JD: Mid to high single-digit growth in 2024, ensuring that profits do not decline year-on-year.

Below is the summary of JD's 2023 fourth-quarter earnings conference call. For an interpretation of the financial report, please refer to " JD: As long as there is more dividend and buyback, even underperformers can get by 》

1. Review of Key Financial Information:

2. Detailed Content of the Earnings Conference Call

2.1. Key Points from Executive Statements:

Business and Growth Strategies: a) The company continues to focus on user experience, cost reduction, and efficiency improvement, seeking growth opportunities through challenges. b) Strategic repositioning has guided key operational metrics in a positive direction, especially in terms of currency improvement, consultation, and platform ecosystem strategies. c) In 2024, the focus will be on executing existing strategies and advancing two key priorities: currency improvement and market share expansion.

User Engagement and JD PLUS Growth: a) User engagement continues to accelerate, with significant growth in new users. b) JD PLUS membership base is steadily growing, with its contribution to GMV growing faster than total GMV.

User Experience and Price Competitiveness: a) The company has introduced a series of user experience improvement measures, such as free shipping, price guarantees, etc., leading to a significant increase in Net Promoter Score (NPS). b) Price competitiveness far exceeds the growth in total order volume, achieved not through subsidies but based on supply chain capabilities and business models. c) The company will continue to strengthen these initiatives to drive growth in 2024.

Platform Ecosystem and Merchant Growth: a) The number of active 3P merchants has significantly increased, with the team performing well in merchant onboarding and support. b) 3P users and order volume have seen accelerated growth, but market revenue growth lags behind the growth in merchant base and order volume, influenced by one-time factors.

Progress in 1P Business and Supply Chain Advantage: a) The 1P business has made solid progress, especially in core supply chain capabilities. b) The supply chain advantage has enabled the household appliances and electronics categories to continuously gain market share. c) Future plans involve leveraging supply chain capabilities to enhance service capabilities and expand market reach.

Development of Supply Chain and Supermarket Business: Supply chain partnerships have facilitated market share expansion, while the supermarket business is progressing in the right direction through optimizing supply chain, product mix, and fulfillment network. It is expected that the supermarket business will have more growth opportunities in 2024.

Shareholder Returns: The board has approved a total cash dividend payment of USD 1.2 billion for 2024, a significant increase, and has also approved a new share buyback plan.

2.1. Q&A Analysts' Questions and Answers

Q: How will the management balance growth and absolute profit or profit growth in the coming year? In 2023, the company's regular dividend was RMB 1.2 billion, with free cash flow close to USD 6 billion. Is it possible to further increase total shareholder returns in the future?

A: Over the past 23 years, the company has been focusing on business health while striving to enhance user experience, expand market share at low prices, and develop a platform ecosystem. The company has introduced and expanded a series of differentiated shopping and customer services, such as price guarantee services, free home pick-up services, and return services. These services are not limited to self-operated businesses but have also extended to third-party businesses. In the fourth quarter, the company witnessed accelerated growth in quarterly shopping users, especially new users, and expects this growth trend to continue in the first quarter. While driving growth efforts, the company did not experience significant profit decline. The company continues to optimize procurement costs, expand the range of low-priced products, and has launched a series of promotional measures such as the 10 billion discount plan and lowering the free shipping order threshold. The company's goal is to provide high-quality products at reasonable prices, increase user purchase frequency, continuously improve user experience to promote healthy user growth and purchase frequency, thereby helping the company increase business scale and market share.

More and more new users and merchants are joining JD's market platform, leading to a growing number of active merchants, which has significantly increased the diversity of products on the platform, accelerating the growth of users and order quantity on the market platform. In 2024, the company will prioritize improving user experience, price competitiveness, and platform ecosystem. The company's business efficiency comes from the expansion of business scale and technological development. These enhancements enable the company to increase revenue, which can then be invested in enhancing user experience. This, in turn, leads to increased user engagement, shopping frequency, and user growth, ultimately resulting in business scale growth. Although this growth may not have a significant impact on profits, it creates a sustainable and virtuous cycle. Profit is a natural result of the company's expanding market position and creating user value.

The company believes that maintaining good shareholder returns and continuous investment in the business are not contradictory. The company has just announced a $1.2 billion annual cash dividend, a solid return brought about by last year's rapid profit growth. Over the past two to three years, the company has returned a total of $4.2 billion in dividends and plans to continue paying annual dividends. The board has approved a new stock repurchase plan to repurchase $3 billion worth of company shares over the next two to three years.

Q: Under what circumstances will the monetization of 3P merchants accelerate? What changes and updates are there for LNG in 2024? Thoughts on overseas expansion?

A: JD's platform ecosystem includes both self-operated and third-party models. In the fourth quarter, whether self-operated or third-party, JD's NPS has significantly improved. JD has always viewed investing in the platform ecosystem as a long-term strategic direction. In terms of third-party business development, there is still significant room for improvement, with the primary task being to increase the number of merchants and product supply. Over the past year, JD has strengthened merchant recruitment, streamlined the onboarding process, and provided more support and fee reductions for small and medium-sized merchants. As of now, the number of effective merchants on the platform is close to one million, reaching the target set at the beginning of last year. User feedback has been positive, with shopping users and order volume on the third-party platform continuing to grow, while user NPS is also on the rise. Both third-party and overall GMV are gradually entering a trajectory of healthy growth. JD's long-term projects are still in the early stages, and the monetization of 3P is not expected to be achieved quickly. The focus is on attracting more merchants, especially small and medium-sized businesses in industrial belts, to enrich product supply. Creating a clear growth path and a fair business environment for merchants, optimizing user experience to promote the prosperous growth of the 3P platform. Providing a wide range of high-quality goods, improving the accuracy of product matching for users to attract more users and meet diverse needs. This will help merchants succeed, forming a virtuous cycle to increase the monetization of 3P. This virtuous cycle will be a key driver of JD's long-term revenue and profit growth. Despite the current favorable situation, JD is not in a rush to increase monetization in the short term, but rather maintains a trend of steady improvement. In Q4, due to a focus on developing the platform ecosystem, a series of support measures were introduced, including commission exemptions for new merchants and active commission reductions for certain categories and programs, leading to a decrease in commission income. In addition, advertising revenue growth slightly slowed in Q4, mainly due to seasonal factors and the high base in the same period last year. Although Q4 advertising revenue was somewhat affected, with the arrival of Q1, we expect advertising revenue to resume healthy growth. With improvements in users and traffic, overall in 2024, we expect advertising revenue growth to gradually accelerate.

For overseas business, we have been actively seeking opportunities and realize that it takes time to adapt and establish our presence. Given that our business model and strengths are different from other platforms, our globalization or global expansion strategy will also be different. Our goal is to leverage our competitive advantages to build international influence. JD's business model is built on supply chain capabilities and centered around user experience. The supply chain is the cornerstone of our international business development, and we will continue to focus on enhancing this capability in the global market. By providing high-quality products and services, we enhance the shopping experience for global users. At the same time, we help Chinese companies expand their business and brand in overseas markets. Although still in the early stages, JD is increasing efforts in inbound cross-border business. Three direct procurement centers have been established globally to improve cross-border supply chain efficiency, providing a wider range of imported products and lower costs for Chinese consumers. Starting from warehouses, it has expanded to overall supply chain services. Currently operating nearly 90 bonded overseas direct mail warehouses, covering an area of nearly 900,000 square meters, serving a large number of overseas customers and expanding to overseas Chinese brands. Business expansion in Southeast Asia and Europe focuses on markets such as Vietnam, Indonesia, Singapore, the UK, and the Netherlands. Its customers include international logistics and fast-moving consumer goods giants, as well as emerging Chinese companies expanding overseas. Both are more focused on enterprise services. JD has launched a full-channel retail platform called Osama in Europe, utilizing advanced automated logistics technology and global supply chain capabilities to provide a high-quality shopping experience for customers in 24 European countries. This not only serves local European brands and merchants but also provides a reliable overseas expansion path for Chinese brands and merchants. Currently, Osama is still in the incubation stage.

Q: Faced with changing consumer preferences, rational consumption behavior, and a sluggish macroeconomic environment, does JD need or plan to adjust specific strategies to meet the changing demands? What are the possible changes and growth initiatives? What is the expected overall retail sales growth rate in China? By how much can JD surpass the overall retail sales growth? Will JD reinvest to actively expand new users? Will this growth mainly come from increased subsidies or improved product supply? Are there set target KPIs for the number of new customers to be acquired this year?

A: In response to consumer trends, JD has taken proactive measures over the past year to provide a better shopping experience and differentiated services, while expanding its ecosystem and focusing on cost-effectiveness. JD collaborates closely with brands and merchants to jointly develop new products. JD's current performance is in line with expectations, and in 2024, the focus will mainly be on executing and optimizing existing strategies rather than making major adjustments. Continuously enhancing user experience and service quality to further solidify user loyalty and trust on the JD platform. Optimizing procurement costs, enriching the supply of low-priced products, enhancing price competitiveness; while continuing to expand the merchant base and increase product diversity. It is expected that in 2024, a series of economic stimulus plans and consumption promotion policies will be introduced, which will benefit the development of advantageous categories such as JD. We hold an optimistic view on this year's overall retail sales and are confident in maintaining a fast growth rate to continue gaining market share.

JD will actively drive user growth and increase purchase frequency, achieving high-quality growth by improving user experience. JD will continue to increase product diversity, promote a low-price strategy, and expand the product pool for users in lower-tier cities to meet their shopping preferences. These strategies help enhance the efficiency of product matching and user retention. JD continuously improves services, ensuring a seamless shopping experience for users, including doorstep pick-up services for returns and lowering the free delivery order amount threshold. Subsidies and other marketing activities are tools for user operations and should be used in a targeted and disciplined manner. In the fourth quarter, JD saw healthy growth in user numbers, including steady growth in new user experiences and existing users. Purchase frequency among users in lower-tier cities also accelerated, especially among existing users. User satisfaction has improved, and the proportion of inactive users on self-operated and marketplace platforms has decreased year-on-year. User growth momentum was maintained in the first quarter of 2024. JD was selected as the exclusive interactive partner for the Chinese media group's Spring Festival Gala, attracting a large number of new users through the program. JD holds an optimistic view on user growth for the whole year.

Q: Consumer sentiment in 2024? How do you view the trends in different product categories? Thoughts on the competitive environment?

A: Despite signs of recovery in the consumer market, people's purchasing power and confidence still need further improvement. In the first two months of 2024, the national economy is recovering, thanks to the expected effects of micro-stimulus plans and consumption promotion policies. The company is confident in its business model, which aims to provide more cost-effective high-quality products and services to meet diverse needs in various shopping scenarios. From an industry perspective, the proportion of physical goods in online retail sales continues to grow. Some industries have high penetration rates, while others such as supermarkets, furniture and home furnishings, and automobiles still have significant room for improvement. In 2023, the company continued to maintain its leading position in the electronics category and achieved a faster growth rate than the overall market. Despite the challenges faced by the industry last year, the company is confident in maintaining a growth rate faster than the industry in these categories, especially considering the government's efforts to promote consumer goods and stimulate the consumption of electronic products.

With various participants adopting different strategies, competition in the supermarket category is expected to intensify. JD's supermarket business underwent adjustments in the past year, focusing on core operations, improving supply chain capabilities, and enhancing internal fulfillment efficiency through warehouse network reforms. These strategies are gradually proving effective, with the supermarket category showing a positive growth recovery trend. The development of these two sectors relies more on the growth of third-party merchants. Due to JD's unique business model, different approaches will be taken for the upgrade of these two sectors. Currently, JD's open ecosystem strategy has achieved some initial success, with users increasingly recognizing JD Fashion and JD Home. Supermarkets, fashion, and home are the two key categories JD will focus on in 2024. The retail, supermarket, and consumer markets in China are recovering, with various platforms and business models coexisting. JD sees itself as a retailer and believes that this market is quite fragmented. The key to long-term success lies in meeting user experience and establishing win-win cooperation with various partners. JD will continue to execute its strategy, strive for market share, and maintain an optimistic attitude towards the changes made in the past year, believing that these changes will gradually prove effective. Last year, the JD team proposed innovative tactics and technologies to improve conversion rates and reduce operating costs. JD firmly believes that by steadfastly executing established strategies, the expected results can be achieved. We position ourselves as a supply chain company, based on a supply chain-oriented positioning.

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