JD.com (Minutes): Food delivery is a 10-year long-term strategy, and synergies have already begun to emerge.

The following is the FY25Q2 earnings call minutes for$JD.com(JD.US) compiled by Dolphin Research. For earnings interpretation, please refer to "JD.com: Billions in Profits Wiped Out, How Long Can the Food Delivery Dream Last?"

I. Review of Core Financial Information

1. Cash Flow and Capital Status:

a. Free cash flow over the past 12 months: RMB 10 billion (RMB 56 billion in the same period last year), the decline is mainly due to cash outflows related to trade-in projects and a decrease in operating profit.

b. Cash reserves: As of the end of the second quarter, the total amount of cash and cash equivalents, restricted cash, and short-term investments was RMB 223 billion, indicating a robust financial position.

2. Future Outlook:

The core of the second quarter's performance is the balance between "strong growth and profitability of core retail" and "strategic investment in new businesses for future growth". The company is confident in the long-term potential of new businesses, believing these investments will accelerate user growth and create significant synergies with the core business, ensuring long-term healthy growth.

II. Detailed Content of the Earnings Call

2.1 Key Information from Executive Statements

1. User Growth and Activity:

a. QAC increased by over 40% year-on-year, setting a new milestone. The growth momentum came from the combined contributions of JD Retail, JD Food Delivery, and Jingxi businesses.

b. The overall shopping frequency of platform users increased by over 40% year-on-year. The shopping frequency of PLUS members increased by over 50% year-on-year, demonstrating the strong appeal of new services such as food delivery to high-value users.

c. Synergy: The synergy between new businesses (especially food delivery) and core retail business is evident, effectively enhancing user stickiness and lifetime value.

2. JD Retail: The company's continuously strengthened supply chain capability is the core driver of retail business growth and profitability.

a. Category performance: Revenue from electronics and home appliances increased by 23% year-on-year, maintaining a leading position. Revenue from daily necessities increased by 16% year-on-year. Among them, the supermarket category has achieved double-digit growth for six consecutive quarters. The fashion business also maintained double-digit year-on-year growth.

b. Profit improvement: Thanks to cost reductions and efficiency improvements brought by supply chain optimization, the retail business achieved rapid profit growth alongside strong revenue growth, with profit margins continuing to expand.

3. New Business (represented by JD Food Delivery): Since its launch, the food delivery business has seen exponential growth in daily order volume, successfully attracting a large number of quality merchants and full-time riders.

a. Strategic synergy: New users brought by food delivery have shown a continuous increase in cross-purchase rates in categories such as supermarkets, lifestyle services, and electronic accessories. The food delivery business not only drives traffic to retail but also injects vitality into the third-party merchant ecosystem of the entire platform with its rich local merchant resources.

b. Current focus: Optimizing order dispatch algorithms, improving planning technology, and enhancing system capabilities to better serve users and merchants. The food delivery business is not an independent unit but a key part deeply integrated into the JD ecosystem (retail, logistics, etc.), aiming to unleash greater synergistic value.

2.2 Q&A Session

Q: The home appliance category performed strongly in the second quarter, but there are some challenges in the market, such as the temporary suspension of "trade-in" subsidies in some areas and uncertainty in future policies, while competition from other platforms is also intensifying. What is the company's growth strategy for the home appliance category in the second half of the year and next year? How does the company plan to further increase market share in the current competitive environment?

A: JD.com has performed steadily in responding to and implementing national subsidy policies, thanks to our strong supply chain, system integration, and offline operational capabilities. We have effectively ensured supply, improved fulfillment efficiency, and actively assisted local governments in efficiently implementing policies.

More importantly, I want to emphasize that state subsidies are just an external opportunity, not JD.com's core advantage. Our long-term competitiveness always comes from within. We have clear strategies to continuously increase the market share of the home appliance category, and we have already seen a continuous increase in market share in the second and third quarters.

Our strategy always revolves around the three pillars of product, price, and service to leverage core capabilities:

In terms of products, we collaborate with brand partners to develop customized and intelligent new products to meet users' quality upgrade needs.

In terms of price, we reduce costs through large-scale procurement and supply chain optimization to provide users with the ultimate cost-effectiveness.

In terms of service, we continuously optimize the "delivery and installation integration" and "trade-in" recycling processes to provide industry-leading service experiences.

In summary, regardless of external policies, we will rely on these intrinsic core capabilities to drive growth and increase market share.

Q: The food delivery market is extremely competitive, with the leader having a scale advantage and the second having strong capital. How does the management view JD Food Delivery's long-term investment strategy and determination? As a current market player, how should we evaluate the value of this business, especially in balancing customer acquisition costs, cross-selling contributions, and improving unit economics (UE)? What specific plans does the company have?

A: First, food delivery is an important long-term strategy for JD.com, and we have a clear and differentiated approach. Our core focus is on experience, cost, and efficiency, addressing industry pain points through a "quality food delivery" model. On the rider side, we ensure a high-quality delivery experience with a team of over 150,000 full-time riders; on the supply side, we focus on collaborating with over 1.5 million quality merchants and launching supply chain innovations like "Seven Fresh Kitchen"; in terms of system capabilities, we are rapidly iterating dispatch, subsidy, and advertising systems to enhance overall efficiency.

Secondly, the synergy between the food delivery business and core e-commerce is as expected and has already manifested. This business does not exist in isolation but is deeply embedded in JD.com's ecosystem. It has brought significant growth in users, activity, and shopping frequency to JD.com's main site, and the cross-purchase conversion rate of food delivery users in core e-commerce categories (especially supermarkets) is also continuously improving. At the group level, we will coordinate marketing investments to enhance overall return on investment (ROI).

Finally, we focus on long-term sustainability rather than short-term market competition, and our unit economics (UE) are improving. We believe that some recent excessive competitive behaviors in the industry lack model innovation and are unsustainable. Therefore, JD.com's current focus is on improving platform systems and enhancing the core experience for users, merchants, and riders. Our unit economics (UE) are gradually improving, and in the future, through more refined operations, fulfillment efficiency improvements brought by scale effects, and enhanced system capabilities, profitability will further improve.

In summary, our pursuit in food delivery is for sustainable development over five, ten, or even longer years. We will achieve healthy long-term growth by unleashing scale effects and the significant synergistic potential with core retail businesses.

Q: Could you share the main directions and strategies for future investments? From a financial perspective, how will the group balance the growth brought by new business investments with overall profit targets? Will these strategic investments affect the company's established shareholder return plans, such as dividends or stock buybacks?

A: Internally, we mainly categorize innovation into two types: one is business model innovation, with significant investments currently seen in food delivery, Jingxi, international business, etc.; the other is using new technologies to improve existing businesses, which is prevalent across all sectors of the group, such as applying AI technology in retail or enhancing automation levels in logistics. We encourage all employees to embrace and drive innovation.

When advancing these innovations, we adhere to several core principles. First, all innovations revolve around our differentiated supply chain capabilities to enhance user experience, essentially a natural extension of our core business. Secondly, internationalization is an important long-term strategy for the company, with the goal of building an efficient global retail and fulfillment network to become a leading global retailer.

Finally, regarding investment methods and financial considerations, we always pay close attention to investment efficiency and sustainability, which has been proven multiple times in our past performance. For new business models, we will adopt a "small steps, quick iterations" approach for exploration and driving. We believe that all these investments will ultimately further strengthen JD.com's supply chain advantages and user experience, achieving healthy long-term growth.

Q: The daily necessities category has achieved strong growth for several consecutive quarters. Could you share the core driving factors behind this? Additionally, how does the management view the sustainability of this growth momentum?

A: We have indeed seen strong performance in the daily necessities category, with revenue accelerating for four consecutive quarters, and the supermarket category, which contributed the most, achieving double-digit growth for six consecutive quarters. The core driving factor behind this is the continuous strengthening of our procurement and sales team's operational capabilities, which is the fundamental reason for our growth.

Looking ahead, our growth strategy mainly has two points. The first is to continuously strengthen self-operated capabilities, which is JD.com's core advantage, helping us reduce costs, improve efficiency, and provide better products and prices for users. The second is to enhance user conversion, optimizing operations to better capture the massive traffic brought by the food delivery business, promoting cross-purchasing in the supermarket category, and this effect has already begun to show.

Additionally, I want to supplement the positioning of instant retail. We believe that instant retail is an important supplement to meet users' urgent needs, rather than a replacement for core e-commerce. The core e-commerce business still has greater advantages in product richness and cost-effectiveness. Therefore, our supermarket team will actively layout instant retail to meet multi-scenario needs, but the focus remains on continuously strengthening the core e-commerce's operational capabilities.

In summary, we are confident in the continued growth of the daily necessities category. This year's outstanding performance was achieved without the influence of state subsidies, fully proving that growth comes from the enhancement of our team's operational capabilities, which will be our most reliable long-term driving force.

Q: The platform's user and traffic growth is very impressive. Could you share the current trends in user growth, especially the profile, behavior characteristics, and retention of new users? Additionally, what is the company's next step in user growth strategy and long-term goals?

A: We indeed achieved very strong user growth in the second quarter, with quarterly purchasing user numbers and user shopping frequency both increasing by over 50% year-on-year, the strongest growth momentum in recent years.

This growth is mainly driven by two aspects. First, is the efficiency improvement of our retail business itself. Over the past two years, our efforts in building a low-price mindset and optimizing the platform ecosystem have paid off, bringing richer product supply and better user experience. At the same time, through refined operations such as content and interaction, we have more effectively attracted and retained users.

Secondly, the newly launched food delivery business has become a strong driving engine. Within less than half a year of its launch, food delivery has rapidly scaled up, bringing new growth momentum to JD.com's overall traffic, user numbers, and shopping frequency. More importantly, the food delivery business has attracted more young users and has a particularly significant pull effect on the growth of PLUS members, with the shopping frequency of PLUS members also increasing by over 50% year-on-year in the second quarter.

Looking ahead, our user growth strategy will focus on cross-selling and user conversion. We will accelerate guiding food delivery users to consume in our core e-commerce (B2C) and instant retail scenarios, driving the continuous growth of JD.com's overall user scale and shopping frequency by activating old users and converting new users.

Q: How does the management view the company's profitability and profit margin levels in the coming years? How should we understand the company's short-term expectations and long-term trends for profitability?

A: Regarding profitability, I first want to emphasize that although short-term profit margins may fluctuate due to industry competition and business investment pace, our goal of achieving high single-digit long-term profit margins is unwavering.

Our confidence in achieving this goal mainly comes from the healthy profitability trend of the core retail business and a clear path for improvement. The driving forces are mainly threefold: First, and most fundamentally, is the continuous improvement of supply chain efficiency. By optimizing the self-operated supply chain, we will naturally bring about an increase in product gross margins and a decrease in logistics costs while reducing costs and increasing efficiency for upstream and downstream. Second, is the optimization of category structure, with significant room for profit margin improvement in high-growth categories such as supermarkets. Third, is the growth of the platform ecosystem, with the increasing proportion of third-party merchant business, our commission and advertising revenue will grow rapidly, directly enhancing overall profit margins.

Regarding new business investments, our core goal is to break through growth ceilings and open up larger long-term space for JD.com. We are aware that initial investments will temporarily impact the group's profit margins. However, we firmly believe that these investments will eventually translate into new growth engines, creating significant synergistic value with the core business and generating greater profit space.

Finally, I want to reiterate our investment principles. Throughout the process, we will maintain a high level of investment discipline, closely monitor return on investment (ROI), and dynamically adjust strategies based on actual results to ensure that every investment is efficient and focused on long-term value.

Q: Could you introduce our overseas expansion strategy for the coming years and the logic behind the cooperation with Ceconomy?

A: Internationalization has always been one of JD.com's core strategies, but our approach to expanding international business is different from other cross-border e-commerce companies. We focus more on building supply chain infrastructure.

Specifically, our strategy mainly revolves around two aspects: First, we aim to leverage China's manufacturing advantages to help outstanding Chinese brands efficiently go global, providing overseas consumers with more cost-effective products. Second, we adhere to deep localization operations. This means we will establish local teams in target markets, conduct local procurement, warehousing, and distribution, create truly local retail and e-commerce services, and establish long-term win-win relationships with local partners. In terms of product selection, we will focus on branded and quality products.

In the European market, we have been cultivating for many years. Since 2022, we have started piloting innovative retail businesses. Here, I can also preview that later this year, this business will officially upgrade to the Ochama brand, and we will share more progress with you at that time.

Regarding the acquisition of Ceconomy you mentioned, we believe its strong brand influence, mature supply chain capabilities, and leading market position in the European market have significant strategic value for JD.com. At the same time, JD.com's excellent online e-commerce operation experience and technical capabilities can form a strong complement to Ceconomy's offline advantages.

Currently, this transaction is still awaiting regulatory approval. Once there are further updates, we will synchronize with everyone as soon as possible.

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