JD.com, Inc.

After management's prepared remarks, there will be a question and answer session. Today's conference is being recorded. If you have any objections, you may disconnect at this time. I would now like to turn the meeting over to your host for today's conference, Sean Zhang, Director of Investor Relations. Please go ahead.

Thank you. Good day, everyone. Welcome to JD.com's second quarter and interim 2024 earnings conference call. For today's call, CEO of JD.com, Ms. Sandy Xu will kick off with her opening remarks, and our CFO, Mr. 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 the call, our comments and responses to your questions reflect management's view as of today's only, and we will include forward-looking statements. Please refer to our latest Safe Harbor statement in the earnings press release on 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 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.

Thank you, Sean. Hello, everyone. Thanks for joining us today to discuss our Q2 2024 results. Facing a very dynamic and competitive market, we delivered a solid set of results, notably achieving the highest single quarter non-GAAP net profit in our history. Our team did a great job executing our long-term strategy of relentlessly pursuing lower cost higher efficiency, and best-in-class user experience. And we saw a set of key drivers of our business, including user growth, user experience, and engagement. Press competitiveness and platform ecosystem continue to move in the right direction in the quarter. Our results speak strongly about the quality of our business, and our commitment to the healthy long-term growth with financial discipline. Instead of addressing the shifting market environment with hefty subsidies for short-term top-line performance, we continue to focus on leveraging our core strengths in supply chain capabilities to offer competitive prices and better user experience. And at the same time, to grow our business and profits sustainably. This is a proven path to drive sustainable growth and has led us through many market shifts over the past two decades. Despite the seasonal fluctuation of revenue growth in Q2, we are confident that our long-term market position will continue to improve. Now let's discuss our category performance. Revenues of electronics and home appliances were down 4.6% year-on-year in the quarter. This is primarily due to last year's high base, as well as our disciplined strategy during the June 18th promotion, as we prioritized the sustainable growth of our business. Rather than short-term growth fueled by excessive subsidies, We believe, with decades of operating experience in this category and unparalleled supply chain capabilities, we will continue to offer the best-in-class user experience and enhance JD's market position and win over market share in a sustainable way. We see continued strong momentum in our general merchandise category, with revenues up 8.7% year-on-year further accelerating from the previous quarters. To highlight, supermarket revenue saw double-digit young year growth in the quarter, led by strong order volume growth and improving user man-share. This momentum has persisted for two consecutive quarters now and is mainly attributable to our stepped-up efforts to improve user experience across all aspects. of product quality and selection, price competitiveness, and service quality. With this massive time, we expect supermarkets to continue to be an important growth driver for us. Despite mixed top-line performance, we saw broad-based profitability improvement across many categories and segments, which collectively contributed to record highs in both non-GAAP operating profit of 11.6 billion RMB and non-GAAP net profit attributable to ordinary shareholders of 14.5 billion RMB. Non-GAAP net margin in Q2 climbed to 5% for the first time. This was primarily driven by gross margin expansion to a historical level of 15.8% in the quarter. with the improvement in almost every category. As we focus on price competitiveness, our growth margin has been on an upward trend year on year for each and every quarter over the last two years. This underscores our improving supply chain capabilities that enable us to continually benefit from scale and efficiency. Now let me walk you through the progress we made on the key drivers of our business, namely user growth and user engagement, price competitiveness, and platform ecosystem. First, on user growth and user engagement, in Q2, we saw robust user momentum in both the higher tier and the lower tier markets. Collectively, the number of our total quarterly active customers continued to grow at double-digit pace year-on-year in Q2 for the third consecutive quarter. I want to reiterate that our goal is to serve users across different income spectrums and demands with the right product, right price, and service offerings. Our user growth in the quarter was broad-based across user cohorts of both new users and existing users, particularly those who have stayed with us for over two years, as well as PLUS members. It clearly demonstrates JD's value proposition not only resonates with new users, but continues to gain man share and wallet share from the loyal users. In addition, Overall, shipping frequency and order volume on our platform both grew by double digits year-on-year in Q2. We also saw average order value declined year-on-year as a result of soft consumer spending as well as our low-price strategy, category mix shift, and wide range of free shipping service. Such user momentum is a strong proof of our effective user experience programs. In Q2, we further enhanced our industry-leading trading program to provide users with better coordinated services, including delivery and installation of new devices and disassembly of used devices. We also extended our best price guaranteed period to up to 365 days. for certain categories, starting with 1P. In addition, we made solid progress on programs including free shipping, free doorstep pickup for return, cashback for delayed shipping, and expanded their coverage from 1P to more and more 3P offerings. Other initiatives, such as our supermarket categories, direct shipment from suppliers to customers and 24-hour fresh milk delivery, so increasing user appreciation. As a result, our 3PMAT promoter score has improved sequentially for the past two quarters, while our 1PMPS remains at a very high level. Going forward, we will continue to invest in user experience, as we believe it will translate to stronger user man-share and user engagement, which are the fundamental to drive sustainable growth for JD. Second, moving on to the price competitiveness, which we continue to reinforce firmly. On the 1P side, we further built upon our strong supply chain capabilities to provide our users everyday low price in a sustainable way. This is the bedrock of our low-price strategy. While on the 3P side, we stepped up efforts to supplement the products on our platform with more value for many offerings to address a wider spectrum of user demands. In Q2, our NPS for price competitiveness continued to grow year-on-year on both the 1P and 3P sides. We also saw stronger momentum for lower-tier markets on our platform in terms of user base expansion, order volume growth, and shipping frequency, among others. Again, JD's price competitiveness is built on our strengths in lower cost, higher efficiency, and best-in-class user experience. Low price is a result of our core capabilities. Instead of driven by subsidies, This will continue to distinguish us in the e-commerce industry. Thirdly, we have also made encouraging progress on our platform ecosystem. On the 3P side, during the quarter, we continue to provide healthy user traffic and effective supporting measures to help 3P merchants grow their businesses. 3P merchants responded well to our efforts and our active merchant base continued to expand quickly both year-on-year and sequentially in Q2. In addition, we also saw an accelerated year-on-year growth of active buyers who purchased from 3P merchants on our platform. At the same time, such users recorded higher shopping frequency in this quarter. This led to an over 20% year-on-year increase in our 3P order volume in Q2, its fastest pace in the last two years. In terms of monetization, the decline in commission revenues narrowed in the quarter as the impact of our reduced commission fees gradually lapsed. Meanwhile, JD Retail's advertising revenues generated from 3P merchants recorded a double-digit growth. We still have a lot to do, especially to drive better ROI for our merchants. To reiterate, our goal is to build up a thriving platform ecosystem that propels the development of our 1P business and incentivizes 3P merchants to provide diverse product and service offerings as we aim to address a wider array of user demands. In closing, our Q2 results demonstrate our firm commitment to high-quality long-term business growth. We believe this is the best approach to navigate the current market conditions. Our profitability improvement is sustainable as it is driven by our expanding scale efficiency. arising from our supply chain advantages and our focus on creating value for our end users. At the same time, our key business drivers, including user base and engagement, price competitiveness, and platform ecosystem are all trending in the right direction. We are confident that as we stay focused on executing our long-term strategies to offer lower cost higher efficiency, and best user experience, we will maintain a healthy growth of our business scale, profit, and cash flow, and solidify our market position in the long term. With that, I'll turn it over to Ian for our financial highlights. Thank you.

Thank you, Vandy, and hello, everyone. In Q2, we stayed committed to our strategy of building cloud capabilities for sustainable growth, despite the short-term headwinds impacting our top-line growth. Our non-GAAP net profit margin hit an all-time high of 5%, with improvements across many of our categories and segments. This was driven by our expanding scale efficiency, arising from our supply chain advantages and our focus on creating value for users. On the back of these high-quality results, we continue to step up efforts to return value to shareholders. In Q2, we repurchased a total of 137 million Class A ordinary shares, equivalent of 68 million ADS, which accounted for 4.5% of our ordinary shares, outstanding as of March 31, 2024. The total value of the shares repurchased in Q2 was $2.1 billion. In the first half of this year, we have bought back a total of 7.1% of our ordinary shares, outstanding as of the end of 2023. The progress reflects our commitment to creating value for shareholders. With that, let me turn to our Q2 financial performance. Our net revenue grew by 1% year on year to RMB 291 billion in Q2. Breaking down the mix, product revenues were flat in the quarter, primarily due to a 5% year on year revenue decline in our electronics and home appliances category for the quarter. This is in line with our expectations, as we had a high base for the sales of summer appliances last year due to seasonal factors, as well as our disciplined promotions in the quarter. Our general merchandise category delivered another robust revenue growth of 9% young year in Q2, its highest growth rate for the past two years. In particular, our supermarket category has hit double-digit young year revenue growth for two consecutive quarters. And we believe this momentum will continue for the rest of the year. Service revenues grew by 6% year-on-year in Q2, of which marketplace and marketing revenues were up 4%. And logistics and other service revenues increased by 8%. Under marketplace and marketing, commission revenues recorded a narrow decline in the quarter as the impacts of our supporting measures to merchants, including commission cuts, gradually lapsed. Advertising revenues delivered a healthy growth rate, year-on-year in the quarter, with a faster pace than GMV, as we further optimized traffic allocation efficiency. It's worth noticing that JD Retail's advertising revenues bounced back to a double-digit year-on-year growth in Q2, we see plenty of room to further grow advertising revenue as we continue to boost user growth and improve user efficiency. Now, let's turn to our segment performance. JD Retail revenues were up 1.5% year-on-year in Q2, reflecting the mixed category performance as previously mentioned. In terms of profit, JD Retail achieved a broad-based increase in profitability for the quarter thanks to its growth margin expansion across many categories and disciplined promotions. As our supply chain advantages continue to drive up-scale benefits, we are able to get competitive procurement benefits and then pass down to our users while at the same time supporting our growth margin. JD Retail's operating profits increased by 24% year-on-year to RMB $10 billion, with operating margin recording a 72-bps expansion to 3.9%. Looking now to JD Logistics, JD Logistics revenues increased by 7.7% year-on-year in Q2, with healthy momentum for both internal and external revenue streams. Internal and external revenues increased by 7% and 8%, respectively. As JD Logistics continues to benefit from its increased scale and improved operating efficiency, its non-GAAP operating margin also increased by 370 bps year-on-year in the quarter, hitting a new record of 4.9% since its listing. Turning to new business, in the quarter, Revenue of new business was down 35% year-on-year, primarily due to the adjustments of the Jinxi business and others. Non-GAAP operating loss of new business was RMB 695 million in the quarter, compared to a gain of RMB 23 million a year ago, excluding the impact of the disposal gain of JD Properties' long-lived assets. The result was largely due to the increased loss in the Jingxi business and others. Moving on to our consolidated profit performance in Q2 at the group level, our gross profit grew by 11% year-on-year, and the gross margin increased substantially year-on-year to an all-time high of 15.8% in Q2. It's worth pointing out that this is the ninth quarter in a row that our growth margin improved on a year-on-year basis, both at the group level and at the JD retail level, which clearly highlights the quality of our business growth. Our non-GAAP operating profit increased by 34 percent year-on-year to a new record of RMB 11.6 billion, with a strong non-GAAP operating margin of 4 percent, primarily driven by the improved profitability of JD Retail and JD Logistics as our supply chain continues to build up scale benefits. Non-GAAP net income attributable to ordinary shareholders came in as a new record of RMB 14.5 billion in Q2, representing a 69% year-on-year increase. Non-GAAP net margin reached 5% up nearly two percentage points from a year ago. In addition, non-GAAP diluted net income per ADS grew by 74% year-on-year in Q2 to RMB 9.36 or US dollar 1.29 in the quarter. Our last 12-month free cash flow as of the end of Q2 was RMB 56 billion. Compared to RMB $33 billion in the same period last year, the year-on-year increase in free cash flow was primarily driven by seasonality factors, our robust profits, as well as moderated capex. By the end of Q2, our cash and cash equivalents, restricted cash, and short-term investments added up to a total of RMB 209 billion. As we head into the second half of the year, we will dedicate ourselves to accelerate top line to outpace the growth of the total retail sales of China for the full year. It takes a lot of efforts under the current environment. We will also continue to invest with financial discipline focusing on areas that contribute to our long-term competitiveness, particularly in user experience and user growth, low-price strategy, and platform ecosystem. Thus, we are confident to achieve a healthy growth of our full-year profit. We believe this is the right approach for the current environment and to ensure sustainable growth for the long run. With that, I will turn it back to Sean. Thank you.

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

Hi, Sandy, Ian, Sean, everyone. Congratulations on the growth of the health and long-term benefits of the management. I have two questions. The first one is about our low-cost strategy and the changes in the industry. We launched the sale of the Super 18 in the Middle East. With the online platform slowly turning towards the GMV trend, will the company's low-cost strategy make any changes? The second question is about the platform's ecosystem and transformation. In the past year, we have been accelerating the entry of free-fee buyers. I have two questions. First is on our low-price strategy. Recently, we started to see some news that our competitor, I'm fine-tuning their strategy from low price to more GMV focus. JD recently also announced our Super 18 discount date recurring as each month. Can you share with us a strategy on price competitiveness and whether we have any changes to our strategy in response to the market change? And second is a platform ecosystem. Over the past year, we have been onboarding more new merchants, expanding SKU, cultivating consumer mindset, and built a very vibrant 3P ecosystem, and we have seen encouraging results. With competitors also speeding up platform monetizations for virus service fee and advertising product, can management share with us how we think about the path and timeline for speeding up our 3P monetization? Thank you.

Thank you for your question. Let me answer the first question about the low-cost strategy. First of all, our low-cost strategy has not changed. In fact, over the past 20 years, we have been insisting on the cost-efficiency experience. In terms of user experience, as we have talked about many times, the three key elements are product price and service. So price is actually a very important part of user experience. Thank you, Kenny, for your question. Let me address your first question about JD's low-price strategy. So for us, our commitment to low-price strategy remains steadfast. As you know, for our 20 years of growth, we have always put our focus

of our lower cost, higher efficiency, and user experience. And the price competitiveness is a very core aspect for user experience. This is also why we always focus on our product, price, and user experience. So user experience has always been at the core of JD's mission. And enhancing it remains our top priority and the most crucial aspect for JD's business growth.

Yes, first of all, Jingdong is a retail business based on supply chain. So the low price is actually low cost behind it. This is also the essence of our retail and the most basic operating capability. We have always been ensuring the quality of our products and our service to improve our price competitiveness. And behind this low price is actually the low cost that we bring through the scale effect and the higher operating efficiency through technology.

所以它并不是通过补贴的方式去获得短期的不可持续的价格下降。 And for JD.com as a supply chain based retailer, behind our low price, it's always our ability in control the economies of scale and the tech-driven innovations. So... we continuously enhance our price competitiveness without compromising the quality of our products and services. And we'd rather achieve it through our strengths rather than relying on short-term subsidies that leads to unsustainable price reductions.

除了我们的自营业务之外, 我们也通过吸引更多的3P的商家, 更多的产业贷和白牌的商家来帮助我们丰富产业贷的商品。 and supply of low-cost products to meet the needs of different consumer groups. For example, we purchase our products directly from the manufacturers and get low-cost products from the source. So, our low-cost products are not based on the quality and service experience of the products and the benefits of the users and the cooperation partners. Instead, we rely on the continuous innovation of the supply chain with the effect of scale and technology.

So besides our 1P business, we have been working hard to attract increasing numbers of 3P merchants and working with industrial belts and white label manufacturers to our platform. By partnering with these partners can help us to diversify our low-priced product offerings catered to the various needs of our users. For example, by sourcing and shipping directly from manufacturers, our Genesee business is able to offer a wide range of lower priced products to our customers. So we want to emphasize here that our pursuit for low price has never come at expense of user experience or product quality or the interests of our business partners. In fact, we achieved cost reduction through JD's scale effects and tech-driven supply chain innovations, which will effectively eliminate unnecessary costs and genuinely reduce prices. So we stepped up our efforts on enhancing our price competitiveness, including reducing our procurement costs on the 1P site and expanding selection of low-priced products on our marketplace and launching programs like the 10 billion yuan discount initiatives and the 9.9 yuan items with free shipping. This year, we'll continue to execute our low-priced strategy and further build up our capabilities. And the positive feedback from our users affirms the effectiveness of these efforts. And through the Super 18 initiative, we hope to further strengthen the user mind share of our JD618 grant promotion and everyday low price to enhance their shopping experience with our low price offerings.

And finally, I want to emphasize that

that our focus on core business metrics remain unchanged. We believe that healthy business development requires a comprehensive evaluation of the key indicators. Under all circumstances, we strive to maintain a balance between GMV profits and cash flow. We're committed to ensuring the sustainable growth of our business while creating a parallel user experience with price competitiveness being an important component.

Kenny, let me answer your second question. Zingdong's platform, Shentai, aims to achieve the common prosperity of Zing and POP, and provide the best user experience. We use Zing to attract users and provide a unique experience, and POP to meet the needs of users.

And to answer your second question, we aim to build a thriving platform ecosystem that benefits both our 1P and 3P businesses. We believe that combining these two models create a superior shopping experience for our users. Our 1P offerings attract users, while 3P merchants help to address diversified needs of our users. So for us, the core of our platform ecosystem is to deliver a best-in-class user experience, and monetization will be a natural result of our platform ecosystem's growth.

Jindong's platform ecosystem is a long-term strategy, and there is a lot of room for improvement. I've told you about the overall idea and rhythm of our platform construction. First of all, it is to attract business and expand the size of the ecosystem, enrich the goods, and promote the growth and activity of the business. POP business can help us enrich the product supply and improve the user experience. It is an indispensable addition to the mobile platform. Q2, our active business number continues to maintain the trend of growing at the same rate.

As we mentioned before, that GDS platform ecosystem, it's a long-term strategic initiative, and there's still great potential for us to improve. As shared before, our development progress for the platform ecosystem have a few steps. So first, we will continue to expand our merchant base, enrich product offerings, and foster merchant growth and engagement. Our 3P merchants play a very important role in enhancing product supply and improving user experience. They are a very important and essential component supplement to our platform. And in Q2, the number of active merchants continued to see a strong momentum, growth momentum.

At the same time, we are very concerned about the participation and user experience of users, including the number of users in 3P. The same time, we closely monitor the key metrics of users, including the numbers of users who purchase from our 3P merchants.

and the 3P order volume and GNV generated from 3P, et cetera. In Q2, both the number of 3P transaction users and orders experienced accelerated growth, with 3P GNV growth outpacing our total GNV growth. And eventually, we will see a natural and organic growth on our 3P monetizations.

Secondly, in the current stage, we continue to see some active progress in platform ecosystem development, including the gradual rise in Q2 commission income. Last year, our support policies for merchants, including cut down on commission, canceling platform usage fees, etc., have gradually reduced the impact on technology. In the second half of the year, we expect that the commission income will follow the growth of 3P GNV, gradually rise and recover. The advertising revenue of Q2 continues to exceed the increase of GNV. We believe that advertising is the result of the business management effect of the business. We are also upgrading the ability of our product advertising, and then the mode of innovation advertising to give the brand business, small and medium-sized business, etc. a more easy-to-use, more efficient growth path, and then promote the business growth of the business, and thus drive the natural growth of advertising revenue.

At the current stage, we are observing some positive developments in our marketplace, which includes, first of all, in Q2, our commission revenue showed steady improvement recovery. The impact of our supportive measures to 3P merchants since last year, including reduced commissions and the removal of platform usage fees, is gradually diminishing. So we anticipate that commission revenue will recover and increase in the second half of the year as 3P GNV continues to grow. And for advertising revenue in Q2, it grew faster than the GNV. We believe advertising is merchants' response to the platform's performance. So we have been enhancing our advertising products and models and to help our brands and SME merchants to grow their business on our platform. So this in turn, we believe, will drive higher advertising revenues to us.

最后我们会按照既定的策略 坚定地推进平台生态的建设 长期来看,伴随我们平台生态的逐步完善 3P的订单量和GMV占比将超过自营 然后我们的佣金和广告收入也会自然健康增长

So we remain committed to executing our strategy and plan to advance our platform ecosystem. During the long term, our ecosystem will continue to evolve and improve. We expect the proportion of 3P orders and GNV to surpass that of our 1P business. So consequentially, revenues from commissions and advertising will grow in a healthy manner. Thank you.

Your next question comes from Ronald Keung with Goldman Sachs.

Thank you, Sandy, Ian, and Sean. Congratulations. The second quarter's profits are very, very strong. When we look for growth, profits, and cash flow to balance, I think the second quarter's profits should be the brightest in KPI. In the second half of the year, How do you think we can balance these three KPIs, which are GMV rate, absolute profit, and cash flow? Will we do some adjustment in the second half of the year because the profit is far above the goal for the whole year? Or will we keep it for the whole year? If we look at the second half of the year, we also see that these e-commerce teams are more concerned with GMV growth. How do we judge the competitive pattern of the e-commerce industry in the second half of the year? Let me translate it. Congratulations, management, on the very strong second quarter profits. And so as we think about the optimal balance between growth and profitability, two cues seem to be more skewed towards profitability that beat most in the three KPIs. So as we look into annual basis or into the second half, how are we balancing the optimal targets of these three KPIs for second half? And would this lead to any changes for the full year, given the profit KPI has exceeded expectations for the first six months. And for the second half, we see more companies focusing or talking about GMV growth. So as we target this GMV growth, how do we see or foresee the second half e-commerce competitive landscape into the second half? Thank you.

Thank you. I will answer the question about growth and profit. So we believe that the growth The growth comes from the user experience of the table. Jindong will continue to firmly invest in user experience, and at the same time strengthen the competitive advantage of self-sufficiency and logistics. Profit comes from the cost advantage and efficiency improvement that continues to be improved. In the assessment, we also maintain the balance of GNV profit and cash flow and healthy growth.

To answer your first question about growth and profits, at JD.com, we believe that sustainable growth is driven by delivering an exceptional user experience. And JD is committed to continuously enhancing users' satisfaction and enhancing our core capabilities in our 1P and logistic services. And our profits are the result of our ongoing optimization in cost and efficiency. So for the evaluation of our business performance, we will always strive to strike a balance among GMV profits and cash flow to ensure healthy growth of our business.

从Q2的财报可以看到,京东在刚过去的Q2里取得了高质量的经营成果。 之前和大家沟通过,受夏季品类例如空调的高技术等短期因素的影响, The Q2 revenue increase has slowed down, but our operating quality has significantly improved. The group's net profit has reached a record high of 14.5 billion yuan, and the overall net profit has reached a level of 5% for the first time. The increase in profit rate is a major driving factor, which is a significant improvement in the net profit rate caused by the increase in supply efficiency. The Q2 net profit rate has also increased by 137 points. So our performance in Q2 demonstrates the high quality growth we have achieved.

As we previously communicated, our revenue growth in Q2 slowed due to a challenging comparison with last year, particularly in summer categories like air conditioners. However, we observed a strong operational performance with net income reaching a historical high of 14.5 billion RMB and net profit margin reaching 5% for the first time. A key driver of this margin improvement was the enhancement of supply chain efficiency, leading to a significant improvement year-on-year increase in gross profit margin, which grew by 137 basis points in Q2. Notably, our gross profit margin has improved consistently for nine consecutive quarters since Q2 2022. These results reflect JD's commitment to high-quality growth. Our business units continue to gain operating experience and are dedicated to investing in long-term, sustainable competitive advantages and ROI to balance growth and profitability. 第二是下半年京东会持续的动态的平衡增长和利润。

Secondly, in the second half of the year,

we will adopt a more dynamic approach to balancing growth and profitability. We will continue to invest in areas such as enhancing user experience, new user acquisition, and expanding market share. At the same time, our business units will further strengthen their operational capabilities and efficiency, driving improvements in supply chain efficiency across the board And these advancements enable us to offer more competitive priced products to our users while enhancing overall operating efficiency and profitability for the company.

We expect that the profit rate and profit margin of Jindong Group will increase equally. In the long term, there is no contradiction between business growth and profit, and there is a positive cycle. Jindong's business model is based on supply chain, and user experience is the core. We will improve the long-term supply chain capability and user experience, and make appropriate business investments. So looking ahead to the full year, our goal is to achieve a growth rate that outpays the overall market's retail sales of consumer goods.

As we continue to invest with disciplines in user experience and market share expansion, we expect JD Group's profits and profit margins to increase year on year. In the long run, we see a positive cycle between business growth and profitability rather than contradiction. JD's business model is built on a robust supply chain and focused on user experience. We will make targeted investments in these areas to enhance user satisfaction and strengthen our market position, ultimately achieving long-term sustainable profits. We're confident in our ability to reach the goal of achieving high single-digit profit margin over the long term.

那我们认为中国电商市场的规模 还是会在长期持续保持增长 同时我们也相信京东零售有着独特 而且稳固的自营供应链的能力 以及京东物流服务能力的护城河 可以提供更加优越的用户体验 以及更优的成本和效率 So let me address on the second question about the market competition.

In our opinion, China has the world's largest e-commerce market and the most mature infrastructure to support its continued growth. We believe that this market will keep expanding for a long time. At the same time, JD Retail's unique and robust one-piece supply chain capabilities combined with our self-operated logistic services form a strong moat for our business success. So these strengths enable us to deliver a superior user experience while being excel in cost and efficiency.

There is a wide market space, including commercial products, home products. The current online penetration rate or online conversion rate is relatively low. So this penetration rate still has a chance to continue to improve. And for these commonly considered standard products, online conversion rate is already relatively high. We actually see that the online penetration rate is still increasing. And we are also actively setting up offline retail networks to provide users with

So first, on China's retail market side, particularly the online sector, it offers tremendous opportunities for growth. So while we examine online penetration from the perspective of product categories, user demographics, and business innovations, there remains significant room for expansion. So there is substantial potential for online penetration in categories such as supermarkets and home goods where the online sales still have a lot of opportunity to continue to grow. Even in some categories like 3C products or home appliances, which are traditionally we consider are standard products and they already have a high online penetration rate, we continue to see this category is growing online. So simultaneously, we are actively developing our offline retail networks for these categories to provide more specialized shopping experience for our users. So on the demographics, for the young generation, they grow up with online shopping. They're already highly accustomed and reliant on e-commerce platforms. And now the older generations are also embracing online shopping, creating new opportunities for growth. At JD, we have observed a strong user growth in both these two user groups, with their growth rates surpassing our overall user-based growth.

Additionally, the emergence of new online shopping formats continue to drive increased online penetration,

So overall, China's online retail of physical goods is outpacing the broader retail market as we observe.

And on this e-commerce market competition landscape, we see China's e-commerce industry is vast and dynamic, with room for various players,

employing different models, features, and competitive advantages. We believe that the essence of retail will always boil down to two fundamental questions that are how to enhance user experience and how to achieve win-win outcomes with partners. At JD.com, we are committed to these long-term goals by continuously optimizing our cost efficiency and user experience.

Yes, the biggest advantage of Jindong is from our self-servicing and Jindong logistics' advantage in terms of cost-effectiveness experience. In the past year, we have been continuously strengthening our entire supply chain to continue to get new users. We also see that our second-tier users continue to maintain double-digit growth. Among them, users who have been returning for more than two years and new and old users are all increasing. So JD's key differentiators separate us from others are our cost efficiency and user experience driven by our 1P ritual business and our self-operated logistic services.

And over the past year, we have intensified our efforts to strengthen our supply chain capabilities and enhance our user experience. And in Q2, we continue to see double-digit user growth led by our record users and long-term core users with over two years of engagement with us. And users' shopping frequency also maintained a double-digit growth. So overall, we are confident on China's e-commerce market. market growth. Thank you.

Thank you, Ronald. Next question, please.

Our next question comes from Alicia Yap of Citigroup.

Hello. Thank you. The government has recently announced that it supports the policy to promote home appliances and save new ones. How will Jindong cooperate with local governments and home appliances manufacturers? We understand that Jindong has been participating in saving new ones in daily sales. Can the government's new policy bring additional income growth to Jindong? The second question, I actually want to ask, because the current overall consumer sentiment is still not very strong in this environment, our commercial products are relatively capable and stable. So I would like to ask if Jindong will further strengthen the supply of commercial products. and provide more new sales methods to strengthen the demand for commercial products. I will translate it myself. So two questions. First is that given the latest announcement of central government support of the Push Forward, the Appliance Trade-In Initiative, and what are JD's plans on cooperating with the local government and also the appliance suppliers? Understood that JD has been participating and facilitating the trading process during the normal routine demand. How much incremental or what can we expect from the later push of the central government to translate to JD's top line growth in the coming quarters? And then second question, in light of the soft consumption sentiment, Will JD shift more focus to enhance the FMCG SKU offering with the innovative pricing promotion to boost the consumption demand for the FMCG product, given the product is actually more resilient into the weak economy? Thank you.

Thank you, Alicia. First of all, according to our past experience, the change is to promote Thank you, Alicia, for your question. So from our JD's experience has shown that promoting trade-ins is an effective way to boost

a big ticket consumption. We have been actively implementing relevant initiative for some time and building strong partnerships with our brand partners and accumulating valuable experience in this aspect. We highly support and welcome the government's support in promoting treat-ins and other measures to stimulate consumption.

And on the policy level, as you mentioned that in the end of July,

the NDRC has issued supportive policies on the trade-in services and home appliances as a key area eligible for these supportive measures, and we expect certain policies will be rolled out very soon.

After the program was launched, we quickly established cooperation with many provinces through the construction of a new supply chain. In many cases, the government has chosen the distribution platform of subsidies and subsidies for home appliances that meet the policy conditions. In terms of model creation and sales, we have created better results for each place.

So currently for the implementation, we have been working with the local governments and various brands to carry out the implementation of these supportive policies and subsidies. Since the release of the Treat In Action Plan in March, we have been establishing partnerships with various provinces and city governments And we have been selected as a designated platform to distribute government subsidies and applying them to products that meet the policy criteria. And so far, our cooperation models and promotional efforts have yielded some positive results. 那么这一次中央新政出台呢,我们也会在过往。

And with the central government's recent policy announcement, we will build on our solid collaboration foundation with the governments and partners to further collaborate on the treaty initiative, helping distribute

subsidies to the local consumers, both on the system level, on the processes level, we are very ready, for example, with the technical back ends and on every front. Not only our collaboration online, we are also leveraging our offline presences, including our JD's home appliances experience stores, chain stores for home appliances to provide all kinds of services and trade-in promotions to our consumers across the country. 同时我们也跟各个品牌厂商共同成立了京东家电家居混信联盟,

At the same time, we have partnered with brands to launch JD Home Appliance Trade-In Eyelines and introducing trade-in subsidy activities across 20 provinces and cities. And through these eyelines, we can offer cost-saving products and convenient services

to our customers in different regions.

And to circle back to your question, from our business perspective, this time the release of the new policies, we do expect this will be

effective to drive the growth of our home appliance industry. And for JD.com, it will provide certain incremental, and we anticipate that the sales share from trade-ins on JD platform will increase in the near future. And we will also leverage the trade-in service, our trade-in service capabilities on the systems, on the processes, to maximize this opportunity to implement relevant measures. and working alongside local governments and manufacturers to further stimulate home appliance consumption. Thank you.

but it is still a highly distributed product in the entire Chinese retail industry. So we are very confident in the long-term growth prospects of the entire commercial product category and the long-term growth prospects of the Jindong commercial product category. We also believe that through the ability to differentiate, we can improve the user experience and continue to gain market share. The commercial product category will also continue to become the main growth force of Jindong.

And so for your second question, supermarket category, we've made some good progress in enhancing our operational capabilities in the supermarket categories, and it has resulted some healthy revenue growth. And despite intense competition, and you see this supermarket category is very decentralized and dispersed across the market, looking at our operational improvements, we still have very strong confidence in the long-term potential of this category. And by leveraging JD's unique strengths, we believe JD Supermarket will continue to help us to enhance user experience and expand market share. It will serve as a key growth driver for the whole company.

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

Your next question comes from Thomas Chong with Jackery.

Good evening. Thank you for your question. My first question is about the company's profit and loss in the next few years. The second question is about the shareholder's report. I would like to know the latest situation of the shareholder's report. Thank you. Thanks, management, for taking my question. My first question is about earnings outlook. Can management share your view about the trend in earnings and margins outlook over the next few years? And my second question is about shareholders' return. Can management share your latest thoughts about share repurchase and dividends? Thank you.

Thomas, thank you for your question. Let me answer it. In general, the long-term profit and loss target in the Middle East will be high. And thank you, Thomas. To answer your question, our meet-to-long-term goal to achieve a profit margin in high single digits, and we are optimistic about reaching this target.

And our key growth driver includes the growth of our platform ecosystem, category mixed optimization, and profit margin improvement across various categories.

First of all, this year's Q2 group profit is innovative, reaching 14.5 billion, with a profit of 5% for the first time. The core is still the improvement of the supply chain efficiency, and the improvement of the interest rate. In the long term, the profit rate of Jindong still has a lot of room for improvement.

So for JD Group's Q2, net profit hit a historic high of 14.5 billion yen, with a net profit margin of 5%, driven largely by improved gross profit margins from in-house to supply chain efficiency. We see significant potential for further margin expansion in the long term.

And as our business and operational efficiency continue to improve, we believe that we will achieve a high single-digit profit margin in the long term. Thirdly, the long-term sustainable profits of JDM come from our market status and user experience. We will continue to invest energy and resources in improving product price service to provide better user experience to drive the continuous growth of GMV and expand market share. At the same time, with the expansion of business scale and the improvement of market status, our supply chain advantages and efficiency will continue to improve. and then bring about a healthy growth of profits, so that we can invest again in product price service and continuously improve user experience.

This long-term profitability will be anchored by our strong market position and focus on user experience. By continuously investing in our product, price, and service, we're able to enhance users' experience and satisfaction. so as to drive up our GMV growth to expand market share. And by leveraging our increasing scale and market share, we further improve our supply chain efficiency, which in turn will boost healthy profit growth, allowing us to reinvest and enhance user experience.

To sum up, JD's profitability has ample room for growth.

driven by higher 3P contributions and improved category mix and margin potential within each category. So our long-term profit margin target remains set in the high single digits. 关于股东回报的问题,

And on the return to shareholders, we remain committed

to return to shareholders. And for Q2, we repurchased approximately 2.1 billion USD worth of shares across the U.S. and Hong Kong stock markets, equivalent to 137 million ordinary shares or 68.4 million ADS, representing approximately 4.5% of our outstanding shares as of March 31, 2024.

In the first half of this year, we bought back about $3.3 billion, and then bought back $2.24 billion of common shares, or 1.121 ADF. That is equivalent to 7.1% of the flow of shares at the end of 2023. In addition, we also completed the Q2 planning for the $1.2 billion annual dividend plan announced in Q1. In the first half of this year, Jindong, through dividends and rebates,

In the first half of the year, we completed share buybacks totaling 3.3 billion USD, equivalent to 224 million ordinary shares or 112 million ADS, accounting for 7.1% of our total outstanding shares as of the end of 2023. Additionally, we completed our 1.2 billion U.S. dollar annual dividend payment plan in Q2, returning a total of around 4.5 billion U.S. dollars to shareholders through dividend and payback in the first half of the year. For future plan of shareholder returns, we will continue our repurchase plan with the goal of gradually reducing the total number of outstanding shares over the long term. We will also maintain dividend payments based on profits, ensuring that shareholders benefit from the company's value creation. Thank you.

We are now approaching the end of the conference call. I will turn the call over to JD.com's Sean Zhang for closing remarks.

Thank you, everyone, for joining us on 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 we look forward to talking with you again next quarter. Thank you very much.

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