JD.com, Inc. (JD) Q4 2021 Earnings Report, Transcript and Summary

Hello, and thank you for standing by for JD.com’s Fourth Quarter and Full Year 2021 Earnings Conference Call. [Operator instructions] Today’s conference is being recorded. [Operator instructions] I would now like to turn the meeting over to your host for today’s conference, Mr. Sean Zhang, Director of Investor Relations. Please go ahead.

Thank you. Good evening and good morning, everyone. Welcome to our fourth quarter and full year 2021 earnings conference call. Joining us on the call today are Our Mr. Lei Xu, President of JD.Com; and Ms. Sandy Xu, our CFO. For today’s call, Lei will kick off with opening remarks and Sandy will discuss the financial highlights. After that, we’ll open the call to questions from analysts. Before we continue, let me remind you of – today’s call will include forward-looking statements. And 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’ll discuss certain non-GAAP financial measures. Please also refer to our earnings 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 call are in RMB. And now I’d like to turn the call over to our President, Mr. Xu.

[Foreign Language] Hello everyone. This is Xu Lei. Thank you for joining jd.com 2021 fourth quarter and full year earnings call. JD continues to deliver high quality growth, a majorly evolving macro consumption, an industry environment in fourth quarter. Total revenues recorded at 23% year-on-year growth in Q4 on a high comp and grew nearly 28% for the full year of 2021. This shows that we continued to outperform the industry and contributed to the high-quality expansion of China’s consumption. At the same time, we achieved a healthy profit growth in this quarter, thanks to improvements in efficiency driven by technology. Our progress demonstrates the increasing appreciation JD has earned among consumers and business partners. It also validates that good type of real economy-based enterprises have become important driving forces for growth in the retail industry and up and downstream entities. JD’s business and investment strategies have always centered on users and business partners through different economic cycles, and this [indiscernible] our strategic determination and focus. [Foreign Language] First, in terms of users, we saw synchronized increases of both user number and quality. In 2021, annual active users reached $570 million, maintaining efficient and healthy growth, while the overall consumption industry underwent recovery. More importantly, we saw user the shopping frequency, range of categories purchased from us all [indiscernible] improved in the fourth quarter. This was driven by our stronger user engagement and omnichannel initiatives. Here, I would like to reiterate two points of view that are shared support. First, JD’s goal is not to chase high growth in single operating financial metrics, in fact, we focus on healthy and sustainable growth of our business as a whole. Second, as China’s Internet industry developed into a more mature stage, the traffic-driven growth model driven by subsidies is being replaced by the use of quality and operating efficiency-oriented model. In such a new environment, we believe that JD’s user growth and business operations are facing so-called [indiscernible]. Time is on our side. We have much to do as there are still many users need to be explored and satisfied. We always set higher spend to goals to third quarters. [Foreign Language] And for our business partners, we have been striving to build an open and integrated ecosystem to meet the diversified needs of both suppliers and third-party merchants. In JD’s ecosystem, it is very common for brands to run both 1P and 3P businesses at the same time as different models bring them different values. We are glad to see that 1P and supply chain have become mainstream topics in this industry in recent years with more companies working on such initiatives. We are willing to share our experience to contribute to the industry’s healthy development. However, we have to point out that we don’t think 1P nearly means product procurement or even advancing payments for securing inventories. We believe 1P is about building a comprehensive system of supply chain management. The strength of the 1P model is to provide high-quality shopping experience to users and raise operating efficiency along the supply chain. so that business partners can enjoy better capital and inventory turnover. [Foreign Language] In the time of uncertainty, JD has helped our business partners to cope with external changes with better operating efficiency and to lower costs, sharing stability and uncertainty with them. As a result, JD has gained increasing recognition from all kinds of business partners. In the fourth quarter, both the type and number of business partners in our ecosystem continued to expand. In particular, the number of 1P suppliers achieved double-digit percentage growth, while further expanding coverage across all product groups. The growth of third-party merchants also accelerated to the highest level in the past three years as we added more new merchants in Q4 than we did in the previous three quarters combined. We believe that a number of our business partners will continue to grow healthily in the future. Meanwhile, we have been constantly strengthening our win-win cooperation with our business partners. We further shortened inventory turnover days to the lowest level in the industry, despite the number of SKUs that we manage is now close to $10 million. Our accounts payable days also shortened, which helped improve business partners’ capital turnover efficiency. As such, JD has helped millions of online and offline suppliers and SMEs to gain their fair growth opportunities and a reasonable profit in support of the real economy. Going forward, we will cooperate with more partners, generate mutual benefits and facilitate each other’s growth. [Foreign Language] The healthy growth momentum of our foreign retail businesses of the quarter, our further enhanced supply chain capabilities and operational efficiency have put us in a strong footing to firmly execute our long-term strategy. Now let’s take a closer look at the recent development of JD Logistics and new businesses [Foreign Language] JDL achieved a series of milestones in 2021. Firstly, if total revenue grew rapidly and exceeded the RMB100 billion mark for the full year. Second, the long-term investment in JDL made in establishing integrated supply chain logistics services started to bear fruit as we served more external customers and expanded its total addressable market. This also led to better revenue structure for JDL as revenues from external customers grew at a faster pace and accounted for over 50% of total revenue for the first time on a full year basis. Our business partners can better focus on their core operations and achieve high-quality growth as JDL’s integrated supply chain logistics services helped to drive their overall efficiency and competitiveness. We are proud to see that revenues from customers using JDL integrated supply chain logistics services contributed over 70% of its total revenue for the full year. Moreover, driven by the expanding economies of scale and operational optimization, JDL achieved sequential margin improvement in 2021. In the future, JDL will continue to invest and upgrade its infrastructure capabilities and resources to provide larger scale and more diversified supply chain-based products and services to our business partners in China and abroad and further strengthening its industry-leading position as well as expand market share. [Foreign Language] On the new business, GMV, which focuses on lower-tier markets and took a series of iteration and optimization measures in 2021. By improving supply chain and fulfillment efficiency in lower tier market, particularly for fresh produce and general merchandise as well as lowering merchandise circulation cost, GMV provided better services to customers and help the local merchants generate more revenue with higher efficiency and cost of savings. Since the second half of 2021, GMV has led the industry in proactively focusing on selected markets as well as our efficiency and user experience to drive local supply chain capabilities and refinement of the UE model. As a result, we are seeing better supply chain efficiency and cost structure in our selected markets. In particular, fulfillment cost per order continued to come down, while Net Promoter Scores and merchant satisfaction levels further improved. We believe this is a sector that requires a long-term commitment over the next 5 to 10 years in order to build up supply chain infrastructure and gain consumer mind share. The inflated scale expansion driven by short-term marketing expenses are not sustainable. The recent industry trends also validates our view. [Foreign Language] JD achieved a healthy and sustainable growth across all business lines in 2021. We also opened up our supply chain and service capabilities to provide reliable and steady support to our business partners and consumers amid a challenging macro environment. JD has and will continue to develop new growth drivers for the industry and create greater value for the society. 2022 is the third year since the pandemic broke out. We are still in the midst of many changes and uncertainties and the competitive landscape in China is ever evolving and sometimes can be enhanced. Companies must grasp the core business logic and consistently deliver on their long-term strategy. In 2022 – and also 2022 in the 19th year since JD’s infection, throughout our history, we have never dropped long on short-term and local gains and losses. Our core business logic is clear. Our business model and strategic positioning have always revolved around consumers and business partners. The resilience of our business model has been proven many times in the past. We believe we have a highly differentiated core competence that will lead us to a healthier and more sustainable growth trajectory in the long run. The results we achieved in 2021 have also set a strong foundation for our growth and market share expansion in 2022. We truly appreciate all your trust and support along the way. This concludes my remarks. Now I’ll give the floor to Sandy.

Thank you, Lei. Hello, everyone. We are pleased to finish 2021 with another strong set of results in the fourth quarter. Well, 2021 brought many uncertainties in the macro environment, supply chain and the consumption industry. We executed and delivered on our strategic priorities, continued to gain market share with a robust top line growth and achieved a solid bottom line. The results see volumes across the strength of our supply chain based business model in creating value for both our users and business partners, and driving long-term sustainable growth of our business in 2022 and beyond. Our net revenues achieved 23% year-on-year growth to RMB276 billion in the fourth quarter and 28% year-on-year growth to RMB952 billion for the full year of 2021. We continue to demonstrate notable resilience in our business and presently outperformed industry growth despite the relatively soft consumption trend in recent quarters. Our funding top line growth comes alongside our proactive strategic priorities, improving user engagement and lifetime values. Our annual active user base reached a total of RMB570 million by the end of 2021. I think nearly 100 million users from a year ago. In particular, our quarterly average DAU grew over 25% year-on-year and hit an all-time high in Q4. This reflects the results of our strategic focus on improving user mind share and engagement. We are also gaining more wallet share from our expanding user base. As we increasingly become the go-to destination for consumers’ regular shopping, LTM GMV per user has been steadily changing up over time and increased year-over-year in every quarter in 2021, even as we continue to expand our total user base. Furthermore, our JD Plus members surpassed 25 million in the quarter and average member spending increased up by double-digit percentage points from a year ago. By end of the average annual spending of Plus members was 10 times as much as that of non-Plus numbers. The encouraging progress in high-quality user growth and improving user engagement validate our relentless focus on superior customer experience over the years. Our revenue base saw further diversification. In Q4, our net product revenues grew at a solid 22% year-on-year, while net service revenues grew faster at 28% year-on-year against a high comparable base. Over a two-year period, contribution from net service revenues increased from 12% to 15% of total revenue. Our marketplace and marketing revenues exceeded the RMB20 billion mark in a single quarter for the first time in our history in Q4, growing at 27% year-on-year. This is a testament to our ongoing improvement in our platform ecosystem. Logistics and other services revenues grew by 30% year-on-year in Q4, maintaining hyper growth momentum. Now let’s turn to our segment performance. First, in Q4, our core business, JD Retail delivered both solid top line growth and healthy margin improvement. JD Retail’s revenues reached RMB250 billion in Q4, growing at 21% year-on-year in the quarter. For the full year of 2021, JD Retail revenues grew 25% year-on-year to RMB866 billion. Category-wise, we continue to see resilience in electronics and home appliance category with 22% revenue growth year-on-year in Q4. The power of JD’s supply chain capability has been on full display against the global supply chain disruption. Our general merchandise revenues grew 23% year-on-year in Q4, outperforming the market amidst a challenging consumption environment. Order volume in our supermarket category has been consistently growing at around 30% two-year CAGR in every quarter in 2021. The strong growth of our supermarket category has helped drive more frequent user engagement and continued the greatest number of new users. Our 3P ecosystem also saw encouraging progress as more merchants appreciate the increased value add delivered by our ecosystem. We are pleased to see higher engagement and spending from our existing merchants. It’s worth mentioning that we added more merchants to our marketplace business in Q4 than we did in the first three quarters combined. Our omni-channel business has been growing rapidly as our offline stores and business partners including some – including home appliance franchise stores, FreshStar and 7Fresh as well as our O2O initiatives achieved close to 80% year-on-year GMV growth in the full year of 2021. Exciting progress in our omni-channel business further demonstrates JD’s position as a new type of real economy-based enterprise. It also bodes well for our growth in the coming years. Moving on to JD Retail’s profitability. Operating margin increased to 2.1% this quarter, up from 1.9% a year ago, thanks to the expansion in fulfilled gross margin. On a full year basis, JD Retail’s operating margin reached 3.1%, a 10 basis points improvement from a year ago and 32 bps improvement from two years ago. Our core business is well on track to realize sustainable margin improvement while optimizing for a healthy category mix and exploring new business strategies to expand our time in the long run. JD Logistics, or JDL, achieved remarkable milestones in 2021 and concluded the year with strong top line growth and sequential margin improvement. Its Q4 revenues grew by 28% year-on-year to RMB30 billion. On a full year basis, JDL’s revenues grew 43% year-on-year to RMB105 billion. This was mainly driven by the growth in the number of external integrated supply chain logistics customers as well as the increase in ARPU. Contribution of external revenues reached a historic high and accounted for 57% of JDL’s total revenues for the full year of 2021. We are proud to see JDL deliver margin improvement while quickly ramping up its external business. JDL achieved positive operating margin in both Q4 and the second half of 2021. These results also demonstrate JDL’s ability to both infrastructure utilization and improve operating efficiency while maintaining robust top line growth. Revenues of our new business segment accelerated its growth pace sequentially to 45% year-on-year to reach RMB8.2 billion in Q4, and grew 48% to RMB26 billion on a full year basis. Revenues of our Jingxi business grew over 14% quarter-on-quarter in Q4, mainly led by the Jingxi Pinpin business, which regained growth momentum after we proactively focused resources in selected markets in Q3 last year. We are committed to better allocating resources to improve our local supply chain capabilities, to empower a broader spectrum of our business partners, many of which are local SMEs and to serve new and existing customers. We will continuously drive innovation and improvement in the supply chain infrastructure while firmly committing to better UE for our new business. Moving to the consolidated bottom line. Our Q4 non-GAAP net income attributable to ordinary shareholders was RMB3.6 billion with non-GAAP net margin of 1.3%, up from 1.1% in the same period last year. Our full year non-GAAP net income attributable to ordinary shareholders was RMB17.2 billion, up from RMB16.8 billion a year ago. While we continued to deliver solid operational and financial results, we also increased support to our business partners in a time of uncertainty. We have consistently kept our inventory turnover well below 35 days, despite that the number of SKUs under our management continue to expand. We continue to share our efficiency gains with our business partners as we shortened the LTM account payable turnover days from 47 days a year ago to 45 days at the end of 2021. Our business partners highly appreciate the increased supply chain efficiency and faster turnover of cash and goods from their collaboration with us. As we are getting stronger, we are creating greater value for everyone along the supply chain. Our free cash flow for trailing 12 months this quarter remained healthy at RMB26.2 billion. At the end of Q4, cash, cash equivalents restricted cash and short-term investments added up to a sum of RMB191 billion. In summary, JD had a year of increased uncertainties and macro headwinds with remarkably resilient performance. This is a cumulative result of our 19 years of wavering efforts in building our core competence and committing to our right way to success business philosophy. I truly believe we have set a solid foundation for long-term sustainable growth. Looking ahead to 2022, while we remain mindful about the near-term macro volatility, we aim to continue to gain market share with a set of proactive sustainable and high-quality growth strategies and at the same time, remain on track of our long-term margin improvement trajectory. I would also like to take this chance to welcome our new shareholders, many of whom are open to join the journey with us soon. This concludes my prepared remarks. We can now move to the Q&A. Thank you.

Thank you. [Operator Instructions] And our first question comes from Ronald Keung from Goldman Sachs. Your line is open.

Thank you. Thank you, Xu Lei and Xu Sandy and team. So we’ve seen the recent macro weakness and Xu Lei talked about that and COVID disruptions, higher oil price. Just wondered what management, could you share just how do you see JD Retail growth this year? Whether given some moderation in general merchandise revenue that we’ve seen in the fourth quarter, what are the strategies for JD Supermarket and your marketplace. And with these in mind, any potential implications for margins this year? Thank you.

[Foreign Language] And this is Xu Lei to answer a question on the macro environment. We do face a slowdown microenvironment with a lot of uncertainties, such as the macroeconomic conditions and weak consumption demand and the rising price of raw materials on the supply chain and fierce industry competition and COVID disruption, and all this add has posed pressures on China’s retail industries. And in face of all these uncertainties, we continue to stick to our business logic and our strategies, and this will be carried out in the following three ways. [Foreign Language] And first, JD’s development has always been centered on creating unique value for our customers matters on the product, services and user’s experience, and this helped us to enhance the market share among our customers and deliver the sustained development – the sustained growth. [Foreign Language] And second, we pay high attention of our business partners, and in the time of uncertainty we are making full use of our capacities on supply chain to support our business brands and the merchants to help them on the financial and the good inventory turnover. So by all the support, they’re able to deliver predictable and stable growth under all these external changes. [Foreign Language] And thirdly, in face of those COVID challenges by leveraging JD’s fundamental capabilities on supply chains and warehousing, et cetera, we can maintain a stable sales momentum in those COVID-hit areas. At the same time, we are supporting the government and the people to provide the leading necessities to the people in need and to fulfill our social responsibilities. And all this effort has been largely recognized by the people, and by the government and further enhance our brand or our JD’s reputation in society. [Foreign Language] So, we are confident in our resilient business model and our core capacity from supply chains. And all this has proven to be viable in the past, and it will also help us to outperform the market. And for the outlook in the future, we will continue an optimistic attitude and to achieve sustainable and healthy growth on each different categories and different each business and also gain a greater market share. [Foreign Language] And also, I want to share my feelings and the facts as we pay a lot of visits to our business partners by the end of last year and early this year. They’ve all expressed that they will pay great attention and attach great importance to the collaboration with JD and have a high expectation on the collaboration with JD in the year 2022. [Foreign Language] And a few words on the supermarket categories, it has – a lot of changes are taking place. And our brand partners, they are feeling the pressures from the rising price from the upstream and also a fast change in consumption demand. And in the past few years, the traditional sales channel has been affected by various factors, and all this has brought a lot of uncertainty for the manufacturer’s operation. [Foreign Language] So, we’re going to address these categories in four aspects. First, to the consumers, we will focus on bringing new products and new categories to the new consumers and bring them quality products and build up their mind share, JD Super is their go-to place to buy supermarket category products. [Foreign Language] And on the cooperation with our brand partners, we will strengthen synergies with them on supply chain, on marketing and warehousing, et cetera, to deepen our cooperation and synergies on all aspects. [Foreign Language] And also JD Super is very important categories in our omnichannel strategies. It has the highest penetration rate across all the categories. And in the future, we will continue to collaborate with more and more business partners to develop omnichannel strategies in diversified shopping scenarios. And for the Supermarket categories, we continue to improve its supply chain and made a lot of innovations in this aspect such as our warehouse stores and other methods and other new innovations. And for this category, its profitability and continue to improve, and we are close to the breakeven point. [Foreign Language] And also on our marketplace and 3P ecosystem, we have done the following 4 efforts. And first is that we continue to do the refined management on our third-party merchants. And third – and second, we make efforts to help them to lower down their operating costs and alleviate their burden to run on our platform. And thirdly, we provide those two teams to help them to do better operations on our platform. And at the same time, we are also exploring more and more ways to support those small and medium-sized companies and brands to thrive on our marketplace ecosystem. [Foreign Language] And as mentioned that in this quarter, for the 3P merchants, their overall number even more than the Q1 to Q3 combined and they have demonstrated very high engagement during the single-day grand promotion. Thank you.

So this is Sandy. I can add some color outlook for JD Retail. So first, in terms of the macro-environment consumption, so far, we see that the overall consumption in Q1 or even first half year 2022 to be relatively conservative. And then secondly, category-wise, we expect that the supermarket home products, health care products, corporate business, including MRO, will generate higher growth compared to our overall average. And the third, omnichannel business, as Lei mentioned, will continue to be one of our strategic focuses and deliver hyper growth in 2022. And fourth, we also expect that 3P to grow faster than 1P as we have been optimizing our 3P ecosystems and tools for merchants as Lei just mentioned. So, we expect JD Retail continue to deliver quality growth in terms of user base, user engagement and stickiness, which is a long-term growth driver for our retail business. Overall, although the retail consumption is currently under pressure to a certain extent, we are confident that we will deliver higher growth than the industry average.

Thank you. Our next question comes from Eddie Leung from Bank of America. Your line is open.

Good evening guys. Just a question on competition. Could you guys share your thoughts with us on the growing market share of the e-commerce broadcasting platforms. How do you think about the impact on your business? And how are you going to deal with the growing market share?

[Foreign Language] About the e-commerce. The e-commerce by live stream and short video platform, they are still undergoing a fast development period, which is in line with our previous predictions, for these business models, it can attract and satisfy some shopping demand of some people based on their interest and they’re still developing fast, thanks to the traffic dividend. And given their business models and people’s recognition of this platform, we believe these live streaming e-commerce will generate a long-term impact to those platform e-commerce players. [Foreign Language] While we see some challenges; at the same time, we do see there’s opportunities and the same to collaborate with these traffic platforms. [Foreign Language] Even consumer’s shopping demands are diversified. For JD.com, we see most people come to our platform for plant shopping or shopping for their families. So we are less affected by their emergence. [Foreign Language] And second, we see that branded merchants, while they enter these traffic fields to do operations in their operating efficiencies, they’re encountering a lot of quite a lot of difficulties, and they also need some help. [Foreign Language] And thirdly, we believe that for all kinds of new business models, after they pass their dividend period, they all need to come down to the work and serve their customers and better provide a win-win collaboration with their business partners. [Foreign Language] So compared with platform e-commerce layers, JD we have – for JD.com we have complete supply chain infrastructure and the fulfillment capabilities, customer services and the skills for the platform, governance and so on. All this can help us to reduce the supply chain circulation cost, which process at a very unique and differentiated competitiveness. [Foreign Language] So we continue to have open attitude towards all these emerging new business models and by building our capacities on omnichannel and the supply chains, we are exploring diversified touch points to reach our customers in diversified shopping channels and user cases. And we will also continue to collaborate with these content platforms and support merchant partners to operate on this traffic field. [Foreign Language] And I also want to add that besides JD Retail, for our JD Logistics, they also have collaborations with both live stream and short video platforms to provide both way transportation and logistics support, which also represents huge opportunities for JD Logistics. [Foreign Language] Thank you

Thank you.

Thank you. Next question please.

Thank you. Our next question comes from Thomas Chong from Jefferies. Your line is open.

[Foreign Language]

[Foreign Language] And let me answer your question about the user growth in this quarter. And on the overall industries, we have seen a weak growth no matter general on the online side. But for JD.com, we continue to build our business surrounding our users’ experience, and we’ve achieved healthy growth and hit our yearly target. [Foreign Language] So here, I just want to emphasize again that our business principle is to deliver sustainable and quality growth. So in terms of the new users’ acquisition in Q4, we have seen their OP has been improved by 11%. And for our existing customers their shopping frequencies have been improved by 3% and their OP has increased by 4.5%. And all this has demonstrated again our principles for sustainability and quality growth. [Foreign Language] And for 2022, we will continue to focus on the user’s growth quality and the refined usage management and also make dynamic policy adjustments during this process. We see our user’s growth filing are still very high, and we expect a healthy usage growth in the following years. [Foreign Language] And the usage growth are mainly coming from two aspects. First is on our categories as we are successfully expanding our categories, this will continue to drive our user acquisition. For example, for the JD Super – supermarket categories with FMCGs continue to be the engine for the new user acquisition. And for the other category, it’s the consumer electronics. We have a very strong mind share among our consumers even though we are under this supply shortage at this moment. We continue to see more and more consumers mind share is building up in this category, and we continue to gain larger wallet share in this category. [Foreign Language] And second part of the user’s growth opportunity comes from our marketplace ecosystem and our omnichannel business and this will bring us diversified channels and diversified approaches to reach new consumers, new users. And the ecosystem we provide with our merchants and brands as well as our off-line ecosystem will also contribute to the growth of new users.

Okay. Let me take the question on OpEx and margins. On the bottom line of JD Retail, we need to take into consideration of a few changes in our business model and category mix shift. First, the Supermarket category will continue to outgrow our overall retail business, while its operating margin is on the track of steady improvement but still lower than our average margin level. And second, 3P business will grow faster than 1P that somehow mitigates the impact from the category mix shift. And third, omnichannel growth factors than online retail as this business model is still in relatively early stage. So it is currently still in a slight loss making position, but we’ll again improve their UE year-over-year. So overall, we are facing dynamic internal macro environment changes and – which will affect our bottom line performance. The management team will adjust our investment strategy from time to time. And for Q1, I want to remind everyone that as a sponsorship fee for the CCTV Spring Festival Gala as well as the related promotion expenses were all reported in one single quarter. Our marketing expense ratio and operating margin will be slightly affected in the short term, but we will adjust our pace of annual marketing spending and the impact to our marketing spending for the whole year, 2022, is manageable. So I want to emphasize again that for JD Retail, we pursue sustainable quality growth, and we are well on track of our long-term margin trajectory. And for JD Logistics, I believe their management team also shared some color in their earnings call. For the margin performance, if you remember, we made heavy investments in capacity in the second half of 2020 and gradually ramped up the utilization in 2021. In 2022, the investments in capacity will be in line with – largely in line with the business development. So the utilization of capacity is expected to be further optimized. At the same time, we will continue to improve the operating efficiency. So the UE for JD Logistics will also improve compared to 2021. For our new business, we see that the competitor’s industry’s link now become more rational. Companies compete on the core capabilities rather than burning capital. So we see that the competitive environment is more healthy. JD has been pursuing sustainable growth, and we will continue to do so. So we always balance investments in new initiatives and our profitability of our core business. So for new business initiatives, we are very – we are always very cautious in investments, to ensure the investments can generate adequate ROI for our investors and create true value for the supply chain and business partners. So we never pursue short-term KPI through subsidy. We will evaluate the market situation and make adjustments from time to time to our investments again. So overall, given the uncertainties in internal macro-environment, we would put more weight on profitability this year on the management’s KPI growth. For new business initiatives, we expect them to deliver hyper growth will control the investment to improve the UE and annual investment will not exceed what we incurred in 2021. Finally, at the group level, as a reminder, we completed the acquisition of CNLP and Data in Q1, and we will start to consolidate them for March this year. While, we don’t expect them to have a significant or material impact on the top line and bottom line. But due to we previously reported investments in Data as an equity method investment, so the P&L presentation or loss pickup from Data will be changed to different line items.

Got it. Thank you.

Thank you, Thomas. Can we have the last question, please?

Thank you. Our last question comes from James Lee from Mizuho. Your line is open.

Great. Thanks for taking my questions. Just wondering, if you can share maybe some of the new learnings of JDDJ as you integrate more this omnichannel delivery on your platform. Just curious what you’ve seen in terms of cross-selling rate. Any key reasons people are buying omnichannel versus not buying? And how should we think about the demand in general? Is it more incremental or substitutional versus your core e-commerce offering? Thank you.

[Foreign Language] And on the question on the on-demand retail, as I explained – I shared with you in the previous calls that JD are building different kinds of supply chain based on the changing demands of our consumers. And for the on-demand retail is one of the fast-growing competition fields. [Foreign Language] We think that the on-demand retail does not help us to break the ceiling for our long-term retail sales growth, but it also help us to create deep connection with the real economy-based offline ratio ecosystem and to support the overall retail industry’s digital transformation. [Foreign Language] On-demand retail is an important part of JD’s omnichannel strategies and an important extension for our existing shopping scenarios and itself, it’s a trillion dollar market with a lot of potential. And we also want to take full – we want to fully use our current capacity on supply chain to use this business model to provide richer choices of quality products to serve our customers in a more timely manner. [Foreign Language] And also for some heavy weights, products or those products that require cold chain or higher standard transportations like fresh foods and other cold chain products. We will leverage the LPS-based local delivery services which has a better user experience for our customers compared with our B2C model because they have a lower cost and will be more time-sensitive to reach our customers. [Foreign Language] And Shop Now program, which is also – which is our on-demand retail service can help us to expand our good resources to connect with the market resources and supplement to our online inventories, so we can collaborate with more offline stores to create more traffic and a win-win cooperation. [Foreign Language] And in 2021, based on JDs supply chain logic, we have made some explorations attempts on the on-demand retail based on our users’ demand and tens of millions of users on JD has experience for that. And for this business, it has achieved RMB10 billion scale at this moment. [Foreign Language] Just one correction for this JD’s online retail, it has achieved RMB10 billion, not dollars, market scale at this moment. And for 2022, we’ll continue to build our supply chain and fulfillment capabilities and strengthen consumers’ mind share on this business. And also, we will continue to construct our capabilities on this business surrounding our local community resources and our O2O operating system to further empower our merchants and partners and to enable them more retail – on-demand ratio services and also the on-demand retail will help JD to increase the stickiness and engagement on the offer value of JD users. There’s a lot of work for us to do. Thank you.

Thank you.

Thank you. We are now approaching the end of the conference call. I will now turn the call over to JD.com, Sean Zhang for closing remarks.

Thanks for joining us on the call today and for your questions. If you have any further questions, please contact us and our team. We appreciate your interest in JD.com and look forward to talking to you next quarter. Thank you.

Thank you for your participation in today’s conference. This concludes the presentation. You may now disconnect. Good day.