Q3 2020 Dada Nexus Ltd Earnings Call

[music].

Good morning, ladies and gentlemen, and thank you for something by per day. This third quarter 2020 earnings conference call. At this time, all participants are being the listen only mode. After the managements prepared remarks, there will be a question and answer session as a reminder.

Today's conference call is the being recorded although.

I will now turn the meeting over to your host for today's call Ms. car line <unk> head of Investor Relations. So for Canada. Please proceed Caroline.

Thank you operator, Hello, everyone and thank you for lunch and dinner today I was just water and teach and he earnings for lids with the to the building at all and today and is available on the IR website I are the I'm not at the and as well as uncle of Newswire services.

And the talk of day from that and we have missed the lives of <unk>, Chairman and Chief Executive Officer, maybe the Ci Young co founder and the Chief Technology Officer, and the missed the net Chen Chief Financial Officer, Ms. declined wheel and talk about how the operations and the company highlights on line Mr., Chen who will discuss some of the financials and the guidance.

And it will all be available to answer your question. The early in the coming of session that follows.

Before beginning Alex and remind you that this conference call contains for looking statements and defining the jets and tend to like E of the secured the exchange active 90, the sport and for the U.S. private and like or the current of litigation Reform Act the of 90 95.

They for looking statements that there's some home and the current expectations and current market and the operation operating conditions and.

And really see them sort of involve known or unknown risks uncertainties and other <unk> other factors all of which the difficult to predict and imaginable HFI younger companies come chilled. These risks may cause the company's actual results or performance the before in the Charlie.

Well the information regarding these and other risks and uncertainties of factors, including the company falling with the U.S. and they see the company does not undertake any obligation or to update and if the looking statements and the result of new information future events or otherwise, except as required under applicable law.

It's now my pleasure to introduce our chairman and Chief Executive Officer, and meet the pie for liquidity for half.

Okay. Her line and so if you all for joining us for the three we're pleased to report on the other strong for the results for the sort of other all so differently or total net revenue grew about 85% sort of 1.3 billion of or you of your basis.

Oh and go through the leading position has been further stress and with market share that's true and the one of them and up compared with the most of them and the fully players of.

According to Iresearch dbj lenses as the.

The largest of local and in the other retail price for you in the China supermarket and settlements with 24% of market share in the first line models of consistency.

The increase from some of the one per for into some other line team.

I don't know because at the largest open on the non delivery. It's hard for me to try though with the four buckets per cent the market share in the first line most offices and increased from 90% market share in.

Contained line.

I'm very encouraged by our progress as we execute on our strategies and penetrate into lower tier cities drugs and that is between our two platforms and the continued to deliver on our mission to bring people everything on the gross.

I'll start with the for exciting highlights from the two years October 10th of supermarket, the shopping festival and several of the level of promotions and then from a of provide updates on the for for most of our two problems and.

And we'll go into greater details of our financial and operating results.

So let's begin.

We hope to the over six and you October it for them to the supermarket of the shopping festival and Didnt. The Joseph for with active participation of reseller partners. The number of stores. During the this festival achieved historical record for example, all stores all four of our China and the <unk>.

100, since the source covering all four of us off of your way and more of the 16 hundreds of stores and are the CR vanguard's umbrella of participated in the promotion.

We were particularly pleased to see our efforts you lower tier cities pay off during the October to the promotions or sales volume in the lower tier cities was 3.4 times more than that of the center of the last year and.

In terms of of our double 11 promotions or the other now platform hover its more of them since it's a different parts of the five hundreds of today's and the companys, ensuring the timely and the mail delivery for Omnichannel promotions and the result of New peak daily other volume records of over 10 minutes.

There are over 100000 stores participating in the 11 promotion and video platform covering more the call hunters for this and the companies.

Jim the on T.D.J., Paul for more than doubles, our November 11th and the year over year basis.

The both platforms TDD today and the other no achieved significant and fixtures in terms of although the of partners sales volumes and the overall performance.

I will now give you some updates on over the two platforms the city BJ and other now let's start with 30 day.

Try the leading local and demand the retail level.

Oh are for EPS growth during the quarter was driven by a number of factors.

First.

We continue to execute our growth strategy in terms of expansion and geographic coverage and the category the coverage.

By leveraging the scale and the strength of software and retail partners and the competitive advantages in terms of original supply chain and the Freddie we newly entered the 200 cities and the companies during the quarter and the end of the other we now cover over 1200 cities and the country's further.

Moving more of the more people everything of the beds in.

And this Q3, just leave from lower tier cities increased by over one of the 70% year over year.

We're also extend the hours pedigree coverage for consumer electronics and the smartphone we have established partnerships with other of US authorized resellers of Apple and the have a bunch of exclusive all line stores and Didnt Egypt platform.

The first I phone calls or.

The other on launching day was delivered to the consumer with the only 14 minutes.

Who are the continued to digitize more smartphone brands of the retail stores and the home appliance stores in the there in the future.

In terms of Pharmaceuticals day.

The DJ established partnerships with more than 70 other of the top 100 Bucks for Cios and tighter and.

Putting all of the top head of drugstore chains.

For the fast growing and perhaps Hollywood JBT day covers a variety of subcategories, including food poised for healthcare and body care.

We also established partnerships with multiple where low priced brands during the quarter as well.

Circuit.

We are enhancing our collaboration with retailers and the brand owners.

In terms of retailer partners during the quarter, we've established new partnerships with more than 20, leading supermarket chains, including those of the top 100 supermarket chains and the original covenant players such as we are in sealing province, and so far in Shandong province, and sort of.

And so its own problems, they're all local winners.

The the DJ how to work with over two thirds of the top 100 of supermarket sales in China by the end of September which is the further demonstration of our advantages of the sure not for the only enable and empower our reseller partners and the credit value to them as a part of the rather than competing with them. So.

Overwhelming the number of leading with Hillary.

First of all Jay our digital platform compared with the other competitors also presents the recognition from the retailers.

During the call. Other we also extend the US our subsidiary of hotter share with CR Vanguard in relation to.

Omnichannel for humans product assortment and management consumer insights and marketing.

During this quarter, our online marketing service revenue from brands continue to increase significantly by over 400% year over year ex.

Tim the specific partnership agreements with the leading brand partners, including Pepsico, Nestle Marsouin equally equally and about Neil.

And so are the also continue to innovate marketing activities to creates more value is two brands and others. For example, our pioneered the one hour delivery for live streaming program has been very well received by more brands. During this quarter. The addition, we partnered with the right.

Sales to credit innovative marketing activities to improve sales and the marketing efficiencies maybe the.

Simple brand the CP day is the joint marketing and promotion with spreads.

During the brand the CP day, obviously as you hike Harry the self doubled and the week over week basis.

The server.

The culturally developing innovative technologies and power retailers and the brand partners as of October sort of the first because it's on to the other high vol. Omnichannel online retail operating system works the adopted the over 1500 large.

The medium sized supermarket chain stores in China, we.

We added EPS, new modules, such as smart the king of that.

Packed to optimize the other 15 process new category expansion the assistant and.

And and the old open a developer ecosystem of module, which has the adopters by all merchants.

Overall for hydro system, and enable us merchant to efficiently integrate their off price systems and the supports omnichannel execution, while ensuring operation.

Operation stability.

Meanwhile, our CRM systems had the adopted by more than.

Sort of the 5000 stores comparative certainly solvent stores as of end of Q2.

The other two continue to empower our reseller partners and improve consumer satisfaction. The recently launched that our cost sourcing picking the service also known as the other chair for ENTYCE.

The addition to the providing synced up the systematically recruiting and managing and a training services about picking off the delivers efficient tracking of picking quality and the personnel workings and other through the digital management of the entire process. We believe this will significantly improve the efficiency of.

Of picking and the fulfillment of process, while reducing store personnel costs.

The also deepens our collaboration with GE, the retail are losing tens of that she omnichannel collaboration program during.

During the third quarter, the GSV off of Washington, the increased by over 470% on a quarter over quarter basis.

Let's now move on to the right now the largest open ended and delivery platform in China first I will touch on our share merchants with us.

We extended our collaboration with industry, leading catering and supermarkets pharmaceutical and other Tim Brandt and upgraded our dedicated delivery services.

For the customer price delivery service also known as changing the AR.

Dedicated service delivery service.

The serve the leading chain restaurants from of physical and the fresh food chain and retailers.

And the revenue from our key accounts share merchants increased by more than 200 process year over year during the sort of quarter.

And turning to the lack of salary we continue to benefit from it has the synergies with JD logistics as we further integrate our systems and deliver the efficiencies.

In addition to collaborating on delivery services, which of the logistics. We also extended our partnership by launching pickup service.

The premium riders, who have Passover training and the.

We'll be qualified to provide timely pickup service for the requests onto the logistic problems.

This value added service will not only address of talented of frequent fluctuation of pickup and and based on the cross sourcing model and also significantly improve the user satisfaction based on the high quality services.

So overall, we're very pleased with our progress during the quarter and and we think we have a and exciting journey ahead as we execute our gross growth strategy.

With that I will now pass the call over to production to the over our financials for the quarter for me.

And can finish.

We are free to deliver another quarter of strong revenue growth with significant improvement of operating margin in the third quarter as we continue to improve operating efficiency and take advantage of economies of scale across our business.

Before we go over the numbers just a few housekeeping items in the event, we believe year over year comparisons are the most useful way to judge of performance or potentially changes and going to bid the and year over year basis, and all figures and.

Let me be RMB, unless otherwise noted.

The total net revenue increased by 85% to 1.3 billion net revenue from that and now increase the pie.

You wouldn't the fin is 719 million, mainly driven by the increasing order volume of last mile delivery service to logistic companies and the interest strategically the brick that is true chain murchie.

The total net revenues from the DJ increase of the buying 91% to 583 million mainly due to the overall.

Over 90% of you could increase the GMV from the same quarter last year, which was driven by increases in average order value and the number of active consumers.

The number of active consumers for the past 12 months ended Q3 increase the by 77% to over 37 million online marketing services revenues from brand continue to increase significantly by over 400% year over year is the result of increasing promotion activities from brand.

Owners.

Moving over to the extent the side for.

And the partner and the increase that you wouldn't billion, mainly due to an increase in right of how the is the result of increasing order volume and last mile and the interest in delivery services that we provide the two logistic companies and the berries and the chamber genes and another platform and reserves and the DJ at home.

Selling and the marketing expenses, those two and about.

About the 500 million, mainly due to an increase the incentive to JV day consumers and higher generally while the rate of incentives as a percentage of GMV decline the sedans and increasing the the tightening of the marketing expenses, which was primarily attributable to the increasing.

Referral fees that we pay to the staff and the to the staff at the retail stores for the adverse to attract new consumers to the JV day platform and the third.

And increasing personal cost in connection with our growing business and the increase the share based compensation expenses.

DNA expenses rose to 120 million, mainly due to the increased share based compensation expenses and also the cost of increases in professional services. The fee as we adjusted we are left the company now.

R&D expenses rose to 100 million men and because of an increase the R&D staff as we continue to strengthen our tick and knowledge the capabilities and the increase the share based compensation expenses.

The non-GAAP loss per operations narrowed by 22% to 339 million non-GAAP operating margin was minus 26%, which was the great improvement from minor 62% in the same quarter of last year, the improvement and our operating efficiencies net income.

From two years for.

We were able to improve our delivery efficiencies the cost of an increase the other density and optimize the and optimization of our automatic or other pricing mechanics, and agora isn't the.

The ratio of operating and support expenses accented share of our total net revenue decrease of by a decrease the to 78% the quarter from 94% in service in the third quarter last year operating and the supporting scented, many and crude fulfillment extensive the.

The second the ratio of adjusted the setting and the marketing expenses as percentage of total net revenue decreased the significantly to 37% this quarter from 53% in Q3 last year.

This was many of them to the saving of consumer incentive the cost of our platform becomes more attractive and the consumers become more loyal.

In Q3, our non-GAAP net loss narrowed by 21% of 324 million.

GAAP net margin was minus 25%, which was an improvement from minor 60% in the same quarter of last year.

The non-GAAP net loss attributable to ordinary shareholders.

Was 324 million versus 621 million in Q3 last year.

Non-GAAP diluted net loss per share was the.

70, 30 was 36 cents compared with when the point 70 for the for the quarter of last year as of September Thirtyth Twentytwenty, We had 3.7 in the media and cash and the cash equivalents the restricted cash and short term investments.

The in terms of the outlook for the for for the fourth quarter of Huntingtons. The Weve Act total net revenue to be between 2 billion and the 2.1 billion and the.

With the strong growth momentum and the we are confident that the DJ revenue will grow by 100% year over year in the second half of Penta 20.

For this concludes our prepared remarks and the operator, we're now ready to begin the can and session. Thank you.

Thank you so much ladies and gentlemen, we will now begin the question and answer session and.

A reminder, if you wish to ask the question you will need the press star and one on your telephone and wait for you need to be and Alex If you wish to cancel the request for the special cash.

Again, it's the star and one if you wish to ask the question.

And our first question comes for from the line of final Kim from Goldman Sachs Files for your line is now open.

Thank you. Thank you for the bank and Caroline and.

And I have two questions said, it's time for us the on natural selection, and which and Tim the and the second one on your lower tier cities strategy. So for natural selection. The concern of you mentioned about 400, plus Q on Q increase in GMP sort of just want to know how the cohorts ticket sizes. So it's the subsidy levels for these new.

New orders from where the intent and the.

How do we see that that kind of fourth quarter and expect the fact that a acceleration and steady DJ just how much would that be coming from miss which intent the.

That's the selection and longer term do we have the how much do we see kind of out of sales that will be driven from the.

This phase two channel the charts on the users going and currently from from the JV main EPS searching and having the natural selection.

For a bit of low question. The second would be just the lower tier strategy low tier cities strategy. The we see a I know we are starting to kind of group of orders for deliveries since the keep that density and the how are we doing there and do you see kind of self pickup from supermarkets have sort of.

A possibility as well given the different kind of self pickup of options for for consumers now and lower tier cities. Thank you.

So.

Thank you Ron of so start and perhaps the accrual something.

The first of all of our with the and Thats reflection.

We are quite excited to see this moving some of the collaboration with JV has been doing.

Doing pretty well.

And so the internally, we have streamlined our process and our technology.

Of excellence together with JD. So it's much more efficient and the streamlined is comparing to the couple of quarters ago and the into a much easier integration with the retailer partners.

So.

At the same time, we're also happy to see that.

Our category.

Covered on the would intend the has now extended from a supermarket and we are the original the starwood and now serve more and the more categories, including but not limited to consumer electronics smartphones, and healthcare and cosmetics and saw so.

So it's a much broader and our coverage on the categories. That's off of this quarter and we anticipate this extension and category will extend as well.

And the third the.

The products and Offloading tender and helping improve.

The improved quite significantly over the quarter as well if you have no notice and the JV assets you have seen that on the search result page there's a of.

And now we're delivery have already and the.

The of the product innovations around the tap and also the improvements for the entire search result page has been quite significant over the last quarter and the same time and we're also very happy to see that I.

I think just release yesterday and JD App you can now see of.

Recently I'm not sure if you just sort of a very recently.

On the TV App homepage, there's a and.

For the clients are the low.

Local merchants, which is also a extension of this and.

Natural selection. So overall were pleased to see that the.

Improvements office the holding.

Moving to a natural selection has been per the pretty well.

So that.

It's the result of that is the reason why we can achieve.

470% of of.

During the gross our interest.

In Q3 alone with the intent and we believe that.

The gross will holdings and the we will continue to be strong by.

For the students is due at the very early stage and we have now just entered into this collaboration of for few.

A few quarters.

So Steve there and you so.

First I think we will continue to improve and to grow the business.

Let's see.

That's the anything that's all for the for a change for the in Kansas just onto as for more color on fixed income and so first for.

For the rest of the consumer incentive levels the generally.

So with the level of lesson and.

And the the.

The level of on the DJ its own path for them.

And because generally you know and we believe the and.

And so for so JV assets, you viewed and really a large capex also we don't each of subsea losses for consumers to the like.

Like forming the shot the shopping habits for the win our deliberate and in the long term with the could be even lower cost. It's just the like the startup and stage. So we need to like two to expose more.

To the consumer so there will be some ssds and in the long longer term, we don't think the subsidy the.

And if necessary and the for the cohort or like for there and.

For like for the outlook of Q for at least as we have discussed in the previous calls that and.

For what you think the fuel in the early stage and though we expect to ramp up like.

The quarter by quarter the for Q4, we view the that and.

For Q4, and Jamie and could be fewer growing buying multiple times and compare to Q3. So if you like the faster growing stage and the scenery page.

Net so this is for the first Patrick.

Yeah and in terms of the lower appears to the is we have been growing pretty quickly.

And.

Perhaps the all of the lower tier cities, we have answers and we're going to be a few things.

In low tier cities photo for it we continue to expand our geographic expansion of coverage.

Sales and the seconds. So we work with us more and the more local winners of.

Those are the dominant players in each city or each province, and we're particularly happy to see this.

Our collaboration.

With the with the local dominant players.

Having pretty good the of the progress has been pretty good in the last quarter.

Thats well, so and the sometime we have any experiment and the various models in low tier cities and.

The in general we are seeing that the buying power from low tier to the is as strong as.

The tier one cities, we're not seeing the a.

The the freedom for having a much lower ticket size.

For.

Much lower or willingness to pay the we're now seeing that we were seeing quite strong.

Hi, and power from the consumers the ability of cities and the same time.

We will experiment the foot and you mentioned like a self pickup.

And the other on those.

And delivery to lower the delivery cost and so on the other test the we have been testing of.

Various cities and the I think the stood at the early stage, but.

But we are very excited to see the gross and the.

Yes, if stack of and Internet.

Net nothing nothing to and from my side.

Thank you run of thank you for you. So thank you.

Thank you so much and the next question comes from the line of EBITDA from Bank of America Merrill Lynch. Your line is now open.

Good morning, guys and thanks for taking our cash items.

Just wondering if you could give us an update of thought on non desire for years.

Small loans underlying themes of fast lane.

Flow Shirley Lash of fresh continues and category for example lifts the more players.

Getting into the so called and come really key growth by business model.

And now we have also seen not the business models.

Hum deals are going to the rapidly vs. Oncommand, obviously, you guys operating at Triple digits, So I'm wondering and the thought or not.

Expansion of business models and continuously focusing on our instead of on demand model and now why and then secondly, just a housekeeping question I live in the.

I mention adapting the FH all the signs are I think the big.

And the five quarters. So just wondering on non JBT Jane what's the average order size and in the quarter and how should we think the Powell of other tranquilizing for thank you.

And.

Okay. Thank you.

I'll have to and.

The the question of the the second one average assets.

That's the size and I will just.

Sure some thoughts on the first one in terms of the business model and the community group line.

So first off or low.

I would like to start with a brief comparison between the attribute of the group buying model and with our model.

So first of all our if you compare our average.

Actually the size, which is over 100 sort of the RMB in the supermarket category.

And with around like 10 RMB of community grew by an average.

Average back the size.

So this is a very significant difference.

And the few readers the highlight of why they are the.

Huge difference.

The first of all are the committee of the group buying a day.

The typically just rely on the few.

So call the other half of all cloud hubs assets can use and.

So it's not a broad.

Broad selection of the.

As for use so the therefore, the consumers just cannot buy much of the same time.

Yes, the the community groups line will likely incur.

The increase there of active right. They will have to verify the it will significantly expand the supply chain and therefore, the supply chain and other fulfillment costs will grow like exponentially. So this is a very key differences and the seven times, we enjoy the very broad product.

Election, and from the tumor assets, we partner with the already each of them the has over like tens of thousands of.

But very competitive SK use so.

And therefore, we can offer a much broader selections of the consumers and with our much higher but the size of the profitability potential is also much higher.

So this is number one in terms of the.

In terms of the of.

The the size and the logic.

And the second.

We noticed that.

The product quality.

And also the customer satisfaction from community the group buying has being true.

For the.

Inconsistent and it's also very difficult actually for them to achieve the quality and customer experience.

But at the same time of the.

First we worked with the Premier and leading supermarkets are.

So the product quality and the customers that's for sections of our insurers.

And also the other for few months can the also guarantees.

I think this is another key difference between.

Our model and.

The two of the group line.

And as a result the.

So the.

Lower tier city gross until the day in Q3, we grew by 170% of year over year and the take Hunan Province for example, because who line is one of the.

Most competitive per.

Problems that community the grew buying and selling.

Like all of them are there and the competes very.

Brutally.

Even our gross in Hunan province, the intend, a 100% of year over year, and the 40% of quarter over quarter. So as a result, we can continue to she is a very strong growth momentum in even the most competitive area.

And the second time and we also enjoy we also enjoy some of the benefits from the competition and the pressure from the community.

The group buying.

For example, the if.

Especially in the low tier cities, the leading supermarkets and now more.

More and the more willing.

And eager to work with us.

And that's why the risk.

Recently, we have signed up with a few dozens of.

Couple of hundred or the levy of the low co dominance of supermarket recently, so I think this is the one of the reasons.

Why weekend the sign up with so many dominant player. So quickly the first of the pressure from a community grew by.

And at the same time, and we also happy to see that our high ball Omnichannel operating system has been very quickly adopted by the also a low cost dominant players and.

And the because of the pressure and the the curve of the you're going is the workers.

And in terms of the business model, we believe that our business model.

Very significant competitive age and.

There are still a lot of room to the to improve for example, the digitization.

Of the entire process and also to empower and.

Our retail partners.

With our other taken.

Acknowledge.

Including but not limited to high gross system.

I think the gross potential there and the.

The room for Fisher.

Efficiency improvement is very significant and the same time.

Okay, and the packaging has become a major.

The.

It picking and packing is very important and for the entire process and the net.

That's the that's why last quarter, we introduced the data of picking system for our.

Our hunters and the we're very happy to see that leading.

Retailers, including Walmart and the other way and see our Vanguard all of them has very quickly adopters our data are picking services. The other two.

Improve their picking efficiencies lower they are picking cost and improve the customer satisfaction. I think overall are there a lot of a lot more to improve around our current business model and the where are very confident with the ups and the same time.

Some of the of.

Some of the learnings from the community grew binding we also take advantage of that for example.

Those are the group buying has being very focusing on less.

Leveraging the community leveraging the though the which has the group the ecosystem and also a.

To experiment in the self pickup modeling other to.

Lower the delivery cost and so all of those are the things we are having learning from them and the we will apply in our future.

Future accruals strategy as well.

Okay and for the segment question about average order value of so in Q3, our overall average order value on the platform is the.

The 150 and D, which of the further increase compared to Q2.

And the accounts and of the consumer electronics and revenue is it generally is growing EBITDA.

I would like to advertise that the for the simple metric category, just snack and freight discussed the minutes ago deal and the ASV is around a 130 and the and the we expect the went on 130 on the is and healthy and the.

It will be stable.

And the shop the in the going forward. So yes. So this is the it will the and.

And all the information thank you and at the time.

And the backend Novela very helpful.

Thank you so much and.

Your next question comes from the line of the Thomas Chong from Jefferies.

Your line is now open.

Hi, Good morning base management for taking my question is my.

My question is about the monetization trends on JBT, Jay can you comment about the commission at the pricing.

The other and monetization models.

In the upcoming quarters as low as submission and about the take rate interest relative one and the on that for us or how should we think about the cost side in particular the subsidies. We show that we are seeing that continue to trend or the year.

On the basis.

So given the.

The trends should we expect our profitability timing that remain and change in.

The next year. Thank you.

Okay and.

Thank you Thomas I'll take the crashing so.

And so for the monetization ratio.

Racial and basically we had multiple revenue streams for on and merchant consumers and the.

And the brands. So first of all we believe that.

And for the.

Oh, and marketing revenues and and we got the total would be continuing to grow.

Year over year basis, so for the for your Twentytwenty the monetization rate for online marketing is growing share a much almost like and.

The both the year over year and for more than double the year over year, but for the next year. We believe that we do just want to keep it stable they increase the favorably growing instead of like doubling every year. So we believe that two of the healthy for the platform long term growth.

And the border.

The embraced of his his revenues, we believe that for this year, especially for the Q2 and the Q3 we have.

And we have some and incentives to too.

And encourage the.

The consumers to purchase.

Lack of reset in the previous earnings call last quarter and for not going from Q3 the late.

Late Q3 page, we and the already to increase which increasing a little bit of other freight expenses of freight revenue. So leaves out in the.

Net.

Several years, our freight expenses well the increase the compared to the year 20 and team so.

We may have some and.

And but you know and the consumer electronics category is growing fast. So it may have some direct access to the conversion rate.

And of course every year, usually we will increase the little bit for the merchants and the buy the ticket.

The trade. So we believe that it will be offset so the commission rates will be a little of the like black for the next day and two years for.

The overall.