared with you the thoughts and processes of our platform ecosystem construction. The first step is to recruit and expand the scale of the ecosystem. Jindong is attracting more merchants to help them operate better on the Jindong platform and provide more goods to users. In the past year, we have been continuously simplifying the entry process of merchants and reducing the cost of opening stores. We have increased the efficiency of our business and provided a lot of support for new business owners. In Q1, our pop business has an effective number of stores that have surpassed one million. Our active business also maintains a trend of accelerating growth in four consecutive seasons. Of course, our current business volume is relatively small compared to other platforms in the industry.

To address the question about the platform ecosystem, so our initial focus is to expanding our ecosystem scale by attracting merchants. We are actively working on onboarding more merchants and support them in improving their business performance on our platform. thereby offering a diverse range of products on our platform to our customers. And over the past year, we've successfully attracted a significant number of new merchants by continuously streamlining our onboarding processes, reducing their store operating costs, improving operational efficiencies, and providing traffic support. So in this quarter, the number of effective merchants on our platform exceeded 1 million, with a number of active merchants experiencing accelerated growth for four consecutive quarters. Admittedly, our merchant count may not be as high as some other platforms, and we remain committed to further enhancing our merchant recruitment efforts and supporting their activities on our platform, and we anticipate continued growth in the number of merchants in the following quarters.

Then the second is the participation of users. We think that purchasing funds or 3P is a natural choice for users. Then we also saw that users actively participated in 3P. Q1, our 3P transaction users and 3P order volume have achieved rapid growth. At the same time, the NPS experience of 3P users is also continuously improving. In the second half of last year, we continued to innovate these services with the merchants.

So for the second phase of the platform ecosystem building involves encouraging user participation. Ultimately, we aim for it to become a natural choice for our users to purchase either self-operated or third-party products. Thus far, we've observed favorable interactions between our users and third-party offerings. In Q1, we achieved accelerated growth in both 3P transaction users and 3P order volume. Meanwhile, NPS for 3P has continued to improve. Since the second half of last year, we've been collaborating with our merchants to pioneer service innovations. This has led to the implementation of services like late delivery, compensation, refund-only policies, and free doors that pick up for returns, and more services, all of which have constantly elevated our shopping experience for our POP users.

最后我们也相信会看到 POP销售和收入的提升。 那前提是我们真正的帮助商家把生意做大, 那从商家数量快速扩充到用户的积极参与。 And lastly, we also believe that we will witness an increase in pop sales and revenues. And the prerequisite for this to happen

so we can truly help our merchants to scale up their businesses. From the rapid expansion of merchant members to active user participation and to rapid growth of PopGNV, all of this will require time and patience. With the gradual improvement of our platform ecosystem in the long run, the proportion of our 3P orders and GNV will eventually surpass that of our self-operated products. and this will also be a natural choice by our users.

通过1P的自营和3P的商家, 我们相信我们能提供更繁荣的平台生态, 更丰富的优质商品的供给, 吸引更多的用户, 满足用户更多的需求, 然后形成良性循环, 帮助商家把生意做大做好。

那这也是我们长期GNV和利润持续提升的重要增长驱动力之一。 Leveraging our 1P business and the collaboration with merchants from our 3P marketplace, we are able to foster a thriving platform ecosystem and providing richer supplies of high-quality goods and to increase the engagement of our users on our platform. so as to achieve a virtuous cycle. And we believe that this virtuous cycle will be an important driver for the continued growth of our long-term revenues and profits. Thank you.

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

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