At the evening of May 8th, Beijing time, Jingdong today released its first-quarter earnings report for 2018. The financial report shows that Jingdong’s net revenue for the first quarter was RMB 100.1 billion (approximately US$16 billion), a year-on-year increase of RMB 762. Billion yuan increased by 33.1%. The net profit of continuing operations attributable to ordinary shareholders in the first quarter was 1.524 billion yuan (approximately US$243.1 million), compared with a net profit of 298.8 million yuan in the same period of last year. Not according to U.S. General Accounting Standards, attribution The net operating profit of ordinary shareholders was RMB 1,047 million (approximately US$ 167 million), compared with RMB 1,321 million in the same period of last year.
After the release of the financial report, Jingdong Group Chairman and CEO Liu Qiangdong, CFO Huang Xuandi and Director of Investor Relations Li Ruiyu attended the analyst conference call and explained the financial report and answered questions from analysts.
The following are the main contents of this conference call analyst’s question and answer session:
Bank of America Merrill Lynch analyst Eddie Leung: We know that Jingdong invests heavily in logistics not only to help expand its scale, but also to serve third-party merchants. Jingdong is currently expanding its storage capacity in the logistics network. I have One question is: When will the demand for logistics from a third party exceed Jingdong's own logistics needs?
Liu Qiangdong: We expect that the volume of services from third-party logistics will exceed JD's self-operated logistics services within five years. I know that investors have been very concerned about our logistics investment issues in the past few years. Before, we have always used Jingdong’s own Cash for logistics investment. We are planning to set up a logistics fund sometime this year. By using third-party funds, we can bring more logistics storage to us.
Huang Xuande: At present, the expansion of warehousing capacity is still to meet the service needs of third-party logistics and JD's self-operated logistics. At present, it is not yet convenient for us to publish the proportion of logistics needs of the two businesses. As we stated in our previous financial report conference call, We expanded a lot of logistics warehousing space in the second half of last year, so it takes several quarters to digest these new warehousing capacities. From a seasonal perspective, the first quarter is the off-season, which is one reason why this impact will continue. However, we see that in the first quarter of this year, the profitability of third-party logistics services has increased substantially every month.
Citibank analyst Alicia Yap: My question is about the logistics investment cycle. How long will the current logistics and warehousing construction last? We see this massive logistics warehousing that started in the fourth quarter of last year. The construction has already affected the first quarter results. When will it become normal? From a long-term perspective, what is the profit margin of Jingdong’s third-party logistics business? At the third-party logistics service revenue, Jingdong What kind of goal?
Huang Xuande: Just now Liu also said that the proportion of revenue from third parties will exceed 50% in five years.
Liu Qiangdong: Since Jingdong Logistics was opened to third parties for the first time last year, everyone saw a rapid growth in revenue from third-party logistics in the fourth quarter. We also consciously advanced six months ahead of schedule and built a large number of new logistics for the fourth quarter of last year. Warehousing, resulting in a large amount of idle logistics costs for a short period of time, but probably after a quarter to two quarters can be digested. In the future, Jingdong will create some new warehousing every quarter each year, but will maintain a new warehouse and The balance between actual use, that is to say the cost concentrating in the fourth quarter of last year, and the fact that the cost fluctuation in a short time is very large, is also a relatively rare situation.
Ronald Keung, Goldman Sachs Group Analyst: With the strong growth of Jingdong's revenue, GMV does not appear to be an important indicator any longer. Especially for services, can management disclose the GMV of each business? In terms of the situation, what kind of service category will grow in the first quarter? If we don't count the apparel category, is it fair to say that the overall category growth of JD.com still exceeds the average growth rate of the industry? Mr. Liu also mentioned that JD’s goal is to increase the growth rate faster than the industry level. The growth rate of online goods is 35%. Will the growth of these categories be achieved? If it is not included in the apparel category, will the growth rate exceed the average speed of the industry?
Huang Xuande: We did mention that due to competition reasons, some businesses left the Jingdong platform. Now we see some of them return in the first quarter. However, overall, the clothing category needs several The quarter will be able to resume growth. In the first quarter of this year, the apparel category continued to show very weak performance, but overall there was no growth. Some small categories such as women's wear even fell slightly. Excluding the entire apparel category, sales of all other JD’s product categories were very high. Health, we believe this growth will exceed the industry average growth rate.
Liu Qiangdong: In the first quarter of last year, the growth rate of Jingdong apparel category reached 92%, which is very high. However, as Mr. Huang stated, the growth of the entire apparel category has been stagnant this year, and individual categories, such as women's wear, are still negatively growing. Therefore, ' Two elections will have an impact on Jingdong's financial affairs in the short term, but I would like to reiterate one point. That is, 'election one' can never be a long-term competitive advantage. JD management has absolute ability and confidence. In a certain period of time, the problem of 'election one' can be completely solved. This problem will be resolved sooner or later.
As Mr. Huang said, apart from the clothing category, the growth of other categories of JD.com is very healthy, including our strongest category in the past – the electrified category. In the first quarter of this year, the Chinese mobile phone market as a whole was a negative growth of 26%. But I can tell All of you are, Jingdong mobile phone category is still in the double-digit growth range. In other words, in the short-term impact on Jingdong only clothing and home textiles these two categories, other categories have almost no effect.
UBS analyst Jerry Liu: My question relates to the profit margin of Jingdong Mall. Compared with the situation in the first quarter of this year and the first quarter of last year, what factors contributed to the growth of profits slightly slowed down? Trends, Jingdong Mall's profit margin this year will still be higher than last year?
Huang Xuande: As I mentioned before, Jingdong Mall’s gross profit margin in the first quarter increased by 40 basis points year-on-year. Gross profit margin is driving up profitability, and it mainly comes from two aspects. The first is the gross margin of self-operated products, due to Jingdong. In terms of economies of scale, the gross profit margin of self-operated products continued to rise; second, the increase in advertising revenue also contributed to the increase in profit levels. However, the increase in gross profit margin was offset by Jingdong’s investment in R&D. Therefore, compared to last year, this year’s operating profit margin It is still relatively stable. In addition, we are full of confidence in the increase in profitability this year.
China National Gold Analyst Natalie Wu: My question concerns the revenue ratio of Jingdong's proprietary and third-party businesses. The second-quarter revenue growth is expected to be between 29% and 33%. This indicates that What? If we compare the sales of third-party businesses alone with services and other businesses, are all these businesses growing?
Huang Xuande: If you do not count clothing categories, then the growth of the remaining categories is very healthy, whether proprietary or third-party business. If you include clothing category, then the growth rate of self-operated business in the first quarter is obviously more than the third-party business.
Credit Suisse analyst Thomas Chong: I have two questions. The first one is about the synergy between Jingdong and Vipshop. Can the management talk about the trend of cooperation between the two companies? The second question is about Fresh supermarket 7FRESH, can you tell us about the latest progress of this project, and this year's target.
Liu Qiangdong: The only product group was just on the Jingdong line. The two sides still need time to make systemic adjustments. We have seen that the sales volume of Weipin will grow steadily from the first day of the current line to the present. But we want to achieve what we want. The effect may take some time, because it requires the accumulation of fans, the accumulation of store traffic, all this takes time. The progress of the entire cooperation is within our plan.
As for 7FRESH, we opened two stores in Beijing, and its appearance is almost twice that of traditional supermarkets, and we are still iteratively upgrading. We opened two home appliances in May and planned to open three stores in June. We plan to open three stores this year. Light has opened 20-25 new stores in Beijing, so it will enter the expansion phase in the second half of this year. Once the iterative upgrade of the first two stores is completed, we have established expansion teams in seven regions, so everything is in our plan. Within. Our goal is to open 500 stores within five years.
Wendy Huang, an analyst with Macquarie Capital: My question concerns logistics warehousing construction and its impact on profitability. The management just stated that 29 warehouses were built in the first quarter, compared with 81 in the fourth quarter of last year. Does this mean that warehousing construction will slow further in the second quarter? In other words, the second-quarter net rate will be slightly better than the first quarter. In addition, in the CapEx category, Jingdong’s investment in land and construction is RMB. 1.3 billion yuan, while the investment in other areas is 2.5 billion yuan. Can you elaborate on the latter expenditure? Is it mainly used for equipment purchase and automation?
Huang Xuande: Your speculation is right. Warehousing utilization was more efficient in the first quarter and it improved every month. However, in the second quarter we had other warehousing operations in use. Overall, we estimate the utilization rate. Both storage capacity and storage capacity are in line with our business growth. The profitability of external logistics business will improve every quarter. By the end of this year, the profitability level should be positive. As for CapEx, we did purchase some equipment, including servers, etc. Other automated and unmanned storage facilities.
Tian Hou, Tianqi Capital Analyst: I would like to ask a macro problem. As the mobile phone becomes more and more mature in terms of popularity and hardware standards, it becomes more and more intelligent. The mobile phone update cycle becomes longer, and replacement or The speed of buying new mobile phones has slowed down. How does JD.com deal with this long-term problem? The second question is: What is Jingdong's growth strategy in apparel categories?
Liu Qiangdong: Our JD.com currently sells 3C offline store products, including 3C and home appliances. Some home appliances are sold separately, and some are mixed with 3C. Currently, they are also expanding, although the entire mobile phone industry will decline. It has a certain influence on the sales growth of JD. However, no matter how the mobile phone changes and develops, our goal in the mobile phone industry is the same. That is to achieve rapid growth in market share.
Huang Xuande: When it comes to clothing, Liu always mentioned that, judging from past history, Jingdong has the ability to cope with this unfavorable competitive strategy. Therefore, the key is whether you have a good user experience, if any, the user. You will love your service and make a breakthrough. In addition, we have said before that this method is not welcomed by merchants and brands. In view of this experience, we believe that the impact will be short-term, clothing category needs several Only quarterly growth can be resumed. Many brands have established direct or indirect cooperation with JD.com through different channels. This trend will continue in the coming quarters.
Liu Qiangdong: Now that every quarter will have a brand return, we firmly believe that eventually all brands will come back. Of course, this will take some time. But just as President Huang has said, as long as you have high-quality users, have traffic, have a good reputation and Reputation, as well as the brand's dedication, these are all important. When all brands are dissatisfied with the behavior of a platform, I think that in the long term, this is not a benefit to the short-term profitability platform. It is said that from the perspective of the human mind, only a large number of clothing brands can only eagerly look for more ways out, rather than being kidnapped by a single brand.
We can see that all currently abducted Chinese clothing brands are desperately looking for new platforms, such as the WeChat applet. A large number of clothing brands have invested a lot of time in the WeChat applet. There are also new e-commerce providers. The platform has emerged and these apparel brands are desperately trying to collaborate with these new e-commerce platforms. I believe that when the power of a platform's voice is at a certain point, it is also the time for the growth of Jingdong apparel category.
'Choose one' has also made countless clothing brands awake quickly. In the past, these brands did not feel any threat to the platform business. Although they succumbed to this, they were actually awake, so they were trying to find a solution. In this case, we are more confident in the long run.
Nomura Securities analyst Jialong Shi: I mainly have two questions. First of all, how does management think of Buyouduo as a group-buying e-commerce model? Because we also recently saw a channel similar to group buying on JD. Management How do you think about the future potential and potential of group purchase e-commerce? Secondly, we see that Pinto has obtained a large number of users and GMV from WeChat, and Jingdong has its own entrance on WeChat. Does growth have any impact on Jingdong WeChat?
The second question related to the Vipshop. I remember when Jingdong signed an agreement to invest in Vipshop, I mentioned that JD.com would help Vipshop meet certain annual goals on the GMV. What is the annual GMV target? According to the current performance of the Weipin Club entrance, does the management think that such goals cannot be achieved?
Liu Qiangdong: If you look at the list of 'Top 10' or 'Top 100' of Pinto, you will find that they have few overlaps with JD.com's mainstream users and mainstream products. So for now, the impact of Pindoo on JD is very strong. Limited. Most of the goods that are used to fight together are currently super cheap, while the user groups of JD.com, quality and platform reputation are at another level. Although JD.com’s model is the same as Pindo, the goods, users The experience is not exactly the same as Pindo. Our products are still concentrated on quality and quality-assured products.
Regarding the VIP Club, we mentioned just now that all the work has been carried out in an orderly manner. We are also very satisfied with the results. We do have an annual target sales amount with VIP, but we did not disclose it.
Daiwa Securities analyst John Choi: I have two questions. First, I would like to ask management to talk about advertising revenue. This income has grown rapidly over a long period of time. So, please ask within 3 to 5 years. How do you use advertising? If you look at the performance of your peers, you will find that advertising is the fastest growing income among them. The second question about the WeChat applet, you mentioned that Jingdong applet has been used by thousands of merchants. With the adoption of the brand, how will Jingdong benefit from both the GMV and the economic scale?
Liu Qiangdong: Let me answer the first question first. Regarding advertising revenue, I actually made it clear in my last financial conference call. Compared with China’s major friends and businessmen, their GMV is not much larger than Jingdong’s, but advertising Revenue is more than ten times that of ours. It can be said that Jingdong’s advertising revenue to GMV ratio has not yet reached the industry average, especially in the clothing category, because more than half of advertising costs come from the apparel industry. Once our apparel category has achieved a breakthrough, then advertising revenue will It is in a period of high growth in the coming years.
Huang Xuande: We formally launched the WeChat applet about a month ago. It is still in its infancy, and the users are also our existing users. They are just like the models on JD. They will sell their products. They will Continue to receive Jingdong's support in logistics, advertising, etc., while they can also manage their own users. Some merchants currently do not settle in the Jingdong platform, but they can also open stores on Weixin through the Jingdong applet. We have established a different relationship with them. Cooperation model. Therefore, this project is still in the early experimental stage. We will provide more detailed information in the next few quarters.
Morgan Stanley analyst Grace Chen: I have two questions, the first one about the third-party logistics business. The outstanding performance of this business will change the cost structure and profitability of JD. In the long run, what is Jingdong's expectation of the profitability of third-party logistics business? The second question concerns the contribution of 7FRESH stores. What are the revenue contributions of these stores and the long-term profitability target for this year and next year?
Huang Xuande: Because we provide end-to-end supply chain management services, we have long exceeded the scope of traditional express companies. Therefore, we believe that in the long run, the profit margin should be slightly higher than the world's existing well-known logistics express companies. As for 7FRESH, due to the on-line It will take a long time to contribute very little to our overall revenue. We are also actively expanding, either through cooperation with offline retailers or through the opening of our own stores. Therefore, the profitability and revenue of this business are currently forecasted. It's too early to contribute.
Liu Qiangdong: What I can tell you is that currently within China, the only company qualified to qualify as a nationwide logistics system is Jingdong Logistics, no second home, or other express delivery company, or Warehousing companies, or fast shipping companies, can only provide a category or a product within a logistics service. By contrast, Jingdong covers the entire logistics chain, whether it is large-scale logistics, or small and medium-sized logistics, and refrigerated cold storage. Chain logistics to short-distance delivery of O2O logistics, from cross-border logistics to express delivery, and cover all over the country.
Therefore, from this point of view, we can say bluntly that Jingdong Logistics does not have a real logistical competitor nationwide. Moreover, the increasing use of JD Logistics partners is not necessarily From the Lu Jingdong platform, there are also many past may not have a business relationship with JD. Today, JD.com logistics services are also used.
Analyst: With the continuous improvement of automation, will Jingdong's warehousing efficiency increase substantially in the next few quarters? The second question, we see the expected growth of revenue in the second quarter is slowing down. Which product category leads to the camp? Is growth slowing down, is it a clothing category?
Huang Xuande: I think the revenue expectations are roughly in line with the previous growth model. The second quarter of last year was a very high growth season, so the base is very high. Because the base is getting higher and higher, the growth rate will certainly be slightly lower than the previous ones. Quarterly. We think the current revenue forecast is very healthy and very strong. We obviously hope to be able to complete the task as before. As for the second question, we have already discussed that we do expect that the storage utilization rate will improve in the second quarter.
Xiaoyan Wang (Xiao Yan Wang): We have noticed that JD.com has launched a new version of the mobile app. The homepage has a personalized recommendation. What management do you think this personalization will bring to the user’s acquisition time and conversion rate and GMV? influences?
Huang Xuande: Personalization is an iterative process. There will be multiple versions. At the moment you are seeing only the first new version. There will be more versions coming out in the future. It takes at least a few quarters before multiple iterations can be achieved. Very good state. I can tell you that the initial results were very positive, but it is still too early to say that it is a success.
Barclays Bank analyst Gregory Zhao: In an interview with the media recently, Mr. Liu mentioned that JD.com will adopt more robotics and artificial intelligence to improve the overall level of automation. So what is the process? The short-term and long-term impact of JD’s financial performance. The second question is: How much of JD’s current traffic comes from its own channel, and how much is it from third-party applications such as Baidu and WeChat?
Liu Qiangdong: Actually, in the past few years, including the long-term future, we will continue to invest in R&D. In the short term, we will increase our expenses. We see that the R&D expenses in the first quarter have risen a lot compared to the same period last year, but In the long term, these technologies will gradually translate into a drop in our operating costs. For example, storage robots and distribution robots. With rising labor costs and shortage of labor in China, the competition for labor is becoming more and more urgent. We believe that over the long term Looking at these investments can create great value for shareholders.