Earnings Transcript for DADA - Q2 Fiscal Year 2024

Operator: Good morning, ladies and gentlemen and thank you for standing by for Dada's Second Quarter 2024 Earnings Conference Call. At this time, all participants are in listen-only mode. After the management’s prepared remarks, there will be a question-and-answer session. As a reminder, today's conference call is being recorded. I will now turn the meeting over to your host for today's call, Ms. Caroline Dong, Head of Investor Relations for Dada. Please proceed, Caroline.

Caroline Dong: Thank you, operator. Hello everyone and thank you for joining our second quarter 2024 earnings conference call. On the call today from Dada, we have Mr. Henry Jun Mao, CFO. Mr. Mao will talk about our operations, company highlights and the financials. He will be available to answer your questions during the Q&A session. Before we begin, I'd like to remind you that today's conference call contain forward-looking statements. Please refer to our latest Safe Harbor statement in the earnings press release on our IR website which applies to this call. Also, during this call, we will discuss certain non-GAAP financial measures. Please also refer to our earnings press release which contains a reconciliation of non-GAAP measures to the comparable GAAP measures. Finally, please note that unless otherwise stated, all figures mentioned during this conference call are in RMB. It is now my pleasure to introduce our CFO, Mr. Mao. Henry, please go ahead.

Henry Jun Mao: Thank you, Caroline and thank you all for joining us. In the second quarter of 2024, we delivered high-quality results. For JD Now, both monthly transacting users and orders through the JD App recorded over 100% year-on-year growth in the quarter. Meanwhile, the penetration of JD NOW among JD users continue to increase sequentially. For Dada NOW, our local on-demand delivery platform, revenue growth in the first half of the year exceeded 50% year-on-year. Driven by the overall improvement in operational efficiency, our non-GAAP net loss margin narrowed sequentially in the second quarter. Specifically, Dada Group's total net revenues in the second quarter were RMB2.3 billion. The year-on-year change was mainly due to the continued review and adjustments of the JD NOW business starting from the beginning of this year. Net revenues from JD NOW were RMB912 million in the quarter. Net revenues from Dada NOW increased by 47% year-on-year to RMB1.4 billion. In the first half of the year, net revenues of Dada NOW increased by 51% year-on-year to RMB2.6 billion, mainly driven by the continuous expansion of new customers and the increased penetration of existing partners in our KA business. Non-GAAP net loss in the second quarter was RMB142 million, sequentially improving by RMB53 million. This was mainly due to our strategic refocusing on core businesses which is gradually bearing fruit. Non-GAAP net loss ratio in the second quarter was 6.1%, sequentially narrowing by 1.8 percentage points. Now let's go through the operating highlights for 2 platforms

Operator: [Operator Instructions] Our first question is from the line of Thomas Chong with Jefferies.

Thomas Chong: My first question is about consumer sentiment. Can management update about the trend in recent months? And my second question is about competitive landscape. How we should think about it over the next couple of quarters? And can management comment about the business trend for JD NOW and Dada NOW in the second half?

Henry Jun Mao: Thank you, Thomas, for your question. As we shared on our previous calls for JD NOW, we focus on the overall consumption of willingness and trend. On the willingness front, in the second quarter, online sales of physical goods grew by 6.4% year-on-year on last year's high base and the year-on-year growth rate in July slightly increased to 8.1%, reflecting the continuous and stable recovery of the overall consumer confidence and willingness to spend. In terms of consumption trends, we continue to observe growing consumer demand or convenience across various categories. As an on-demand retail platform, we are actively expanding high-quality supply across a wide range of categories to provide consumers with an increasingly rich selection. On the other hand, we continuously optimize the fulfillment experience and reinforce the mindset of quality and speed. Therefore, we firmly believe that the penetration rate of on-demand retail and overall social retail will continue to increase. And as you may know, since the beginning of this year, when we started to fully embrace the JD.com ecosystem and drive the upgrade of user experience as JD NOW has maintained rapid growth in GMV and the user base within the JD App channel. We believe that our competitive edges lie in the richness of offerings on the supply side and a big integration with JD.com on the demand side, driving us to increase our market share with the on-demand retail industry as we ride on the industry growth. On the supply side, we've continuously expanded cooperation with a wide range of local merchants across all categories such as chain supermarkets, convenience stores, brand authorized stores, et cetera. With extensive partnership with merchants ensures a rich supply of high-quality products on our platform which is the foundation of gaining the trust of continuously attracting and retaining customers. And on the demand side, our quarterly paying users currently account for only a mid-single-digit percentage of JD's overall user base, leaving ample room for further penetration among JD.com users. Given that JD.com users inherently have clear shopping purpose and are more demanded in terms of product quality and delivery speed which fits the profile of on-demand retail user as well. We believe that converting JD.com users into on-demand retail users as more efficient as we remain confident in the long-term continuous improvement of our penetration rate among JD.com users. And for -- I don't know, I think you can see in terms of order volume and revenue growth in the first half of 2024 but now significantly outperformed the on-demand delivery industry and the major third-party on-demand delivery platforms, meaning that we are continuously gaining market share. Dada NOW has significantly advantaged in terms of network coverage and delivery costs, giving us confidence in maintaining above-industry growth rate in the long run. In terms of the network coverage has already covered more than 2,600 cities and counties with an annual active rider count approaching 1.3 million and the cumulative number of the registered riders and tens of millions. So this ensures sufficient delivery capacity in both high-tier and low-tier cities. And in terms of the delivery cost, as to the cloud-sourced delivery model, the average delivery cost per order for Dada NOW is lower than that of other major third-party on-demand delivery platforms on a like-for-like basis. And JD NOW has always been committed to providing users with on-demand retail shopping experience of quality merchandise and instant delivery in order to meet the development of the on-demand retail industry. So as I mentioned earlier, at the beginning of the year, so we have a comprehensive review and adjustment of the business, we have established a strategy of focusing on user experience, fully embracing with JD.com ecosystem and further deepening our strategic partnership with JD.com. To this end, for the first half year, we have been optimizing the user experience and enriching supply through a series of measures such as the delivery fee waiver program and the brand upgrade with the aim of accelerating the penetration among JD.com's vast user base and further enhancing the user mindshare and brand influence of JD NOW. In this quarter, we see a strong trend of improvements in core operational metrics, as introduced on our average monthly transacting users and orders through the JD App grew by over 100% on a year-over-year basis, accelerating by over 30 percentage points from Q1 '24. So in the long term, we believe that there is significant room for the on-demand retail industry to increase its penetration rate which is still in early stage of development with huge upside and we are firmly committed to investing in our business. And for Dada NOW, over the past 2 years, we have made continued significant progress in increasing market share and improve profitability; in particular, our year-on-year revenue growth for the first half of over 50 percentage significantly outpaced the industry growth. So -- and for Dada NOW, we are currently in the process of brand upgrade. So Dada NOW will be renamed as Dada NOW, capitalized NOW, to strengthen our brand image as a high-speed, high-quality delivery service provider.

Operator: Our next question is from the line of Alicia Yap with Citigroup.

Alicia Yap: Two questions here. One is for your JD NOW order demand, can management share with us how the user consumption pattern in terms of the category? So whether you have seen cutback on the non-FMCG category versus the FMCG category. Just wondering, are there any pressure for the take rate across the different categories, given the macro situation. The second question -- follow-up. So thank you for giving a lot more disclosure starting this quarter. So besides the revenue, just wondering if management can also remind us the gross profit trend for each of the segments for the Dada NOW. For example, the key customer, the SME in terms of the last-mile customer. So wondering if you can provide some of the segments and if you see any of the segments that actually have a bigger macro headwind.

Henry Jun Mao: Thank you, Alicia, for your questions. So I just want to add that starting from the beginning of this year, our company has proactively undergone business streamlining and adjustments, concentrating on the core businesses and the channels while terminating some inefficient operations in the channels. So consequently, JD NOW has faced challenges in terms of overall GMV and revenue growth in the short term, nonetheless, we anticipate that these adjustments will pave the way for sustainable high-growth, high-quality growth in the long run. Well, we are encouraged to see the rapid growth of users and all the volume on the JD App channel. So to your question, with years of experience to the supermarket category, we have firmly established our brand in the minds of consumers. Compared to other categories, the supermarket category is more mature and stable. Within this category, we've noticed a growing appeal of retail models like club warehouse stores and convenience stores among consumers. So in response, we are actively thinking collaborations with this models to fulfil consumer need. For example, in the convenience store category, we continue to deepen and extend our cooperation with top brands in the second quarter bringing for more than 5,000 Meiyijia stores and more than 10,000 Lawson stores in July. The improvement in supply also led to incremental orders for JD NOW. And in recent years, non-supermarket categories have seen a consistently higher growth rate than supermarkets largely due to the rising on-demand retail penetration rate in these sectors and evolving consumer mindshare. This trend has continued into this year. For instance, our emerging categories such as flowers and beverages registered rapid growth during the second quarter, thanks to our supply expansion efforts and a series of festival famed marketing campaigns which resonated well with consumers. So we are confident that as consumers increasingly value convenience across all categories and merchants prioritize on demand retail channels, every category holds significant growth potential in the future for that for JD NOW. And to your question regarding the UE [ph] for Dada NOW, in terms of business development trend of Dada NOW, KA business is still the focus of this year. So for the KA business, we will meet the needs of our customers with high-caliber fulfillment services to increase our market share. And for both the KA and SME business, we will closely monitor the development of the industry and our industry peers and its top line growth and profitability improvement. The demand -- in on-demand delivery service remains fast growing across restaurants and beverage, supermarkets and other categories. Dada NOW's performance has been resilient. I hope that answers your question.

Operator: Our next question comes from the line of Jiulu Li with CICC.

Jiulu Li: I think I have two questions here. The first one is about financial guidance. As we see, Dada NOW has a relatively higher growth JD NOW revenue growth may face some pressure here. From a financial perspective, can we share more color about our like growth target or financial guidance cost or by business? And the second one is about the cooperation with JD? Do we have some new developments in our cooperation and understand that in the long term, we still aim to penetrate like 50% of JD users? In addition, what are your short-term, mid-term and even long-term goals ideas and how to quantify this? And also survey about the management change, we noticed management change this month, are there any change to the company's strategy? And can we share more about it?

Henry Jun Mao: Thank you, Jiulu, for your question. So regarding the outlook of the business plan, I think, as I mentioned repeatedly earlier, like starting from this year, we have think through the business review and adjustment which has posed a challenge on JD NOW's GMV and emission revenue growth in the short term but where we have seen some fruitful results with focus of embracing more with JD.com ecosystem and the user base and the order volume growth on JD App has partially offset the impact of our business streamlining. So especially for this -- for the second quarter, excluding the impact of business adjustment, our GMV was largely flat on a year-over-year basis. And also, the GMV from JD App channel experiencing a year-over-year growth of over 20%, so the channel focus shift also temporarily affected our advertising monetization rate. Advertising revenue for JD NOW was primarily generated from the independent JDDJ App previously. However, since the beginning of the year, we have been strategically converting to the JD App channel. So as a result of the traffic and GMV of independent JDDJ App has shown a continuous decline attracting advertising monetization. On the other hand, although the traffic and the GMV in the JD App channel have significantly increased. We are still focusing on calculating user mindshare and penetration, so at the same time, there is room for improvement in the sophistication of location-based technology, advertising, products and marketing solutions within the JD App channel which require further refinement and merchant education. However, in the long run, we are fully confident in advertising monetization potential of on-demand retail within the JD App channel and believe that a healthier business structure following our business adjustments will pave the way for the long-term sustainable growth. And for Dada NOW, thanks to the strong momentum of our restaurants and beverage case, our order volume and revenue achieved rapid growth continuously gaining market share in the on-demand delivery industry. Dada NOW has significant advantages in terms of network coverage and the delivery cost gives us confidence in maintaining above industry growth rate in the long run. So overall, I think currently, management are prioritizing user and order volume growth with a focus on penetrating more JD users and enhancing their mindshare of on-demand retail. In the long run, the improvement in users repeat purchase and the growth of order volume along the GMV will contribute to commission revenue and better monetization of advertising business. And on the bottom line front is our confidence in the industry's potential and our competitive advantages. We remain optimistic about achieving breakeven and profitability in the long term. And speaking of the cooperation with JD.com, this quarter, we continue to fully embrace with JD ecosystem, accelerating our user penetration and mindshare growth. In May, a new JD NOW section was launched on the home page of JD App, initially covering 39 cities and it focuses on high-frequency essential categories such as coffee and milk tea, convenience stores, fresh produce markets and emergency digital products offering consumers on-demand shopping options across all categories with delivery as fast as 9 minutes. In June, the average daily paying users of the JD NOW section had approached 10% of the overall users of JD NOW through the JD.com app and the 30-day repurchase rate of users in the JD NOW section exceeded 60% which is also higher than that of users through the JD.com app. So we think it is a sign of initial results that JD NOW section has achieved in terms of user penetration and cultivating consumer habits. And as of yesterday, we further expanded the geographical coverage of JD NOW section to nationwide, providing more JD.com users with their on-demand retail service. Next to the increase in exposure brought about by the newly launched JD NOW section as well as the continuous optimization of CTR and conversion rates at various entry points. So in this quarter, the penetration rate of JD NOW's quarterly paying users among the JD user base reached middle single digits with both year-on-year and quarter-over-quarter growth. So we are also confident in the further improvement of user penetration in the future. And Dada NOW also support the JD Logistics is mostly handling the order peak during the June 18 shopping festival, providing flexible delivery capacity for smart pickup and the last-mile delivery services. And to your question regarding the company strategy. As you can see, the announcement regarding the management change, so Mr. Kevin Guo has become the Chair of the Board of Directors of the company, providing high-level strategic planning and the consultation to the company. The strategy of both JD NOW and Dada NOW has never changed. JD NOW has always been committed to providing users with on-demand retail shopping experience of quality merchandise and instant delivery in order to lead the development of the on-demand retail industry. And also, Dada NOW, we are continuing to focus on providing customers with stable and efficient on-demand delivery services. And also, as I mentioned, restaurant and beverage KA business is a top priority of this year.

Operator: Jiulu, this is the operator. Do you have any more questions? Ladies and gentlemen, we have lost the line for Jiulu. And as there are no further questions at this time, I will now hand back to Caroline for closing remarks. Caroline?

Caroline Dong: Thank you, operator. In closing, on behalf of Dada's management team, we'd like to thank you for your participation in today's call. If you require any further information, please feel free to reach out to us directly. Thank you for joining us today. This concludes the call.

Operator: Thank you. That concludes our conference for today. Thank you for participating. You may now disconnect your lines.