Dada Nexus Q1 2024 Earnings Call Transcript

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Provided by Quartr
May 15, 2024

There are 5 speakers on the call.

Operator

Good morning, ladies and gentlemen, and thank you for standing by for Donna's First Quarter 2024 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 Q1 2024 Earnings Conference Call. On the call today from data, we have Mr. Bin Fu, Interim President and Mr. Harry G.

Speaker 1

Mao, CFO. Mr. Fu will talk about our operations and company highlights, then Mr. Mao will discuss the financials. They will both be available to answer your questions during the Q and A session.

Speaker 1

Please kindly note that Mr. Fu will give his remarks and other 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 prevail. 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.

Speaker 1

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 this conference call are in RMB. It is now my pleasure to introduce our Interim President, Mr. Fu.

Speaker 1

Mr. Fu, please go ahead.

Speaker 2

Thank you, Caroline, and thank you all for joining us. I believe it is coming to your attention that we recently launched a brand upgrade. Our on demand retail service has been rebranded as JD Now, delivering quality goods at top notch speed. Partnering with over 500,000 brick and mortar stores, JD Now provides on demand shopping clearance to consumers in more than 2,300 cities and counties. Our various consumer touch points of the former Xiaoxiao or Shopify service on the JD app has all been renamed, including the parallel tab at the top of the homepage and text of search results.

Speaker 2

In addition, there will soon be a new JD Now section on the homepage of the JD app, enabling products and merchants on our platform to gain incremental exposure. Today, we'll also kick off a series of consumer facing awareness campaigns to enhance consumer mindshare of the JD Now brand. Along with the introduction of our new brand, we've entered a new chapter with a focus on building a sustainable ecosystem. Heading into 2024, we've decided to further strengthen our commitment to customer experience and focus on healthy growth to deliver sustainable long term development. In the Q1 of 2024, our total net revenues were RMB2.5 billion.

Speaker 2

In particular, revenue from Zagunau increased by 57% year on year to RMB1.2 billion, accelerating to the highest growth rate in the past 8 quarters. For JD Now, we noticed a significant turnaround in our core operating metrics as our investments in the core business to uplift customer experience pay off. Now let's turn to the operating highlights for our 2 platforms, JD Now and GaN Now. Starting

Speaker 3

with JD Now.

Speaker 2

In the quarter, JD now focused on integrating into the JD dotcom ecosystem to drive growth on the JD app through entry points including the former Xiaoxiao Da service and the level 1 iCOM entry point on its homepage. Our efforts on the demand and supply side yielded encouraging results on our user experience and product offerings, driving up the penetration of on demand retail among JD users. On the demand side, we enhanced user experience with initiatives including a delivery fee waiver campaign for orders over RMB29 and better interface designs. In the Q1 of 2024, we reduced the we further reduced the free delivery threshold to RMB29 from RMB59 in cooperation with our merchant Thomas. By the end of March, nearly 80% of active stores on our platform were enrolled in the campaign, which has significantly improved our new user acquisition efficiency and user stickiness.

Speaker 2

Compared with pre campaign levels, the conversion rate of new users improved by 20%. The 7 day retention rate of new users rose by about 10% and the repeat purchase rate among existing users were up by nearly 30%. In the meantime, we continue to work on upgrading our platform features and interfaces to enable seamless shopping experience. For instance, we redesigned the page layout of the JD Now tab, adding more decision useful information and search results. The revamp helped improve the user conversion rate of both the JD Now tab and search result exposure in the Q1 by around 1 percentage points year on year.

Speaker 2

Driven by these initiatives, our penetration rate among JD users continued to rise. In the Q1, both our monthly transacting users and orders through the JD app recorded year on year growth rates of above 70% and with a significant acceleration of over 50 percentage points sequentially. What's more, we are encouraged to see these two metrics gain even stronger momentum, growing by more than 100% year on year in April. Meanwhile, our user stickiness is also improving. In March, the 30 day repurchase rate of consumers on the daily app increased by over 30% year on year, indicating stronger user mind share.

Speaker 2

As user experience improves and our user base grows, our GMV on the JD app grew by over 30% year on year, among which GMV generated by the JD Now tab more than tripled year on year. On the supply side, we focused on expanding store coverage and enhancing product competitiveness. To further increase the store density on our platform, we onboarded more high quality merchants across various verticals, such as liquor stores, hand appliance stores, fresh produce stores and flower shops. In the Q1, the number of our active stores on the JD app had increased by more than 80% from a year earlier. In an effort to be more competitive on prices, we are working with merchants to enhance the price competitiveness of JD Now products, leveraging the price based star rating pool, thereby increasing users' mind share of JD Now's price competitiveness.

Speaker 2

As of the end of March, the proportion of high star Jilinao products on the JD app increased by more than 6 percentage points from a year earlier. Now let's move on to business updates by category. In the convenience store category, GMV increased by more than 5 times year on year. In particular, we became more involved with top convenience store chains like Meiji, the number one convenience store chain by the number of stores in China. In the Q1, we onboarded more than 5,000 new convenience stores.

Speaker 2

Turning to consumer electronics. In the smartphone subcategory, GMV of Xiaomi among other mobile phone brands nearly doubled from a year earlier in the quarter. In the computer and accessories practically, we expanded our slate of offerings by adding more than 3,000 new stores and total GMV maintained rapid growth of nearly 40% year on year. Specifically GMV for Xiaogiancai, local watch phone brand and Hewlett Packard more than doubled year on year. Now I would like to move on to discuss the home appliance and home furnishing category.

Speaker 2

During the quarter, we launched new partnerships with smart home appliance brands, including Viomi, a leading IoT at home technology company in China and added more than 6,000 new stores onto our platform. As a result, in the Q1, GMV for Henley Blinds brand increased by nearly 150% from a year earlier, while GMV of home furnishing merchants increased by more than 40% on a year on year basis. In the liquor category, we continued to deepen our partnerships with leading alcohol retailers. In the Q1, GMV of the category nearly support year on

Speaker 3

year.

Speaker 2

For the apparel category, we made a greater inroads with sports and outdoor brands as demand for outdoor sports products boomed, driving GMV for the whole apparel category to more than double from a year earlier, among which some out store footwear and apparel brands like Campbell, a leading player in China, increased by more than 7 times year on year. This covers JD Now's efforts and the results on both demand and supply side. I would now like to turn to Ga Da Nao, leading local on demand delivery platform for merchants and individual centers across various industries and product categories. In the Q1 of 2024, net revenues from beta now reached RMB1.2 billion, and the year over year growth rate accelerated to 57%, reaching the highest rate in the past 8 quarters. In terms of business progress, let's start with our KA or chain merchants business.

Speaker 2

The net revenues maintained a solid momentum and continue to drive the overall revenue growth of the Dada Now segment with revenues in the restaurants and beverage KA categories growing even faster. We expanded into more restaurant KAs and made breakthroughs with top brands like Yum! China. In our SME and C2C business, the number of fulfilled SME and C2C orders grew steadily in the quarter, driven by further penetration into vertical markets, enhanced service quality and customer experience of high value orders and optimize pricing strategy. This concludes our operational update.

Speaker 2

To sum up, since the beginning of this year, we've conducted a comprehensive review of our various businesses, which is now nearly complete. Going forward, we will continue to focus on healthy growth by expanding our efforts to improve user experience, increase demand share of on demand retail and further exploit the synergies between the on demand retail business and the on demand delivery business. I'll now pass the call over to Henry to go through our financials. Thank you.

Speaker 3

Thank you, Mr. Fu. Before we go over numbers, just a few housekeeping items. We believe year over year comparisons are the most useful way to evaluate our performance. And as a result, all percentage change that I'm going to give will be on year over year basis and all figures are in RMB unless otherwise noted.

Speaker 3

Our total net revenues in the Q1 of 2024 was RMB2.5 billion. Net revenues from JD Now was RMB1.3 billion, meaning due to a decrease in online advertising and marketing service revenues and a decrease in fulfillment service revenues as a result of the full rollout of delivery fee Weibo program for orders exceeding RMB59 in August 23, which was further lowered to RMB29 starting in February 2024. Net revenues from data now increased by 57% to 1,200,000,000 mainly driven by an increase in order volume of interested delivery services provided to various chain merchants. Moving over to cost and expense side. Operations and support costs were RMB1.8 billion.

Speaker 3

The increase was primarily due to an increase in rider costs as a result of the increase in order volume for intra city delivery services provided to various chain merchants. Selling and marketing expenses decreased to RMB818 million, primarily due to a decrease in promotion activities conducted on the JD Now platform. General and administrative expenses decreased to RMB51 1,000,000 as a result of a decrease in the amortization of intangibles arising from the acquisition of JD Now in 2016. Research and development expenses decreased to RMB94 1,000,000, mainly attributable to a decrease in research and development personnel costs. Our non GAAP net loss for the Q1 of 2024 was RMB195 1,000,000 and the non GAAP net loss margin was 7.9%.

Speaker 3

As of March 31, 2024, we had RMB3.8 billion in cash, cash equivalents, restricted cash and short term investments. Pursuant to our US40 $1,000,000 share repurchase program announced in March 2024. As of April 30, 2024, we had repurchased approximately US8.4 million dollars of ADS under this repurchase program. This concludes our prepared remarks. Operator, we are now ready to begin the Q and A session.

Speaker 3

Thank you.

Operator

Thank Your first question comes from Thomas Chong with Jefferies.

Speaker 3

Thanks management for taking my question. My first question is about the business trend for JD Now and Data Now in 2024. And my second question is about the progress of JD Now on the JD app and synergy with JD going forward? Thank you.

Speaker 2

Thank you, Thomas. I'll take the first question first. For our on demand retail business, we've recently officially upgraded the brand to JD Now and then to bring quality goods to consumers at top notch speeds under our new brand identity and build a customer centric sustainable platform ecosystem. Given the tremendous potential of the on demand retail market, Zenixao's primary goal is to pursue high quality growth. Now I'd like to share some operating initiatives that we've taken, starting with our demand side efforts.

Speaker 2

We're strategically focusing on the JD app to help JD achieve a comprehensive upgrade and fulfillment timeliness. Within the JD app, in addition to our primary entry points, including the JD Now tab, search exposure and the level 1 icon entry point. We will soon launch the new JD Now section on the JD homepage. This also demonstrates substantial traffic support from JD.com, which underscores the strategic significance of on demand retail for JD. Secondly, we plan to enhance consumer interface and operational capabilities from exposure, conversion and repeat purchase to meet the diverse needs of JD users across multiple scenarios through enriched supplies and refined marketing initiatives.

Speaker 2

We're also making ongoing investments to enhance user experience, including further upgrades to our fulfillment services and the full rollout of the delivery fee waiver program. On the supply side, our aim is to improve supply in both bread and depth, while continuing to solidify our advantages in categories, including supermarkets and mobile service stores. We're also focusing on categories including liquor stores, small hand appliance stores and flower shops. At the same time, we are exploring new forms of supply. In addition, we are focusing on improving our supply capabilities from 5 aspects, namely coverage, pricing, inventory, content and service to onboard more active stores, boost the price competitiveness of our products, lower the stock cost ratio and enhance after sales service.

Speaker 2

In the Q1, these efforts made initial progress and entering into the second quarter, we've seen a strong momentum of further improvements in various operational metrics. In the first quarter, our average monthly transacting users and orders through the JD app grew by over 70% year on year, accelerating by about 50 percentage points from the growth rate of Q4 in 2023. In April of 2024, the GMV metrics further surged by over 100% year on year. Also in the Q1, our GMV through the JD app increased by 33% year on year, a significant acceleration from the growth rate of the Q4 of 2023, with March accelerating by 14 percentage points over January February. Furthermore, in April, the year over year growth rate further accelerated by 18 percentage points compared with the growth rate in Q1 to over 50%.

Speaker 2

Now let's turn to Agara now. Over the past 2 years, we've made significant progress in increasing our market share and improving our profitability. In particular, the year over year revenue growth rate of over 50% in the first quarter significantly outpaced the industry growth of our demand delivery. Going forward, we will continue to focus on our KA or chain merchants business to drive high quality growth in both order volume and revenue to become the largest third party on demand delivery platform. In terms of service capability, we will remain committed to improving our wider ecosystem, enhancing fulfillment capabilities and upgrading our order matching efficiency.

Speaker 2

This will allow us to provide cost efficient and high quality intensity delivery services, both JD Now and extensive external clients. In terms of industry focus, while solidifying our leading position in supermarkets, we will actively expand into chain restaurants and the beverage customers to further increase our market share.

Speaker 3

Thank you Thomas for your question. I will supplement from financial For JD Now, as you can see from our earnings release earlier, we encountered some challenges in revenue growth in the Q1 2024, primarily due to the following factors. Firstly, since our new management team has assumed the roles earlier this year, we have led our business team through a very comprehensive review of our business and reached a consensus to gradually clear out inefficient channels and the business. At the same time, we have strategically focused more on the JD app as our core channel. As Mr.

Speaker 3

Fu mentioned earlier, the growth rate of users and GMV through the JD app has significantly accelerated. As a result, our commission revenue remained relatively stable year on year in the Q1 with the positive performance of high quality users partially offset the negative impact of clearing inefficient operations. We believe that after some time as our core metrics on the JD app continue to grow, JD Now's commission revenue can return to a positive year over year growth trend. Secondly, our core JDF channel, we have consistently increased our investment in user experience and we are continuing to do so. For example, we have enhanced free delivery benefits.

Speaker 3

Starting in August 23, we launched a free delivery program for orders exceeding RMB59 and in February this year, we further lowered the free delivery threshold to RMB29. By reducing the free delivery threshold, we aim to lower the barriers for users placing orders and reinforce the perception of JD Now's on demand retail service as both cost effective and fast. Therefore, in the Q1, fulfillment service revenue saw a notable year over year decline, but I want to emphasize that this initiative effectively enables JD Now to acquire high quality users, thereby boosting GMV and commission revenue growth in the long term. Thirdly, in our advertising business, with a shift in channel focus, we are collaborating with JD Group to optimize our local based, location based advertising products. We are gradually introducing new advertising products to merchants and brand owners.

Speaker 3

A large scale adoption will take time. As a result, advertising revenues saw a notable year on year decline in the Q1. However, with production optimization and the continuous growth of high quality users, along with our industry leading LBS technological capabilities, we are confident in the long term potential of JD Now's advertising business. As Bob mentioned, the voluntary business adjustments and investment in user experience will bring challenges to our revenue and profitability in the near term. However, these initiatives will drive high quality growth in users and the business in the long run.

Speaker 3

For that and now, in the Q1, our orders and revenue achieved revenue growth, continuously gaining market share in the on demand delivery industry. Throughout the year, our priority will remain on high quality growth and is confident in maintaining growth rates higher than the industry average, while also focusing on improving operational efficiency. That's my part. And Mr. Fu, please go ahead with the second question regarding the progress of JD Now on the JD app and the synergy with JD.

Speaker 2

And now I'd like to contrast the second part of Tom's question on the progress of JD Now on the JD app and synergies with JD. For JD Now starting this quarter, we have fully embraced JD Ecosystem, collaborating with JD's R and D and operational teams to upgrade the brand and enhance exposure and conversion at various entry points on the JD home page. Specifically, the JD Now tab has undergone a complete redesign to improve the end to end shopping experience. In the Q1, exposure of the Daily Now tab increased by over 30%, the click through rate by over 0.4 percentage point and the conversion rate by 1 percentage point year on year. For the search exposure, we have significantly enriched the display of decision useful information, including discounts and user benefits and refined operations based on user segmentation.

Speaker 2

In the Q1, search exposure increased by over 60%. The click through rate of search results by over 1 percentage points and the conversion rate by nearly 1 percentage point year on year. In addition, later this week, we will launch a new JD Now section on the JD homepage further expanding our touch points among JD users. This also demonstrates the substantial traffic support from JD. We joined this course the significance of on demand retail for JD.com.

Speaker 2

In the Q1, the penetration rate of on demand retail among JD users was still in single digit percentage, indicating a substantial upside in the long run. We will continue to invest in supply expansion and user experience improvement to further increase user penetration.

Speaker 1

Thank you.

Operator

Your next question comes from Lai Zhang with BofA.

Speaker 4

Thanks management for taking my question. Our first question is regarding the macro. Can you give us more color on the macro consumption trend and the potential impact to our business? Secondly, I think you mentioned several times about the other experience and any matters you can share to improve our user experience especially after we upgrade our brand? Thank you.

Speaker 2

Thank you, Wei, for your question. To address the first part of your question, on the macro consumption trend and impact on our business. So for JD Now, we focus on the overall consumption willingness or the willingness to spend and the consumption trend. In the Q1 of 2024, total retail sales grew at a CAGR of 4.4% from the same period in 2019, accelerating by 1 percentage point compared with the CAGR in 20 in the Q4 of 2023. This reflects a continuous recovery and overall consumer confidence and willingness to spend.

Speaker 2

On one hand, consumers are increasingly seeking value for money. On the other hand, the demand for convenience continues to grow. So as an on demand delivery platform, we are inherently well positioned in convenience. And on top of that, we are constantly optimizing the fulfillment experience on our platform. Additionally, by collaborating with merchants to enhance the price competitiveness of products and implementing measures such as the free the delivery fee waiver, we continually strengthen the mindset of value for money among our consumers.

Speaker 2

Therefore, we firmly believe that the penetration rate of on demand retail in the overall retail market will continue to rise. And indeed, we've seen that JD Now's GMV through the JD app channel accelerating in year over year growth rate in April and mark to date in May. And turning to data now, we are watching the dynamics and flexible employment markets and merchants demand for on demand delivery. In the Q1 of 2024, the year over year growth rate of active riders on our platform slowed down as riders went back home for the 20 New Year celebration. But the overall rider supply remains sufficient and we've observed an acceleration in our rider growth in April.

Speaker 2

And in terms of merchant demand, we noticed that the on demand delivery orders from chain merchants and restaurants and beverage categories continue to grow. And these merchants are willing to embrace multiple online business channels, which helps to drive the order growth of 3rd party on demand delivery platforms. Now I'd like to address the second part of your question on measures to improve our customer experience. In terms of JD Now, we are committed to enhancing the penetration of JD users to optimizing customer experience. So specifically, we are investing in optimizing product features and upgrading the fulfillment timeliness.

Speaker 2

So firstly, in terms of the product features that we are optimizing to deliver a smooth shopping journey, In the Q1, we actively invested in product development and research to iterate and upgrade entry points including search results and the daily now tab to enhance the end to end transaction experience and thereby improve conversion rate. And secondly, in terms of upgrading the fulfillment timeliness and service experience, we have improved the accuracy as estimated time of arrival and actual time of arrival, optimizing our predictive models and upgrading our operational capabilities to enhance the integration of various procedures and processes across the fulfillment journey. In the Q1, the average fulfillment time per order for our JD Now business on the JD app decreased by 12% year on year. And in addition, we are promoting the free delivery the delivery fee waiver campaign to strengthen the cost efficiency mindset of our platform. Starting in August last year, we launched a delivery fee waiver campaign for orders exceeding RMB59 and in February this year, we further reduced the free delivery threshold to RMB29.

Speaker 2

By the end of April, the free delivery initiative for orders over RMB79 covered about 90% of daily now's orders. The campaign increased users' 7 day repeat purchase rate by 3 percentage points. Given the encouraging results, we plan to offer the delivery fee waiver as a long term benefit to our customers. Moreover, the campaign has only a limited impact on the average order value. For the 2 market category, LOV or average order value remained largely stable year over year in the Q1 and only slightly decreased in April, reflecting a differentiated mindset of 1st box shopping among our users for our platform.

Speaker 2

Thanks to the improvements in user experience, we've seen significant enhancements in exposure, conversion and repeat purchase rates on the JD app. The net promotion score for the supermarket category also improved by 7 percentage points in the Q1. So I hope this address your questions. Thank you.

Operator

Your next question comes from Jie Lu Li with CICC.

Speaker 3

Hello, operator,

Speaker 1

and thank you, everyone, for joining us. For the interest of time, we would like to conclude this call for today. In closing, on behalf of Data's management team, we'd like to thank you for your participation in our today's earnings call. If you require any further information, please feel free to reach out to us directly. Thank you for joining us today.

Speaker 1

This concludes the call.

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