JD.com (NASDAQ:JD) reported its highest single-quarter non-GAAP net profit in the company's history for the second quarter and interim of 2024, marking a significant milestone. The e-commerce giant attributed this achievement to its strategic focus on cost reduction, efficiency improvements, and enhancing user experience, moving away from reliance on subsidies to drive short-term growth. Despite a slight decline in electronics and home appliance revenues,
JD.com saw robust growth in general merchandise and supermarket revenues, with the latter experiencing double-digit growth. The company's gross margin expanded to a historical high of 15.8%, and it continued to demonstrate strong user growth and engagement.
Key Takeaways
- JD.com achieved its highest single-quarter non-GAAP net profit to date, with RMB 14.5 billion.
- Non-GAAP operating profit reached RMB 11.6 billion, a 34% year-on-year increase.
- General merchandise revenues grew by 8.7% year-on-year; supermarket revenues saw double-digit growth.
- Electronics and home appliances revenues declined by 4.6% year-on-year.
- JD Retail's revenues increased by 1.5% year-on-year, while JD Logistics' revenues grew by 7.7% year-on-year.
- The company repurchased 137 million Class A ordinary shares worth $2.1 billion and completed a $1.2 billion annual dividend payment plan in Q2.
- Net revenue grew by 1% year-on-year to RMB 291 billion, with service revenues growing by 6%.
- JD.com plans to accelerate top-line growth in the second half of the year and maintain a balance between growth, profitability, and cash flow.
Company Outlook
- JD.com aims for a high single-digit profit margin in the mid to long-term.
- The company is focused on accelerating top-line growth while maintaining a balance between growth, profitability, and cash flow.
- JD.com is committed to its low-price strategy and further development of its platform ecosystem.
Bearish Highlights
- Revenue from new business declined by 35% year-on-year due to adjustments in the Jingxi business.
- Electronics and home appliances revenues saw a 4.6% decrease year-on-year.
Bullish Highlights
- General merchandise and supermarket categories experienced robust growth.
- Advertising revenue grew faster than GMV.
- JD.com plans to enhance advertising products to drive higher advertising revenues.
Misses
- Despite overall growth, there was a noticeable decline in revenue for the electronics and home appliances sector.
Q&A Highlights
- In response to Thomas Chong from Jefferies, Ian Shan from JD Group outlined the company's long-term profit margin goals and shared information on shareholder returns, including share repurchases and dividends.
JD.com's second quarter results illustrate a company that is strategically pivoting towards sustainable growth, with a keen eye on long-term profitability and shareholder value. The company's focus on user experience and operational efficiency, coupled with its commitment to a low-price strategy, positions it well in the competitive e-commerce space. As JD.com continues to grow its platform ecosystem and optimize its category mix, the company remains a significant player in the global market, aiming to deliver value to both its customers and shareholders.
InvestingPro Insights
JD.com's recent financial achievements reflect a company that is effectively balancing growth with profitability. The e-commerce giant's strategies have not only led to a record non-GAAP net profit but also to a strong position in terms of financial health and market valuation.
InvestingPro Data indicates that JD.com holds a market capitalization of $39.53 billion, with a P/E ratio that has become more attractive over time, sitting at 9.34. Notably, the company's P/E ratio for the last twelve months as of Q2 2024 is an even lower 7.48, suggesting that the company is trading at a low earnings multiple relative to its earnings potential. This aligns with the company's reported gross margin expansion and could be a signal of undervaluation to investors.
Furthermore, the company's revenue growth remains positive, with a 3.3% increase over the last twelve months as of Q2 2024. This steady growth is indicative of JD.com's ability to expand its revenue streams despite market challenges.
InvestingPro Tips highlight that JD.com is a prominent player in the Broadline Retail industry, trading at a low revenue valuation multiple. This suggests that the company's stock could be undervalued compared to its industry peers, especially considering that analysts predict JD.com will be profitable this year. Additionally, JD.com's management has been actively buying back shares, a move that often reflects leadership's confidence in the company's future prospects and a commitment to delivering shareholder value.
For readers interested in a deeper dive into JD.com's financial health and market potential, InvestingPro offers 10 additional tips, providing a comprehensive analysis of the company's performance and future outlook. These insights can be found at https://www.investing.com/pro/JD, and they may offer valuable perspectives for investors considering JD.com as part of their investment portfolio.
Full transcript - Jd.Com Inc Adr (JD) Q2 2024:
Operator: Hello, and thank you for standing by for JD.com's Second Quarter and Interim 2024 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.
Sean Zhang: Thank you. Good day, everyone. Welcome to JD.com's second quarter and interim 2024 earnings conference call. For today's call, CEO of JD.com, Ms. Sandy Xu will kick off with her opening remarks; and our CFO, Mr. Ian Shan, will discuss the financial results. Then we'll open the call to questions from analysts. Before turning the call over to Sandy, let me quickly cover the safe harbor. Please be reminded that during the call, our comments and responses to your questions reflect management's view as of today's only and will include forward-looking statements. Please refer to our latest safe harbor statement in the earnings press release on 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. Sandy, please?
Sandy Xu: Thank you, Sean. Hello, everyone. Thanks for joining us today to discuss our Q2 2024 results. Facing a very dynamic and competitive market, we delivered a solid set of results, notably achieving the highest single-quarter non-GAAP net profit in our history. Our team did a great job executing our long-term strategy of relentlessly pursuing lower cost, higher efficiency, and best-in-class user experience. And we saw a set of key drivers of our business, including user growth, user experience, and engagement. Price competitiveness and platform ecosystem continued to move in the right direction in the quarter. Our results speak strongly about the quality of our business and our commitment to the healthy long-term growth with financial discipline. Instead of addressing the shift in market environment with hefty subsidies for short-term top-line performance, we continue to focus on leveraging our core strengths in supply chain capabilities to offer competitive prices and better user experience, and at the same time to grow our business and profit sustainably. This is a proven path to drive sustainable growth and has led us through many market shifts over the past two decades. Despite the seasonal fluctuation of revenue growth in Q2, we are confident that our long-term market position will continue to improve. Now let's discuss our category performance. Revenues of electronics and home appliances were down 4.6% year-on-year in the quarter. This is primarily due to last year's high base, as well as our disciplined strategy during the June 18th promotion as we prioritized the sustainable growth of our business rather than short-term growth fueled by excessive subsidies. We believe with decades of operating experience in this category and unparalleled supply chain capabilities, we will continue to offer the best-in-class user experience and enhance JD's market position, and win over market share in a sustainable way. We see continued strong momentum in our general merchandise category with revenues up 8.7% year-on-year, further accelerating from the previous quarters. To highlight, supermarket revenue saw double-digit year-on-year growth in the quarter, led by strong order volume growth and improving user mindshare. This momentum has persisted for two consecutive quarters now and is mainly attributable to our stepped-up efforts to improve user experience across all aspects of product quality and selection, price competitiveness and service quality. With this massive TAM, we expect supermarket to continue to be an important growth driver for us. Despite mixed top-line performance, we saw broad-based profitability improvement across many categories and segments, which effectively contributed to record highs in both non-GAAP operating profit of RMB11.6 billion and non-GAAP net profit attributable to ordinary shareholders of RMB14.5 billion. Non-GAAP net margin in Q2 climbed to 5% for the first time. This was primarily driven by gross margin expansion to a historical level of 15.8% in the quarter, with an improvement in almost every category. As we focus on price competitiveness, our gross margin has been on an upward trend year-on-year for each and every quarter over the last two years. This underscores our improving supply chain capabilities that enable us to continually benefit from scale and efficiency. Now let me walk you through the progress we made on the key drivers of our business, namely user growth and user engagement, price competitiveness and platform ecosystem. First, on user growth and user engagement, in Q2, we saw robust user momentum in both the higher-tier and lower-tier markets. Collectively, the number of our total quarterly active customers continued to grow at double-digit pace year-on-year in Q2 for the third consecutive quarter. I want to reiterate that our goal is to serve users across different income spectrums and demands with the right product, right price, and service offerings. Our user growth in the quarter was broad-based across user cohorts of both new users and existing users, particularly those who have stayed with us for over two years, as well as PLUS members. It clearly demonstrates JD's value proposition not only resonates with new users, but continues to gain mindshare and wallet share from the loyal users. In addition, overall shipping frequency and order volume on our platform both grew by double-digits year-on-year in Q2. We also saw average order value declined year-on-year as a result of soft consumer spending, as well as our low-price strategy, category mix shift, and wide range of free shipping services. Such user momentum is a strong proof of our effective user experience programs. In Q2, we further enhanced our industry-leading trade-in program to provide users with better coordinated services, including delivery and installation of new devices and disassembly of used devices. We also extended our best price guaranteed period to up to 365 days for certain categories, starting with 1P. In addition, we made solid progress on programs including free shipping, free doorstep pickup for return, cashback for delayed shipping, and expanded their coverage from 1P to more and more 3P offerings. Other initiatives such as our supermarket categories, direct shipment from suppliers to customers, and 24-hour fresh milk delivery saw increasing user appreciation. As a result, our 3P Net Promoter Score has improved sequentially for the past two quarters, while our 1P NPS remains at a very high level. Going forward, we will continue to invest in user experience as we believe it will translate to stronger user mindshare and user engagement, which are the fundamental to drive sustainable growth for JD. Second, moving on to the price competitiveness, which we continue to reinforce firmly. On the 1P side, we further built up -- built upon our strong supply chain capabilities to provide our users everyday low price in a sustainable way. This is the bedrock of our low-price strategy. Well, on the 3P side, we stepped up efforts to supplement the products on our platform with more value for many offerings to address a wider spectrum of user demand. In Q2, our NPS for price competitiveness continued to grow year-on-year on both the 1P and 3P side. We also saw stronger momentum for lower-tier markets on our platforms in terms of user base expansion, order volume growth, and shipping frequency among others. Again, JD's price competitiveness is built on our strengths in lower cost, higher efficiency, and best-in-class user experience. Low price is a result of our core capabilities instead of driven by subsidies. This will continue to distinguish us in the e-commerce industry. Thirdly, we have also made encouraging progress on our platform ecosystem. On the 3P side, during the quarter, we continued to provide healthy user traffic and effective supporting measures to help 3P merchants grow their businesses. 3P merchants responded well to our efforts and our active merchant base continued to expand quickly, both year-on-year and sequentially in Q2. In addition, we also saw an accelerated year-on-year growth of active buyers who purchased from 3P merchants on our platform. At the same time, such users recorded higher shopping frequency in this quarter. This led to an over 20% year-on-year increase in our 3P order volume in Q2, its fastest pace in the last two years. In terms of monetization, the decline in commission revenues narrowed in the quarter as the impact of our reduced commission fees gradually lapsed. Meanwhile, JD Retail's advertising revenues generated from 3P merchants recorded a double-digit growth. We still have a lot to do, especially to drive better ROI for our merchants. To reiterate, our goal is to build up a thriving platform ecosystem that propels the development of our 1P business and incentivizes 3P merchants to provide diverse product and service offerings as we aim to address a wider array of user demands. In closing, our Q2 results demonstrate our firm commitment to high-quality long-term business growth. We believe this is the best approach to navigate the current market conditions. Our profitability improvement is sustainable as it is driven by our expanding scale efficiency arising from our supply chain advantages and our focus on creating value for our end-users. At the same time, our key business drivers, including user base and engagement, price competitiveness, and platform ecosystem are all trending in the right direction. We are confident that as we stay focused on executing our long-term strategies to offer lower cost, higher efficiency, and best user experience, we will maintain a healthy growth of our business scale, profit, and cash flow and solidify our market position in the long-term. With that, I will turn it over to Ian for our financial highlights. Thank you.
Ian Shan: Thank you, Sandy, and hello, everyone. In Q2, we stayed committed to our strategy of building core capabilities for sustainable growth despite the short-term headwinds impacting our top-line growth. Our non-GAAP net profit margin hit an all-time high of 5% with improvements across many of our categories and segments. This was driven by our expanding scale efficiency arising from our supply chain advantages and our focus on creating value for users. On the back of these high-quality results, we continue to step up efforts to return value to shareholders. In Q2, we repurchased a total of 137 million Class A ordinary shares, equivalent of 68 million ADS, which accounted for 4.5% of our ordinary shares outstanding as of March 31, 2024. The total value of the shares repurchased in Q2 was $2.1 billion. In the first half of this year, we have bought back a total of 7.1% of our ordinary shares outstanding as of the end of 2023. The progress reflects our commitment to creating value for shareholders. With that, let me turn to our Q2 financial performance. Our net revenue grew by 1% year-on-year to RMB291 billion in Q2. Breaking down the mix, product revenues were flat in the quarter, primarily due to a 5% year-on-year revenue decline in our electronics and home appliances category for the quarter. This is in line with our expectations as we had a high base for the sales of some appliances last year due to seasonal factors, as well as our disciplined promotions in the quarter. Our general merchandise category delivered another robust revenue growth of 9% year-on-year in Q2, its highest growth rate for the past two years. In particular, our supermarket category has hit double-digit year-on-year revenue growth for two consecutive quarters, and we believe this momentum will continue for the rest of the year. Service revenues grew by 6% year-on-year in Q2, of which, marketplace and marketing revenues were up 4%, and logistics and other service revenues increased by 8%. On the marketplace and marketing, commission revenues recorded a narrow decline in the quarter as the impacts of our supporting measures to merchants, including commission cuts gradually lapsed. Advertising revenues delivered a healthy growth rate year-on-year in the quarter with a faster pace than GMV as we further optimized the traffic allocation efficiency. It's worth noticing that JD Retail's advertising revenues bounced back to a double-digit year-on-year growth in Q2. We see plenty of room to further grow advertising revenue as we continue to boost user growth and improve user efficiency. Now let's turn to our segment performance. JD Retail revenues were up 1.5% year-on-year in Q2, reflecting the mixed category performance as previously mentioned. In terms of profit, JD Retail achieved a broad-based increase in profitability for the quarter, thanks to its gross margin expansion across many categories and disciplined promotions. As our supply chain advantages continue to drive up scale benefit, we are able to get competitive procurement benefits and then pass on to our users, while at the same time supporting our gross margin. JD Retail's operating profit increased by 24% year-on-year to RMB10 billion, with operating margin recording a 72 bps expansion to 3.9%. Looking now to JD Logistics, JD Logistics revenues increased by 7.7% year-on-year in Q2 with healthy momentum for both internal and external revenue streams. Internal and external revenues increased by 7% and 8%, respectively. As JD Logistics continued to benefit from its increased scale and improved operating efficiency, its non-GAAP operating margin also increased by 370 bps year-on-year in the quarter, hitting a new record of 4.9% since its listing. Turning to new business. In the quarter, revenue of new business was down 35% year-on-year, primarily due to the adjustments of the Jingxi business and others. Non-GAAP operating loss of new business was RMB695 million in the quarter compared to a gain of RMB23 million a year ago, excluding the impact of the disposal gain of JD Properties' long-lived assets. The result was largely due to the increased loss in the Jingxi business and others. Moving on to our consolidated profit performance in Q2 at the group level, our gross profit grew by 11% year-on-year and the gross margin increased substantially year-on-year to an all-time high of 15.8% in Q2. It's worth pointing out that this is the 9th quarter in a row that our gross margin improved on a year-on-year basis, both at the group level and at the JD Retail level, which clearly highlights the quality of our business growth. Our non-GAAP operating profit increased by 34% year-on-year to a new record of RMB11.6 billion with a strong non-GAAP operating margin of 4%, primarily driven by the improved profitability of JD Retail and JD Logistics, as our supply chain continued to build up scale benefits. Non-GAAP net income attributable to ordinary shareholders came in at a new record of RMB14.5 billion in Q2, representing a 69% year-on-year increase. Non-GAAP net margin reached 5%, up nearly 2 percentage points from a year ago. In addition, non-GAAP diluted net income per ADS grew by 74% year-on-year in Q2 to RMB9.36 or $1.29 in the quarter. Our last 12 months free cash flow as of the end of Q2 was RMB56 billion, compared to RMB33 billion in the same period last year. The year-on-year increase in free cash flow was primarily driven by seasonality factors, our robust profit, as well as moderated CapEx. By the end of Q2, our cash and cash equivalents, restricted cash, and short-term investments added up to a total of RMB209 billion. As we head into the second half of the year, we will dedicate ourselves to accelerate top line to outpace the growth of the total retail sales of China for the full year. It takes a lot of efforts under the current environment. We will also continue to invest with financial discipline, focusing on areas that contribute to our long-term competitiveness, particularly in user experience and user growth, low-price strategy, and platform ecosystem. Thus, we are confident to achieve a healthy growth of our full-year profit. We believe this is the right approach for the current environment and to ensure sustainable growth for the long run. With that, I will turn it back to Sean. Thank you.
Sean Zhang: Thank you, Sandy and Ian. For the Q&A session, you're welcome to ask questions in English or Chinese and our management will answer your question in the language you ask. We'll provide English translation when necessary for convenient purpose only. In the case of any discrepancy, please refer to our management statement in the original language. Okay. Operator, we can open the call for a Q&A session.
Operator: [Operator Instructions] Your first question comes from Kenneth Fong with UBS.
Kenneth Fong: Hi, Sandy. Congrats management on a strong quarter to deliver robust profitable earnings growth. I have two questions. First is on our low-price strategy. Recently, we started to see some news that our competitor are fine-tuning their strategy from low price to more GMV focus. JD recently also announced our Super 18 discount day recurring at each month. Can you share with us a strategy on price competitiveness and whether we have any changes to our strategy in response to the market change? And second is the platform ecosystem. Over the past year, we have been onboarding more new merchants, expanding SKU, cultivating consumer mindset, and build a very vibrant 3P ecosystem and we have seen encouraging results. With competitors also speeding up platform monetization followed service fee and advertising product, can management share with us how we think about the path and timeline for speeding up our 3P monetization? Thank you.
Sandy Xu: Thank you, Kenneth, for your question. Let me address your first question about JD's low-price strategy. So for us, our commitment to low-price strategy remains steadfast. As you know, for our 20 years of growth, we have always put our focus -- our lower cost, higher efficiency, and user experience and the price competitiveness is a very core aspect for user experience. This is also why we always focus on our product, price, and user experience. So user experience has always been at core of JD's mission and enhancing it remains our top priority and the most crucial aspect for JD's business growth. For JD.com as a supply chain based retailer for our -- behind our low price, it's always our ability in control the economies of scale and the tech-driven innovations. So we continuously enhance our price competitiveness without compromising the quality of our products and services. And we'd rather achieve it through our strengths rather than relying on short-term subsidies that leads to unsustainable price reductions. So besides our 1P business, we have been working hard to attract increasing numbers of 3P merchants and working with industrial belts and white-label manufacturers to our platform by partnering with these partners can help us to diversify our low-priced product offerings catered to the various needs of our users. For example, by sourcing and shipping directly from manufacturers, our Jingxi business is able to offer a wide range of lower-priced products to our customers. So we want to emphasize here that our pursuit for low price has never come at expense of user experience or product quality or the interest of our business partners. Instead, we achieved cost reduction through JD's scale effects and tech-driven supply chain innovations, which will effectively eliminate unnecessary costs and genuinely reduce prices. So we stepped up our efforts on enhancing our price competitiveness, including reducing our procurement costs on the 1P side and expanding selection of low-priced products on our marketplace, and launching programs like the ¥10 billion discount initiatives and the ¥9.9 items with free shipping. And this year, we will continue to execute our low-price strategy and further build up our capabilities. And the positive feedback from our users affirms the effectiveness of these efforts. And through the Super 18 initiative, we hope to further strengthen the user mindshare of our JD618 Grand Promotion and everyday low price to enhance their shopping experience with our low-price offerings. And finally, I want to emphasize that our focus on our core business metrics remains unchanged. We believe that healthy business development requires a comprehensive evaluation of the key indicators. Under all circumstances, we strive to maintain a balance between GMV profits and cash flow. We are committed to ensuring the sustainable growth of our business while creating an unparalleled user experience with price competitiveness being an important component.
Ian Shan: And to answer your second question, we aim to build a thriving platform ecosystem that benefits both our 1P and 3P businesses. We believe that combining these two models create a superior shopping experience for our users. Our 1P offers -- offerings attract users, while 3P merchants help to address diversified needs of our users. So for us, the core of our platform ecosystem is to deliver our best-in-class user experience and monetization, it will be a natural result of our platform ecosystems growth. As we mentioned before that JD's platform ecosystem, it's a long-term strategic initiative and there's still great potential for us to improve. And as shared before, our development progress for the platform ecosystem have a few steps. So first, we will continue to expand our merchant base, enrich product offerings and foster merchants growth and engagement. Our 3P merchants play a very important role in enhancing product supply and improving user experience. They are a very important and essential component supplement to our platform. And in Q2, the number of active merchants continued to see a strong momentum, growth momentum. At the same time, we pay close -- we closely monitor the key metrics of users, including the numbers of users who purchased from our 3P merchants and the order -- 3P order volume and GMV generated from 3P, et cetera. In Q2, both the number of 3P transaction users and orders experienced accelerated growth with 3P GMV growth outpacing our total GMV growth. And eventually, we will see a natural and organic growth on our 3P monetization. At the current stage, we are observing some positive developments in our marketplace, which includes, first of all, in Q2, our commission revenue showed steady improvement recovery and the impact of our supportive measures to 3P merchants since last year, including reduced commissions and the removal of platform usage fees is gradually diminishing. So we anticipate that commission revenue will recover an increase in the second half of the year as 3P GMV continues to grow. And for advertising revenue in Q2, it grew faster than the GMV. We believe advertising is merchants' response to the platform's performance. So we have been enhancing our advertising products and models and to help our brands and SME merchants to grow their business on our platform. So this in turn, we believe will drive higher advertising revenues to us. So we remain committed to executing our strategy and plan to advance our platform ecosystem. So in the long term, our ecosystem will continue to evolve and improve. We expect the proportion of 3P orders and GMV to surpass that of our 1P business. So consequentially, revenues from commissions and advertising will grow in a healthy manner. Thank you.
Operator: Your next question comes from Ronald Keung with Goldman Sachs (NYSE:GS).
Ronald Keung: Congratulations management on the very strong second-quarter profits. And so as we think about the optimal balance between growth and profitability, 2Q seemed to be more skewed towards profitability that beat most in the three KPIs. So as we look into an annual basis or into the second half, we -- how are we balancing the optimal targets of these three KPIs for second half? And would this lead to any changes for the full year, given the profit KPI has exceeded expectations for the first-six months? And for the second half, we see more companies focusing or talking about GMV growth. So as we target this GMV growth, how do we see or foresee the second-half e-commerce competitive landscape into the second-half? Thank you.
Ian Shan: And to answer your first question about our growth and profits at JD.com, we believe that sustainable growth is driven by delivering an exceptional user experience and JD is committed to continuously enhancing users satisfaction and enhancing our core capabilities in our 1P and logistics services. And our profits are the result of our ongoing optimization in cost and efficiency. So for the evaluation of our business performance, we will always strive to strike a balance among GMV profits and cash flow to ensure healthy growth of our business. So our performance in Q2 demonstrates the high-quality growth we have achieved. And as we previously communicated, our revenue growth in Q2 slowed due to a challenging comparison with last year, particularly in summer categories like air conditioners. However, we observed the strong operational performance with net income reaching a historic high of RMB14.5 billion and net profit margin reaching 5% for the first time. A key driver of this margin improvement was the enhancement of supply chain efficiency, leading to a significant improvement year-on-year increase in gross profit margin, which grew by 137 basis points in Q2. And notably, our gross profit margin has improved consistently for nine consecutive quarters since Q2 2022. These results reflect JD's commitment to high-quality growth. Our business units continue to gain operating experience and are dedicated to investing in long-term sustainable competitive advantages and ROI to balance growth and profitability. And secondly, in the second half of the year, we will adopt a more dynamic approach to balancing growth and profitability. We will continue to invest in areas such as enhancing user experience, new user acquisition, and expanding market share. So our business -- at the same time, our business units will further strengthen their operational capabilities and efficiency, driving improvements in supply chain efficiency across the board and these advancements enable us to offer more competitive priced products to our users while enhancing overall operating efficiency and profitability for the company. So looking ahead to the full year, our goal is to achieve a growth rate that outpaced overall market retail sales of consumer goods. As we continue to invest with disciplines in user experience and market share expansion, we expect JD Group's profits and profit margins to increase year-on-year. In the long run, we see a positive cycle between our business growth and profitability rather than contradiction. JD's business model is built on a robust supply chain and focus on user experience. We will make targeted investments in these areas to enhance user satisfaction and strengthen our market position, ultimately achieving long-term sustainable profits. We're confident in our ability to reach the goal of achieving high single-digit profit margin over the long term.
Sandy Xu: So let me address our second question about the market competition. In our opinion, China has the world's largest e-commerce market and the most mature infrastructure to support its continued growth. We believe that this market will keep expanding for a long time. At the same time, JD Retail's unique and robust 1P supply chain capabilities combined with our self-operated logistics services form a strong moat for our business success. So these strengths enable us to deliver a superior user experience while excelling -- while being excel in cost and efficiency. So first, on China's retail market side, particularly the online sector, it offers tremendous opportunities for growth. So while we examine online penetration from the perspective of product categories, user demographics and business innovations, there remains significant room for expansion. So there is substantial potential for online penetration in categories such as supermarket and home goods, where the online sales still have a lot of opportunity to continue to grow. Even in some categories like 3C products or home appliances, which are traditionally we consider our standard products, and they already have a high online penetration rate. We continue to see this category is growing online. So simultaneously, we are actively developing our off-line retail networks for these categories to provide more specialized shopping experience for our users. So on the demographics, for the young generation, they grow up with online shopping, they are already highly customized - accustomed and reliant on e-commerce platforms. And now the older generations are also embracing online shopping, creating new opportunities for growth. At JD, we have observed a strong user growth in both these two user groups, with their growth rates surpassing our overall user base growth. Additionally, the emergence of new online shopping formats continue to drive increased online penetration. So overall, China's online retail of physical goods is outpacing the broader retail market as we observed. And on this e-commerce market competition landscape, we see China's e-commerce industry is vast and dynamic with room for various players employing different models, features and competitive advantages. We believe that the essence of retail will always boil down to two fundamental questions that are how to enhance user experience, and how to achieve win-win outcomes with partners. At JD.com, we are committed to these long-term goals by continuously optimizing our cost efficiency and user experience. So JD's key differentiators separate us from others, our cost efficiency and user experience driven by our 1P retail business and our self-operated logistics services. And over the past year, we've seen - we have intensified our efforts to strengthen our supply chain capabilities and enhance our user experience. And in Q2, we continue to see double-digit user growth, led by our record users and long-term core users with over two years of engagement with us and users shopping frequency also maintained a double-digit growth. So overall, we are confident on China's e-commerce market growth. Thank you.
Sean Zhang: Thank you, Ronald. Next question, please.
Operator: Your next question comes from Alicia Yap of Citigroup.
Alicia Yap: Hello. Thank you. So two questions. First is that given the latest announcement of central government support of the push forward, the appliance trade-in initiative and how and what are JD's plans on cooperating with the local government and also the appliance suppliers. Understood that JD has been participating and facilitating the trade-in process during the normal routine demand. How much incremental, or what can we expect from the later push of the central government, to translate to the JD's top line growth in the coming quarters? And then second question, in light of the soft consumption sentiment, will JD shift more focus to enhance the FMCG SKU offering, with the innovative pricing promotion to boost the consumption demand for the FMCG product, given the product is actually more resilient into the weak economy? Thank you.
Sandy Xu: Thank you, Alicia, for your questions. So from our JD's experience has shown that promoting trade-ins is an effective way to boost a big-ticket consumption. We have been actively implementing a relevant initiative for some time, and building strong partnerships with our brand partners, and accumulating valuable experience in this aspect. We highly support and welcome the government's support in promoting trade-in s, and other measures to stimulate consumption. And on the policy level, as you mentioned that in the end of July, the NDRC has issued supportive policies on the trade-in services, and home appliances is a key area eligible for these supportive measures, and we expect certain policies will be rolled out very soon. So currently, for the implementation, we have been working with the local governments and various brands to carry out the implementation of the supportive policies and subsidies. And since the release of the trade-in action in action plan in March, we have been establishing partnerships with various provinces and city governments, and we have been selected as a designated platform to distribute government subsidies, and applying them to our products that meet the policy criteria. And so far, our cooperation models and promotional efforts have yielded some positive results. And with the central government's recent policy announcement, we will build on our solid collaboration foundation with governments and partners to further collaborate on the trade-in initiatives, helping distribute subsidies to the local consumers both on the system level, on the processes level, we are very ready, for example, with the technical back-ends, and on every front. Not only our collaboration online, we are also leveraging our offline presence, including our JD's home appliances experience stores, chain stores for home appliances, to provide all kinds of services on the trade-in promotions, to our consumers across the country. At the same time, we have partnered with a brand to launch JD home appliance trade-in online and introducing trade-in subsidy activities across 20 provinces and cities. And through these online, we can offer cost-saving products and convenient services to our customers in different regions. And to circle back to your question, from our business perspective, the - this time, the release of the new policies, we do expect this will be effective to drive the growth of our home appliance industry and for JD.com, it will provide certain incremental, and we anticipate that the sales share from a trade-in on JD platform will increase in the near future. And we will also leverage the trade-in service - our trade-in service capabilities on the systems and the processes to maximize this opportunity to implement relevant measures, and working alongside local government and manufacturers to further stimulate home appliance consumption. Thank you. And for the second question on supermarket category. We've made some good progress in enhancing our operational capabilities in the supermarket categories, and it has resulted some healthy revenue growth. And despite intense competition, and you see these supermarket categories very decentralized, and dispersed across the market. Looking at our operational improvements, we still have very strong confidence in the long-term potential of this category. And by leveraging our JD's unique strengths, we believe JD supermarket will continue to help us to enhance user experience and expand market share. It will serve as a key growth driver for the whole company.
Sean Zhang: Okay. Thank you, Alicia. Let's have the last question, please.
Operator: Your next question comes from Thomas Chong with Jefferies.
Thomas Chong: Thanks, management, for taking my question. My first question is about earnings outlook. Can management share your view about the trend in earnings and margins outlook over the next few years? And my second question, is about shareholders' return. Can management share your latest report about share repurchase and dividends? Thank you.
Ian Shan: And thank you, Thomas. To answer your question, our mid to long-term goal, to achieve a profit margin in high single-digits, and we are optimistic about reaching this target. And our key growth driver includes the growth of our platform ecosystem, category mix optimization, and profit margin improvements across various categories. So for JD Group's Q2 net profit hit a historic high of RMB14.5 billion with a net profit margin of 5%, driven largely by improved gross profit margins from in-house supply chain efficiency. We see significant potential for future - for further margin expansion in the long-term. And as our business and operational efficiency continue to improve, we believe that we will achieve a high single-digit profit margin in the long-term. It is long-term profitability will be anchored by our strong market position and focus on user experience. By continuously investing in our product, price and service, we're able to enhance users' experience and satisfaction, so as to drive up our GMV growth to expand market share. And by leveraging our increasing scale and market share, we further improve our supply chain efficiency, which in turn will boost healthy profit growth, allowing us to reinvest and enhance user experience. So to summary, JD's profitability has ample room for growth. Driven by an improved - driven by higher 3P contribution and improved category mix, and margin potential within each category. So our long-term profit margin target remains set in the high single-digit. And on the return to shareholders, we remain committed to return to shareholders. And for Q2, we repurchased approximately US$2.1 billion worth of shares across the U.S. and Hong Kong stock market, equivalent to 137 million ordinary shares or 68.4 million ADS, representing approximately 4.5% of our outstanding shares as of March 31, 2024. In the first half of the year, we completed share buybacks totaling US$3.3 billion, equivalent to 224 million ordinary shares or 112 million ADS, accounting for 7.1% of our total outstanding shares as of the end of 2023. Additionally, we completed our US$1.2 billion annual dividend payment plan in Q2, returning a total of around US$4.5 billion to shareholders through dividend and payback in the first half of the year. For future plan of shareholder returns, we will continue our repurchase plan with the goal of gradually reducing the total number of outstanding shares over the long-term. We will also maintain dividend payments based on profits ensuring that shareholders benefit from the company's value creation. Thank you.
Operator: We are now approaching the end of the conference call. I will turn the call over to JD.com's Sean Zhang for closing remarks.
Sean Zhang: Thank you, everyone, for joining us on the call today, and thanks for your questions. If you have further questions, please contact me and our team. We appreciate your interest in JD.com, and we look forward to talking with you again next quarter. Thank you very much.
Operator: Thank you for your participating in today's conference call. This concludes the presentation. You may now disconnect. Good day.
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