Dada Nexus Q1 2023 Earnings Call Transcript

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May 10, 2023

There are 10 speakers on the call.

Operator

Good morning, ladies and gentlemen, and thank you for standing by for Dada's First 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 call is being recorded. I will now turn the meeting over for your host for today's call, Ms.

Operator

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

Speaker 1

Thank you, operator. Hello, everyone, and thank you for joining our Q1 2023 earnings conference call. On the call today from data, we have Mr. Jeff Huiyi Jiang He, President and Mr. Baq Chen, CFO.

Speaker 1

Mr. He 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 approval.

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 statements 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 unless otherwise stated, all figures mentioned during our conference call are in RMB.

Speaker 1

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

Speaker 2

Thank you, Carolyn, and thank you all for joining us today. During this, the Q1 of 2023, Data Group continued to deliver strong revenue growth that significantly improved our operating efficiency. Our total net revenues increased by over 27% and our adjusted net loss margin narrowed by over 16 percentage points year over year. I will start today's presentation with an update on our dependent cooperation with jd.com. Following which, I will share the operational highlights from our 2 platforms.

Speaker 2

Back, we are then taking you through the detailed financial results. We continue to deepen our cooperation with jd.com in several areas. During the Q1, GMEI's ShopPal, as well as the unified brand for all on demand care services within the JD Ecosystem, increased by 60 year over year. In particular, GMV for nearby or Fujian type maintained the less than year over year growth. This was driven by continued increase in nearby DAU as well as a higher conversion rate during the page with designs that made the shopping experience more efficient.

Speaker 2

Regarding search results, we also recently launched the Price based Star Ratings, a tour that highlights the most competitively priced products. With this feature, we have boosted traffic conversion and enhanced shop miles at the pier among JD users. As a shopping channel with competitive price and faster delivery. Let's move on to the operational highlights from our 2 platforms, starting with JDJ, the leasing on demand retail platform in China. In the Q1, JTJ maintained the rapid GME growth that significantly outpaced the last autumn industry.

Speaker 2

Our high quality growth is factored by our growth conversion rates and the technology remittance to our retailers and the brand partners. Let's start with JDTJ's expanded and strengthened efforts to empower the tailors. In the supermarket category, in terms of our cooperation with top supermarket chains, We recently signed new partners such as Benjoo, Chinese and now established partnerships with our 19 of the top 100 Supermarket Challenge in China. In addition, we continue to expand the cooperation with leading convenient store trends. These stores from top brands such as Neeja, Lawson and Food recently launched on our platform.

Speaker 2

We will be able to meet consumers' needs across more diversified shopping centers. Knowledge in supermarkets methanizes trends and our consumer insights. We continue to launch Juvadis campaigns to drive sales. In March, together with our supermarket partners, we launched the weekend 1 Send Shopping campaign. The campaign is designed to boost our user advantage of JDDGS' attractively priced product offering through targeted promotion of specific SKUs.

Speaker 2

The units have significantly improved and attained sales and user engagement levels. For example, at the end of March, JDDGFibrated with 19 Supermarket Chance to Launch the One Stand Fresh Meat campaign in Beijing. During the event, GMV of fresh milk products in Beijing increased by more than 60 year on year, more than 30 percentage points higher than the overall GMV growth rating in Beijing. In addition, the 7 day period purchase rate of participating consumers was 7 percentage points higher than that of the citywide user base. We also made further progress in the consumer electronics and home appliance category.

Speaker 2

In the Computer and Exelis Select Lease subcategory, We recently partnered with smart menu device brands such as Xueqiancai and Weibo's employees. In the Q1, GMV from computer and accelerates' returns increased by nearly 200 year on year. In the home appliance sector, we signed up leading home appliance brands such as Haier and the Midyear to onboard and promote their offline stores on JDTJ, offering customers differentiated product selection and the convenient one stop deliver and installation services. In the Q1, GMV from home appliance trends grew by nearly 200 year on year. In the apparel category, we have successfully expanded into the infant and children's apparel segment and recently partnered with leading brands such as Yinsue and Bala Bala.

Speaker 2

In the Q1, GME of the apparel category increased nearly 6th quarter year on year. In the home and the furniture category, we achieved breakthroughs in segments, including 19 Hardware SSDs and Sapphire. For example, we recently established partnerships with Oppo, Floor and Cheers. In the Q1, GMV for Hong and furniture and machines increased nearly 4 fold year on year. Let's move on to JDDJ's efforts to empower plants.

Speaker 2

We continue to penetrate various FMCG segments, helping brands increase their sales through auto oil channels. Fulan just flew to recently signed partnerships with confectionery brands such as Joc Day, baby brands such as Adopt Air Co and personal care brands such as adult. Next, I will touch on our first to involve both the TELUS and the brands through technology innovation and the digital transformation. Firstly, on HIBOR, our omni channel auto operating system for the panels. Our high voice system just crossed 10,000 milestone in number of stores deployed in the Q1.

Speaker 2

We successfully expanded HIBOR services to commodities retailers with further penetrating categories such as supermarkets, convenient stores and mom and baby stores. We also continued to upgrade the high bus features to help merchants improve auto operating efficiency. For example, we introduced the automatic product launch function to high growth operation model to help our partners onboard the new products more efficiently. Merchants that tested this new model was able to list the new products more than 80 faster. Moving next to data picking, digitized and installed picking services for the panels.

Speaker 2

We continue to strengthen our cooperation with leading supermarkets such as Walmart and Sunflash to meet their labor needs in flexible and cost efficient manner. I will now turn to TADA now, China's leading local on demand delivery platform. For business progress, let's start with our KA or Chairman Chen's business. Despite the impact of COVID outbreaks in January, this deal managed to optimize our services quality and sales performance made increased by 3 percentage points year on year in the Q1. In the supermarket care facility, we continued to work closely with partners such as Walmart and Sam's Club.

Speaker 2

We also set up new partnerships with supermarket chains such as RB, Industrial and Bail Energy Care Capri. Our revenue increased by more than 40 year on year, among which revenues from beverage changed more than double year on year over year. We continue to provide a dedicated support to beverage case such as Martin Coffee and IT and set up new set up our other beverage brands such as Yixi Pincheng and Baoyang Ta Ji. In our SME and C2C business, thanks to enriched product offerings for SMEs and expanded C2C order sources, the number of orders fulfilled increased by more than 40 year on year in the Q1. Meanwhile, our UEE continued to improve significantly, driven by our refined pricing strategy and improved our dispatching efficiency.

Speaker 2

Moving on to our last mile services. We continue to leverage our flexible crowdsourcing network to provide a steady support to JD Logistics by supplementing its own delivery fleet. During the Chinese New Year Shopping Festival, we saw a significant year on year increase in our holiday ready orders for further for JD Logistics.

Speaker 3

Lastly,

Speaker 2

an update on DataNow's autonomous dealer services. We continued to maintain our leading position in autonomous dealer for supermarkets. As of the end of March 2020, Tata Lau's autonomous delivery open platform had prepared more than 100,000 on demand to deliver orders for supermarkets. That caused our operational updates for the 2 platforms. Zalapar, we continue to make steady progress in terms of both top line revenue and growth and the quarter line improvement during the Q1.

Speaker 2

We have brought up significant momentum to start the year based on our enriched product offerings. Dependent penetration in key categories and improved user experience. We will leverage our strong partnerships with the antennas and the brands, our flexible LIDAR network and dependent alliance with jd.com to capitalize on new opportunities in the quarters to come. I will now pass the call over to back to go through our financial results for this quarter. Thank you.

Speaker 4

Thanks, Jay. Before we go over the numbers, just a few housekeeping items in advance. We believe year over year comparisons are the most useful ways to judge our performance. Therefore, all percentage changes I'm going to give will be on year over year basis. All figures are in renminbi and that's otherwise noted.

Speaker 4

The total net revenues in the Q1 increased by 27% to RMB2.6 billion. Net revenue from datannow increased by 20% to RMB749 million, mainly driven by the increases in order volume of intercity delivery service to chain merchants. Net revenues from JDDJ increased by 30% to RMB1.8 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 RMB1.4 billion, the increase was primarily due to an increase in rider cost as a result of increasing order volume for interested delivery services provided to various chain merchants.

Speaker 4

Selling and marketing expenses were RMB1.3 billion. The increase was primarily due to the growing absolute dollar amount of incentives to JDDJ consumers and the amortization of the Binet Corporation Agreement arising from share subscription transaction with jd.com in February 2022. G and A expenses decreased to RMB79 1,000,000 as a result of our expense control measures and the decrease to share based compensation expenses. R and D expenses decreased to RMB129 1,000,000 mainly due to lowered R and D personnel costs as we enhanced operating efficiency. Our non GAAP net loss attributable to ordinary shareholders of Ada was RMB182 1,000,000.

Speaker 4

Our non GAAP net loss margin was 7.1%, improving by 17 percentage points year over year. As of March 31, 2023, the company had RMB3.7 billion in cash, cash equivalents, restricted cash and short term investments. In terms of the outlook, for the Q2 of 2023, we expect total revenue to be between RMB2.8 billion and RMB3 1,000,000,000, representing a year over year growth rate of 23% to 32%. In addition, we expect non GAAP net margin in the Q2 of 2023 to continue to significantly improve and reach breakeven. This concludes our prepared remarks.

Speaker 4

Operator, we are now ready to begin the Q and A session. Thank you.

Operator

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

Speaker 3

Thank you. Thank you, Jeff, Beck and Caroline. So mainly two questions. One is on our JDDJ GMV growth. How should we think about that into the next few quarters?

Speaker 3

We are broadly in last year's kind of COVID situation reopening weaker macro, but we also have a kind of slightly lower base versus the initial very hyper growth pace until the Q1 2022. So how should we think about the GMV growth rate in the next few quarters? And then the second is, Becky, you just talked about reaching confident reaching breakeven. So how was the what was the direct margin in the Q1? And longer term, how should we think about either direct margin or the GMV profit potential GMV profit margin potential?

Speaker 3

Should I translate or if this English is fine?

Speaker 4

I think it's fine, Ronald. So thank you for the question. Let me just take that. Yes, let me just answer the two questions. So first, in regard to the GMV growth, you're right.

Speaker 4

So basically, everything right now in China is back to normal. So basically, everything is in order right now. But still, we are witnessing that the macro consumption demand is still taking time to recover. So we still keep the same expectation for the whole year. The GMV growth is like the second half of this year growth rate could be faster than the first half of this year because it still needs to take time to grow for the consumers' demand.

Speaker 4

And also for the Q2 for the 2nd question, so our growth our direct margin of JJ businesses, like in Q1, is growing by 140. It's on a year over year basis. And for this year, we think we can grow the direct margin level for the whole year base, like 180 bps on a year over year basis, so which makes us like to make it like 2.5% to 2.6% on an annual basis.

Speaker 3

Got it. Thank you.

Operator

Thank you. Your next question comes from Thomas Chong from Jefferies. Please go ahead.

Speaker 5

Thanks management for taking my question. My first question is about the cooperation with Baoying. Can management share the latest updates as well as our expectation for this year? And my second question is also relating to the JDDJ side. Can management comments about the GMV mix by product categories and the AOP outlook?

Speaker 5

And how should we think about the GMV growth for the full year if any comes? Thank you.

Speaker 4

Thomas, so let me Okay. So Thomas, I will answer the second question and I will leave the first question to Jeff. So regarding the numbers, so basically for our GM mix, so because of the seasonality, so our like supermarket category is growing on a Q on Q level compared to Q4. And also, our 3C category is decreasing on a Q on Q level. And we believe for the whole year base and also for the next few quarters, our 3C appliance and like all those 3C X3C categories will the category growth will be still will be growing faster and the mix will be more contributed by 3C categories on a year over year basis.

Speaker 4

Q1 is just a seasonality fact. And also for our overall AOV marketplace, average order value for Q1 is growing to further growing to RMB240 per order and our supermarket categories AOV is also growing on a year over year basis. And for the whole year base, we still maintain the same expectation as our last earnings call. So we expect that the AOV is to continue grow during this year. So Jeff?

Speaker 6

Regarding our cooperation with Douyin, as of the end of Q1, its food delivery business was still under trial in merely 3 cities and Dada Nao's market share has steadily increased. With regard to Daoin's strategy and the expansion plan for the food delivery business, we are not in the right position to unilaterally communicate with the market due to confidentiality. However, we are confident to say that, atana will be able to obtain a considerable market share among Zouyin's food delivery orders, given our strength in network coverage, service quality and cost effectiveness. Thank you.

Speaker 2

Thank you. Thank you so much.

Operator

Thank you. Your next question comes from Alicia Yap from Citigroup. Please go ahead.

Speaker 7

Thank you. I have two questions. The first question is related to the 2nd quarter revenue guidance. The low end of the guidance at 23% actually suggests 2Q top line growth will be decelerating from the 1st quarter level Because I remember management comment earlier that you expect revenue growth to be accelerating each quarter from the Q1 onwards. Is there any reasons that you prompted you to provide the low end of the guidance range?

Speaker 7

And then second question is on the sales and marketing spend. It seems to be slightly higher than what we expected. Is there any reasons on that? Is it related to consumer I mean, the subsidy that you have for JDDJ user or the competition is intensified? Thank you.

Speaker 4

Okay. So let me answer the question, Alicia. So thank you for the question. So first, yes, you're right. Basically, as we go into March April, the first reason is because we are monitoring the overall consumption, just like I mentioned in the previous question.

Speaker 4

So in the previous answer, so basically, we are monitoring the overall market growth marketplace growth, not only just us, but just offline, the omnichannel and also the pure online marketplace. And I believe you also got more information from other e commerce platform is that basically the market consumer demand is still taking time to be back. So that's why we could be more we just want to be more prudent on that. And also, compared to other companies, we just released earnings in early May. So basically, there is a big media promotion event in June.

Speaker 4

So basically, it still takes time for us. It's still not the project is still not kicking off for the June mid year campaign. So we will watch for the midyear campaign whether or not it could be still inconsistent with our expectations. So for the second question, so basically, for Q1, we still spent some money, but basically, we have overall target for the like the non GAAP net loss optimization on a year over year basis. So we may spend some money in sales and marketing expenses during Q1, but still we have well controlled other expenses, including all those back end expenses.

Speaker 4

So we reached the targets, just like we mentioned. And for the Q2 this year, we will still keep our like rhythm and continue to decrease our rider cost and subsidies given on the marketplace and to reach our goal, which is breakeven during the second quarter, and we are confident that we can realize the breakeven target for during the Q2.

Operator

Thank you. Your next question comes from Wei Jiang from UBS. Please go ahead.

Speaker 8

Thank you, management, for taking my questions. I have two questions. The first is, given that we've seen good recovery in the off line traffic, just wondering would that have any impact on the consumer demand for the O2O retail or to the supermarket category products? Or that wouldn't be a major consideration when we judge the JDDJ growth rates for the next few quarters? And second is, when we talk about the improvement in the direct margin, just wondering what will be the contribution from the subsidy ratio as well as the rider cost?

Speaker 8

And also considering the continued improvement in the subsidy ratio, how should we think about the sales marketing expense ratio for the next few quarters, especially as we are turning profitable in the near term? Thank you.

Speaker 4

Okay. So thanks for the question, Shu Wei. So I will answer the second question, and I believe Jade will answer the first question. So for the second question, so for the direct margin, actually for Q1, we have our manufacturing rate growing by 20 bps on year over year basis. And like we for the consumer incentives, we save like 80 bps.

Speaker 4

And for the operation and the rider cost, we save 40 bps on year over year basis. And for the whole year, we believe, 1st of all, we are expecting some growth for the monetization rate on a year over year basis. In the same time, we will save still we will save like 90 to 100 bps for the consumer incentives on a year over year basis. And also, we may have like a 30 sorry, 60 bps saving for the operation and the supporting costs, which includes mainly includes the rider costs. And in the same time, for sales and the marketing expenses, we expect the sales and the marketing expenses, the dollar amount of this expense could be growing like very single digit on a year over year basis on non GAAP basis.

Speaker 4

And so the expenses as percentage of revenues will be decreasing to lower than 40% of revenue as a percentage of revenue. The comparison number for 2022 is 47% as a percentage of revenue. So this is our current expectation for sales and marketing expenses. We don't think this is a major issue for us to have this expense item to be well controlled.

Speaker 6

So let me share with you our observations on the macro front. So the macro economy and overall consumption are in the gradual process of recovering. And according to data from the National Bureau of Statistics, growth of total retail sales in March accelerated notably from the 1st 2 months of the year, among which consumption for services including catering, entertainment and travel grew faster than the consumption for physical merchandise. This was mainly driven by the release of pent up demand during the pandemic. And among the consumption of physical merchandise, there is some imbalance or unevenness in terms of categories with discretionary items including apparel and cosmetics outpacing non discretionary categories such as food and beverage.

Speaker 6

The consumption data from the May Day holiday last week also indicated a similar trend. Therefore, it might take some time before we see an all around recovery in the total consumption power. Looking at O2O demand in specific, longer term we believe the consumption of consumer migration towards tracking channels with faster fulfillment is a secular and certain trend. Therefore, we firmly believe that OTOO penetration among retail sales can reach a double digit percentage in the future, supported by the growing adoption on the consumer side and further digitalization of local merchants on the supply side. You just mentioned the recovery of offline food traffic to supermarkets.

Speaker 6

This inevitably has some impact to the O2O sales of the supermarket category. For us, compared with fresh grocery e commerce marketplaces, because we have richer product selection and broader merchandise categories. So the impact on us is more muted.

Speaker 2

Okay. Thank you for your question.

Speaker 4

Yes. And I just want to mention that, Xun Wei. So it's not it's a dynamic transition and it's dynamic situation instead of a static or muted situation. So simultaneously, just like I mentioned before, we are doing some work to continue to decrease the subsidies on a year over year basis, which is like expect to save 90 bps to 100 bps for consumer incentives on a year over year basis, which means that most of those subsidies will be saved through the consumer like the supermarket category because we usually just lost money in this category, so which means that we are still very proactively to execute on track to reach breakeven for the for JDDJ and also for the whole company level, so which is just not a very apple to apple basis comparison.

Operator

Thank you. Your next question comes from Zhu Li from CICC. Please go ahead.

Speaker 7

In the Q1 of 2023, we found that the revenue growth of that amount has slowed down. Excluding KA and SME business mentioned before, what is the growth rate of last mile delivery service and what is your expected growth rate of each business line in the whole year?

Speaker 4

Okay. So for last mile of initiatives in Q1 is still growing very rigorously, so very quick because still we for the Chinese New Year campaign and also like during January February, the last mile order is abundant and also we will of course, we are mainly providing crowdsourcing resources. So when especially during January, the riders are usually getting affected by COVID for the JBL riders. So we will get sufficient orders from the network. And in Q2, because last year, we have relatively a high base in Q2, Last year, a lot of places like Xinjiang, like the old Northeast region and also like the East China region, especially Shanghai, those regions are in lockdown.

Speaker 4

So usually, last year, it's a high base for our last mile benefit. So for this year, in Q2, we expect like flat growth on a year over year basis. So for the overall, like the data now business growth, we still expect that the growth rate will be higher than last year with not any like large contribution from Douyin. It could be another like potential other resources.

Speaker 6

I'll add some color on the cost and margin front. Since February this year, the overall labor supply and flexible employment segment has been favorable and our rider supply has been sufficient. In Q1, the average daily active riders grew by about 40% year over year. The fast order volume growth coupled with sufficient rider supply drove our unit delivery cost to decrease on a like for like basis. And we expect the delivery cost to continue to go down year over year, which will serve as an important contributing factor to the margin improvement of the whole group.

Speaker 6

Thank you.

Speaker 4

Thank you.

Operator

Your next question comes from Wei Fang from Mizuho. Please go ahead.

Speaker 9

So our recent check shows that in the JPY10 1,000,000,000 campaign entry point, we don't see any JDDJ inventory, right? Can management comment on that, right, whether JD's traffic allocation to that JPY10 billion specific campaign is as expensive to JDDJ, right? Or are we working on the back end and to eventually join the program? Thank you.

Speaker 6

Thank you for your question. In the recent two months, we have been cooperating with JD's R and D and operational teams to upgrade the RMB10 1,000,000,000 subsidy program, including rolling out location based price comparisons of Shop Now products to pave the way for Shop Now products to launch in the RMB 10,000,000,000 RMB subsidy channel in the future. Leveraging our retailer partners' strength in the supply chain, ShopNow is expected to participate in the 10,000,000,000 subsidy program soon to gain additional traffic exposure on the JD app. And in terms of categories, we will focus on the consumer electronics and large ticket size FMCG products. Since the main sources of traffic for the Shop Now is from the search results and the nearby tab, the impact of the RMB10 billion subsidy campaign on us is limited.

Operator

There are no further questions at this time. I'll now hand back to Ms. Dong for any 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

Thank you. That does conclude our conference

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