Hello, and thank you for standing by for JD.com's Third Quarter 2023 Earnings Conference Call. At this time, all participants are in a 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, Operator. Good day, everyone. Welcome to JD.com's third quarter 2023 earnings conference call. For today's call, CEO of JD.com Ms. Sandy Xu will start with her opening remarks. And our CFO, Mr. Ian Shan will discuss the financial results. After that, we'll open the call to questions from 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, unless otherwise stated. Now, let me turn the call over to our CEO, Sandy.

Thanks, Sean. Hello, everyone, and thanks for joining us today to discuss our Q3 results. We continue to [technical difficulty] development across many of our operating and financial metrics. And we saw a robust performance for our Singles Day Grand Promotion with double-digit order growth and many innovations. The successful promotion further amplified our efforts to bring lower cost, higher efficiency and superior customer experience to our customers and business partners. This is JD's operating philosophy, which we have been committed to since day one. User experience is at the center of our operating philosophy and we’ve gone extra mile to further improve our user experience. Let me share some recent highlights. In Q3, we expanded free shipping coverage for our users by leveraging our improved logistics capabilities. We lowered the minimum order value for free shipping services from RMB99 to RMB59 for all users. And also to JD PLUS members unlimited free shipping for 1P product. As always, JD.com customers will continue to enjoy our premium so-called 211, our [indiscernible] same and next day delivery services. JD's live streaming sessions hosted by our own category managers proved very popular with users and brands during our Singles Day Promotion. What's unique about JD's live streaming is that not only are the category managers the experts for the products they bring to the show, they are also empowered by JD's supply chain capabilities. And they don't charge any additional commission fees. This means that we can bring a great selection of products to our users at excellent prices. Customers and brands have embraced this new live streaming format, as they benefit from the streamlined cost structure and superior value. As a result, our live streaming sessions hosted by category managers attracted over 380 million viewers in total during the promotion period.…

Thank you, Sandy, and hello, everyone. In the third quarter, we delivered a stable top line performance facing a mix of gradual macro recovery, seasonality and a high base, while we continued our proactive strategic refocus. Our bottom line maintained healthy momentum with non-GAAP net margin hitting all-time high, which enabled us to invest in user experience in a sustainable way. As Sandy mentioned, we saw improvement across many of our operating metrics. And we are on the right path to strengthen our core capabilities, enhance price competitiveness, and build a platform that allows both 1P and 3P to better serve our users, even though these efforts may not be fully reflected in the short-term financial results. With that, let me turn to our Q3 financial performance. Our net revenues grow by 2% year-on-year to RMB248 billion in Q3. Breaking down the revenue mix, product revenues were down by .9% year-on-year. By Category, electronics and home appliances revenue was flat year-on-year, primarily due to seasonality and a high base from last year. That said, this category continues to outpace the industry in Q3 and in the first 9 months this year. Once again, it shows our strong user mindshare and robust supply chain with industry-leading service capabilities. General merchandise revenues were down 2% year-on-year in Q3 as the supermarket, category is still recovering. The decline continued to narrow compared to the first two quarters this year. And we started to see positive signs from supermarket and fashion-related categories, such as increased order volume, higher user shopping frequency, and healthier product mix. Service revenue grew by 13% year-on-year in Q3, accounted for 21% of JD's total revenue. Within service revenues, marketplace and marketing revenues were up 3%. In particular, 3P advertising revenues once again recorded double-digit growth for the quarter, which…

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

[Operator Instructions] The first question today comes from Thomas Chong with Jefferies. Please go ahead.

[Foreign Language]

Thanks, Thomas. I will address most of the questions. As I mentioned earlier, the platform ecosystem has always been one of JD's key strategic focus, both from the corporate level and also JD Retail level, and we are continuously refining to this distinct platform ecosystem. This aims to realize JD's value proposition and establish a unified business philosophy followed by both our 1P and 3P merchants, and we consistently enhancing platform infrastructure and tools to ensure that both 1P and 3P merchants on JD have ample resources, better competition and shared growth opportunity, ultimately delivering an enhanced user experience for all our customers. And throughout this year, we've streamlined the merchants onboarding processes, increase the support for our new merchants, especially small and medium-sized sellers and established [technical difficulty] provided more operational tools and witnessed a historic high in both total active merchants in Q3. We are pleased to see that the number of total merchants maintaining a triple-digit growth rate notable [technical difficulty] in our 3P merchants in the categories of supermarkets, fashion and home goods. Additionally, the number of active merchants is accelerating with an increasing number of new merchants gradually finding effective operating strategies to operate on JD and empower their sales growth. As I just mentioned in my script, while our ongoing investment in merchant [ph] support does not prioritize short-term 3P monetization. We have also observed a continued double-digit growth in our 3P advertising revenues, thanks to our increasing engagement of new merchants. And from the users -- user base performance, we've received positive feedback. The penetration rate of users shopping from 3P merchants continued to increase year-on-year and 3P order volume also achieved healthy year-on-year growth. The platform ecosystem has, in the past 2 to 3 years, been our long-term investment direction. And given…

Thank you, Thomas. Operator, can we have the next question?

The next question comes from Ronald Keung with Goldman Sachs. Please go ahead.

[Foreign Language]

Okay. Let me briefly translate the question. Ronald wants to -- ask in terms of the strategy adjustment, KPI adjustment and team restructuring. After this adjustment, what you have seen in terms of core GMV growth trend? And how is your 3P business been trending? And the second question was, what's your basic assumption for macro and consumption for next year? And based on that, what is your strategy to maintain your core business or categories market share? And how do you balance between growth and profitability?

Thanks, Ronald. Over the past four quarters, the growth rate of our core GMV has been significantly higher than the total retail sales of consumer goods. And in this quarter, our core GMV achieved a single-digit -- high single-digit growth, which was higher than total retail sales and the online retail sales of physical goods. So in the last quarter, we shared the rapid growth of the on boarded merchants. And we also witnessed accelerated expansion of active merchants in Q2 and Q3. At the same time, user shopping from 3P merchants grew faster than total users in the past 2 quarters. We believe the current progress of the platform ecosystem is in line with our expectations. We are seeing more active user -- active merchants and more users. It takes time to convert them to 3P orders and the GMV growth. So I still want to stress that we are committed to providing our users with more choices and cheaper prices through 3P. We are pursuing a sustainable and healthy ecosystem, allowing our 1P and 3P together to provide users with a better shopping experience.

And for the second part of the question, with the recovery of China, it's [technical difficulty] growth, though the speed is slower than we anticipate at the beginning of the year. So --and also at the same time, driven by those series of effective policies supporting consumption, employment, project enterprises and the property sector. We anticipate that consumer spending will continue to steadily recover next year. and consumption will continue to become a major driver of economic growth. So from the perspective of categories, for some categories that JD has advantage will have a bigger market share, such as home appliances and electronics categories. Our supply chain strength and enhanced user mindshare have enabled us to maintain growth rates surpassing the inventory level in the first three quarters of the year. And we continuously gain -- on these current categories, we continue to gain market share. At the same time, our focused investment in our core capabilities this year give us the confidence in continuing to acquire market share next year. In the mobile phone and the 3C and electronics categories, we leveraged our supply chain advantages to continuously optimize cost efficiency and providing users with a diverse range of products and competitive prices and better services. So we also lead the trend of these categories -- industries by strengthening our offerings of new and trendy products. And in the home appliances category, which is the category heavily relied on services, so we will further enhance our retail and service capabilities, both online and offline. So while we are promoting higher end and emerging products, we are also enhancing users mindshare of high cost effectiveness of this category. Additionally, we are also making breakthroughs in our service capabilities in the home appliances category, such as trading in and one stop…

Thank you. We are ready for the next analyst.

The next question comes from Charlene Liu with HSBC. Please go ahead.

Thank you. The first question is about competition. So competition intensified in 2023. Can you please kindly shed light on how you expect the competitive landscape to change in 2024? And how this would shape JD's strategy going forward? Will GMV and market share be the continued focus over profitability. Second part to my question is, given most structural adjustments are expected to complete by end 2023, on a [indiscernible] next year, how much growth can we expect for the overall company, retail and most specifically for FMCG in 2024? And what could drive the results to potentially surprise on the up or down side and why? Thank you.

So thanks, Charlene. I will answer your first question. So currently, China's eCommerce market features various platforms and business models. For each platform, it has a distinct characteristics. Though I might repeat myself many times. So here, I still want to share that for JD.com we constantly adhere to be supply chain-based and consumer-centric business model. Building core capabilities around supply chain and user experience, we collaborate with our partners to create a supply of high-quality and affordable [ph] goods to precisely match suitable users and provide ultimate shopping experience and earn user trust. So this business model has created value and [indiscernible] outcomes for consumers, business partners and the society at large. It is designed to be the most resilient and sustainable business model capable of navigating different economic cycles. So in terms of the competition of the retail markets, the competition in this industry has always been here. Actually, there's another saying about it's like, more fear or less fear is always the competition here. So for retailers, we've observed that for this industry, many players this year has been focused on enhancing user experience and also refining operational and sustainable development strategies. So yes, so -- always, there's competition. And this year, you might feel this is intensified. So meet these competitions, you can see that these platforms, their profit margins have not been significantly impacted. We believe this is mainly attributed to the way for each platform to implement their business strategy and business models. So for JD.com, we don't stay at others. We continue to believe that our core strategy is to improve our supply chain efficiency through technology and the economy of scale. And we would like to use these capabilities to be able to share the actual profit brought by efficiency improvements to our partners and users, which includes improving user experience. So in another words, the user experience improvement is not built on sacrificing our reasonable profit margins and shareholder interests. So we believe this should be a virtuous business cycle with a better user experience and drive more traffic. And with more traffic, there's more sales opportunities and generate more profit margins. And with the margins, we can further reinvest into improve our user experience. So we will continue to adhere to our long-term strategy, and we have confidence in our business model to sustainably maintain a virtuous cycle and gain market share. So in terms of our KPIs, so we have different business segments, exhibiting distinctive characteristics and being at different stages of development in terms of the GMVs and the profits and the cash flows. So for the weighting of these three indicators might vary. In the long-term, we believe in achieving a healthy balance [technical difficulty] indicators.

For the second part of the question, our major structure adjustments have been made and implemented this year, including the business health -- healthiness adjustments, enhancing user experience, low price and platform ecosystem strategies. The key impact of business adjustments will be reflected in this year's numbers. So our growth target for next year in the longer term remain unchanged. We anticipate that JD's overall and retail business in 2024 will return to normal growth rates. We are confident in achieving our growth faster than the national total retail sales of consumer goods. And given JD's substantial scale, our growth is highly correlated with the country's macroeconomic conditions and the retail market. We aspire to outperform industry growth and continue to gain market share. So overall, despite for the supermarket categories despite the challenges faced by these categories due to our business adjustments and the post-pandemic recovery in the offline consumption and a high base from the previous year, we believe the effects of our adjustments will gradually materialize and the category is returning to a healthier growth trajectory. And in the long-term, we remain confident that it will continue to be JD's most important growth driver. And starting from next year, we expect the supermarket category to gradually recover growth rates faster than the overall retail market.

Okay. Thank you. Operator, can we have the last question maybe?

The next question comes from Kenneth Fong with UBS. Please go ahead.

Thank you management for taking my question. My first question is about user and strategy. Under the current uncertain macro, can management share with us some of the behavioral change of a user? And how is the performance split among different categories? And any change in the operation strategy in light of the current macro challenges? Second is about how we balance margin and growth. On one hand, we continue to emphasize on the low price strategy user subsidies, our competition is also intensifying. That said, we've been very disciplined able to maintain a stable margin. Can management share with us the investment during Double 11 and beyond? How should we think about the balance between growth and investment? And any thoughts and update on the JD Retail long-term margin target? Thank you very much.

Thank you. It's a very good question. So for JD's platform, we've seen the consumers are making more rational purchasing decisions with the right [ph] in focus on price and quality. So we continuously enhance our supply chain efficiency to lower procurement and operational costs and enrich the platform ecosystem and the price competitiveness and the diversity of product offerings to meet consumers diversified demand and their shopping experience. So as we shared certain statistics, the JD Retail users purchasing frequency continue to grow and with the growth rate surpassing that of ARPU. So notably, as we increase product diversity from 3P merchants and lowered the free shipping threshold, we witnessed accelerated growth in a number of orders and with a low average order value. So with the significant -- the orders of low average order value is significantly outpaced the overall order volume growth. So the spending power of our users from the first and second [indiscernible] remain robust and JD PLUS continue to experience double-digit growth in the number of users, which has shown a very strong stickiness for these memberships. So yes, I also want to share a viewpoint that we observed that users does not really want to compromise all the services wanted to -- while pursuing low prices. They are seeking low price doesn't means that they will sacrifice the qualities of products and services. So for ourselves this year, we've been continuously improving efficiency, optimizing our procurement costs and expanding product choices and do everything we can to better or even making the ultimate efforts to improve our services such as the installation services and after sales services to ensure we still offer our services at no compromise. So for the long-term we'll continue to pursue the services as our core competitiveness on this market in the fierce competition. And as your second question on the balance between the revenues and the margins and profitability, I think in the long run, it shouldn't be a problem or a question. It will eventually form [indiscernible] cycles with growing revenues, they will be growing profits. Whereas in the short-term, I think it's more a tactical issue that whether we should invest more on marketing on the user's acquisition, et cetera. So overall, in the long-term for JD.com we continue to pursue a steady and sustainable growth and development. So our steady pursuit of profitability increase remain unchanged. So finally, I would like to stress that for JD.com, we don't pursue the short-term very high monetization and profitability. As a retailer, we've always pursued a reasonable profit for our industry. So this is [technical difficulty] as always. Thank you.

Thank you very much. Thank you, Kenny, for the questions. I think, operator, time is running up. I think that's all for today's Q&A session.

I will now turn the call over to JD.com's Sean Zhang for closing remarks.

Yes. Thank you for joining us today on the call and for your questions. If you have further questions, yes, as always, please contact me and our team. We appreciate your interest in JD.com. We are looking 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. Have a good day.