Jingdong (Nasdaq: JD; HKEX: 9618) released its first quarter report for the year 2024 ending on March 31. The net revenue was 260 billion yuan, a year-on-year increase of 7.0%. Net profit attributable to ordinary shareholders was 7.1 billion yuan, compared to 6.3 billion yuan in the same period in 2023. Non-GAAP net profit attributable to ordinary shareholders was 8.9 billion yuan, compared to 7.6 billion yuan in the same period in 2023.
After the financial report was released, Jingdong Group CEO Xu Ran and CFO Shan Su attended an analyst conference call to interpret the financial report and answer analyst questions.
The following is the transcript of the Q&A session of the conference call:
Goldman Sachs analyst Ronald Keung:
We see that this year in the e-commerce industry, both traditional old brands and some new players, everyone wants to grow faster than the industry. From the perspective of Jingdong, how does the management team think they will maintain or regain market share this year? What are the driving factors behind this? From the perspective of categories, such as consumer electronics, I see that the base in the second quarter of last year was relatively high. Just now, CEO Xu mentioned that Jingdong's department store category growth rate has rebounded. This year, from the perspective of categories and number of users, how does the management team think Jingdong can achieve or maintain higher growth targets than the industry?
My second question is, from a growth perspective this year, how will the management team balance the company's growth rate? How to achieve faster than the social zero growth? Also, how will the management team balance profitability?
Xu Ran:
First of all, China's consumer retail market is a very large market, and the overall consumer market is still maintaining healthy growth. At the same time, China's consumer market currently presents a highly diversified pattern. As we can see, there are over 300 cities in China with a population of over one million, and the online penetration rate in 2023 is also around 30%. With the continuous improvement of online platform efficiency and model innovation, the online rate will further increase.
From the perspective of categories, we have recently discovered that in some categories where we believe the online penetration rate is already quite high, such as computers and home appliances, their actual online rate or potential online rate may be higher than our original estimate. Therefore, we believe there is still room for future online penetration to continue to increase. In addition, there are many industries or categories, such as supermarkets, home furnishings, automobiles, sports and outdoor, and service industries, where the current online penetration rate still has a lot of room for improvement, and these are also the categories where we are currently growing faster. Therefore, we are very optimistic about the potential growth space.
As for Jingdong's business model, the unique aspect of Jingdong or Jingdong's core competitiveness lies in the fact that we are China's largest retailer. We not only have 1P business (self-operated business), with Jingdong's supply chain-based advantages, it can provide consumers with more differentiated, better self-operated user experience, cost, and efficiency, which also lays the foundation for our platform ecosystem development.
Last quarter, we also shared with everyone that over the past year, we have focused on further improving user experience, low-price mentality, and platform ecology to improve Jingdong's business health. We have made a series of proactive adjustments, optimizations, and improvements, including improving price competitiveness, reducing procurement costs, lowering free shipping thresholds, and upgrading user experiences and services such as price protection with one click, free returns, and refund only.
All these efforts in the user ex perience have brought about many changes at the user level. We also saw that in the first quarter of this year, both Jingdong overall and retail active users achieved double-digit growth again after the fourth quarter of last year. At the same time, we also saw an increase in user activity and a significant increase in user shopping frequency. In addition, we also saw the NPS (Net Promoter Score) of users continuously improving, with the overall NPS in the first quarter, whether from the self-operated or third-party merchant perspective, achieving significant improvements in both month-on-month and year-on-year comparisons. Last year, our platform also introduced a large number of merchants, which at one point caused NPS fluctuations. However, with the gradual improvement of our governance and risk control capabilities, we have also seen an increasing level of user satisfaction.
We see that user mindset in the aspects of more, faster, better, and cost-effective is gradually returning, and the results of previous efforts have made us more confident in Jingdong's long-term growth and continued market share acquisition.
Shan Su:
Regarding the second question. First, following Xu's response, we are confident in achieving growth in total retail sales exceeding the total social zero amount for the whole year. At the same time, we will invest more disciplinedly in improving user experience and gaining market share while maintaining group and retail profitability stably.
Secondly, in our view, business scale growth and profitability are not contradictory, but complementary. Jingdong's business model is based on the supply chain and centered on user experience. We will focus on long-term improvement of supply chain capabilities and user experience, and make targeted business investments accordingly. Our long-term sustainable profit also comes from Jingdong's market position and user experience. For Jingdong, we hope to continuously invest energy and resources in order to provide users with a better experience in terms of product prices and service, and then drive continuous growth in GMV (Gross Merchandise Volume) through better experience, expand our market share. With the expansion of business scale and the improvement of market position, our supply chain advantage and efficiency will also continue to improve, leading to healthy profit growth and allowing us to continue to invest in product price services and continuously improve user experience. This is the positive cycle of our business growth, user experience, and long-term profit growth.
Thirdly, there is still much room for improvement in business operational efficiency. We spent a lot of time last year improving operational efficiency and simplifying workflows to enhance our long-term competitiveness. We found that in terms of business team management capabilities, user and traffic operational efficiency, there is still a lot of room for improvement, which will be key to improving profitability and maintaining long-term competitiveness. In terms of business investment, starting from last year, we have continuously lowered the threshold for the platform ecosystem construction, increased support for small and medium-sized merchants, provided more efficient operation tools for merchants, helping merchants operate better on Jingdong and providing users with a richer selection of goods; for user experience enhancements, we have successively lowered the free shipping threshold of self-operated, upgraded one-click price protection landing, and self-operated and POP to achieve free returns, and launched refund only. Through this series of service innovations, we drive user satisfaction, namely the improvement of NPS.
In summary, in the long term, Jingdong will use our 1P self-operated advantages and continuous development of the platform ecosystem to continuously strengthen the positive cycle of business growth and profit growth. We are confident in maintaining the healthy growth of our business scale and profit.
Citigroup analyst Alicia Yap:
My first question is, if the old for new policy for home appliances is implemented, can this policy really effectively stimulate consumer consumption in the current cautious consumption environment? What incremental growth does Jingdong expect to gain from the old for new policy?
My second question is about the supermarket category. I remember the management team mentioning the supermarket category, namely FMCG, as an important category supporting Jingdong's growth this year. Apart from the low base, does the management believe that consumers will really spend more income on FMCG? If consumer demand remains weak, will the supermarket category still be the main driver of Jingdong's growth this year? Does the management team expect Jingdong to gain more market share in this category?
Xu Ran:
First of all, about old for new.
In fact, it has been about ten years since the last nationwide implementation of the old for new policy for consumer goods. We have also observed that many households in China have already entered the cycle of replacing old and durable products such as home appliances. These old products do have relatively poor performance and high energy consumption, and if some poorly maintained old household appliances continue to be used, it may even pose health and safety hazards. However, due to the high cost of replacement, many households are still continuing to use these old appliances.
The implementation of the old for new policy can further stimulate the demand for existing stock replacement, accelerate the realization of existing replacement demand, reduce the acquisition cost for many households to obtain high-quality household appliances, and further improve the quality of life for the masses. Currently, we have also seen that the national government and many provinces, cities, and regions are actively promoting the old for new work and actively researching and deploying the Ministry of Commerce's old for new action plan. We are also in communication with many local governments, and some plans are gradually being launched. We also look forward to more subsidies being implemented in the future, truly allowing consumers to enjoy these benefits.
At the same time, Jingdong is collaborating with some top home appliance brands, including Haier, Midea, Gree, and more than 100 home appliance brands, to jointly establish the Jingdong Home Appliance Home Renewal Alliance. We will launch subsidy activities for old for new in 20 provinces, cities, and regions across the country, allowing consumers from various regions to buy home appliances more affordably and worry-free.
From Jingdong's own progress, we have actually been building and improving Jingdong's old for new capabilities for the past few years. This includes integrating and utilizing our own supply chain, logistics, and service advantages, continuously improving a one-stop old for new service experience. Jingdong has further provided a free home visit, free disassembly, free transportation service for consumers to replace old machines and an installation of new machines service. We do not restrict the purchase channels of old machines, brand, age, or condition, that is, the three-free, four-unlimited service. We have reduced the logistic service process that used to require multiple visits to only 1 to 2 times, which is more worry-free. This is a very unique advantage of Jingdong because we not only have a retail business but also our own logistics business. At the same ti…