To The Moon

Q&A（Question-and-Answer Session）is a session after the company's prepared remarks where institutional investors and analysts ask management questions. In this dialogue, you may find some valuable information that might affect the stock price in the following weeks.

Now let's look at some key points from JD.com Q4 2022 Q&A Session Transcript $JD.com(JD)$ $JD-SW(09618)$

Q:My question is about the RMB 10 billion subsidy program, we just launched. We understand that JD is trying to rebuild the low cost to make sure our customers throw this RMB 10 billion subsidy program. So just want to check, if there's any matrix that we can follow, to test whether or not this program is successful, and if our competitor is trying to follow and add the investment in these subsidy programs as well. So, how should we expect the RMB10 billion subsidy programs, the financial impact in the short term and the long term on JD.

A:JD's discount program has recently draw a lot attention and I believe, a lot of our analysts don't want to know more so, I would take on this question. First, I want to stress that JD's business philosophy in our 20 years of development, centered on cost efficiency and user experience, by continuously optimizing cost and efficiency, we are able to create superior product clients and services. This principle remains unchanged.Price is a very important element in user experience. In the past all e-commerce players, including JD.com focused our resources on grand promotion, which created a phenomenon of no promotion, no mining, or no promotions, no sales. This is by no means an ideal situation for anyone, also able and stable for the better coordination and efficiency of the product supply chain.

What we hope to do is to transform our marketing strategy from focusing on mixed sales to creating an environment of everyday low price, gradually shifting people shopping behaviors and driving up consumption activities on a daily basis. To return to the fundamentals of retail, we want to contribute to more stable development of the supply chain of the industry and more orderly growth of brands and merchants.So you've noticed that several channels and services have already been launched on JD's online, including the compensation for higher crisis and free shipping above 9.9 grand and price guarantee program as well as the high number 1 billion subsidies program. And for this program, it's one of the many programs in our aim to better our pricing strategies. And all these discount programs are not merely slogan, we would like to provide genuine and tangible benefits to our customers.

Now we've planned RMB 1 billion worth benefit for the first month, which is a collective marketing investment put together with our brand partners and merchants on our platform. We understand that only by providing users with true benefits can we make them stay and attract more brands and merchants and in the same way only by better serving the users can we better serve the merchants. And these programs will have a limited impact on our margins, and we will keep it in a controllable level and Sandy can share with you more on that.

And to create our low-priced image, we have been doing several things. First from the supply side, we continue to improve our open ecosystem to provide more choices, more diversities for prices and categories also including the products from the industrial belts and the white label product for our customers.And at the same time, we continue to enhance our supply chain efficiency to generate the scale effect and to produce more money savings for our customers. And also through our different kinds of marketing activities, we want to let our customers have a very tangible and true feeling about the highly cost-effective product offering on our platform both from our first party and the third-party.

So these programs are still in their very early stage and have already generated some fruitful results, and in certain aspects have already exceeded our expectations in terms of driving -- activating more users, existing users and new users and bring more traffic et cetera. And for all these we are still making internal adjustments and we'll also see how our partners and our consumers receive on it. So overall, we believe this is a meaningful thing for JD and also for this industry.And in terms of the indicators for the success of the program, we will continue to focus on the users and the users' performance through these programs such as the activities of the existing users and they're returning and the new user acquisitions and users ARPU and their healthy shopping behavior on our platform there are many arranged users.

And last I want to stress that of China's largest supply chain-based technology and service provider JD's capabilities and the competitiveness exist in our years accumulation of our supply chain capabilities, our joint efforts used together and a winning situation with our business and brand partners and our long-term user forecast business philosophies instead of a just providing giving some benefit on the superficial level. So we remain very confident to continue to enhance our user experience and their value.

Q:Can management first hear how you think about the China consumption or how retail sales may trend this year after this reopening?

A:With the corporate control measures out of sight, we've seen the macro economy is on the recovering momentum from the consumption side. We see in the short-term the social contact related to consumption is recovering quicker, including like restaurants and tourism. We've seen some pent-up shopping demand.

But overall for our essential or like a recovery in full, it will come from the recovery of people's confidence, it's very important now to review consumers' confidence and their confidence will recovery, means, the recovery of their income, which requires the resumption of production of many enterprises especially the maximize demand of SME. And currently, we have seen our government has shown out a lot of economic stimulus measures and policies and many enterprises has reduced the production and all these factors will take some time to pass on to the resident income and for the recovery of consuming consumption confidence and spending power.

For now we see the recovery of consumption is underway. And there are imbalanced pace here and there. So it filled some time for a recovery in full. And at the same time, I want to add that we're talking with different brands and we have a more consistent view on that. We continue to keep our cautious optimism on the recovery. And we believe that in the second half of the year, the recovery speed will be better.

Q:In our kind of RMB 10 billion subsidy program and this background, how will we balance 1P which is our self-operated business versus marketplace growth and the implications to margins given the different margin profile for these two segments of the business?

A:Sharing a little bit on the relationship between 1P and 3P, I see it as competition relations and it will be triggered by the needs of the users and which mode will eventually prevail depends on the prices and the products and services will better meet the needs of our customers. So this is a very open competition.And our 1P business have quite strong advantages in several categories based on our years of accumulation and understanding our supply chains. And we've been limited the selections of the product. We try to pursue the best consumer experience.And as there are increasing number of users and they're diversifying demand shopping on JD platform, we need to expand and enrich our supply of products on our platform.

So, you've also noticed that in the past couple of quarters, there's a strong increase of merchants' number on our platform. And also, we rolled out a so-called Spring Dawn project, which faced the individual merchants to welcome them on our platform. These are all the efforts we made on sort of a JD supply side reform to meet the diversifying needs of our customers.And also, including our efforts made on our traffic allocations and our algorithm upgrading as well as the one-stop program, maybe you've already heard about it in the beta [ph] stage now, and all of this effort is made to improve user’s experience and to center on their need to make all our adjustments. So this is -- for this year, the biggest and determined actions we will carry on. Of course, this also needs time to pan out.

On the margin impact, actually so, on the margin impact, if we look at by GMV, I would say, it doesn't make a significant difference either 1P or 3P, as JD always try to maintain reasonable take rate. We never try to over-monetize our users or business partners in any particular category or models. Of course, the change of 1P to 3P mix will affect our accounting margin. If our strategy of improving the 3P can be proved to be successful, it will definitely be positive to our accounting margin improvement.

The above Q&A are highlights that are edited for brevity. Click here for the full JD.com Q4 2022 Earnings Call Transcript.​​​​​​​​​​​​​​

If you want to know more details, you can click here to re-watch the JD.com Q4 2022 Earnings Conference Call