Shulou(Shulou.com)11/24 Report--

According to news on the evening of August 23, Beijing time, JD.com (Nasdaq:JD;HKEX: 9618) today released its financial results for the second quarter of 2022, which ended on June 30. The company reported second-quarter revenue of 267.6 billion yuan ($40 billion), up 5.4% from a year earlier, while net profit attributable to common shareholders was 4.4 billion yuan ($700 million), compared with $800 million in the same period last year. Based on non-US GAAP, net profit attributable to common shareholders was 6.5 billion yuan ($1 billion), compared with 4.6 billion yuan in the same period last year.

After the release of the financial report, Xu Lei, CEO of JD.com Group, and Xu ran, JD.com CFO, attended the analyst conference call to interpret the financial report and answer the analyst's questions.

The following is the transcript of the question and answer session of the analyst in this conference call:

Goldman Sachs analyst Ronald Keung: could you please share the company's performance outlook for the second half of the year? Did the company see a recovery in consumer confidence in July and August? During the double 11 promotion period in the second half of last year, the sales performance was very strong, which far exceeded the growth rate of the industry. Does the company have any new strategies in category, compliance, user experience and live broadcast this year to drive growth in the second half of the year?

Xu Lei: the second quarter was the most challenging quarter since the company went public. The specific reasons include the impact of the epidemic on consumption power. We will not talk about it here, but we still rely on the ability of the supply chain and better user quality. Compared with industry companies, JD.com is less affected. From a category point of view, the growth rate is better for people's livelihood products, such as consumer products, health products, home appliances, as well as omni-channel business and city business. At the same time, we have been doing online and offline layout, let us get rid of the shackles of only online business before, and achieved relatively healthy growth. The relatively weak performance is still the long tail, and the category with non-rigid demand, such as clothing sales, is relatively low; alcohol sales have also been affected by the epidemic, but our market share is still steadily increasing; and then there is the mobile phone industry, which is facing greater challenges around the world, and the replacement cycle of users throughout China has also been lengthened. The sales performance of the above categories is weak. In the short term, for the outlook of the consumer market, some negative factors will still appear, and there will be great challenges and impacts, but as I said before, we still have confidence in China's macro and long-term consumption trends. and we have been building supply chain capabilities, which provide us with very strong support in special circumstances, and we also have an obligation to help the industry as a whole. Operationally, we are more concerned about quality growth, including gaining the minds of consumers, expanding market share, and paying attention to the health of profit margins and cash flow.

With regard to the new strategy, I know that many friends are concerned about it, but I would like to tell you here that the strategy we understand will not be adjusted or changed in the next few years. From our point of view, there are several points that we have been doing for a long time, such as first, paying close attention to the user experience, second, supply chain, and third, as a retail company. There is still a lot of room for cost reduction and efficiency in the future, as well as continuous technology investment and disciplined innovation based on the current situation, all of which will not change. Specifically, at the tactical level, we have not changed over the years. First, to sink the market, we still have to broaden the breadth of users, and we will continue to carry out tactics in many details; second, to lay out retail in the same city and dig deep into the needs of users from the point of view of the market; third, to continuously build supply chain capabilities, although we are ahead of the same industry, our supply chain capabilities can continue to be improved. Finally, we continue to create an open platform ecology. The points mentioned above have not changed in the past few years.

Credit Suisse analyst Kenneth Fong: the company made a significant improvement in operational efficiency in the second quarter, how do we consider the optimization of profit margins when Internet companies collectively push to reduce costs and increase efficiency?

Xu ran: considering the increasing macro uncertainty and the more complex compliance operations caused by repeated outbreaks, we will be more cautious about the effectiveness of capital allocation among various business units and pay more attention to improving operational efficiency this year. This is to ensure that the company can maintain healthy cash flow and financial position, and prepare for the next economic cycle. Especially for JD.com 's retail business, we expect the gross profit margin of most core categories, including JD.com supermarket business, to continue to improve year-on-year and month-on-month in the third quarter. The improvement of profitability comes from the improvement of operational efficiency and marketing efficiency, as well as the improvement of scale effect. Retail business is fundamentally a business of scale. In the long run, we think that the profit margin of JD.com 's retail business will continue to improve. For JD.com Logistics, we expect additional costs due to the rebound of the epidemic in some areas, but because of the quality service it can provide to customers, the gross profit margin of JD.com 's logistics business continues to rise. we maintain the business's profit target for the whole year. For new business, we have adjusted the investment pace since the end of the first quarter, with management focusing more on cash flow and profitability, resulting in a year-on-year and month-on-month decline in our investment in new business. From the group's point of view, we have better control and greater confidence in the performance of profits, and in the short term, the profit margin of the whole group will increase greatly compared with the same period last year. We will also continue to focus on high-quality growth, create value for shareholders, increase the market share of core business, and adhere to the strategy of long-term investment.

Xu Lei: let me add something about the supply chain. I know that many people think that JD.com 's supply chain capability should be relatively strong in China. Although we think so, in fact, we find that there is still a lot of room for improvement, which is why we always insist on improving the capacity of the supply chain. For example, our previous supply chain is more based on our own consideration, but now we have to consider it with our partners, that is, the integration of internal and external supply chain. Internally, the supply chain capacity of different categories of the company is different, so we hope that the supply chain capacity of all categories can reach the best level of supply chain capacity. For example, we used to focus on online business, but now we have begun to expand offline operations, including our own and foreign cooperation offline operations, we will consider the supply chain from the perspective of online and offline integration. In the past, the supply chain was more normal (operation), so the impact of the epidemic made us (operation) under special circumstances, although we were less affected than other companies, our performance would be relatively better. But we think that in this special case, the supply chain capacity should continue to be built. Finally, I would like to express that although I know that many companies have expressed the need to strengthen the learning and capacity building of the supply chain, in fact, JD.com, in the course of nearly 20 years of development, our investment in the supply chain, our understanding of the supply chain, and our business model, should be said to be very firm. We have our own understanding of the supply chain and our own development direction, and will not follow any competitors or peers.

Jeffery analyst Thomas Chung: the first question, in the macro uncertainty, real estate regulation, and the recent extreme weather conditions, how should we look forward to the home appliance business? In addition, what is the proportion of omni-channel business in revenue? What are the strategic considerations in the future? The third question is, at the consumer level, what is the strategic direction for the company to develop its membership business?

Xu Lei: in the second quarter, the entire home appliance industry is facing an epidemic, the economic downturn, weak consumer demand, and the impact of the supply chain, including the implementation of logistics and door-to-door installation. From the perspective of brands, most brands are cautious about business growth, so they also pay more attention to deterministic sales, fine operation and healthy profits, which is the consensus of the whole home appliance industry. In this case, JD.com 's strategy should be more in line with the demands of brands. In the second quarter, and even I believe that in the future, JD.com should still be a consumer position that brands attach great importance to. In the second quarter, the performance of the company's household appliances category is better than that of the whole industry, and the profit level is also very excellent, which should be related to our ability to build the home appliance supply chain and our understanding of the industry over the years. There are also many factors, including that we have now occupied the minds of consumers, and the recognition of partners, and so on. In addition, our own control of costs and expenses is also quite disciplined. Since the beginning of the third quarter, we have seen that the growth of household appliances has maintained a positive trend, and the growth rate has further improved on the basis of June, but the overall growth rate is indeed affected by the economic environment, and the growth rate is slower than that of previous years. And the epidemic and macro uncertainty in the second half of the year are bound to exist, we will still focus on cost efficiency and experience. In addition, what I would like to share with you is that the progress of the company's home appliances category in all channels should be said to be relatively fast in all categories, including the home appliance stores where we have entered the low-line market. including five-star (electrical appliances) various forms of offline stores, it should be said that the growth of the industry is far higher than that of the entire industry, changing the growth of our home appliances category itself, and breaking the sluggish growth of the entire industry.

With regard to the user problem mentioned, I'd like to talk about it in two parts. First, for the users of the whole station, you should also see that the second quarter should be a very challenging quarter, with a variety of internal and external reasons, which have affected the trend of rapid growth of our users. among them, there may be external epidemic and spending power reasons, but also related to our proactive adjustment of user growth strategy. The adjustment of Jingxi business in the second quarter will bring short-term loss of users, but the core business users of retail still maintain high-quality growth, and the user quality is very good. At present, we see a significant increase in the purchase frequency of users and the contribution of revenue per user, especially the purchase frequency of new users and the contribution of revenue per user have reached a three-year high, and the shopping frequency of retail users has also increased by double digits. In the future, from the point of view of the users of the whole station, we will still be layered. First, the sinking market is definitely a main market for our user growth. At the same time, we think that silver hair (user growth) is also very important. Because with the changes in the age structure and demographic structure of Chinese people, as well as changes in consumption power, the silver hair market should be a very important market. Finally, I would like to talk about JD.com Plus. JD.com Plus's membership system should be completely different from various paid member systems at home and abroad, and it may not be possible to directly bid from any angle. We have our own understanding, based entirely on our own platform characteristics, user development and spending power, to build a special paid membership system, the development in the past few years should be said to achieve our original intention, and now has shown greater value, we will do more business innovation in the future.

Xu ran: on the issue of omni-channel business as a percentage of revenue, when we discuss omni-channel business internally, we usually include multiple business lines, such as five Star Appliances, JD.com Electrical Appliances franchise Store, Qixian supermarket, JD.com hourly purchase, and so on. Some of these businesses are included in proprietary business revenue and some are included in commission income. The proportion of omni-channel business in total revenue did not change significantly in the second quarter, about 10%. Frankly speaking, offline business was more affected than online business in the second quarter. JD.com 's hourly shopping business is an exception, because it is in the early stage of development and maintains rapid growth, and other offline businesses do not grow as fast as online business.

Morgan Stanley analyst Eddy Wang: in the second quarter, the cooperation between the company and Dada continued to deepen. Xu Lei always mentioned before that the entire retail cycle is at a low ebb, but at the tactical level, we seem to have raised the tactical significance of retail in the same city, including real-time distribution, so I would like to ask, we are doing such an action at this time. Do you see that this business may have great explosive potential in the short to medium term or in the medium to long term in the future? Is there any opportunity for this business to become our new growth point?

Xu Lei: in fact, retail in the same city took place more in the form of O2O two years ago. Of course, O2O is not equal to retail in the same city, O2O is just a form of retail in the same city, but JD.com had already started to do this work at that time, one of our initial starting points was that some categories had relatively high implementation costs, so we wanted to serve users in a more innovative way. Then we found that the rapid growth of retail demand in the same city has formed a new way of consumption, which also makes us more excited. In the past, we only provided the supply of goods online, but lacked the supply of services, such as pets and cars (market). We could only supply goods online, and retail in the same city could serve consumers more comprehensively. Another dimension is brand merchants, with the increasing proportion of e-commerce, brands in the entire sales channel management, in members, in the efficient use of marketing expenses, in fact, there are more, new difficulties. To sum up, we will design retail in the same city as a very important new business and service, in which there will be many kinds of products and systems to meet the retail in the same city, including many categories, but it is still in the process of design integration. Although the whole industry is very interested in this business, all enter this track, and our own orders and users are also growing rapidly, we still have to make some judgments very rationally. First of all, the minds of consumers are very important to us, and we still have a lot of work to do in this regard; secondly, I believe it is a great challenge for all companies to build a new supply chain capability; third, we are always concerned about the stability and reliability of services. To sum up, we pay more attention to the user penetration, frequency and service quality of this business, and hope that through these, we can finally achieve rapid business growth. Total sales is not our goal in the short term. Of course, the current sales growth rate should be very ideal. Finally, I would like to remind you that under this business model, it is unwise and unsustainable to compete for the profit pool with brands and offline enterprises. We should design a model that can benefit all three parties to ensure the long-term sustainable development of the business.

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