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

According to news on the evening of May 11, Beijing time, JD.com (Nasdaq:JD;HKEX: 9618) today released its financial results for the first quarter of 2023, which ended on March 31. JD.com 's net income in the first quarter was 243 billion yuan ($35.4 billion), up 1.4 per cent from a year earlier, according to the financial report. Net profit attributable to common shareholders was 6.3 billion yuan ($900 million), compared with a net loss of 3 billion yuan in the same period in 2022. Without Non-GAAP, net profit attributable to common shareholders was 7.6 billion yuan ($1.1 billion), compared with 4 billion yuan in the same period last year.

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

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

Jeffery analyst Thomas Chong: my first question is about JD.com 's recent internal structure and management adjustment logic and its impact. Can you ask management to share with us? Another question is that a series of low-price strategies, including JD.com 's "10 billion subsidies", have actually been in place for almost two months. How effective are they in terms of user growth, merchant participation and GMV growth?

Xu ran: let me first answer about the adjustment of the management structure. As you may see in some recent news reports, JD.com Retail and JD.com Logistics have undergone similar organizational structure adjustments one after another. Here, let's take JD.com Retail as an example to explain in detail: first of all, the organizational structure change made by JD.com Retail is mainly to abolish the hierarchy of the business group and change the business group into a business department. it turned out that the person in charge of the business group would be in charge of the business department. The various business departments of the many commodity sub-categories under the management of the enterprise group will be divided into operational units according to the specific categories. Compared with before, the rights and responsibilities of each procurement and sales combat unit will also have greater changes, they will have greater business decision-making power and business management power, while the performance evaluation of each combat unit will also have a stronger binding relationship with their own performance. The main purpose is also to further stimulate the entrepreneurial spirit of the front-line team and make the interests of the team and investors more consistent.

Xu Lei: I have a few points to add to this adjustment of CEO. Xu ran should be said to be the third CEO in the history of JD.com Group. Investors and analysts should be very familiar with Xu ran. In fact, in the past five years, Xu ran and I have worked very closely together. Many people may recall how retail came out of our own definition of the darkest moment through adjustment in 2018. In fact, Xu ran and I were partners at that time, and I was very grateful to Xu ran. If Xu ran hadn't done it with me at that time, I believe I might not have been able to do it at that time. So in fact, Xu ran also played a very important role in the development of JD.com Group. In addition, Xu ran also has her professionalism, she is also younger and more effective than me and Lao Liu, and she has been recognized by the executives of the whole company in terms of company heritage and values. So this adjustment, including myself, the board of directors of the whole group, and the members of the SEC (Group Strategy Executive Committee) of the group, all think that Xu ran can lead JD.com to the next stage-- that is, a new development period that pays more attention to the health and quality of the business.

As far as I am concerned, I have been working as a consultant to JD.com since 2007, and today is the 16th year. I will continue to work as the first chairman of the JD.com Group Advisory Committee. For me, this is actually a different way of life and a change of angle and position in my work, but JD.com and I should tie the knot throughout this life, and I will always pay attention to and support JD.com. When needed, I will also participate in some of JD.com 's meetings to help you, which is also very fortunate for me.

Xu ran: thank you, Boss Xu. For Mr. Xu's retirement, in fact, both the board of directors and our management team are very reluctant to give up. As mentioned in our announcement, Mr. Xu has made a very significant contribution to the group in the past few years. I would also like to stress here that our strategic direction will not change and will remain the same for quite a long time. Our management team and I will continue to implement JD.com 's business philosophy with cost efficiency, product price and service as the core, and adhere to the principle and values of customer first, so as to create greater value for customers, industry and society. We will also continue to deepen the Group's strategy to focus on the sinking market, the ecology of third-party merchants and real-time retail, which are also important drivers of the long-term growth of our core business. At the same time, we will continue to operate on a large scale, continuously improve operational efficiency and diversify our income structure to maintain the long-term and healthy growth of the group's profits.

The second question is about JD.com 's "ten billion subsidy". In fact, we also shared in the last financial report conference and the communication after the meeting, including "10 billion subsidies", "cheap free delivery", "second kill" and so on. These are the specific forms and actions that consumers will clearly perceive in JD.com 's overall user experience and price strategy. We also want to emphasize that, in fact, in creating JD.com 's overall "low price every day" user mind, "low price" is the final result and experience that we deliver to users, which are actually based on our continuous accumulation and investment in the supply chain for a long time, in exchange for higher efficiency and lower cost advantage. Therefore, on the supply side, on the one hand, we will continue to improve JD.com 's open ecology, providing richer price bands, richer categories and commodities, including brand goods, as well as white-brand goods, etc., to benefit consumers at different levels of JD.com. At the same time, we will continue to release economies of scale through our own supply chain advantages and benefit our consumers with operational efficiency savings. Therefore, the basis of JD.com 's "daily low price" is actually EDLC (daily low cost), that is, our cost will be lower.

Overall this year, we have actually made a lot of changes in the user experience. We hope to gradually guide users to change their shopping habits by adjusting the group's marketing strategy, from "greatly promoting hoarding" to "recognizing JD.com 's business philosophy of low price every day", so as to boost daily sales, which used to account for a relatively low proportion. We expect that the proportion of daily sales will increase throughout the year, which is more in line with the nature of our "daily low price" users' mental return to retail, and can also enable the supply chain of the whole industry to operate more smoothly. Help our partners, brands and third-party merchants to improve operational efficiency and create greater value for them.

JD.com 's "ten billion subsidy" has been on the line for two months, which is generally in line with our expected results. Under the joint investment of marketing resources between us and brand merchants, consumers can feel the real concessions, and only by really giving profits to users can we attract users, thus attracting more brands and merchants to participate in marketing activities with us. So we also see that whether user traffic, user activity or repurchase behavior are improving, at the same time, the number of active POP merchants (the full name of JD.com POP store Platform Open Plan open platform, that is, commonly known as tripartite stores) is also increasing significantly. Therefore, on the whole, we will control the overall impact and control its impact on financial results and profits.

Goldman Sachs analyst Ronald Keung: JD.com got through the KPI of proprietary and third-party merchants. May I ask the management, from the GMV point of view, what is the growth or recovery since the second quarter? Specifically, the previous management mentioned the "low-price mentality" of users and the growth of third-party merchants. In this context, how does JD.com plan to maintain the competitiveness of the proprietary business? How does JD.com plan to return to the growth of proprietary business income?

Xu ran: since entering the second quarter, we have seen that the overall GMV growth rate of the group has increased compared with the first quarter, and the GMV growth rate is still faster than the revenue growth rate. The driving factor behind this is also mentioned in our briefing that the number of active third-party merchants is growing, so the GMV growth rate of third-party merchants will also be faster than that of proprietary businesses. Of course, part of the reason may also be that third-party merchants had a relatively low base last year. In addition to the increase in the number of merchants, we have also made a series of algorithmic and technical optimizations, including adjustments to the traffic distribution mechanism, platform operation and new "low-price mind" marketing activities. these measures have also gradually brought a more positive impact on the ecology of third-party merchants.

In addition, about organizational change. At present, we are still working on various details, and it is estimated that it will be some time before the specific impact can be released.

Next, let's talk about JD.com 's proprietary business. In fact, our core retail business has always been consumer-centered, and we should provide consumers with any model that can better meet the diversified needs of consumers, rather than based on "what we are good at". Therefore, on our platform, both proprietary mode and third-party business model are actually different ways of serving users. In the end, we should leave the decision to the users, not ourselves. Therefore, JD.com 's unique advantage is that our proprietary business and third-party merchant business can complement each other, and this is a business model that has been fully verified and successful in other markets.

JD.com 's proprietary business is highly competitive in many categories, and it is also our deepest moat. For example, consumers with higher unit prices relative to customers may need goods with higher quality and guaranteed service, and large-scale proprietary business can bring better economies of scale, lower costs and higher efficiency. Then these goods are naturally more suitable for self-management. At the same time, as JD.com consumers and shopping demand become more and more abundant, their differentiation will become bigger and bigger, so we also need to enrich our supply through the third-party merchant model, so that users have more and more choices of goods.

To sum up, our organizational structure adjustment this time, on the one hand, is to get through the team structure of proprietary business and third-party merchant business, and in addition, some adjustments have been made to the goal of performance appraisal, so that everyone's interests are more consistent. These adjustments will eventually form a "user-centered" model, allowing users to choose which mode is the best and most appropriate. In the short term, it is true that business adjustment may affect the growth of the group's reported income to some extent, especially for some categories, such as supermarkets. But we believe that after a period of time, all categories of JD.com will return to a healthier growth trend. In the long run, we also believe that the super category is still JD.com 's most important growth driver.

Morgan Stanley analyst Eddy Wang: first of all, I wish Mr. Xu Lei all the best in the future, and wish Mr. Xu ran all the best in his new position. I have two questions. First of all, with regard to the recovery in consumption in April and May, can the management provide us with some more details? When does management expect a stronger recovery in demand for consumer electronics and home appliances, especially in these two categories?

The second problem is that this year's "618" is coming soon, which is the first "618" after JD.com announced "10 billion subsidies" and strengthened his "low-price mind". May I ask the management, what is JD.com 's overall strategy this time? Will the investment be any different from before? Or will it be close to the previous investment and other strategies?

Xu Lei: let me share the situation of consumer electronics and household appliances that you are more concerned about. Indeed, the whole category of household appliances, including household appliances, is greatly affected by the current consumer demand and real estate. Our view is that the overall consumption of household appliances and consumer durables still lags behind the offline contact consumption that we can see at present, and it may take some time to recover. But the good news is that through JD.com 's multi-channel construction in recent years, JD.com should be said to be much higher than the growth rate of the industry in the whole field of home appliances. We also believe that if the economy and the real estate sector recover in the coming quarters, we should be able to achieve a rapid rebound. In recent years, JD.com has established advantages in products, experience, multi-channels and so on, so we still have great confidence in this.

In fact, 3C digital is similar to the category of home appliances. In the unstable economic environment, this durable, high-price category, its consumption recovery rate is still relatively slow. But it is also similar to the category of home appliances, this is JD.com 's strong user mind, we have also been operating for many years. In recent years, we have also made a lot of innovations in services and multi-channels. So no matter home appliances or 3C digital, in fact, according to the data we saw in the first quarter and April, JD.com 's market share in the industry is increasing. But these two categories still need some time to wait for overall consumption. In addition, as the manufacturer's confidence in the future gradually increases, we will rebound more quickly.

About JD.com 's "618" this year, I would like to share with you a few points. The first point is that this year's "618" coincides with the 20th year of JD.com. Twenty years is very important to us. So this year's "618" we will continue to strengthen cooperation with brands and merchants. Second, it is true that there are many categories of brands and merchants now under greater business pressure, inventory pressure is also relatively large, we will also make good use of this "618" promotion. At the same time, we will also make some adjustments in some ways of marketing and operation. All in all, whether it is JD.com 's innovation in "618" this year, or his cooperation with brands and merchants, we think it will create a new height.

Xu ran: I'd like to add a few more points about electronics and household appliances. It is true that the industry as a whole still faces some challenges, but we also see some good trends: the growth rate gradually picked up in April. For these categories in which JD.com has traditionally had a relative advantage, we are also very confident that we will continue to achieve better performance than the industry market.

Citibank analyst Alicia Yap: first of all, I would like to congratulate ran as the new CEO of JD.com Group, and wish Xu Lei every success in the future. My question is about the growth of JD.com 's various categories and competition in the industry. I see that under categories such as 3C Digital, many manufacturers are eager to clear inventory-selling products with models in preparation for the launch of new products in the fall. From this point of view, how does JD.com plan to cooperate with these businesses and use the upcoming "618" promotion to stimulate consumers to buy products? Management believes that in the 3C digital and home appliances category, whether the industry competition will continue to heat up? Does the management face more industry competition in the FMCG category? Finally, could you ask the management to share JD.com 's next growth plan with us?

Xu ran: it is possible that overall consumption will still show a relatively cautious attitude, especially under categories such as 3C digital and home appliances. But recently we have also learned from brands that with the advent of the boom, agents are more than willing to offer strong discounts to boost sales, remove inventory and prepare for new products to be released in the second half of this year. If all comes true, this will be a very rare opportunity for JD.com. We have a stronger and closer relationship with the brand, and JD.com 's product supply chain capacity is also stronger. In addition, in the category of home appliances, we have also heard that brands hope to achieve positive sales growth this year.

In terms of industry competition. I want to emphasize that JD.com 's advantages are essentially different from those of competitors in other industries-JD.com is a supply chain-driven platform, not a flow-driven platform. Therefore, even though we are facing short-term challenges such as business adjustment and product portfolio adjustment, the gross profit margin of many product categories of JD.com has still increased. In the future, we will continue to improve operational efficiency and bring more competitive prices to consumers.

All in all, JD.com 's business is growing healthily and positively, and I am very satisfied with the current state. As the business adjustment comes to an end, we are expected to gradually return to the normal growth trend this year.

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