Hello, and thank you for standing by for JD.com's Second Quarter and Interim 2023 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 objections, 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, Drew. Good day, everyone. Welcome to JD.com's second quarter and interim 2023 earnings conference call. For today's call, CEO of JD.com Ms. Sandy Xu will kick off with opening remarks. Our CFO, Mr. Ian Shan will discuss the financial results. After that, we'll open the call to questions for analysts. Let me quickly cover the safe harbor. Please be reminded that during this call, our comments and responses to your questions reflect management's view as of today only and 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. We'll discuss certain non-GAAP financial 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, otherwise -- unless otherwise stated. Now, let me turn the call over to our CEO, Ms. Sandy Xu.

Thanks, Sean. Hello, everyone, and thanks for joining us today to discuss our Q2 results. Q2 was a productive quarter for JD. We delivered a solid performance with both top-line and bottom-line results exceeding our expectations. More importantly, during the quarter, we effectively executed our business and organizational development, further improved our supply chain capabilities and achieved many operational and financial milestones while navigating a challenging industry environment. We are encouraged by the progress we are making on these priorities, and I want to share some of the details with you. Let me start by reiterating JD's operating philosophy since our inception, which is to relentlessly strive for lower cost, higher efficiency and superior customer experience. This is at the heart of everything we do and it primarily consists of two critical elements, namely customer experience and supply chain capabilities. First, on customer experience, we always focus on providing best-in-class customer experience and continue to find ways to improve selection, speed, quality and value, in Chinese, [Foreign Language]. Particularly since the beginning of this year, we have gone extra miles to improve our selection and value, while our quality and speed continue to lead the industry. On selection, we are taking solid steps to improve our platform ecosystem, which in JD's case means the prosperous coexistence of both our 1P and third-party marketplace businesses. Our platform ecosystem strategy is guided by our goal to continuously improve customer experience, and both 1P and 3P models are means to this end. It was an exciting quarter for our third-party marketplace business. We feel that we are only at the early stage of realizing JD's marketplace business potential, but we were encouraged to see the number of 3P merchants more than double year-on-year and set an all-time record in Q2, as we improve…

Thank you, Sandy. Hello, everyone. We're happy to report that JD delivered both revenues and profitability ahead of our expectation. We continue to execute our proactive business development and made solid progress across several of our priorities, including building a robust marketplace ecosystem, enhancing user mindshare on our value propositions of selection, speed, quality and value, and delivering healthy profitability. Such results validates our strategic focus, and we're confident in the underlying strength of our business momentum. With that, let's turn to our financial results in Q2. Our net revenues grew by 8% year-on-year to RMB288 billion in Q2. Breaking down the revenue mix. Product revenues were up 3% year-on-year in Q2. By category, electronics and home appliances revenues grew by a remarkable 11% year-on-year in Q2, mainly driven by the strong growth of home appliance and mobile phones, both of which have outpaced the industry growth during the quarter. Our further reinforced market leadership in these categories showed our strong user mindshare, robust supply chain capabilities and industry-leading service quality, which are all key differentiators for JD. General merchandise revenues were down 9% year-on-year in Q2, primarily due to the soft performance of our supermarket category, which was partially impacted by the relatively high base in the same period last year due to COVID. That said, I would like to reiterate our confidence in supermarket's future performance, as its operating efficiency has improved significantly with a healthier product mix. Service revenues grew by 30% year-on-year in Q2, of which marketplace and marketing revenues were up 9% year-on-year. I would like to highlight that revenues generated by third-party merchants grew faster than 1P in the quarter, driven by 3P advertising revenues. As we roll out more supportive measures for merchants, we saw notable acceleration in merchant base expansion in the…

Thank you, Ian. For the Q&A session, you are welcome to ask questions in English or Chinese. And our management will answer your question in the language you asked. We'll provide English translation when necessary for convenience purpose only. In the case of any discrepancy, please refer to our management statements in the original language. Operator, we can open the call for Q&A. Thank you.

[Operator Instructions] The first question comes from Ronald Keung with Goldman Sachs. Please go ahead.

[Foreign Language] Congratulations on the second quarter growth performance that exceeded management's own expectations, with electronics/appliance being strong and faster 3P growth versus 1P. I just want to hear management's view on the performance by categories in the second quarter and the outlook for these with your business restructuring and the KPIs that you're tracking and the outlook just for overall growth into the second half taking into the account macro and the business restructuring? Thank you.

[Foreign Language] [Interpreted] Thank you, Ronald, for your questions. Despite challenges in the macroeconomic and consumption landscape during Q2, we have remained dedicated to solidifying user mindshare towards our price competitiveness, fostering an open platform ecosystem and moving forward with our efforts to further optimize business structure. The outcomes achieved thus far have surpassed our expectations. JD's business model has shown remarkable resilience in the face of the ongoing consumption environment. By constantly enhancing supply chain capabilities, we have ensured a more reliable product supply at lower cost and high-quality services during the promotional season, resulting in further market share expansion in our [core advantageous] (ph) categories. For instance, as the retail estate market and demand of durable goods are still recovering, the overall home appliances market has faced pressure. However, JD's home appliances business meaningfully outperformed the industry and continue to gain market share. We attribute this achievement to JD's strong user mindshare and matched the shopping experience we provide and the competent supply chain that we have been diligently built over the years. Furthermore, our 3C categories showcased a strong performance. This can be attributed to our robust supply chain capabilities, competitive pricing and the deep user mindshare, exceptional shopping experience, including convenience trade-in services and our active development in the O2O market. Notably, our sales of mobile phones achieved a double-digit growth rate in Q2, surpassing the industry level. So, as I just mentioned in my opening remarks, it is worth highlighting that we have made significant progress in the development of an open platform ecosystem this year, with both merchant base and product supply expanding at a faster pace. Growth of 3P GMV has also accelerated over the past two quarters. Moreover, since the start of the year, despite we have introduced a series of supporting policies for our new merchants, such as lowering platform service fees and take rates, our 3P revenue growth rate continued to outpace that of 1P in the first two quarters, remaining at double-digit range. Certainly, there are other categories that require our continued efforts and improvement. For example, the supermarket category's growth momentum is impacted by the category mix optimization and also the resurgence of the offline promotion after the COVID and a high comparison base from the previous year. However, we have witnessed a significant increase in the number of third-party merchants and product offerings in the general merchandise categories on our platform, including the supermarket category. We're also continuing to strengthen our supply chain capabilities and optimize fulfillment. Our strategic execution and organizational restructuring efforts are gradually yielding results, providing momentum for healthier growth in the supermarket category for the second half of the year. For long-term perspective, we firmly believe that our supermarket category holds immense potential as a key driver for the growth of JD.com.

[Foreign Language] [Interpreted] So, Ronald, to answer your second question, our primary focus is our user performance as we promote the strategy for price competitiveness. In Q2, we saw improving user engagement trends, especially both ARPU and the scale of our core user base continued to grow. These trends indicate that our efforts to enhance user experience have been successful in earning greater recognition among them as well as their wallet share. Take the RMB10 billion subsidy program for example, the program has been effective in boosting shopping frequency and cross-category purchases on the platform. And also the platform -- sorry, also the program contributed meaningfully to attract new users and activate low shopping frequency users. Secondly, in terms of our open ecosystem, we placed significant emphasis on the diversity of merchants and products, as well as merchants operating efficiency on our platform. Since the start of the year, we have simplified the joining procedures for merchants and increased our supporting measures for them such as lowering their operating costs, providing more operating tools and setting up clear guidelines for merchants, et cetera. As a result, we have witnessed rapid growth in the number of new merchants joining our platform and recorded a three-digit year-on-year increase in merchant space in Q2. By enriching our pool of merchants and expanding our product offerings, we're better able to meet the diverse shopping demands of our users. This will serve as a key driver for our future revenue and profit growth. Thirdly, we've been taking efforts to enhance supply chain capabilities. A direct reflection is that we are able to continue to provide high-quality services to our users, while promoting the strategy for price competitiveness. This is also demonstrated by our further market share gain in our core categories. At the same time, our supply chain capabilities also help us to deliver consistent growth in our fulfillment gross margin. So, I just want to add that, as we previously shared, so for this year, our focused KPIs will be focused on our GMV, profitability and cash flow. Thanks. And your last question regarding the outlook of second half of the year, as Sandy shared earlier, despite of uncertainties from the macroeconomic and industrial environment, our business has continued to demonstrate healthy improvement. We will remain committed to our long-term strategies and are confident that our core business growth will maintain robust momentum. Thank you.

Thank you, Ronald. Next question, please.

The next question comes from Thomas Chong with Jefferies. Please go ahead.

[Foreign Language] Thanks management for taking my questions. My first question is about our 3P strategy as well as the GMV contribution in future. And my second question is about our category expansion strategy. Can management share the latest updates given we are seeing a very fast growth in the number of merchants? Thank you.

[Foreign Language] [Interpreted] So, first I will share -- answer your questions on the user recruitment. So, there are several measures. So, first of all, we will expand our efforts in attracting merchants and also lower the barriers and making it more streamlined to welcome our platform and streamline the processes and also bring down the fixed cost for the merchants to operate on our platform. And secondly, on the merchants' operating side, we will foster a fair environment for everyone to compete on our platform. This competition is not only within our 1P and our 3P merchants, but also among our POP merchants. So, we will make a very clear growth path for the merchants to grow their business on our platform, which is in line with our value proposition and do adequate publicities and the promotions among our merchants. And also, we will provide sufficient tools to support our merchants to operate on our platform, including the data support and also the cultivation of our -- their skills to operate at JD's platform to improve their operating efficiency. Yes. As to the achievements for this quarter, I just mentioned earlier that the overall number of merchants in Q2 grew by three digits. And especially, we see the increasing number of merchants from the categories of supermarket, fashion, home goods, et cetera. And their 3P revenues also grew at double-digit rate, which are all higher than the 1P revenue. So, for the outlook of our 3P business, so overall, we want -- also want to reiterate that both 1P and the 3P, we're developing to be aligned with our consumer-centric value proposition, which is superior selection, speed, quality and value and with the ultimate goal to increase their wallet share on JD.com. So, we will do our best to strike a balance between cost efficiency and consumer experience, so to allow our users to choose between our 1P offering and the 3P offerings based on the product, price, services, so to do our best to cater to the diversified needs of different users. So, our long-term objectives for our 3P is to have its proportion of GMV accounts for about 60% of the overall JD platform.

[Foreign Language] [Interpreted] And also, I would like to share more about our -- on the category side. As we see the economy recovery, it's still an ongoing situation and affected the mismatches of the high temperatures and the different time scheduling of the cell phones, et cetera. However, it is important to note that overall performance in Q3 is not only influenced by the macro environment and function trends, but also these kind of seasonalities. And additionally, there are ongoing efforts from our proactive efforts to further optimize our business structure. Nevertheless, overall, we are confident in the development momentum and the improvement of the health of our business. And as mentioned earlier, for -- we expect for the supermarket category to show an improving trend with better growth rate in the second half of the year compared with the first half. With our dedicated focus on enhancing the operational quality of this category, such as optimizing product category mix, improving sales channel structures and enhancing operational capabilities, we are confident to see positive profitability trends of the supermarket category. Long term speaking, supermarket category remains one of the key drivers of our growth. In the fashion category, we remain committed to expanding brands and merchants, enriching product offerings, optimizing the category structure and traffic allocation. By focusing on these key areas, we aim to maintain an improving growth trajectory of the fashion category.

Thank you. Let's take next question, please.

The next question comes from Alicia Yap with Citigroup. Please go ahead.

[Foreign Language] With the first half and the 618 promotion event behind us, can management share with us how do you rate your own execution performance so far year-to-date? Which areas you believe JD has met your initial expectation? In which areas JD still need to improve or need to modify initial strategy to achieve the performance that you want? Thank you.

[Foreign Language] [Interpreted] Thanks, Alicia. So, as I just mentioned that actually in this quarter, we have taken measures to promote our everyday low price and to foster our open platform strategies, all have seen some positive progress. So, on the user side, we've steadily implemented a series of actions to further optimize our price strategies and enhance user experience, which has been well received by consumers, exceeding our expectations, whereas with the success of the grand promotion, it also like indirectly proof that users still have a very strong mentality towards promotions, which also means that it takes a relatively long period of time for users to change their mindset. Therefore, our commitment to promoting the everyday low price daily sales model needs time and dedication. And on the merchants acquisition part, it also takes time for the marketplace ecosystem to flourish. And although we have made good progress in attracting merchants, there's still significant room for improvement in platform operations and traffic allocation mechanism, et cetera.

Okay. Thank you, Alicia. Let's take next question, please.

The next question comes from Eddy Wang with Morgan Stanley. Please go ahead.

[Foreign Language] Thank you management for taking my question. My question is on the new business. We have heard some news flow talking about we will refocus on Pinpin business. But if you look at the second quarter, the narrow loss of the new business actually has been quite significant. So, I just wanted to ask what's our focus of the new business in the next 12 to 18 months. Thank you.

[Foreign Language] [Interpreted] Thank you, Eddy. Our primary focus remains on enhancing our supply chain capabilities, establishing an open ecosystem and developing on-demand retail and other long-term capabilities. On-demand retail includes our recently updated Shop Now service, which is a key component of our new retail strategy. Our innovative retail business integrates our Pinpin community group-buying business, distributed warehousing, and 7Fresh. Its main purpose is to create synergies within our supply chain operations. Currently, we are in the experimental phase, testing different models to enhance synergies in supply chain and to generate a higher revenue to meet customers' demand and improve their shopping experience. Even when the business model proved viable in certain markets, we still will take a step-by-step approach and to test it city-by-city. So, the overall investment is manageable. It won't affect our expectations for the full year profitability. Yes, I think [the English] (ph) should be, to generate higher synergy instead of higher revenue. So, scale is not our top priority for these new businesses at this stage.

Thank you, Eddy. Okay. Let's take the last question, please.

And that question comes from Kenneth Long with Credit Suisse. Please go ahead.

[Foreign Language] Thank you management for taking my questions. My first question is that we noticed that the e-commerce platforms are increasingly use low price strategy as a key focus and a key initiative. Users are more frequent to compare prices among different platforms. And platforms are also becoming more commoditized and similar. How would JD differentiate going forward? And how should we think about the development for the overall China e-commerce industry going forward? And my second question is that we noticed that we are re-entering the community group purchase. Can you share with us the strategy? And how it will differ from Jingxi that we invested before? Thank you.

[Foreign Language] [Interpreted] So, thank you, Kenny. At JD.com, we have constantly focused on strengthening our differentiated competitiveness. So, our core advantages lies in our supply chain based business model. By continuously developing our capabilities on supply chain and user experience, we can guarantee high-quality, low price and reliable product supplies. And also we can effectively matching products with our users, creating a superior sharing experience and further building users trust in JD.com. And we also want to reiterate that for not only e-commerce but all the retailers from day one of our existence, our core competitiveness or the assets of our business is the low price. So that's why we have always anchored on our business philosophy on cost efficiency and customer experience. So in fact, actually, we're very welcome and we're looking forward to welcome our users to compare prices across platforms before they place the order decisions as we are very confident in our supply chain capabilities and the low price and high-quality services we can provide based on our distinct 1P services, which benefit from our scale advantages. So as I introduced earlier that we continue to focus on strengthen users' mindshare towards our superior selection, speed, quality and value offering. So, now we want to leverage our established advantages in speed and quality, while at the same time, we're continuously working on expanding our platform ecosystem by attracting more merchants and enhancing its diversity and richness, this will enable us to cater to more verified demand of our users to work on more on the selection and value part. So at the same time, we have made significant efforts to ensure and improve the user experience, including: first, maintaining efficient management for merchants' entry and product management; and secondly, continuously enhancing the scale effect of our 1P business to drive down procurement costs and pass on the benefit to users, in the meantime, raising the standards of our 1P services to ensure the best user experience; and lastly, emphasizing on the core criteria of product, price and service in our platform operations. With regards to Pinpin, we have mentioned previously, our community group-buying business and the team have maintained its presence throughout. Following our business optimization last year, Pinpin has shifted its focus to Beijing and the surrounding regions. The team is now exploring the local short chain supply chain model, especially on fresh products, refining its product offerings, enhancing user experience, optimizing business processes and improving its UE. Currently, Pinpin is conducting small-scale pilots to test this model and the overall investment is manageable.

Thank you, Kenny.

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.

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

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