Dada Nexus Q3 2023 Earnings Call Transcript

Quartr
Provided by Quartr
November 14, 2023

There are 9 speakers on the call.

Operator

Good morning, ladies and gentlemen, and thank you for standing by for Dada's Third Quarter 2023 Earnings Conference Call. At this time, all participants are in a listen only mode. After the management's prepared remarks, there will be a question and answer session. As a reminder, today's conference is being recorded. I will now turn the meeting over to your host for today's call, Ms.

Operator

Caroline Dong, Head of Investor Relations for Data. Please proceed, Caroline.

Speaker 1

Thank you, operator. Hello, everyone, and thank you for joining our Q3 2023 earnings conference call. On the call today from Zada, we have Mr. Jack Huijian He, President and Mr. Baixin, CFO.

Speaker 1

Mr. Hu will talk about our operations and company highlights, then Mr. Chen will discuss the financials and guidance. Please kindly note that during the Q and A session, Jeff will answer questions in Chinese and the consecutive translation will be provided. In case of any discrepancy between the original remarks and the translated version, Statements in the original remarks should pre vote.

Speaker 1

Before we begin, I'd like to remind you that this conference call contains forward looking statements. Please refer to our latest Safe Harbor statement in the earnings press release on our IR website, which applies to this call. Also, during this call, we will discuss certain non GAAP financial measures. Please also refer to our earnings press release, which contains a reconciliation of non GAAP measures to the comparable GAAP measures. Finally, please note that unlike otherwise stated, all figures mentioned during this conference call are in RMB.

Speaker 1

It is now my pleasure to introduce our President, Mr. He. Jeff, please go ahead.

Speaker 2

Thank you, Karen, and thank you all for joining us today. In the Q3 of 20 23, Dada Group will sustain its impressive top line growth and made further gains in operating efficiency. Our total revenues increased by 20% and adjusted net margin improved by 11 percentage points year over year. I will begin today's presentation with updates on our cooperation with jd.com and our performance during the 20 11 shopping festival, followed by updating highlights from our 2 platforms. I will then hand over to Beck, who will take you through our detailed financial results.

Speaker 2

First, let's discuss our cooperation with jd.com. In October, Gadagroup and jd.com had an on demand teleconference, saying that Help us Within Reach and on where the 5 year action plans in boosting consumption enable the pillars and the creative jobs. Particularly, in the next 5 years, JTPG and the data now improve facilitate on demand and the sales consumption of over RMB 1,000,000,000,000 dollars along with our ecosystem partners. Jial, the digital transformation of more than 2,000,000 back and mallard stores and cumulatively create our 10,000,000 flexible employee opportunities. This not only demonstrates our strong confidence in the potential of on demand retail industry, but also our commitment in children's social responsibility.

Speaker 2

Getting.com and us, we are strengthened our base team to achieve these goals. Next, I would like to provide some highlights from the result of double 11 shorting perspective. For JDDJ, peak day GMV reached an all time high and the GMV throughout the promotion grew robustly. With multiple categories, adjusting triple digit growth, including U. K.

Speaker 2

Mom and baby products, home furnishings and convenience stores. For data now, orders fulfilled on the 5 day hit another record high of 15,000,000 dollars and the total order of the Fed reached $200,000,000 during the promotion period. Let's move on to the operational highlights for our 2 platforms. Starting with JVDC, the leading on demand at the tail platform in China. In the Q3, we continued to strengthen and expand our partnerships with retailers and brands and further enhance our capability in technology innovation.

Speaker 2

Starting with retailer operation. During this quarter, we continue to broaden and deepen our provision with the tellers to enrich our product offerings. At the end of September, KDDJ has onboarded more than 400,000 retailer stores. In the supermarket category, we added more top supermarket teams to our platform and have now established partnerships with 93 out of the top 100 supermarket chains in China. After we load out our delivery waiver campaigns include the majority of supermarkets across the country at the end of July.

Speaker 2

We saw a lot of increase in user engagement as evidenced by improvement in both retention rate and the purchase frequency among our users in supermarket testing. We also made progress in our progression with major convenient store trends, leading to GMV generated by convenient stores on our platform growing more than 8 times year on year. Moving on to the consumer electronics category. In the smartphone category, JBBGF participated in the launch of new Apple products for the 4th consecutive year after the iPhone 15 series was officially launched for sale in September. Sales in the first two hours increased by 250 compared to the sales in iPhone 14W.

Speaker 2

In addition, Android brands such as Xiaomi, Oppo and the OnePlus also led the growth in the 3rd quarter. For the computer and the accessories subsequently, GMV increased by 60 year on year. This growth was attributable to our support for new brands, weekend marketing events and our efforts to explore diversity shopping centers. Notably, brands such as Bao, Xiaokengai, JinE experienced significant growth during this quarter. We also continued to make progress in the home appliance and home furnishing category.

Speaker 2

In the home appliance subject category, we aim to serve diversified user needs by offering differentiated SKUs and compare them with B2C channels, offering constant experience of 1 stop deliver and installation. In this quarter, we established new partnerships with major appliance brands such as HaiXin and Changwee and the newly onboarded 8,000 home appliance stores on to our platform. As a result, GMV of home appliance machines grew by 70 year on year. The home furnishing subcategory also saw a lot of growth, with GMV increasing by nearly 3 times year on year. We established new partnerships with clients such as LiBong Shaoxing, achieving a breakthrough in our offering of painting services.

Speaker 2

In a pilot category, we recently signed new partnerships with a number of outdoor brands, including Sikaiqiu, Pique, as well as underwear brands such as DUS1000000, IMU and Hengdou and the largest brands such as Newdie. In the Q3, GME of the apparel category increased more than 5 times year on year. For the local category, GMV more than tripled year on year in the 3rd quarter, driven by our continuous efforts to improve the supply of core SKUs. Let's talk about JVPG's progress on depending conversion rates, brands. As a pioneer and the leader in auto marketing for brands.

Speaker 2

In September, we officially launched the Double 10,000,000,000 brands plan, which aims to have more than 10 brands achieve sales of more than $1,000,000,000 and establish a benchmark brands with sales of more than $10,000,000,000 on our platform in 2024. Our brand partner poor capital expanding. Recently, we formed partnerships with leading Baijiu brands, including Maotai and Yanghua. In the first on demand retail platform capability release. We also established a new partnership with select food brands such as Yanjun Foods and dairy brands such as Liqen and Jia.

Speaker 2

We also continued to enhance our omni channel outdoor marketing collaborations with brands, helping them reach users through multiple channels both on and off journey this year. Starting with the Temple. We collaborated with brands such as Quick, Omeo and Mizajin To help them enhance exposure, we have innovative offline campaigns such as Samsung competitions. On the final day of the event in Shanghai, Ping Ge saw a mark for 20 year on year increase in sales and 58 increase in order volume. Next, I'd like to talk about our technology innovation efforts.

Speaker 2

For the pillars, our Omnichannel Auto Operating System, Haibo, continued to play an important role in improving efficiency. At the end of September, HIBOR had been deployed in nearly 12,000 stores. We recently updated the HIBOR systems, visualized store taking function to support additional business manners and make inventory counting more efficient through integrated algorithm logic. Panel technicians who use this upgrade function So 99 job use for taking abnormal We further upgraded our masking technology. In September, we released Hengtu, the 1st grid level marketing tool for brands in the on demand repair investment.

Speaker 2

We improved our marketing efficiency through B2C plus O2O omni channel data analysis, Huntu helps brands identify marketing opportunities grid by grid in terms of both consumer demand and their supply status. So as to make marketing campaigns more effective at present, the Hengtu system has been adopted by temp plants in categories such as FMCG, Consumer Electronics and Health and Vanis. Pilot brands are used to Heng2 solution to manage marketing activities. So the conversion rate increased by 12% and average new customer acquisition cost decreased by 37%. I will allow them to data now China's medium local on demand to deliver platform.

Speaker 2

In the Q3, we continued to expand our duality capacity with quarterly active rider on the DadaLao platform increasing more than 20 year on year. I will first discuss our K OEM machines business. In the 3rd quarter, the growth rate of our revenue from on demand to deliver services to KA merchants accelerated to 25 year on year. In particular, revenue plan value chain continued to grow rapidly by high double digit rate. In addition, in the restaurant care category, we recently formed new partnerships with restaurant trends Moving on to our SME and the C2C business.

Speaker 2

Thanks to a wider variety of services selections. The number of SME and the C2C orders fulfilled in the Q3 increased by 40 year on year. Lastly, an update on data loss atonomous dealer sales. We continue to consolidate our positioning as the largest autonomous dealer platform for supermarkets in China. To date, Sadanor's autonomous dealer open platform has fulfilled more than 200,000 on demand bureau orders for supermarkets.

Speaker 2

That concludes our operational updates for our 2 platforms. To LEPA, we delivered another strong quarter of financial results with solid growth in revenue and significant year on year improvement in our quarter 9, along with continuous improvement in business performance. We believe our model also creates even the social value. Therefore, we set 1st, the 5 year plans, the London consumption, digitalization and the employment, which is in line with our strategy to realize health growth in the wide brand community consisting of consumers, retailers, brand owners and the lighters. We will continue to execute this strategy to drive substantial returns for shareholders.

Speaker 2

I will now pass the call over to Doug to go through our financial results. Thank you.

Speaker 3

Thanks, Jeff. Before we go over the numbers, just a few housekeeping items in advance. We believe year over year comparisons are the most useful way to judge our performance. Therefore, all percentage changes I'm going to give will be on a year over year basis and all figures are in renminbi unless otherwise noted. The total net revenue in the 3rd quarter increased by 20% to RMB2.9 billion.

Speaker 3

Net revenues from Zener now increased by 29% to RMB1.1 billion mainly driven by increases in order volume of intercity delivery services to chain merchants. Net revenues from JDDJ increased by 16 percent to CNY1.8 billion, mainly due to the increase in GMV. The increase in online marketing services revenue as a result of the increasing promotional activities also contributed to the revenue growth of JDDJ. Moving over to the expenses side. Operations and the support costs were RMB2 1,000,000,000.

Speaker 3

The increase was primarily due to an increase in rider cost as a result of increasing order volume for intercity delivery services provided to various chain merchants. Selling and marketing expenses decreased to RMB1 1,000,000,000 primarily due to a decrease in advertising and marketing expenses and a decrease in incentives given to DJ consumers. G and A expenses decreased to RMB39 1,000,000 as a result of decreased amortization of business cooperation agreement and the non compete commitment related with the acquisition of JDDJ in 2016, which was substantially amortized as of June 30, 2023, and reduced the share based compensation expenses as well as efficient expense control measures. R and D expenses decreased to RMB94 1,000,000 mainly due to lower R and D professional costs as we enhance our operating efficiencies. Non GAAP net loss attributable to ordinary shareholders of DADA was CNY9 1,000,000, a significant improvement compared with the loss of CNY270 1,000,000 in the Q3 of 2022.

Speaker 3

Non GAAP net loss margin was 0.3%, improving by 11 percentage points year over year. As of September 30, 2023, we had CNY4.4 billion in cash, cash equivalents, restricted cash and short term investments, achieving an increase 2022. In terms of the outlook for the Q4 of 2023, we expect total revenue to be between RMB3 1,000,000,000 and RMB3.3 billion, representing a year over year growth rate of 12% to 23%. So this concludes our prepared remarks. And operator, we are now ready to begin the Q and A session.

Speaker 3

Thank you.

Operator

Thank Your first question comes from Ronald Kounde with Goldman Sachs. Please go ahead.

Speaker 4

Thank you for taking my question. Thank you, Jeff, Beck and Caroline. So my first question is on how we've seen the recent trends of growth in Singles Day and based on your 4Q guidance, the sequential slightly slower year on year growth. Do we see what are the drivers of our growth and how should we think about next year along the consumption trends on discretionary or for on demand products? And then my second question is on our cooperation with JD.

Speaker 4

With the JD rebalancing kind of traffic, the 10,000,000,000 subsidy program at 3P, how has the cooperation been? And do we see any change in the JD traffic allocation to ourselves and any updates on the corporation? Let me translate myself.

Speaker 5

Thank you for your question, Ronald. I'll first give you a brief update on the overall performance of our Double 11 shopping festival. As we all know, it's quite a long event starting from mid to late October and running all the way through mid November. So during the 1st 3 weeks of October, growth of both the supermarket and the consumer electronics categories were on the softer side due to two factors: A, an increase in outdoor and traveling demand affected the purchasing frequency of our supermarket category to some extent and b) demand for some smartphone brands was not as strong as we had expected. During the Double 11 shopping festival, however, we've seen a decent recovery in growth rate, especially of the supermarkets category, primarily thanks to our efforts in prioritizing value and the customer savings on top of the convenience of 1 hour delivery that we provide.

Speaker 5

On the peak day of November 11, we made historic breakthroughs, especially where we've seen decent growth for the supermarket category. Overall, the consumption market is recovering. Delving into different categories, however, spending and services, including dining and accommodation, entertainment and tourism, continue to outpace the spending in physical goods. In addition, the need for on demand retail is less prominent in outdoor scenarios for service consumption. In light of these trends, we will continue to focus on consolidating our strength on the supply side and optimizing the user experience so as to position ourselves for the increase in O2O penetration in the long term, a trend about which we are highly optimistic.

Speaker 5

So to provide you with an update on our cooperation with JD.com, both JD, DJ and data now continued to strengthen our cooperation with JD during the quarter. Starting with JD DJ, first, we continued to penetrate JD's user base with the number of Xiaoxida users in the Q3 increasing by close to 40% year over year. Our traffic growth on JD has been outpacing our user growth as we gained access to new entry points on the JD app. For example, the LBS feature is now being gradually integrated into the RMB 10,000,000,000 subsidy and flash sales channels, which enables our merchants to generate incremental exposure. Apart from the incremental touch points we've gained, we're also making progress in the existing user interfaces.

Speaker 5

In terms of the search results for the Song Ho, recently jd.com has been testing to prioritize audio products in categories, including flash produce and heavy and bulky items so as to enhance user experience while improving efficiency. And in terms of the Doctor. Zhida tab, previously known as the nearby Fujian tab, we have refined the page design that data with JD's product development team to drive significant DAU growth. At the same time, we are pushing forward the continuous increase in conversion rates and AOV. Now I'd like to share some observations and thoughts on the impact of JD's changing algorithm on JD BJ platform.

Speaker 5

We believe our Xiaoxiao Dat service not only provides JD users with high quality products and faster delivery, but also competitive prices that stem from our retail partners' strength in the supply chain. Therefore, Xiaoxida is able to provide a better user experience in all three dimensions of products, prices and services. As a result, we believe JD's new traffic allocation mechanism will benefit Xiaoxiao's growth in the long term. Shida's advantage in terms of product quality and diversity as well as delivery speediness is self evident. So I would like to elaborate more on the price competitiveness of our Xiaoxiao Dai service.

Speaker 5

Years of experience in offline retail, the chain merchants we are cooperating with usually have already built strong supply chain capabilities, which enables them to provide consumers with competitive prices, in particular in product categories such as fresh produce and heavy and bulky items we just mentioned. In addition, conducting O2O business on top of their existing offline stores require little incremental rental and personnel costs for retailers. Given the lower selling expense ratio, there is significant room for our retail partners to offer lower prices on the Zhao Shida channel and provide our customers with more value for money items. Looking at our operational results, since JD began to emphasize the pricing factor in March, Our exposure among JD search results have maintained remarkable growth. For example, in Q3, the daily average search exposure of Xiaoshida's supermarket category increased by 50%.

Speaker 5

In addition, the percentage of highly priced competitive products in Xiaoxi Da stayed at above 30% during the November 11 shopping festival, a testimony of the overall price competitiveness of our Xiaoxiao products.

Speaker 2

Thank you for your question.

Operator

The next question comes from Thomas Chong with Jefferies. Please go ahead.

Speaker 6

Hi, good morning. Thanks management for taking my questions. My first question is about JDDJ unit economics in Q3. Can management share about the take rate and the expense ratio for different items? And on that front, how should we think about the due date economics as we go into 2024?

Speaker 6

What are the drivers behind? And my second question is about the O2O opportunities in China. As we mentioned in the prepared remarks, the market size is huge. But on the other hand, we also see the competitive landscape is also quite intense as well. So just want to get some thoughts from management about how we think about the landscape in 2024?

Speaker 6

And on that front, what is the long term direct margin that we are expecting in the coming years? Thank you.

Speaker 3

Thank you, Thomas. This is back. So I'll address your first question and Jeff can take the second question. So in terms of the monetization of JDDJ in Q3, the monetization rate was increased to 10% in Q3, which is the first time we passed through like the 10% threshold historically. And in the same time, our consumer incentives was further decreased to 3.3%, which is either like decreasing on a Q on Q basis or year over year basis.

Speaker 3

And in the same time, our operating costs, including rider costs, packing costs was 4.7%, which is decreased on year over year basis, while increased Q on Q basically because of seasonality in summer campaign. And in terms of the, for example, like 2024, the major drivers still we will keep you increase the commission and online marketing monetizing rate. And in the same time, we will further decrease our consumer incentives expenses and also operating cost side to further enhance our direct margin on a year over year basis. And also in terms of the last question, your second question in terms of the long term margin, so basically as we have talked about previously, so JJ is could be managed to like the traditional e commerce platform, which is just a localized version. So in terms of like the operation profit against GMV generated through the platform, so we are marketplace model, neutral platform model, so it should be targeted as a 3% as a percentage of GMV as our long term operating or non GAAP operating profit for JDJ.

Speaker 3

Thank you.

Speaker 5

I'd like to share some thoughts on your second question about the competitive landscape. The fact that more leading Internet companies are prioritizing the on demand retail business speaks of its great potential and we believe the industry can easily accommodate different players to grow vibrantly in their respective areas of strength. For JD DJ, firstly, our strength and extensive partnership with Pay Merchant remains rock solid. This is a result of our positioning as an open and neutral platform as well as our accumulated know how and expertise in empowering retailers, various systems and services. Merchant ecosystem we've built is hard to replicate in a short time by other platforms.

Speaker 5

For instance, in the supermarket category, we've onboarded 93 out of the top 100 chains in China. In addition, in categories such as smartphones and mom and baby, we've also teamed up with most of the leading chain retailers in China. This abundance of high quality supplies is the basis for us to continuously attract and retain users. Secondly, we enjoy huge potential in penetrating more of JD's users. Currently, Internet companies are focusing on cultivating the mindset for on demand retail among their own user base, which means limited head on competition among one another.

Speaker 5

And since JD users are inherently purposeful shoppers, we demand higher merchandise quality and delivery speed. We believe it's more efficient for us to convert them into on demand retail consumers, and we remain confident in penetrating 50% of the JD user base in the long run. And thirdly, on top of market share gains, we value sustainable growth by balancing growth and profitability through a combination of efforts in optimizing subsidies, improving delivery efficiency and increasing online marketing monetization, the profitability of JDDJ has improved significantly in the past few quarters to near breakeven. In the long run, we also believe that JDDJ has higher profitability potential compared with other players because of our significantly higher AOV and online marketing monetization rate. Thank you.

Operator

Your next question comes from Alicia Yap with Citi. Please go ahead.

Speaker 7

Thanks for taking my questions. My first question is follow-up on management comment regarding the supermarket and the electronics category before the single stay, the 1st 3 weeks of October and then single stay's rebound. And so just wondering what is the demand trend post single stage that you're expecting for supermarket and non supermarket category? And then second question is on the cost of riders. So can I understand the increase in the cost of riders is related to this intra city delivery?

Speaker 7

Is there anything related depending on the type of the chain merchants that you are servicing? And which specific order demand during this 3Q that resulted in the higher rider cost? Do we expect a higher rider cost into 4Q given it is a promotional season and potentially colder weather? Thank you.

Speaker 3

Thank you, Alicia. So let's back let me address your two questions. So for the first question, so it's just like the end. So we finished like the Double Year 11 campaign. So still, there isn't I don't think there's enough time for us to evaluate like just 3 days daily sales to give you some color or comment for the post of the element campaigns trend.

Speaker 3

So in terms of the second question, so about the rider cost, so in terms of the absolute dollar amount of the rider cost, yes, it's increased either on Q on Q level or year over year level of the cost. And overall, it is still growing robustly, especially our as I said, now business is growing by 29%, within which our key accounts business is growing by 25% as we have discussed before. So this is just cost overall business is growing. But in terms of like the unit cost as per like the order level or per GMV level basically is efficient in the saved on a year over year basis. And in Q3, basically because usually it's like the summer season, so it takes more to recruit and retain riders compared to springtime or like the autumn season.

Speaker 3

So in Q4, we believe on a year over year basis, our per unit cost for the riders will decrease on a year over year basis.

Speaker 7

Okay. Thank you, Beck.

Operator

The next question comes from Li Zhang with Bank of America. Please go ahead.

Speaker 8

Thanks My first question is regarding the impact from our brewers lower the threshold for delivery to RMB59 in Q3? And can you share more color on this? 2nd delay, notice that we have disclosed live streaming related number during Double 11. And can you give us more thoughts on how on your movements regarding live streaming model? Thank you.

Speaker 5

Thank you for your question. Since the end of July, our delivery fee waiver campaign has covered basically all supermarket orders. And after that, we found that both conversion rate and repeat purchase rates increased, while AOV remained largely stable. Specifically, in August compared with July, the overall conversion rate of our supermarkets category improved by over 10%, and the next month retention rate also increased by over 10 percent, while the AOV was substantially unchanged. Therefore, thanks to the initiative, the year over year growth of our DMB in the supermarket category accelerated in the Q3 of 2023 compared with the Q2.

Speaker 5

And the program will be a long term initiative to improve user experience. And in terms of the P and L impact, since the cost of delivery fee waiver is shared by us and our merchant partners, the impact on the direct margin of JDDJ is in the dozens of dips and manageable for us. To answer your second question about live streaming, as we've taken note of the rising popularity of live streaming, During the Singles' Day promotion that just ended, JDDJ launched multiple live streaming events together with merchants and brands in categories including supermarkets, consumer electronics and home appliances. This was the first time that our frontline operational teams engaged with retailers are engaged with consumers to offer them value for money products deliverable within 1 hour. And we did see initial results with some sessions attracting total views exceeding 1,000,000.

Speaker 5

The total DMV transacted via live streaming grew more than 10 fold versus the June 2018 promotion. Overall, we are still in the exploration stage for the live streaming business. We plan to further optimize the process and enhance the product capability to better integrate LBS with live streaming. In the future, we're also going to encourage local merchants on our platform to host regular live streaming sessions so as to provide our users with more immersive on demand shopping experience.

Speaker 2

Thanks for your question.

Operator

The next question comes from Wei Zhang with UBS. Please go ahead.

Speaker 7

My first question is that we see data now revenue growth is outgrowing our JDD Day this quarter. Do we expect that trend to continue in the Q4 and next year? And also the revenue mix shift, how would that impact our margin outlook in the Q4 next year as well? And secondly, just housekeeping question, could management share their GMV mix and AOV trend in this quarter? Thank you.

Speaker 3

Okay. So about the first question, so basically, we expect still the 2 platforms will grow in similar speed in the following quarters or next year. So for the second question about GMV mix, so the broader supermarket categories is still accounting for close to 50% of the GMV amount, while the 3C and Electronics account for 40% of the total GMV amount. And in terms of the average order value, so in Q3, the LV is like RMB250. This is like the update for Q3.

Speaker 3

Thank you.

Operator

Migi, we have come to the end of our Q and A session. I will now hand it back to Ms. Caroline Dong for closing remarks.

Speaker 1

Thank you, operator. In closing, on behalf of Tata's management team, we'd like to thank you for your participation in today's call. If you require any further information, please feel free to reach out to us directly. Thank you for joining us today. This concludes the call.

Operator

That does conclude our conference for today. Thank you for participating. You may now disconnect.

Remove Ads
Powered by Quartr
Earnings Conference Call
Dada Nexus Q3 2023
00:00 / 00:00
Remove Ads