JD.com, Inc. (JD) Q4 2022 Earnings Report, Transcript and Summary

Hello, and thank you for standing by for JD.com's Fourth Quarter and Full Year 2022 Earnings Conference Call. At this time, all participants are in listen-only mode. After management's prepared remarks, there will be a question-and-answer session. Today's conference is being recorded. If you have any objection, you may disconnect at this time. I would now like to turn the meeting over to your host for today's conference, Sean Zhang, Director of Investor Relations. Please go ahead.

Thank you, Kate. Hello, everyone. Welcome to JD.com Q4 and Full Year 2022 Results Conference Call. For today's call, CEO of JD.com Mr. Xu Lei will start with his opening remarks; and our CFO, Ms. Sandy Xu will discuss the financial highlights. After that, we'll open the call to questions from analysts. Let me quickly cover the Safe Harbor. Please be reminded during this call, our comments and responses to your questions reflect management's view as of today only and will include forward-looking statements. Please refer to our latest Safe Harbor statement in the earnings press release, which applies to this call. We'll discuss certain non-GAAP measures. Please also refer to the reconciliation of non-GAAP measures to the comparable GAAP measures in the earnings press release. Also, please note, all figures mentioned in this call are in RMB, unless otherwise stated. Now, let me turn the call over to our CEO Mr. Xu.

[Foreign Language] Hello everyone. This is Xu Lei. Thank you for joining JD.com's Fourth Quarter and Full Year 2022 Earnings Call. In the year 2022 JD states – our goals and resolute throughout in a challenging macro environment. We have been able to play an important role in the industry and China's economic development, as we continue to fully leverage our unique business model and supply chain capabilities to provide consumers best-in-class services, and help our up and downstream partners to enhance their operations. At the same time, we have achieved high quality growth of our own with our full year revenues in 2022 achieving the RMB 1 trillion milestone for the first time. This reflects the strategic decision, we made in the beginning of the year to focus our energies and resources on JD's core business in line with our analysis and understanding of the predominant industry and macro trends. This has enabled JD to continue to deliver high-quality operations with highest ever profitability of the year despite the external challenges. This once again demonstrates that our business model has a strong potential for profitable growth. Today, the industry and the overall external environment are experiencing profound changes. The coverage over the past three years, the recovering macro economy and demographic structure changes have all impacted the retail industry. In a post-COVID era, customers' lifestyles and preferences have notably changed. We have seen the polarized trends of consumption patterns and spending power. On one hand, the number of middle class and household users who attach great importance to the quality and function of goods is expanding. On the other hand, consumers have become more meticulous in their spending. The fourth, we see increasing diversification of consumer demand and consumption scenarios. On top of that, Internet companies across the world that previously prioritized growth in traffic, users and business scale over profitability and cash flow have performed their approach, not only that there have been also changes in how to evaluate business health. We see a mix of opportunities and challenges amid these dynamic evolution. [Foreign Language] JD has been able to be the first to adopt the time changes with agility and determination. Here I would like to give a brief overview of the major adjustments we've been proactively made. First, we initiated a series of strategic realignment in 2022 with the aim of achieving healthy and sustainable growth. In the past, we did more on presume and tolerance to new trials in both our core and new businesses, which diluted management's forecast to a certain extent. Based on our analysis of the external environment, we have conducted a comprehensive review of our businesses and decided to pull back those new businesses that either could not develop more efficient business models had limited synergies with our core businesses who could not achieve sufficient economies of scale. That said, we will continue to invest in the new businesses with healthy momentum and exciting future opportunities. I've shared some of the examples shortly. Second, we have been expanding our supply chain capabilities for our core business. We continue to build up our operating capabilities across different categories and lower costs. Third, we have reallocated our resources and energies back to the very essence of retail. Putting consumers need first, we have further built upon our commitment to better products, prices and services. In terms of price, our goal is to be known by customers for providing the most consistent everyday low price. As such, we have gone through numerous bottom map optimization including further streamlining of our promotional programs and improving our traffic allocation mechanism. Through these efforts in our supply chain and the marketplace ecosystem, we have seen a massive increase of product selection on our platform offered by both our 1P and the 2P merchants and user recognition of JD's price competitiveness is gradually being restored. At the same time, we remain highly committed to service quality and user satisfaction. For example, we recently launched a version of our app that caters to the needs of elderly people. I'd like to reiterate that all of our adjustments are made out of our deliberate consideration of consumer needs and are executed with careful planning. Our ultimate goal is to satisfy our diversifying customer demand and provide a best-in-class experience across the board. Now let me review the major progress we made in Q4. As discussed in the past, we have been focusing on user quality and efficiency and sustainability of user acquisition given the softer consumption environment. In the quarter, on top of our largely stable user base, we also recorded double-digit DAU growth year-on-year. More encouragingly, we are seeing an upward trend for both user structure and quality. In particular, in our com business JD Retail, repeat purchases and payment members both grew robustly in Q4 and accounted for higher proportions of our total users, which helped to drive up shopping frequency and ARPU. JD Plus reached 34 million members in Q4, while plus members continue to spend 8x the average annual amount of non-plus members, reflecting their high shopping frequency and spending power. Moreover, our Yihaodian membership store, which is positioned to serve the middle to high-end market, has also crossed the one million paying members milestone. We are continuously improving our user service and operating capabilities as to better serve our users in first and second-tier cities as well as lower tier markets. As we improve our operating quality, we also continue to invest in new growth opportunities and new businesses, such as marketplace ecosystem, omnichannel business and supply chain logistics services. We see great potential in building up an open ecosystem that enables the sustainable growth for our merchants. With such efforts, we can further lower merchants operating costs and optimize our traffic distribution. We can also help merchants to grow with better efficiency and certainty, supported by our strength in supply chain, logistics, technologies and services. As a result in Q4, JD Retail increased its merchant base by over 20% year-on-year for the eighth quarter in a row. Growth in categories like health, support, sports and outdoors and home goods all outperformed the industry in this quarter. JD's interest and demand retail services, which is part of our omnichannel business maintained strong growth trajectory in this quarter. As we further stepped up efforts collaboration with brands and offline stores. GMV in our O2O business increased by 29% year-on-year. In particular, Shop Now, our one-hour delivery service, grew 80% in this quarter. This not only generates incremental growth for brick-and-mortar stores, but also provides users with an on-demand shopping experience that combines online ordering, offline shipping and delivering as fast as within an hour. Despite the impact of COVID, JD Logistics maintained a resilient revenue growth in Q4. More notably with the continuous improvement of its business, JDL has been profitable for three consecutive quarters and achieved a target of breakeven on a full year basis. Despite the macro challenges and dynamic competitive landscape, JDL has been able to further strengthen its position in the industry. JDL also continued to draw on the complementary strength of and create synergies with Kuayue Express and Deppon particularly in the areas of integrated supply chain services air express network bulky item delivery and express network. This has enabled JDL to provide comprehensive supply chain solutions for both up and downstream customers, to help them reduce cost to increase efficiency and withstand risks, while at the same time give a more advanced logistics system. JDL has also won wide recognition from customers for its distinguished service quality. In Q4 JDL continued to expand its logistics infrastructure, notably the airlines made steady progress in increasing cargo routes in Q4 since its official commenced operation last August with three all cargo aircraft in operation by the end of 2022. This allows JD airlines to better serve customers in many industries, including consumption and manufacturing and more. Last but not least, we continue to foster the growth of new businesses that resonate with our core businesses and capabilities. JD Industrial is one of the examples of a successful business that we have been incubated internally and has gone on to deliver hyper growth. With its focus on industrial manufacturing, an important composition of the real economy, JD Industrial successfully integrate resources across the industrial chains such as procurement, production, warehouse logistics and inventory management to achieve superior synergies and economies of scale. Another example is our private label brand Jing Zao, which translates as made by JD. It delivered over 60% year-on-year growth in 2022. The initial purpose of this business is to complement the product categories offered on our platform and to create new value for our suppliers and customers. It also helps JD to further expand throughout the up and downstream of the supply chain. We are pleased to see that 25% of PLUS members have become loyal users of Jing Zao product and the percentage continues to increase. Both JD Industrials and Jing Zao offer solid proof that we are on the right track as we adjust and focus on our core business and promising new businesses. I hope that today's presentation helps you get a better understanding of the significance of the strategic shift underway at JD. At its core, our intention is to seize the opportunity presented by the profound changes in external environment and return to our focus on lower cost, higher efficiency and a superior user experience. Admittedly, we may experience a short-term impact on our performance as we further educate users, reinvigorate JD's reputation for providing the best prices, optimize our product mix and streamline internal mechanism and procedures. All of these aspects require time and effort, especially as both the macro economy and the consumption are still in recovery stage. That said I want to stress that, our long-term strategy has not changed. We believe that adjustments we're making will solidify our strength, as we have faith in our own business model and the strategic direction as well as the resilience and the long-term growth trajectory of China's economy and consumption trends. In the long-term, JD is committed to play an important role in people's daily lives and the country's economic development. We will work to ensure healthy and sustainable business development along the way to create long-term value for our users, business partners and shareholders. With that, I'd like to pass the floor to our CFO, Sandy.

Thank you, Xu and hello everyone. Moving back to 2022, we successfully executed on our strategy to achieve high-quality growth with stronger margins, in line with our long-term goals despite the many terminal complexities and challenging. We delivered again and even exceeded our target, which was especially demonstrated by our strong profitability and cash flow at the year-end. Our US$1 billion cash dividend program further demonstrates our confidence for the long-term. With our resilient business model, we are confident to embrace the new opportunities and challenges in 2023, as Xu just laid out. Now let me walk you through our financial results, in Q4, and the full year of 2022. Our net revenues grew by 7% year-on-year to RMB 295 billion in Q4. On a full year basis net revenues grew by 2% and surpassed the RMB 1 trillion, milestone for the first time in our history. As we continue to focus on user quality and building deeper user engagement, we are encouraged to see that in Q4, JD Retail, LTM, average GMV per user and shopping frequency continued to increase year-on-year for five consecutive quarters, mainly driven by the expansion of our core user base. Breaking down the revenue mix. Product revenues were up 1% year-on-year in Q4 and 6% in the full year of 2022. Service revenues grew by 40% year-on-year in Q4 and accounted for a new high of 20% of our total revenue, up from 15% a year ago, showcasing the further diversification of our revenue streams. On a full year basis, service revenues were up 33% in 2022. Logistics and other services revenues grew by 75% year-on-year in Q4 and 55% in the full year of 2022. I will elaborate more on the underlying drivers in the segment analysis section later on. Marketplace and marketing revenues grew by 11% year-on-year in Q4 and 14% year-on-year in the full year of 2022, a notable outperformance compared to the industry. Thanks to our commitment to supporting merchants, particularly the SMEs we saw a healthy expansion of our merchant base and they have been investing additional advertising budget on our platform. This bodes well for our continued progress in strengthening our marketplace ecosystem. Now let's turn to our segment performance. JD Retail continued to see resilient revenue growth with encouraging expansion of both fulfilled gross margin and operating margin, especially during a quarter that was heavily disrupted by COVID dynamics. In terms of revenues, JD Retail recorded 3.6% year-on-year growth in Q4 and 7.3% in the full year of 2022. By category, electronics and home appliance revenues were largely stable year-on-year in Q4 and up 5% for the full year. Thanks to our strong supply chain capabilities, user mind share and expanding intra-city on-demand retail services during a very challenging quarter for durable group. General merchandise revenues were up 2% year-on-year in Q4 and 8% for the full year. Consumers remained relatively conservative understanding on discretionary products such as apparel and cosmetics. Meanwhile as we shared last time our supermarket category is going through a transition towards a healthier product mix. As a result, the supermarket category saw its largest margin improvement over the last two years, checking well on a more sustainable growth trajectory for the long run. Emerging categories such as healthcare and sports and outdoors continued to deliver double-digit top line growth in the quarter, demonstrating our broad-based user mind across categories. I want to highlight that JD Retail's profitability improvement is a strong testament to our continued commitment and ability to deliver against our goal of sustained long-term margin improvement. JD Retail's fulfilled gross margin was up 53 basis points year-on-year to 8.2% in Q4, the highest level achieved in all our promotion seasons since inception, mainly driven by our efforts to optimize cost and efficiency and the improving economy of sale. This also boosted JD Retail's operating margin to 3.0%, up 90 basis points from one year ago. For the full year of 2022, JD Retail's fulfilled gross margin was up 42 basis points to 8.2% and operating margin was up 68 basis points to 3.7%, both at record high levels on an annual basis. Our long-term margin trajectory remains well on track. JD Logistics made solid progress in both top line growth and profitability in Q4 and the full year of 2022. Its revenue grew by 31% year-on-year in Q4 and 31% for the full year of 2022. Excluding the impact of consolidation of Deppon, the growth rate was 13% and 17% respectively. This is mainly contributable to the resilient growth in revenues from external customers, the proportion of which continued to increase to about 70% in Q4. Notably, JDL has been profitable on a non-GAAP operating income basis for three quarters in a row and its operating margin rising to 2.1% in Q4. On a full year basis, JDL's operating margin reached 0.4% in 2022, achieving its breakeven target for this year, despite the unfavorable impact from the external environment, including additional core costs and operating deleverage. Data reported revenue of R&D of RMB 2.7 billion in Q4 and its non-GAAP operating loss narrowed sequentially to RMB 207 million for the quarter. JD Retail and Shop Now has been expanded to cooperate with over 200,000 business partners in the quarter and provided more than 2,000 cities and counties with on-demand retail services that cover a wide range of categories. As a result, our intra-city on-demand retail business maintained its robust momentum, particularly Shop Now that recorded a year-on-year GMV growth of over 80% in Q4. Finally, our new business revenue scaled back to RMB 4.8 billion in Q4 and RMB 21.8 billion in the full year of 2022. As we continue to adjust strategies in both, Jingxi and International businesses, while JD Property maintained a strong growth momentum. For international businesses, we've decided to cease operations of e-commerce business in Southeast Asia market for Now, as we believe that it would continue to require heavy investment over a prolonged period to build an efficient and scalable B2C e-commerce business, based on the current economic and infrastructure development in the local markets. Instead, we continue to invest in building global logistics infrastructure that better leverage our core capabilities and explore online retail business opportunities in other markets. In terms of profitability, new business operating loss, mannered substantially year-on-year in Q4 and in the full year of 2022. Looking ahead, we continue to explore new initiatives and encourage innovations that create better synergies with our core businesses and capabilities. We believe this strategy will validate itself in the coming quarters as we pursue high-quality development. Moving on to our consolidated bottom line, as we firmly executed our strategy to improve operating efficiency and focus on high-quality growth that we set at the beginning of last year. We ended the year on a strong footing with RMB 7.7 billion in non-GAAP net income attributable to ordinary shareholders in Q4. Our non-GAAP net margin was 2.6% in Q4, which represented an impressive expansion of 130 basis points compared to one year ago. On a full year basis, non-GAAP net income attributable to ordinary shareholders was RMB 28.2 billion, which grew at a three-year CAGR of 38%. Non-GAAP net margin for the full year of 2022 increased by 90 basis points year-on-year to 2.7%, hitting a historic high on an annual basis. Finally, our LTM free cash flow as of Q4 reached a historical high of RMB 35.6 billion. By the end of Q4 cash and cash equivalents, restricted cash and short-term investments added up to a total of RMB 226 billion, up from RMB 218 billion last quarter. This gives us a stronger than ever positioned to support business development and again, return value to shareholders in the form of a cash dividend. This was mainly driven by both our improved profitability and a strong balance sheet. Furthermore, we plan to adopt an annual dividend policy going forward as a way to sustainably return value to shareholders at an amount to be determined by the Board based on our financial performance in the previous fiscal year and other factors. In March 2023, JD Industrial, our consolidated subsidiary and the leading industrial supply chain technology and only providing in China entered into the definitive agreements for its non-redeemable series B financing. JD remains the majority shareholder of JD Industrials after this transaction. To conclude my remarks, the year of 2022 tested all of us on many front. What tested is common front is our unique resilience to navigate the complex environment and to continue to make headway against our goals and long-term strategies both financially and operationally. Looking at 2023, we have emerged stronger and more prepared and we'll continue to relentlessly pursue the very essence of retail, cost, efficiency and experience. We believe this business philosophy has been proven successful across many cycles over the 20 years since our founding and will remain the right way to enable us to create value for our customers, business partners and shareholders. With that let's open the call to the Q&A. Thank you.

The question-and-answer session of this conference call will start in a moment. [Operator Instructions] The first question is from Eddy Wang of Morgan Stanley. Please go ahead.

Thank you for taking my question. 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. Thank you.

Thank you, for the question. 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. [Foreign Language] 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. [Foreign Language] 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. [Foreign Language] 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. [Foreign Language] 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. [Foreign Language] 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. [Foreign Language] 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. Thank you.

Yeah. This is Sandy. Let me add on some additional points on the P&L impact. So in terms of the beta for this program, first of all the discount to consumers will be real discounts. But as Lei Xu said, we will work together with our suppliers and the merchants and leverage our supply chain capabilities. So not all the discounts will directly hit our gross margin or marketing expenses. Second, our target is to smooth out the operation pressure from the two major promotion seasons to improve operating efficiency for the entire supply chain and also to attract new users or recap our existing users. So we expect to receive some efficiency gains and we may reallocate our marketing budget for big promotions or user acquisition cost depending on the ROI of each initiative. So overall, we do not intend to significantly change our overall marketing budget for the year. Bearing in mind, all the marketing spending is discretionary. It's all flexible cart. So we could always manage through dynamic adjustments. Thank you.

Operator, next question please.

The next question is from Ronald Keung of Goldman Sachs. Please go ahead.

[Foreign Language] Can management first hear how you think about the China consumption or how retail sales may trend this year after this reopening? And 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? Thank you.

[Foreign Language] So 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. So 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. [Foreign Language] And 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. [Foreign Language] 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. [Foreign Language] 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. Thank you. [Foreign Language]

Next question please.

Yes. The next question is from Ellie Jiang of Macquarie. Please go ahead.

[Foreign Language] Let me translate myself really quick. How do we really go around and allocate multiple pillars of a Retail business, mostly importantly kind of keeping a balance between the more higher quality, more premium services, as opposed to the more price-cautious merchandises in general? Thank you.

And let me -- don't go to too much detail with the algorithm. I want to share with you, where are our traffic fields – that our traffic field includes our main site of our JD app and our Weixin app and our channels on WeChat and a lot of our offline sales networks and all these different fields are facing different kinds of our customers. The structures are different. And secondly, I want to say that, on our site, on our main site there are different channels and different programs and providing price treatment or category-driven or diversified offerings to different groups of consumers. So this program is also targeted to meet the demand of users, who are more sensitive with crisis and definitely for our existing high volume users in the first tier and second tier cities they can also navigate their way to go to the other channels and pages. So at the same time, I think the search suggestion function is playing a big role in these aspects. And for now, we are doing to revamp our algorithm to make sure, it's in a fair way, and then to target different groups of customers with their different preferences to recommend them with the product. Some may prefer price, some may prefer other things. So the algorithm will be more targeted. Of course, there are some challenging internally for us to do all this overhaul. But through the years of our accumulation technically and technologically we are ready for that. And what's more important for our shift on this move is to shape our contact to double down our -- our ideas to serve the consumers, especially given the size of JD.com with nearly 600 million users on our platform we would like to shift our attention more to better serve our consumers. Thank you.

Our next question please operator?

The next question is from Alicia Yap of Citigroup. Please go ahead.

[Foreign Language] Thanks for taking my questions. My question is related to the on-demand retail business. If this business actually continued to grow very quickly, can management share a little bit in terms of the current GMV contribution, because if it's growing faster would that actually be diluted our 1P revenue growth to some extent? Thank you.

Thanks Alicia for your question. I believe, at this stage, the intra-city on-demand sales, is still a very small percentage of our total GMV for JD Group. If we look at a longer time period I wouldn't think this business will dilute the impact of our 1P business, because really they are providing our customers very different shopping experiences. So the reason for us to expand to this business model was, because we realized that some of our customers they do have the on-demand shopping requirements, even though this business model may not be as efficient as our traditional B2C e-commerce business model in terms of financial model. That means, once comparing the price the value for many products so the pricing may not be as great as our B2C business model. But, when the users they do have this immediate purchase request, then we can also satisfy their shopping demand. So really it's to improve our customers' shopping experience. So in terms of competitiveness of our 1P business is now, I still believe, our 1P business model because of the scale of the economy we have very unique and very strong competitive advantage in terms of the lower cost lower fulfillment cost. Thank you.

[Foreign Language] I want to ask that, when we consider enter market is not purely dependent on its growth rate. We will be phasing out the demand of our users. We do see there are on-demand shopping users and shopping demand on the platform. If we jump through that, this will be a lot like an insufficient service base from JD. And also when we talk to our brand partners, we also received their demand to work with JD to help them to optimize their business based on on-demand business model and leveraging JD's platform, our user base and our Big Data, et cetera, to provide them better support on the marketing side and the efficiency of our product supply. And just thirdly from our supply chain perspective, as you know that JD has a very strong B2C 1P model for supply chain and we do a good job on it. But with the time goes by, we are diversifying our supply chain models, including our warehouse at the production zones and more. And for the on-demand retail, it's new type of supply chain and we believe this is the necessary thing we need to do. And this is our criteria when we decide whether we want to do this model and whether we need to step up efforts on this model. And here I just want to repeat again, even though the three criteria I mentioned above and on that and we still go back to the point I mentioned in my remarks at the beginning of the call, we will still consider if this business model has built -- can improve customer efficiency and good for user experience. In terms of user experience, whether we can provide differentiated service base in terms of client products and services. So by meeting all these criteria, we will make our position to enter this market.

Okay. Next question please.

The next question is from Thomas Chong of Jefferies. Please go ahead.

Thanks management for taking my questions. My question is more about the future competitive landscape. Given that we have been seeing our peers are also spending aggressively in recently in a different sort of a marketing campaign, I just want to get a sense about from our strategic perspective, will we also step up our marketing spending if our competitors are spending aggressively, or will we still stick to our balanced approach on top line and profitability? I just want to get a sense on how we should think about our growth strategies in light of the dynamic landscape. Thank you.

I'll try to answer your question. Some part of your question is not very clear. So I just want to share that the differentiator of JD's business model exists in our scalable supply chain and the certainties we can provide in the products supply chain. And we have been building – develop our core capabilities on supply chain and user experience and provide more certain and a quality shopping experience by quality and in overall quality of shopping with JD.com. So we see a relatively lower ratio of users coming to our platform to do this kind of like impulsive shopping and most of our usage comes here to do flash shopping or shop for their family. [Foreign Language] And so with JD per se, we are now traffic-driven e-commerce company. And in essence, we are a company based on our whole categories and we are transforming to a great numbers that will be developed based on running our users on our platform and to enhance the overall -- their life cycle value, on our platform. So, I believe at different times in economic and consumption cycles, different companies of different models will review their different billings. For JD's business model besides, our business will take a long-term view and then heavier in terms of our investment in logistics and user experience. And while we face external competition, we are confident that we have been growing and being better with internal funding and other operating efficiency continue to grow, the market competition will always be there. The more important question is, what is your long-term goal, and how you can do this business smartly in the short term.

Okay. Thank you.

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

Sure. Thank you for joining us on the call today and for your questions. If you have further questions, please contact me and our team. We appreciate your interest in JD.com and really looking forward to talking to you again, next quarter. Thank you very much.

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