Q3 2021 JD.Com Inc Earnings Call
Hello, and thank you for standing by for JD Dot Com third quarter 2021 earnings conference call. At this time all participants are in listen only mode. After management's prepared remarks, there will be a question and answer session. Today's conference is being recorded if you have any objections you may.
Disconnect at this time I would now like to turn the meeting over to your host for today's conference Mr. Sean Zhang Director of Investor Relations. Please go ahead Sir.
Thank you.
Good evening and good morning, everyone welcome to our third quarter 2021 earnings Conference call.
Joining us on the call today.
Installation.
<unk> Dot com, the Midland issued our CFO.
For today's call they will kick off with opening remarks, and Sandeep will discuss the financial highlights.
After that we'll open the call to questions from analysts.
Before we continue let.
Let me refer you to our latest Safe Harbor statement in the earnings press release.
Our IR website.
Which applies to this call.
We will make forward looking statements.
Also during this call well discuss certain non-GAAP financial measures.
Please also refer to our earnings release, which contains a reconciliation of non-GAAP measures to the comparable GAAP measures. Finally, please note that unless otherwise stated all figures mentioned during this call are in RMB.
And now I would like to turn the call over to our President Mr. Li issued.
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Hello, everyone. This is lacey. Thank you for joining JV third quarter earnings call starting from this earnings call. It's great pleasure for me to take the position as president of JV, the hump and communicate with you in my new capacity.
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So the bottom line.
We all have observed in the second half of this year multiple Hutton brought to notable uncertainties and challenges to the world to China retail industry, such as the college cases, the macroeconomic fluctuations let enough goods in a wide range of worldwide due to supply chain disruptions the planet, we're leaving it.
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The reduction that you would push into a luxury Tyson JV continued to deliver high quality growth this quarter, while the external environment shifts JD is able to continue to outperform the industry with more certainty and a stronger with you and this is due to our stronger control across all of our supply chain and the entire business.
Processes, which allow us to react more I totally so changes and ensure stable business operation and reliable fulfillment even in the face of extreme weathers called age and other special circumstances before we're in a unique position to create greater value for our customers business partners and the real economy.
The core competency in supply chain and logistic infrastructure, which we have been committed to building 418, yes have accumulated powerful advantages for us. These advantages have greatly differentiated us, particularly in terms of value creation and business resilience from the platform based.
Traffic driven companies.
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First of all of our resilience it reflects H, but another solid set of results in Q3, despite macro and industry challenges. Our total revenues sustained healthy growth at 26% year on year, even on a high comp from last year regarding active use us in addition to the healthy growth rates in <unk>.
Q3, we are more pleased to see that continuous improvement in user experience has resulted in stronger consumer might share and engagement and the latest Singles' day Grand promotion JV maintained strong growth momentum, even though the basis of last year's accelerated growth there.
This demonstrates the rising recognition J D gained among customers suppliers and brands and is also a testament to jd's contribution in the recovery of the radio industry and the real economy. In particular has helped the mill and stuff online and offline micro and Smes to gain their growth opportunities.
Some of those profits. Moreover, the healthy growth momentum of our core radio business combined with the in house disciplined chain capacities and operating efficiency has put us in a stronger footing to firmly execute our long term strategy.
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And now let's take a closer look at how GTS resilience is reflected in our core retail business as well as the execution of JD logistics under new business long term strategies.
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JV market ecosystem has made solid progress in this quarter starting from the second half of last year. We have introduced a series of smart operating tools lowered the entry barriers for new merchants and provided integrated supply chain solutions to further optimize merchants operating efficiency and growth path.
Efforts has been kept has generated initial success I'd like to share a few progress all of our marketplace business made this quarter first growth of both total number and types of merchants accelerated on both like year on year and a sequential basis in Q3. The number of third party merchants joined J D tripled that of <unk>.
Q1, and Q2, combined with apparel and home categories, leading the growth second merchants operating efficiency, both Pat and satisfaction levels further improved.
The net promoter scores NPS of our marketplace business continued to improve particularly the NPS of apparel and home categories, where at their all time high going forward, we will leverage the healthier competition and development environment of the industry to continuously in reach of our marketplace ecosystem.
Explore new models and formulate our differentiated strategic approaches our goal has always been to provide customers with better shopping experience and services open to and in pop and merchants and build up Gs marketplace ecosystem.
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We made further progress in the implementation of our omni channel strategy in our view the decentralization of the retail industry will continue and our Omnichannel strategy will serve as our second car for growth to break the ceiling of Jd's long term growth strategy is also designed to facilitate further into.
A question and the digital transformation of Chinas offline retailer in the in the industry did he possesses the most comprehensive supply chain capabilities that underpin the omnichannel model in particular, the three comprehensive supply chain models, namely the Beatrices central like the warehouse model the app to see.
And the warehouse model and the local retail model at this stage, we focused on building, our omnichannel capabilities, including decoupling, our supply chain capabilities digital operation and integrated marketing solutions.
And then apply these solutions to a wide range of shopping scenario, both online and offline and enable millions of a break in a moderate merchants in a variety of industries, including FMC G consumer electronics and home appliances health care apparel, Homegoods life services automobiles and many more in Q3.
E N V of our Omnichannel business grew by nearly triple digits year on year. When you reach the O'toole I'm demand retail business that JV jointly built with that group recorded an accelerated growth I highly recommend and invite you to visit our innovative offline stores such as JD mall that was launched at the end of the quarter.
C N J D stupor experiment stores fresh and Jean C community stores.
Cumulative absolutely without question, Nicole Youll groundwater general partner.
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In addition to the steady growth trajectory and trajectory of our core retail business, our logistics and our new business has also made money.
Robust growth this quarter.
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JD logistics I would like to highlight two positive trends first the long term investment J D. Al has made in establishing integrated supply chain and logistic service capacity start to bear fruit as it starts to more external customers and expand its addressable market for example, J D O has been.
Developing industry specific solutions and gaining traction with clients in FMC G. Fresh produce three six and home appliances furniture apparel and automobiles going forward, we expect external revenues of its integrated supply chain solution will be the main growth driver for J D. L. Second PDL received.
Social security relief for its employees and other measures from governments for his distinguished contribution in containing the COVID-19 outbreak last year, starting from Q3 last year due to out invest into these financial gains in network capacity expansion.
At large scale in lower tier cities as well as in frontline worker recruitment, which created additional employment opportunities. The quick expansion of Judy Ellis business and operation.
Operation optimization this year have gradually mitigated the financial impact from these upfront investments in capacity as a result, Judy Ellis overall margin performance meaningfully improved in Q3 compared to the first half of the year.
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Our Kashi business is committed to serving consumers and merchants in the lower tier markets in China, providing cost effective products and services in support of their procedures for a better life. The industry. Today is still characterized by high merchandize circulation cuts low efficiency of supply chain and fulfillment, especially for fresh.
While local small shopkeepers and store owners are left and underserved and user experience is far from ideal JD is better positioned to make breakthroughs on these fronts, where we have been working as where we have been working on our corn business logic for many years in our review.
<unk> business is in a sector that required a five to 10 years commitment to building up the infrastructure capabilities for short chain logistics and users' mind share. It is not a time to prioritize the scale expansion at the current stage instead CNC business, we're focused on building the core capabilities at the city level.
Exploring business models that create real value to local stakeholders, while ensuring that we have a sound compliance space. Since July GNC has proactively shifted focus on 10 selected provinces, where we are pleased to see improving supply chain efficiency and cost structure in Q3.
In particular fulfillment cost per order has lowered by nearly 50% compared to that in the early stage of the business and user experience have largely improved as well more importantly, thanks to our focused efforts and investment in infrastructure revenues generated by local group leaders and the mom and pop stores unchanged has been clearly.
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I hope that my sharing today has showed that J D. As a new type of real economy based enterprise that have to trade off both real economy, and digital technology capabilities, such type of enterprises will play an even greater role in Chinas economic development in the new era from a long term perspective, a D. A.
The strategically positioned to generate compelling growth opportunities. Despite the current complex and evolving macro environment, we remain fully confident in the future as we have been relentlessly working on the most difficult the hardest yet the most valuable thing for all our shareholders. Thanks to our core.
Abilities and a unique business.
Business model that we have built over years that said, we still have a lot to do and thank you all for your continuous trust and support for US along the way. This concludes my remarks today now I'd like to keep the floor to our CFO Sandy for more details.
Thank you Qi Dong Hello, everyone.
<unk> delivered a set of solid operating and financial results, while making steady progress on many of our strategic priority in Q3.
Demonstrates our commitment to pursuing sustainable quality growth.
We are encouraged by the overall check and resilience of our unique business model, which continues to put us on strong footing to navigate the unprecedented complexities in the macro environment.
Our total net revenue reached 219, meaning 19, feeling RMB in Q3, representing 26% year on year growth and 37%, who you pick up maintaining strong growth momentum either a high comp from last year.
Our growth continues to outperform the industry and we further gained market share in the quarter.
Our topline growth was backed by sustained improvement in our <unk>.
User base and user engagement.
We are very pleased to see a 25% year on year growth of our LTM active user base.
Reaching a total of 552 million RMB.
552 million in Q3 with the addition of 111 million users from a year ago.
Attached greater importance on improving our user experience and user engagement in Q3.
Our mobile the au grew even faster than active users accelerating to over 30% year on year in September.
Which demonstrates our expanded consumer mindshare.
Yeah Nation took any much here, we are also winning users' wallet share.
Average order frequency for all our users increased 23% year on year, driven by both our new and existing users.
Well total order volume sustained a year on year growth of about 40% in Q3.
We then take the retail the number of categories users protest expanded towards historical high even in the low season.
In particular.
Who have stayed with JV for more than a year plan to double the number of categories. They protest.
This core taking users love, the new products and categories that we introduced.
Are you increasingly spending more on fresh produce cosmetics fashion and luxury goods.
The improved user engagement is again driven by our continued focus on customer experience.
Our NPS score has been a steady growth trajectory here.
He has an all time high this quarter as we continued to enrich our product offering and improved shopping experience after sales and fulfillment services through technology.
Actually what we would like to highlight that the growth of our <unk> service revenues was over 43% year on year compared to 23% growth of net product revenue.
Net service revenues contribute hit a historical high of 15% to our total revenue.
Market place and advertisement revenues continued our high growth of 35% year on year.
Notable acceleration from 24% that we achieved in the same period last year.
This is a strong testament of our continuous efforts to improve our marketplace ecosystem.
It's still an influx and higher engagement with third party markets across almost all categories.
We expect our marketplace business to continue to gain momentum in the coming quarters.
Logistics and other services revenues grew by 53% year on year, mainly driven by the hyper growth of JD logistics external revenue, which I will discuss more shortly.
Now, let's look at our segment performance.
First our core business. The research revenue reached 198 billion RMB in Q3, with a 23% year on year growth and a two year take a 25%.
The power of that is supply chain capability with our fortis play against the global supply chain constraint.
Our electronics and home appliance revenues maintained street ceilings growth of 19% year on year.
Inefficiently outpacing the industry's low single digit growth in the same quarter.
We are also delighted to see GM vehicles of our third party sales in these categories accelerated to 45% year on year significantly outpacing that of our lumpy business.
10 of our merchandise revenues grew 39% year on year and 32% when you pick up in Q3.
This was mainly driven by the 35% to your K Cup of our supermarket lumpy order volume growth in the quarter.
I want to share a few observations of our supermarket category.
First.
Current market cap rates for again, the largest contributor of our new users in this quarter.
The average number of order per user for supermarket categories continued to increase and reached its all time highest level.
Our users are purchasing more high frequency supermarket products, some JV, including food and beverage fresh produce and baby and maternity products.
All these have helped drive our daily user engagement meaningfully.
Moving on to take these retail margin is fulfilled gross margin similar to that of Q3 last year and operating margin was 4.0%.
Which treat pain largely stable compared to its all time high in Q3 last year.
Again, we are successfully shifting our category mix towards high frequency items that kind of better you'll get to customers and experiment in new business tragedies, such as omni channel and shut down without compromising our margin trajectory.
We remain confident in healthy category expansion and long term margin improvement of our core retail business.
Our strategic investments also made steady progress in Q3 did.
Taking a logistics JV L maintained its growth trajectory in the quarter with revenues growing 43% year on year to $25 7 billion RMB, mainly driven by the growth in the number of external integrated supply chain logistics customers and their average revenue per customer.
External revenues continue to account for over 50% of JV out total revenue.
Well reached a historic high in this quarter.
JD logistics operating loss ratio was two 8% on track to achieve a better margin profile compared to that in the first half oftentimes Hitachi one I stated al continues to ramp up utilization and improve operating efficiency.
The number of warehouses operated and managed by J D. L has steady steadily expanded to approximately 1300 without aggregated gross floor area of over 23 million square meters.
Our new business segment revenue grew 33% year on year to $5 7 million RMB in Q3.
<unk> property recorded a gain from sales of logistics facilities.
579 million RMB in the quarter.
Both of our international business continued to accelerate in Q3.
For our P&C business, we want to highlight that during the quarter.
Chieftain notable improvement in both user experience and operating efficiency.
Our our strategic priorities over scale.
At least started to proactively focus our Jesse campaign business in selected markets, we are able to better allocate resources to improve our supply chain for fresh produce and shortly and logistics infrastructure capacity empower.
Empowered the local merchants and achieve better elite.
On the back half hour one P supply chain capacity, we also have to local merchants and farmers to grow quickly on our social platform.
As a result of this strategic shift there.
The operating loss of new business. It was $2 1 billion RMB as compared to $1 2 billion RMB in the same period last year.
We remain fully committed to empowering local smes.
The mom and pop stores by providing supply chain support and creating diverse revenue streams for them.
Well, we expect the operating loss ratio to dnb to gradually narrow down as we continue to optimize the operating efficiency.
Moving to the consolidated bottom line, our non-GAAP net income attributable to ordinary shareholders was five point there'll be the RMB with non-GAAP net margin of two 3% compared with $3. Two in the same period last year. The decrease is mainly attributable to normalized.
Marketing expenses increased investments.
And increase the investments in logistics in new business segment for our long term strategic positioning.
Notably since 2012, we have maintained inventory at Talbot.
<unk> consistently below 40 days, despite the significant increase in the number of back to us under our management.
Q3, this year with further shortened our inventory turnover days by four days to 30 days in the last 12 months.
Two our continuously improving supply chain managing capacity.
We then pass on this efficiency gain to further increase our support for our business partners as well as we also shortened our LTM accounts payable days by four days to 46 days.
This is another example, how do you think you'll need model.
Model and a relentless focus on building.
I think he can really create value for all our business partners in the real economy.
Our LTM free cash flow this quarter came in at $38 5 billion RMB.
Which remains largely stable year on year.
As of September 30, 20, 10-Q, one cash cash equivalents restricted cash and short term investments added up to a total of 196 billion RMB up from 178 RMB at the end of Q2 or 137 billion RMB a year ago.
In summary, JV showed remarkable resilience sucking in face of macro and supply chain headwinds.
The solid topline growth and steady profitability in our core business.
This showcases our resolute commitment and effective implementation of our strategy, which we are very proud of.
We want to see our great appreciation to our hundreds of thousands of employees.
Finally, I want to reiterate that this is sustainable growth will continue in the new era, where our 18 years of Trailblazing efforts in building, our core competence and our great way to success business philosophy, we will continue to be rewarded.
With that lets now move to the Q&A. Thank you.
Operator, we can open the floor for Q&A now thank.
Thank you.
Thank you.
Question and answer session of this conference will start from the moment.
Be fair to all.
James callers, who wish to ask questions. We will take one question at a time from each caller.
If you have more questions. Please request you to join the question queue again after your first question.
First let's start by the <unk>.
Want to ask your question.
Thank you.
Your first question.
Comes from the line of Robyn <unk> from Goldman Sachs. Please go ahead.
Thank you yeah, Yeah, Tcl Athel Sandy Sean.
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Core margin.
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Central what do you have a long term.
David the only mid to high single digit Jacob Trouba module with a piece of equipment.
JD retail margin.
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Thank you Scott.
Thank you management. So my question is on JD retail margins, we've seen that the margins were strong in the third quarter. Despite strong growth in supermarket business I'm. Just wondering if you all strategies in private label with Omni channel and a fast growing marketplace and how would that kind of coupled with the category mix.
That could drop the overall blended margin so are we on track too.
We're trading out a long time.
<unk> target of mid to high single digits. Thank you.
As China, let.
Let me take this question.
Yes, your understanding is correct ethylene or experiment Neal various new business models, including Omnichannel.
Clothing, the shutdown our business model.
Overall our.
Our financial model may be affected a little bit as example for Omnichannel business, we may leverage the warehouse on the inventory of offline business pillars.
We could we would share the gross profit went down but at the same time.
Also safe the fulfillment cost so the physical smart machines remained stable, while you may see a decline in the gross margin because of the growth of this new business model and then you know our gross margin will also be affected by the category mix shift as we have been discussing in the past.
A couple of years.
However, what we have seen this quarter is because of the higher growth of repeat business that kind of offset the impact from the.
Category mix shift towards higher frequency.
Revenue contribution from the supermarket products, which has relatively lower fulfilled gross margin. So overall for Q3. If you look at the fulfilled gross margin for retail it was relatively stable compared to the same quarter last year.
So looking I had.
Our.
Our expectation on the margin profile or margin trajectory remains unchanged.
The short term short term, we may we may be facing the drag from the category mix shift.
As well as the change of the business model, but as J D has been continuously building our capabilities in the supply chain.
And improve the operating efficiency of inventory management with technology. So we can gradually improve.
The margins.
I'll say in the long term Stephanie.
And also as I mentioned before for many of our categories. Our current procurement price the steel higher compared.