JD.com (Minutes): Electric growth peaked and then declined, consumer goods remained strong throughout the year

The following is the summary of JD's Q4 2024 conference call. For financial report commentary, please see Government subsidies support the market, JD finally "gets out of the pit"

I. Core Information Review of the Financial Report

1. Performance of Various Business Segments:

JD Retail's Q4 revenue grew by 15% year-on-year, with an annual growth of 7%. Gross margin has expanded year-on-year for 11 consecutive quarters, with Q4 and annual GAAP operating profit margins reaching 3.3% and 4%, respectively.

JD Logistics' Q4 and annual revenue both grew by 10% year-on-year, with both internal and external revenues achieving double-digit year-on-year growth in Q4. GAAP operating profit margin reached 3.5%.

New business revenue in Q4 decreased by 31% year-on-year, with an annual decline of 28%, mainly due to adjustments in the Jingxi business, which also contributed to the widening GAAP operating loss.

Revenue from electronics and home appliances grew by 16% year-on-year in Q4 and 5% for the year, benefiting from government stimulus policies that met the online and offline demands of consumers nationwide.

Daily necessities revenue grew by 11% year-on-year in Q4 and 9% for the year, with significant acceleration in growth, as supermarket business revenue achieved double-digit year-on-year growth for four consecutive quarters in both Q4 and for the year.

JD Logistics' revenue grew by 10% year-on-year in both Q4 and for the year. Both internal and external revenues of JD Logistics achieved double-digit year-on-year growth in Q4 2024, maintaining a similar growth rate for the year. This resulted in year-on-year growth in GAAP operating profit for both Q4 and the year. JD Logistics' GAAP operating profit margin reached 3.5% in both the quarter and the year.

2. Profitability and Cash Flow: At the group level, Q4 gross margin increased to 15.3%, with an annual figure of 15.9%, representing year-on-year increases of 110 basis points and 114 basis points, respectively. Non-GAAP net profit attributable to ordinary shareholders grew by 34% and 36% year-on-year for Q4 and the year, with non-GAAP net profit margins of 3.3% and 4.1%, respectively. The free cash flow for the entire year of 2024 was 44 billion yuan, higher than 41 billion yuan in 2023, mainly due to enhanced profitability and moderate capital expenditures, partially offset by cash outflows to secure supply in key categories.

3. Shareholder Returns: The board of directors approved an annual cash dividend of $0.5 per share or $1 per ADS for 2024, an increase of 32% per share compared to the previous year, with a total amount expected to be approximately $1.5 billion. In 2024, 255 million Class A ordinary shares were repurchased, equivalent to 128 million ADS, accounting for 8.1% of the shares outstanding at the end of 2023.

II. Detailed Content of the Financial Report Conference Call

2.1 Key Information from Executive Statements

1. Revenue Growth by Category: Total revenue for the entire year of 2024 grew by 7% year-on-year, exceeding the growth of total retail sales and online retail sales. Most categories showed strong double-digit growth in Q4 The electronics and home appliances categories lead with advantages in supply chain, service capabilities, and user mindset, benefiting from government stimulus policies and consumer rebound in 2025; in general merchandise, supermarket business has seen double-digit year-on-year revenue growth for four consecutive quarters in Q4, thanks to improved supply chain capabilities, and the fashion category is also performing well due to operational and consumer mindset improvements.

2. User Growth and Engagement: Q4 marks the fifth consecutive quarter of double-digit year-on-year growth in active customers with accelerating growth, user shopping frequency has seen double-digit year-on-year growth for four consecutive quarters, and even after the impact of lowered free shipping thresholds is eliminated, user metrics remain strong, benefiting from an increase in low-priced products and category SKU adjustments. User growth momentum is strong in 2025, with ample opportunities for user conversion and cross-selling. JD Plus member shopping frequency grew even faster in Q4, with an upgrade in January to Plus member benefits, including lifestyle service packages and a 180-day exchange policy for electronic products.

3. Improved Price Competitiveness: In 2024, significant progress was made in enhancing the price competitiveness of branded products and offering more cost-effective products, with Q4 and annual order volume and user base growth in lower-tier markets exceeding that in higher-tier markets.

4. Platform Ecosystem Development: Continuously introducing merchants and expanding the variety of supplier products, 3P order volume and 3P user numbers have maintained strong year-on-year growth over the past year, with accelerated growth in Q4. The net promoter score (NPS) for 3P products increased both year-on-year and quarter-on-quarter in Q4, with market and marketing revenue growing 13% year-on-year in Q4, significantly accelerating compared to previous quarters.

5. Technology Application Status: Actively adopting new technologies, especially AI and industrial robots. AI has been applied in various work scenarios such as marketing, customer service, and search recommendation algorithms, with the launch of an AI shopping assistant; improving logistics automation levels by deploying proprietary industrial robots in key production processes, which helps enhance operational efficiency and employee safety while reducing fulfillment costs.

6. Future Outlook: Confident about the business prospects for 2025, expecting domestic demand recovery to drive positive consumption trends, and AI applications to enhance operational efficiency and user experience. The sustained momentum in user growth and engagement, the enormous potential of general merchandise, and the progress in platform ecosystem development bring a series of attractive opportunities. We will continue to focus on reducing costs, improving efficiency, and enhancing user experience to achieve long-term sustainable growth.

2.2 Q&A

Q: How do you view JD's growth drivers for the next two years, aside from the recent advantages in the electronics and appliances business? What is the investment priority for the supermarket category this year?

A: In 2024, JD achieved robust double-digit growth in most major categories, including electronics, home appliances, and daily necessities, with the underlying growth drivers being long-term investments focused on user experience, cost, and efficiency, which will continue to unleash significant growth potential. In 2025, as the government continues to promote consumption, JD will leverage its supply chain efficiency and quality customer service to support government efforts while actively investing in the daily necessities category, user experience, and user growth platform ecosystem In the past, the daily necessities category has improved operational capabilities and category influence, and it is expected to maintain strong growth momentum in the future; in terms of user growth, the number of quarterly active users and shopping frequency has maintained double-digit growth in each quarter over the past year, and this year will continue to optimize user traffic operations; within the platform ecosystem, the user mind share of 1P direct sales business has strengthened, and the user recognition of the 3P market has deepened, with Q4 3P active user numbers and order volume accelerating growth and surpassing the overall growth of JD Retail. The supermarket category has focused on enhancing operational and supply chain capabilities over the past few years, and will further strengthen procurement and sales capabilities as well as category operations in the future, aiming to provide more cost-effective products with a wider price range, with revenue growth in some key subcategories far exceeding the overall supermarket category. It will also closely cooperate with JD Logistics to develop a fulfillment network model suitable for the supermarket category, reducing fulfillment costs and improving delivery efficiency.

Q: Under the government's expanded home appliance replacement program, what is the growth trend of the electronics and electrical appliances category in the first quarter, and how to consolidate its leading position in the face of last year's high base in the second half and the weakening of project demand elasticity since last September?

A: Since the beginning of this year, JD's mobile phone demand has rebounded, and laptop sales have remained strong. Although home appliance sales were temporarily affected at the beginning of the year due to some sales being advanced to the end of 2024, home appliance sales accelerated month-on-month entering the March home decoration season. Despite the government consumption support policies in the second half of last year driving home appliance sales, which may bring a high base to the industry, the home appliance industry has a long-term upgrading trend and positive structural changes, with the replacement program releasing huge potential demand, and the sold volume compared to the total market size is still limited. JD will enhance transaction service capabilities on one hand to provide consumers with a better transaction experience, stimulating potential demand for consumer goods upgrades; on the other hand, it will leverage supply chain advantages to reach lower-tier market users through more channels to meet their replacement service needs; in addition, it will utilize in-depth user insights to drive industry innovation, stimulate consumer purchasing willingness, and consolidate and expand market share.

Q: What is JD's investment strategy and scale in new fields such as fashion and maternal and infant retail, and how to balance the growth of these investments with profitability?

A: In 2024, JD achieved healthy business growth and continued to invest in user experience and core competitiveness. JD's business model is based on supply chain capabilities and built around user experience, and investments will focus on these two areas, which helps to expand business scale, improve operational efficiency, and achieve profit expansion. For different business segments, priorities vary. For mature categories such as electronics and home appliances, further optimization of supply chain efficiency will be pursued to drive steady profit growth; for general merchandise categories such as supermarkets, the focus will be on driving strong growth momentum while continuously improving profitability, with optimizing the fulfillment network for supermarket business being particularly important for profit enhancement; for the clothing category, efforts will continue to enhance user mind share and supply chain capabilities to gain more user recognition and preference.

In terms of exploring new businesses, instant retail is a natural extension of JD's core retail business, currently in the early stages, focusing on exploring differentiated business models and enriching quality supply. In 2025, JD will continue to leverage the scale effects and supply chain efficiency of its core business and categories to drive profit improvement, with investments emphasizing return on investment and adhering to strict financial discipline, **confidently progressing steadily towards long-term profit margin goals **

Q: What are the investment strategies, positioning, and scale of JD.com's instant retail (including food delivery), and how will this business affect profit margins and profitability?

A: The strategic focus of the retail business has never changed; instant retail (including food delivery) should not be viewed as an independent business but rather in the context of JD.com's overall retail capabilities and service experience. This initiative positively impacts the expansion of consumption scenarios, capability building, meeting diverse user needs, and enhancing user experience. From the perspective of consumption scenarios, instant retail is a natural extension of the core retail business, and food delivery is a high-frequency service that enriches user service touchpoints and provides higher quality products, thereby enhancing user stickiness and platform engagement, which can increase user value in the long term.

From the perspective of capability building, there is an emphasis on further utilizing and enhancing existing fulfillment and delivery infrastructure. Faster and more flexible instant delivery capabilities are a strong complement to JD's efficient 211 fulfillment network and capabilities, aiming to improve the overall efficiency of the delivery network, benefiting both the core e-commerce business and instant retail. From the user's perspective, there is a growing demand for high-quality food delivery services; meeting users' differentiated needs can further enhance their trust in JD.com and supplement the core e-commerce business's share of user mindset.

In terms of business advancement, priority is given to serving JD's existing user base, increasing purchase frequency and user stickiness through the expansion of consumption scenarios and supply diversity. Given the demand for high-quality food delivery, there will be a greater focus on food safety, aiming to enrich the supply of quality chain restaurants by recruiting and supporting high-quality merchants and improving delivery rider benefits, gradually establishing a differentiated user mindset for high-quality food delivery. The food delivery business is still in a very early exploratory stage, undergoing strategic and disciplined experimentation and investment, with strategies flexibly adjusted based on business development, and timely updates provided to investors and analysts. In the long term, the goal remains to enhance shareholder value and the company's profitability.

Q: What is JD.com's strategy regarding artificial intelligence? Has JD.com deployed or plans to deploy large language models in its business? What impacts should we expect from AI deployment in the short and long term?

A: JD.com has been actively leveraging technology to drive business innovation, improve efficiency, and reduce costs, widely adopting artificial intelligence technology across various business scenarios, which is driven both top-down by the company and bottom-up by employees. Due to JD's differentiated business model and deeper understanding of the supply chain, its proactive adoption of artificial intelligence utilizes supply chain expertise, operational data, and more diverse retail and supply chain use cases.

On the user side, JD has restructured its retail search and recommendation systems through artificial intelligence, improving search result satisfaction and traffic distribution efficiency. It has also launched the AI shopping assistant Jingyan and the digital human "Avtar," providing users with more comprehensive product information and professional recommendations, thereby reducing the cost of searching for and selecting products. In assisting merchants, JD provides 24/7 AI operational agency services and AI system tools, covering the entire process from product launch, order management, self-service, customer support to data analysis, including sales forecasting, AI marketing campaigns, AI marketing content platforms, AI pricing, and AI customer service, helping merchants improve operational efficiency and reduce costs In supply chain management and fulfillment, AI algorithms have improved the accuracy of supply and demand matching, continuously enhancing logistics automation levels. Proprietary industrial robots have been deployed in many key production processes at the fulfillment centers to improve operational efficiency and reduce fulfillment costs for JD.com and the entire industry. At the same time, the team is actively integrating AI into daily workflows, significantly improving productivity in specific workflows such as short video content review and employee reimbursement. Developers are also utilizing AI programming assistants to write, read, and optimize code more efficiently. JD.com's innovations and applications in artificial intelligence technology have just begun, with much room for development in the future. AI plays an increasingly important role in JD.com's overall operations, which will continue to enhance user experience, drive business growth, and improve efficiency in the long term.

Q: How should we view the year-on-year growth rates of electronic categories and general merchandise categories in 2025?

A: Years of development have made JD.com a mature e-commerce platform, establishing user mindset and differentiated competitive advantages in both electronic appliances and general merchandise categories. Different categories are influenced by their respective industry growth and development trends. By collectively enhancing product supply, price competitiveness, and service levels across categories, the JD.com platform will have stronger user trust and mindset overall. In Q4 2024, revenue, quarterly active customers, and service income for electronic appliances and general merchandise all achieved double-digit growth. In 2025, the electronic appliances category, leveraging differentiated advantages in supply chain and user mindset, will be able to serve more users, enhance user experience, and continue to expand market share, but is expected to be affected by a certain high base in the second half of the year; the general merchandise category, such as supermarkets, fashion products, and home goods, is expected to maintain strong growth momentum in 2025 and will be an important growth driver this year and in the future. Additionally, JD.com has multiple growth drivers such as user base expansion, platform ecosystem development, and exploration of categories and new businesses, which will help achieve long-term sustainable growth.

Q: Can management update us on JD.com's latest shareholder return progress and thoughts?

A: In 2024, JD.com returned value to shareholders through dividends and buybacks, mainly due to healthy business progress and profit expansion. The total annual dividend for 2023 was $1.2 billion, and the annual dividend for 2024 was announced to increase to approximately $1.5 billion, equivalent to $1 per American Depositary Share (ADS), a year-on-year increase of 32%. In 2024, stock buybacks were also accelerated, with 8.1% of the circulating shares repurchased, totaling $3.6 billion. In 2025, JD.com will continue to focus on shareholder returns, and the ongoing $5 billion stock buyback plan will be executed as scheduled over three years. Regarding dividends, JD.com will continue to follow the annual cash dividend policy, reflecting its confidence in its long-term development.

Q: The trade-in programs and subsidy activities for home appliances and smartphones performed well during the Spring Festival, but regarding retail sales data expectations, how does management view the latest policies and trends in consumer sentiment?

A: The government has introduced many supportive policies, particularly mentioning several economic goals in yesterday's government work report, emphasizing the promotion of consumption, especially the continued advancement of trade-in programs. Some indicators at the beginning of this year show that the consumer market continues to grow steadily, and JD.com has also seen a trend of improving consumer demand In the short term, there are still challenges at the macro level, but in the long run, we remain optimistic about consumer sentiment, as the Chinese consumer market is resilient and has enormous potential. The policies recently introduced by the government will continue to take effect, ultimately benefiting consumers, gradually enhancing purchasing power and willingness to consume, and providing significant growth opportunities for companies.

Q: What is the profit outlook for 2025 and the trend of profit margins in the coming years?

A: In 2025, we will continue to improve the supply chain efficiency of core categories to unlock profit growth potential, while also investing in long-term goals with financial discipline. The long-term profit margin target is to reach a high single-digit level over time, and the steady growth of profits last year has given the company more confidence in achieving this goal. In the coming years, we will continue to focus on improving supply chain efficiency to drive steady increases in profit margins, with key business models helping to enhance supply chain efficiency. JD's gross margin has risen for 11 consecutive quarters, mainly due to the improvement in gross margin from product sales and the optimization of JD's logistics cost efficiency. Continuously improving supply chain efficiency will help reduce costs and enhance efficiency across the entire industry chain, which will not only better serve business partners and users but also improve profitability. Many categories, including supermarkets, still have significant room for margin improvement, and even more mature categories like electronics and home appliances have further room for improvement. As the proportion of 3P business gradually stabilizes and increases, it will also benefit profit margin performance.

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