Dada Nexus Q2 2023 Earnings Call Transcript

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August 15, 2023

There are 11 speakers on the call.

Operator

Good morning, ladies and gentlemen, and thank you for standing by for Dada's Second Quarter 2023 Earnings Conference Call. At this time, all participants are in 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 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 Q2 2023 earnings conference call. On the call today from data, we have Mr. Jeff He, President and Mr. Jack Chen, CFO.

Speaker 1

Mr. Hu will talk about our operations and the company highlights. Then Mr. Chen will discuss the financials and guidance. Please kindly note that during the Q and A session, Jack will answer questions in Chinese and the consecutive translation will be provided.

Speaker 1

In case of any discrepancy between the original remarks and the translated version, statements in the original remarks should preface. Before we begin, I would like to remind you that this conference call contains forward looking statements. Please refer to our latest Safe Harbor statement in the earnings press list on our IR website, which applies to this call. Also, during this call, we will discuss SunTun's 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.

Speaker 1

Finally, please note that, unlike otherwise stated, all figures mentioned during this conference call are in RMB. It is now my pleasure to introduce our President, Mr. He. Jack, please go ahead.

Speaker 2

Thank you, Karen, and thank you all for joining us today. During the Q2 of 2023, Baader Group continued to produce strong revenue growth with significantly enhancing our operational efficiency. Our total net revenues increased by 23 year over year. We also achieved an important milestone in this quarter by recording our first ever positive adjusted net income. Thanks to more than 17 percentage points improvement in our adjusted net margin.

Speaker 2

I will begin today's presentation by discussing our cooperation with jd.com, followed by operational highlights from our 2 platforms. I will hand over to Beck, who will take you through our detailed financial results. Let's start with some updates on Tata's cooperation with jt.com. This change in our branding and values among jt.com users. We recently unified the discipline of our on demand retail services across all touch points on JD APP, as Xiaoxuda in Chinese and ShopNow.

Speaker 2

In particular, the nearby or Fujian tab was renamed Shaozouda, and the Shaozouda tag has been added to search results for products offered by our merchant partners. This unified plan identified emphasized our ability to deliver products within one hour. And we clearly significantly enhance our online share among JD users. At the same time, we also want to enhance JD Digi's offerings by attractive prices. We met with JD's Everyday Lower Price Strategy.

Speaker 2

During this quarter, we utilized the price based star rating tool and worked with merchants to further improve the price compared with our Xiaoxiao products. So far, we have achieved 10 percentage point increase in the proportion of high star products was March. For the XiaoxiDa tab, which was previously known as nearby or Fujim tab, GME more than quarter to quarter year on year. This impressive growth was driven by exposure and the click through optimization, which helped the Xiaoxi data adopt its DAU collaborations with TELUS to enrich our product offerings during this quarter. JDTZ collaborated with more than 300,000 annual active retail stores at the end of June 2023.

Speaker 2

In the ship budget capital, based on the list of top 100 supermarkets channels in China released by CCFA in June. We now have established partnerships with 92 out of the top 100 supermarket chains. In June, together with supermarket merchants, JDDJ launched the deliver free web app campaign in 10 key cities to improve our user experience. In the campaign, these cities saw a 34 percentage point higher user growth rate and 2 percentage point higher 15 day repeat purchase rate than other cities. Given the encouraging result, we have now low out delivery with the benefit to major shipper market potential across the country.

Speaker 2

We have always focused on helping machines achieve better efficiency through platform tools, such as our long lasting machine specific membership features, So there are no chance to attract and manage their own members online. The function notably increased the sales efficiency. This order to lessen data of members more than 20 percentage points higher than that of non members. Among my chance, I have adopted their membership tool. Members already contributed 60% of their total GMV in June.

Speaker 2

In addition to large supermarket chains, we have also made a remote Swiss major convenient store tents. We further strengthened our collaboration with JV convenient Store. We are forming new partnerships with New Smile and other leading channels. Total GMV generated by convenient store grew by nearby 3 times year on year in the Q2. We also made good progress in consumer electronics category during the quarter.

Speaker 2

In the smartphone subcategory, driven by faster delivery on top of active pricing in the Q2. The GMV of our Apple products on our platform grew steadily, while Android brands such as Xiaomi continued to see GMV grow several times on a year on year basis. In the computer and the accelerated subcategory, GM increased by more than 70 year on year. And the brands such as Xiaokentai, Kuda Xunsui and Ba Jiang all achieved significant growth. Moving next to the home appliance and finishing category, which lapping out quickly.

Speaker 2

The home appliance category maintained the left to close nearly double GMV year on year. We continue to enrich our offerings of air conditioners and other major home appliances. And they established partnerships with kitchen appliance brands such as Funtank. The home furnishing subject category also grew rapidly with GMV increasing more than 4 fold year on year. In particular, we are seeing significant growth in the sales of electronic lock products.

Speaker 2

Thanks to the wide range of machines on our platform and our ability to offer high quality deliver and administration services within 4 hours. In addition, we set up new partnerships with sanitary fixture brands such as Kure and the whole textile brands such as Huayna. We also continued to expand our offerings in liquid category, onboarding more than 5,000 new stores during this quarter. As a result, GMV increased more than 4 times year on year. Next, let's move on to JD Davis efforts to expand and deepen cooperation with brands.

Speaker 2

In the end quarter, we embarked on new partnerships with rice and cooking all your brands such as Xiaodao Tian and the mom and the baby brands such as DaWang Xinyaku. We currently have auto market partners with about 300 leading domestic and international brands. In terms of branding campaigns, we continue to deepen collaboration with brands to promote omni channel O2O marketing. We have brands with users through multiple channels, both on and off JD J. For example, in early May, we collaborated with Jivea to launch the brand on Tempeus compared to promoting new products, which drive more than 70 percent month on month increase in JV's sales on JV TJ.

Speaker 2

In addition, through the cooperation with jtd.com, we have further optimized the process by which we cooperate with brands on exchanging and what tightened the source. At present, we have conducted the sourcing exchange with more than 20 plants including Wangfu, Shanqian, Yuanqi, Next, I'd like to talk about our efforts to empower both the TELUS and the brand's new technology innovation. As of the end of June, HIBOR, our omni channel outdoor operating system for the TELUS has been deployed in about 11 South across more than 300 retailer chains. In the second quarter, we launched a consumer, we built a system that function in the hybrid system, which enables the chance to automatically reply to consumer reviews across multiple channels and provides enormous review tracking, coordinating monitoring and other functions. These capabilities empower the chance to provide efficient customer services and improve our user experience.

Speaker 2

Machines using this feature can generate automated replies to our positive and negative reviews, which gain 60 higher efficiency at handling less favorable ones. Hibo also began to explore progression with brands. We recently launched a series of brand promotion tour on the Hibo system to help brands conduct marketing and promotions on Natchez's own sales channels, thereby helping branding improve exposure and connection. I will now turn to Dabao, China's leading local on demand delivery platform. In the Q2, Datamal continued to provide a massive amount of flexible working opportunities.

Speaker 2

This quarter, the active riders increased by over 30 year over year. In terms of business progress, let's start with our K or Chen Machans Business. In the Q2, our revenue flow on demanded dealer services to K Machans increased by more than 20 year on year. Thanks to increased our further density and sufficient data suppliers. Our average gross profit per order improved significantly to RMB0.50.

Speaker 2

Meanwhile, our fulfillment rate increased to 98%. Thanks to our optimized lighter fleet structure and refined operations. In the supermarket category, money increased nearly 20 year on year. We recently established a new partnership with FreshCo for Homa and after a supermarket change. In the Faroe's K category, we continue to increase the penetration in our partner, Nutranext store.

Speaker 2

For the 20 consecutive quarter, we maintained a year on year market growth of more than 100. We also recently formed a new partnership with Star Ridge Trends. Regarding our co operations with the Yun Local Life Services, We continue to actively support the nationwide rollout of Bayin's food brewer business by providing cost efficiency and reliable on demand delivery services across the nation. Moving to our SME and the C2C business. The number of SME and the C2C areas fulfilled in the Q2 increased by 50 year on year.

Speaker 2

This growth was driven by our continued penetration into low tier cities and our expansion into additional traffic acquisition channels and businesses matters. Lastly, an update on our Mastermind sources. In the Q2, we maintained a steady growth in the number of preferred orders despite the higher base in the year ago period. That caused our operational updates for the 2 platforms to wrap up. We continue to post the strong financial results highlighted by our 1st forward positive adjustment net income.

Speaker 2

At the same time, we stay committed to drive the digitalization of the pillars and the brands, being great on demand shopping experience to consumers and providing flexible employment opportunities to riders. We will seek to build on this momentum in the quarter ahead as we work to create a substantial value for our shareholders. I will now pass the call to Doug to go through our financials. Thank you. Thanks,

Speaker 3

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 year over year basis, and all figures are in renminbi unless otherwise noted. Our total net revenue in the 2nd quarter increased by 23% to RMB2.8 billion.

Speaker 3

Net revenues from data now increased by 20% to RMB980 million mainly driven by the increases in order volume of intra city delivery service to chain merchants. Net revenues from ADDJ increased by 25% to RMB1.8 million, mainly due to the increase in GMV, The increase in online marketing service revenue as a result of the increase in promotional activities also contributed to the revenue growth of JDDJ. Moving over to the expenses side. Operations and support costs were RMB1.7 billion. 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.

Speaker 3

Selling and marketing expenses decreased to RMB1.1 billion, primarily due to a decrease in advertising and marketing expenses and a decrease in incentives to JDDJ consumers. G and A expenses decreased to RMB56 1,000,000 as a result of our expense control measures and the decreased share based compensation expenses. R and D expenses decreased to RMB102 1,000,000 mainly due to the lower R and D personnel costs as we enhanced operating efficiency. Our non GAAP net income attributable to ordinary shareholders of data was RMB8 1,000,000, marking the 1st quarter in our operating history to turn profitable. Non GAAP net margin was 0.3%, improving by more than 17 percentage points year over year.

Speaker 3

As of June 30, 2023, we had RMB3.9 billion in cash, cash equivalents, restricted cash and short term investments. In terms of the outlook for the Q3 of 2023, we expect total revenue to be between RMB2.8 billion and RMB3.0 billion, representing a year over year growth rate of 18% to 26%. This concludes our prepared remarks. And 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 4

Thank you, management, and congratulation on the EBIT turnaround quarter. I want to ask about 2 questions. 1 is cooperation with JD. Just both of those, how do we see our 3rd quarter growth outlook accompanied with your revenue guidance? What's the underlying GMV expectations and into just broadly second half in this current macro environment?

Speaker 4

And then second, we wonder if the unit economics turnaround, how much of those were contributed from lower rider cost? And so can you share how rider costs have been and have some of our views on that and the outlook as well? Thank you.

Speaker 3

Yes. Thanks for the question, Ronald. So before Jeff, I may just review some financial numbers and Jeff can answer the Marco question. So about the second question, yes, we are seeing the year over year rider cost decline because the number one factor is we have optimized our acquisition. Number 2 is we have very robust growth, like for the number of orders delivered for our data now platform.

Speaker 3

Number 3 is just like Jeff mentioned in the earlier prepared remarks, our in Q2, our quarterly active riders is growing by 30% year over year. So the rider supply is sufficient and we believe which will help us to further optimize the rider cost. And about the GMV, we believe that for the reporting GMV metrics, for the second half of this year, we are expecting like more than still expecting more than 20% year over year growth in the second half. I'll leave it to Jeff for the macro question.

Speaker 2

Okay.

Speaker 5

Thank you, Ronald. In terms of macro, the economy and consumption was in modest recovery in the first half of this year, and we expect uncertainties and consumption recovery in the second half. In addition, we're pleased to see new policies and measures that are supportive of private sector growth and investment. Hopefully, the gradual restoration of private corporate confidence and the high quality development of the private economy will lead to more job creation and sustained consumer income growth, which will contribute to the further unleash of consumption power. We will remain patient in further enriching our offerings and optimizing our user experience, which we firmly believe will bear fruit in the long run.

Speaker 5

In terms of O2O demand, there is some imbalance in the pace of recovery between different types of consumption. The strong rebound in service consumption in the first half has affected the demand for physical goods to some extent and OTO is no exception. Heading into the summer, we've seen extraordinarily strong travel demand and in an environment where the overall consumer confidence has yet to fully recover, that may take some more share from physical goods consumption. That said, consumer migration towards more convenient and efficient shopping is a secular trend. We are convinced that as consumer demand continues to evolve and more local supplies become available online, the O2O penetration rate will further trend up to double digits.

Speaker 5

From our perspective, in Q2, JDBC recorded over 20% GMV growth year over year despite a relatively high base in the year ago period and continuous optimization in our subsidy ratio. And in terms of our collaboration with jd.com, since we depend on partnership, Xiaoxedao has become our primary user acquisition channel. Currently, the penetration among JD users has steadily rose to mid to high single digits. We will increase our acquisition and retention efficiency through enriching supply of attractively priced products, waiving delivery fees in July and so far in August, we've seen better user retention.

Operator

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

Speaker 6

Thanks management for taking my questions. My question and congratulations on reaching profitability in the second I have two questions. My first question is about the tick rate trend as well as the direct margin outlook in the second half. What are the growth drivers? And how should we think about the momentum for online advertising in the second half of the year?

Speaker 6

And my next question is about JDDJ product mix. Can management share about the product mix in Q2 as well as the trend in the coming quarters as well as the AOC for the year? Thank you.

Speaker 3

Thank you, Thomas. Let me answer the financial question. So in terms of the take rate and direct margin of JD DJ in Q2, the take rate is 9.9% and the direct margin is 1.8% as a percentage of GMV. And for the outlook for the second half of this year, we expect that the overall monetization rate will still maintain stable and grow healthy and we are still targeting to grow our EBIT margin level above like 2% to 3% and for the second half of this year. And the main growth driver for the take rate will be still driven by the online marketing services provided to brand partners, while maybe some of it will be more prudent on that, but still we will keep to grow this part as the main driver for our optimization of the gross margin level.

Speaker 3

In terms of the product mix, so for Q2, our overall exclusive market contribution is 45% of the GMV. And just like Jeff mentioned in the earlier prepared remarks, our different other telecom merchandise categories like smartphone categories, computer and accessories categories, home and home furnishing categories, home appliance categories, liquor categories. So all those categories is growing by several times on a year over year basis. So we expect for the second half of this year, all these new categories could contribute more to overall GMV and GMV mix. So in terms of the average order value metric, so So for the second half, let me see, the overall AOV of the platform is RMB260.

Speaker 3

So we are still targeting to maintain the overall marketplace AOV and maybe still will grow the AOV for the second half. But in terms of the supermarket categories, it's like RMB190. So maybe there will be some, for example, like preferential iterate fee waiver to some of the customers. So for the second half, we expect that the AOV of supermarket will be at least stable on a Q on Q level.

Operator

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

Speaker 7

So my question is to follow-up on the category demand shift. Obviously, the non FMCG has been growing very well. Can management give a little bit more color in terms of the behavior shift, especially I think management mentioned about the big appliance seems to be one of the important driver. If you can share about the percentage of GMV coming out from the big appliance, home appliance specifically? And then second question is on the online advertising, given the macro continue to remain weak, what are the brand willingness in terms of their ad budget spend on our platform?

Speaker 7

Thank you.

Speaker 5

Thank you for your question. In terms of the category mix of consumer electronics and home appliances, we believe the contribution will further go up in the second half. The growth driver for the consumer electronics category will be the brands will introduce several new models in the second half, including from Xiaomi, Huawei and Apple. And in terms of major home appliances, the GMV for this category will remain on the fast growth trajectory, driven by our further enriched product supply and the service of integrated delivery and installation. However, the mix of major home appliances and our total GMV is only in the single digit.

Speaker 5

And to answer the second question about the online marketing services revenue, in the Q2, our commission and online marketing services revenue combined grew by over 30% year over year, mainly driven by the growth in online marketing. You asked about brand potentially cutting their ad budgets in the macro environment. However, we are seeing that our revenue from brands are increasing since OXO has become the fastest growing sales channel in China for more and more brands. So they are allocating more ad dollars on our platform. And another driver for our online marketing services revenue is the increase in our advertiser base.

Speaker 5

We are now collaborating with about 300 brands in Ojio Online Marketing. And in addition, the revenue growth driver for our online marketing

Speaker 2

services is

Speaker 5

our capability to innovate our products and the technology and marketing on top of sales growth. In Q3, we will launch key ad products, which will further drive our ad revenue growth. And in the testing period, we are seeing very encouraging results from the new products. Thank you.

Operator

Thank you. Your next question comes from Li Zhang from Bank of America Securities. Please go

Speaker 8

ahead. Thanks management for taking my question. Congrats on profit breakeven. And follow this, can you share with us the second half of full year's margin trend? Secondly, I want to have some updates on our cooperation with JD Group.

Speaker 8

Any new initiative you can share? And if I may, may I follow-up on the GMV contribution from JD across different channels? Thank you.

Speaker 3

Okay. Thank you for the question, Lee. So the first question, so for the second half of this year, we will still balance the growth rate of our top line, especially the growth rate of JDDJ despite of the right now the current macro outlook in China. So we have balanced the growth rate and the improvement of the profitability of the bottom line. So and this is just the Q1 for us to breakeven.

Speaker 3

So, of course, we don't expect it to grow the bottom line profitability and margin very quickly in a very short term, especially under the current macroeconomic outlook. So we still will grow steadily and grow the bottom line in a healthy way, and we will also balance the top line growth because if you don't have any top line growth, your profitability in the long term will be also negatively impacted. And for the second question, so I'll leave you a chance for the cooperation with JD.

Speaker 2

So

Speaker 5

we just touched a little bit upon our cooperation with xiei. Com just now that I'll summarize a few key initiatives. First, we unified our brand identity under Xiaoxi Da and we've seen an improvement in user conversion. For instance, the conversion rate in the Xiaoxi Dao tab is now 20% higher after we changed the name to Xiaoxida from city names. Secondly, we improved the price competitiveness of our Xiaoxiao products by leveraging our price based store rating system.

Speaker 5

As of the end of Q2, the number of high star products or the products with high competitiveness in pricing grew 8 fold sequentially and the average exposure per item increased by more than 10%. And in terms of data now, we've strengthened our partnership with different business groups across JD Group to provide on demand delivery services in multiple shopping scenarios in the daily ecosystem. For example, we recently again, working with the front end warehouse business unit and we are providing the on demand delivery service for all of its orders and we've seen an increase in JD's contribution in Gaikano's order volume. A stable source of orders is very beneficial to our business stability and profit as well as long term development. Thank you for the question.

Speaker 3

And the GMV contribution from JD in Q2 is the 67% and we are expecting the penetration from JD will be further enhanced in the second half.

Operator

Thank you. Your next question comes from Andre Cheng from JPMorgan. Please go ahead.

Speaker 9

Let me translate my question here. So with all the questions on cooperation with JD Group, I'd like to ask a question about other customers, namely Douyin. Douyin's food delivery business seems to so far made limited progress. However, the Douyin Group's Baidan's Group are trying to adjust their strategy recently according to the news. I wonder if the management can provide us with some updates about the cooperation as well as the outlook here?

Speaker 9

Thank you.

Speaker 5

Thank you for your question. Baoin recently launched its food delivery service in more cities and we have actively supported its geographic expansion. However, the business is still in the early days with limited number of merchants on board. Therefore, the incremental orders is not significant yet to our PayA business. And to our knowledge, Billing's contribution to our peers is similarly substantial

Speaker 2

now.

Speaker 5

Unlike certain peers, we are pursuing profitable auto volume growth on the growing platform. Thanks to our edge and cost efficiency, service quality and network coverage, we are highly confident in gaining a meaningful market share on Zixin in the longer term. Our data now business not only fulfills store in food delivery orders, but also the 1 hour delivery orders offering store in e commerce segment. And similarly, the contribution from the business e commerce segment is not significant to our business.

Operator

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

Speaker 10

Thank you, management, for taking my questions. Just two follow ups. First is on the longer term margin trend. How should we think about the margin expansion pace in the next few years? And if we look at JDDJ and DynaNow separately, how should we think about the margin trend for each of the segments and their contribution to the longer term margin improvement?

Speaker 10

And second, just very quickly, how should we think about the revenue outlook for data now in the second half? Thank you.

Speaker 3

Okay. Thanks for the question, Sheng Wei. So for the long term margin outlook, we actually, we didn't change the long term margin outlook. So separately, JD DJ is local version of e commerce marketplace. So like as a percentage of GMV, we believe that the long term margin should be 3% of the GMV net operating margin and also for the analog businesses, so for example, like the chamber chains delivery businesses, in Q2, our unit economics is about RMB0.50 after tax.

Speaker 3

So generally, the gross margin is above after tax is above 5%. So we still expect it to grow the gross margin at least like 2% to 10% in a 3 year timeframe. And we believe that as compared to other express and logistic companies, we believe it's totally achievable. And in terms of the data now, second half growth outlook, we are confident that they will keep to grow above at least above 20% on a year over year basis. Thank you.

Speaker 5

Thank you, management.

Operator

Thank you. There are no further questions at this time. I'll now hand 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

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

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