Below is the summary of JD's Q3 2022 conference call, for financial analysis please see《 ** Can JD Maintain High Profits Despite Growing Pains?》。**

1. Management Report

1. Users: In Q3, JD's active users reached 588 million, mainly driven by a net increase of over 10 million core retail business users, which also continued to maintain a double-digit YoY growth in DAU. Overall user structure and quality have also significantly improved, with faster growth in repeat buyers and plus users of retail business, continuing to increase their proportion among all users, driving the average shopping frequency of users.

2. Agricultural Products: JD stimulated a lot of farmers and agricultural product sales growth during Double 11. Nearly 10,000 kinds of agricultural products recorded a turnover of over RMB 100,000. It vigorously promotes the positive cycle of rural revitalization from high-quality agricultural products to consumer upgrades to farmers' income increase.

3. Merchant Growth: In Q3, the number of third-party merchants in JD's open retail ecosystem has steadily maintained a YoY growth of over 20% for seven consecutive quarters, and sales of fashion home, sports and outdoor categories have also maintained a good growth trend above the industry average. With FENDI joining, JD becomes the first enterprise to cooperate comprehensively with nine top fashion brands under LVMH.

4. JD Supermarket has accelerated the construction layout of national pavilion projects. In addition to the more than 70 national pavilions that have already been opened, pavilions of nearly 20 countries went online during Double 11, providing consumers with imported specialty products from all over the world.

5. Local Retailing: JD's full-channel local retailing business has maintained a fast development momentum, and the "hourly purchase" business continued to achieve triple-digit YoY growth and has basically covered large chain supermarkets nationwide. During Double 11, JD Daojia and Hourly Shopping united with over 200,000 full-category physical stores of supermarkets, convenience stores, mobile digital, makeup and home, maternal and child, pets, etc., connecting online and offline, and providing nationwide same-day delivery service for full categories to consumers in over 1,800 districts and counties.

6. JD Logistics: JD Logistics' external integrated supply chain income and customer number continued to maintain double-digit growth in Q3, and external income accounted for nearly 70%. JD Logistics Air officially launched in Q3. In the future, logistics air will strengthen the ability of JD Logistics' integrated supply chain logistics services, and promote the cost saving and efficiency increasing of the entire supply chain.

2. Q&A

Q1: With regard to JD's retail business, what is the company's plan to balance maximizing growth, low prices, and healthy and stable profit margins next year?

A1: This year, we have focused on the main strategic direction, and the adjustment seems to be very timely. Specific to the retail strategy, the four major strategies that will not change easily are: improving supply chain capabilities, sinking in the market, opening up ecosystems, and doing local retailing. In terms of categories, the growth rate of DSC categories in the third quarter has declined compared to before, with the impact of the epidemic still being quite evident. However, at the same time, DSC's business profits and category management capabilities have reached a new level. The penetration rate of DSC users on the main site has exceeded 50%, and the growth in the number of consumer users is much higher than that of the company's entire market. Of course, we have also done a lot of innovative layouts for local business and sinking markets.

Q2: Recently, logistics have been greatly affected by the epidemic. How much impact will this have on consumer experience? Regarding short-term GMV and revenue growth, how should we understand the issue of logistics?

A2: Since September, the stationary rate of JD's fourth-level addresses has exceeded 17%, the highest number in three years. Of course, this 17% does not represent the influence of order quantity, but it is enough to see the degree of influence on logistics.

However, JD's data ranks first in the industry in the update of logistics performance released by the State Post Bureau. Our supply chain capabilities built over many years have enabled us to continue to win consumer recognition in difficult situations.

Q3: Can you share with us the latest situation on different categories such as mobile phones, home appliances, fast-moving consumer goods, clothing and other categories in the near future?

A3: Combined with Double 11 data, the cancellation rate of orders is indeed slightly higher than in previous years (due to the difficulties in delivery in some cases or longer delivery times). However, JD's consumers have the habit of certain shopping, which means that the cancellation and return of orders will be higher in impulse and interest-based shopping.

In terms of categories, the categories that showed better growth rates in the entire third quarter are home appliances, fresh produce, health, fitness, pets, as well as JD Hour Shopping City Business, and other full-channel businesses, whose overall performance is better than the entire industry. Categories that did not perform well mainly included mobile phones and beauty, but with the gradual improvement of new machines since the middle and late September, this trend will continue into the fourth quarter. For DSC categories, the impact on such categories as wine and maternity and child products was greater due to the limitations of the entire consumer scene. This year, some long-term loss-making categories will be adjusted.

In addition, there have been very positive adjustments in the prevention and control policies of COVID-19 recently, which can help the entire economy to develop better and the supply chain to recover as soon as possible. However, this will take time, and the impact of the epidemic on consumer sentiment is still quite severe in the short term. Therefore, in the short term, we recommend a more conservative expectation for the topline.

As time goes on, we believe that consumer sentiment will gradually improve. I think we will see some positive signs in the fourth quarter of 2022 and beyond.

Q4: If the relaxation of anti-epidemic policies next year could bring further consumption recovery, what adjustments or changes will the company make under existing circumstances?

A4: It can be confirmed that we are currently preparing for the recovery, and the worst moment has basically passed. However, what is uncertain is the specific speed and strength of the rebound. At the beginning of this year, when we communicated with many brand merchants, we found that almost all of them were more concerned about profit. The attitudes of brand merchants in various categories towards next year will impact the strategies we will adopt next year, whether it be in terms of profit or growth, and we cannot provide a clear answer at the moment.

Q5: If the company may choose to synchronize the improvement of profit with the increase of income and GMV next year given the premise of the overall consumer recovery (which would be very significant)? Or would the company reduce profit slightly to seek top-line growth if the overall social recovery is more apparent?

A5: Regarding this year's profit situation, the growth in JD's profit over the years is mainly driven by two aspects:

First, the change in the category structure - the proportion of high-margin categories is increasing, and the increase in service income is an important change.

The second is the cost-saving and efficiency-increasing measures that everyone has mentioned. However, the most important improvement in profits this year should come from cost reduction in these measures. Looking ahead to the next few years, the focus will be on "efficiency improvement."

Q6: As for same-city retail, it is currently developing very strongly. How do you see the long-term trends and development space of same-city retail in the future? After some integration adjustments following the merger with Dada, what are the areas in which synergy can be achieved?

A6: JD's entry into same-city retail is based entirely on user needs, not opportunities for income growth. We will use the supply chain to understand same-city retail. Different companies have different perspectives on same-city retail, and we first approach it from the perspective of KA's supermarket chain. As for categories, we will first focus on the 3C and supermarket convenience store categories.

Brand merchants are our relative advantages in same-city retail. Because in B2C business, we have had large-volume and multi-year cooperation with brand merchants.

To take Apple as an example, when Apple's new products were released in late September, several same-city retailers and companies took this opportunity to carry out marketing. However, our sales data during the same period ranked second seven to ten times more than them, and we did not carry out any marketing.

Q7: Can you talk about JD's initiatives regarding the integration of the digital and physical economy?

A7: First, this year, we proposed the concept of a "responsible supply chain." We not only guarantee the stability and reliability of our own supply chain but also hope to promote digital transformation throughout the entire supply chain and industrial chain through our capabilities.

Our supply chain serves over eight million active enterprise customers, including 90% of the global top 500 companies and over 70% of specialized and innovative companies in China. We also provide professional services in specific industries such as manufacturing and energy.

Our supply chain connects millions of stores in more than 300 cities throughout the country. We not only help them solve the problem of the last mile of sales and service but also provide support and service for the first mile. We bring flow and income growth and cost and efficiency reduction to small and medium-sized stores.

When cooperating with these small and medium-sized enterprises, we do not adopt a profit division model but rather work together to reduce costs, and we earn a reasonable profit. Finally, our rural revitalization plan that we launched 20 years ago has driven hundreds of billions of dollars in output and helped millions of farmers increase their income. We should also have hope of achieving the goal we set years ago to exceed 10 trillion in output for three years.

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JD's Q4 faces even greater pressure? This year we will cut costs and improve efficiency next year.