JD.com: It is expected that the national subsidies will continue until next year (3Q24 conference call summary)

The following is the summary of the Q3 2024 earnings call for $JD.com(JD.US) . For the earnings report interpretation, please refer to Reviving with "National Subsidies," is JD.com "Back to Life"? .

1. Key Information Review:

2. Detailed Content of the Earnings Call

2.1 Core Information from Executives:

General Merchandise Performance:

In the third quarter, revenue from general merchandise categories increased by 8% year-on-year, continuing a growth trend for three consecutive quarters.

The growth was mainly attributed to the supermarket category, which achieved double-digit revenue growth again this quarter.

User Growth and Engagement:

JD.com saw an increase in user growth and engagement, with the number of active customers growing at a double-digit rate for four consecutive quarters, with the third quarter showing the most significant growth.

Shopping frequency maintained a double-digit year-on-year growth, primarily due to improved price competitiveness, changes in product mix, and the expansion of free delivery service coverage.

Price Competitiveness and Platform Ecosystem:

JD.com enhanced its price competitiveness by leveraging its 1P supply chain capabilities and 3P product supply, as well as its own brand products, to better serve existing and new users.

The net promoter score (NPS) for price competitiveness has increased year-on-year for several consecutive quarters.

Promotional Activities:

JD.com launched a series of promotional activities that were well-received by users.

These include: Super 18 sales on the 18th of each month, Black Friday sales every Friday, midnight flash sales, and half-price clearance promotions.

Platform Ecosystem:

JD.com increased the number of 3P merchants this quarter, particularly small and medium-sized enterprises, to expand the product supply across different price tiers.

The number of active merchants showed healthy year-on-year growth.

User engagement improved, with both the order volume of 3P products and the number of users purchasing 3P products reaching historical highs.

Promotional Activity Results:

JD.com recently concluded its Double Eleven promotion themed "Cheaper and Better," showcasing its supply chain trends.

The team expanded the variety of products in both 1P and 3P product supply, offered competitive prices, and provided users with a top-notch experience.

Both the number of users and order volume achieved double-digit growth during the promotion period.

Policy Environment: JD.com is encouraged by a more supportive policy environment aimed at realizing the enormous potential of Chinese consumption, promoting industry upgrades, creating jobs, and increasing household income, further stimulating consumer confidence.

2) Financial Performance

Service Revenue: In the third quarter, service revenue increased by 7% year-on-year, with marketplace and marketing revenue growing by 6% and logistics and other service revenue growing by 7%. As the impact of discounts to merchants fully dissipated, commission revenue returned to positive growth. Advertising revenue maintained strong momentum, with JD Retail's advertising revenue achieving double-digit year-on-year growth in the third quarter once again.

Stock Buyback: The stock buyback plan announced in March of this year has been completed, and a new $5 billion stock buyback plan has been initiated for the next three years (until the end of August 2027).

The total value of shares repurchased in the third quarter was approximately $390 million, with a total of 31 million Class A ordinary shares repurchased, equivalent to 15.5 million ADRs, accounting for 1.1% of the issued ordinary shares as of June 30, 2024.

In the nine months ending September 30, 2024, the total value of shares repurchased was $3.65 billion, accounting for 8.1% of the issued ordinary shares at the end of 2023.

Free Cash Flow: The free cash flow for the past 12 months as of the end of the third quarter was 34 billion RMB, compared to 39 billion RMB in the same period last year.

2.2 Q&A Analyst Q&A

Q: What is the impact of the home appliance trade-in program on the third and fourth quarters, and how sustainable is the policy for the home appliance industry next year?

A: The government's stimulus measures have been positively responded to by JD.com, leveraging supply chain management experience to increase inventory and enhance service efficiency, providing quality products at competitive prices. Sales of home appliances and consumer electronics saw significant growth in September, but the full potential of the policy has yet to be realized, as some consumers are not well-informed about the policy, and some subsidized products have limited production capacity. The government plans to expand the policy next year, and JD.com hopes the policy will continue and extend to other categories to maintain good momentum.

Q: Besides home appliances, what strategies does JD.com have in supermarkets, department stores, 3P business, and price competitiveness to achieve growth above the industry average next year?

A: JD.com aims to reduce 1P procurement costs by expanding supply chain scale and improving efficiency, increasing non-product supply, introducing more white-label sellers and affordable products, and reinforcing everyday low prices through promotional activities. The department store category has maintained healthy growth, while the supermarket category has achieved revenue growth through warehouse network reforms. The fashion category has increased user-side investment to strengthen user mind share. The 3P business has achieved healthy growth across different metrics, and JD.com is confident in maintaining a growth rate above the market.

In the apparel category, we started strengthening our investment in this category in September, and you may have seen our campaign to buy clothing on JD.com, where our apparel category also achieved double-digit growth in the third quarter. Q: Investors are concerned about the growth momentum next year, especially in the second half, worried that high sales base in home appliances will lead to a slowdown in JD's growth. What is the management's view on this and what are the various growth drivers for JD next year?

A: JD believes that the government's trading policies not only promote short-term consumption but also help enhance industry development, create jobs, increase household income, and restore consumer confidence. JD holds a cautiously optimistic view on economic and consumption growth for next year and will continue to execute its long-term strategic plan, including enhancing user experience, user growth, investing in high-growth potential categories, expanding product supply, introducing more products, and investing in the platform ecosystem.

Regarding this growth driver, we still adhere to our long-term strategy, focusing on user experience and user growth, and continue to promote the expansion of categories we believe have potential, as well as the expansion of products across different price ranges. Especially those products from industrial belts favored by users in lower-tier markets.

Q: What are the management's preliminary thoughts on investment and spending, as well as the overall profit margin and profit growth prospects for next year?

A: JD's long-term profit margin improvement will be driven by three key factors: supply, scale and efficiency advantages, category mix, and the ratio of 1P to 3P business. JD will continue to invest in enhancing user experience and strengthening core supply chain capabilities. From a category structure perspective, there is still significant room for profit margin improvement in many of our categories, including supermarkets, and changes in category structure will also lead to profit increases.

Long-term profit margins will continue to improve with healthy business growth and increased operational efficiency, with a target of achieving high single-digit profit margins.

Q: What is the management's view on the current competitive landscape of the e-commerce industry?

A: The Chinese e-commerce market has broad prospects, and JD will continue to focus on enhancing user experience, driving user growth, developing differentiated supply chain capabilities, investing in self-operated supply chains and logistics services to achieve long-term growth, while strengthening user mind share. JD enhances user experience by improving price competitiveness, lowering the threshold for free shipping, and improving services, attracting new users and achieving double-digit year-on-year user growth.

Q: Regarding the expansion in the beauty and clothing categories, is it a 1P or 3P operating model, are there any results to share, and what are JD's competitive advantages compared to peers in the medium to long term?

A: JD's investment goals in the beauty and clothing categories are to enhance user experience, expand product choices, emphasize quality service, and launch promotional activities. Currently, most fashion products come from 3P sellers, and JD is also strengthening its 1P operational capabilities. These initiatives have attracted new users with high purchasing power, and JD will continue to focus on products, prices, and services, optimizing algorithms to improve price competitiveness.

Q: Have recent macro policy measures had a positive impact on consumer sentiment?

A: Yes, current macro policies have had a positive impact on overall consumer sentiment. As these policies continue to take effect, they will help improve the economic fundamentals, restore and increase household income, thereby providing more momentum and vitality for consumption potential. Q: What is the latest situation regarding shareholder returns, such as the latest developments in buybacks and dividends?

A: In the first three quarters of this year, JD.com repurchased $3.65 billion worth of shares and announced a new three-year buyback plan totaling $5 billion. In the first half of this year, it completed a dividend distribution of $1.2 billion for 2024 and plans to maintain stable annual dividend payments based on profitability.

Q: What is the business scale and profit margin of JD Supermarket, and what are the reasons for deciding to exit the investment in Yonghui Supermarket?

A: The supermarket category is a core part of JD's business, with sales exceeding any supermarket chain in China. Although the current scale and profitability are still below long-term expectations, there has been double-digit year-on-year growth in scale this year. We also see that the profit levels of supermarkets are gradually improving. Exiting the investment in Yonghui Supermarket reflects JD's proactive decision to focus on its core business areas.

Q: What is JD's view on the potential of the 3P business and the strategies to further unlock its potential?

A: The development goal of JD's platform ecosystem is to enhance user experience, and 3P plays a key role in expanding product and brand choices. Currently, the 3P business still has significant room for improvement in terms of operations, business scale, and profit contribution to the platform. JD will continue to invest in platform infrastructure and provide merchant tools to make the platform ecosystem a long-term growth driver.

Risk disclosure and statement of this article: Dolphin Investment Research Disclaimer and General Disclosure